The capitalist media have recently been filled with competing headlines — some issuing stark warnings of an impending economic slowdown, others dismissing this prediction outright. But a look past the blaring headlines reveals growing signs that a worldwide contraction of the capitalist economy could soon tip the U.S. and other major economies into recession.
This is in spite of the fact that the super-casino for the rich known as the stock market has once again reached record highs. The time since the last major financial collapse is nearing the longest in recent history. These two things, of course, do not reflect the reality of the lives of the vast majority of society — the workers and the oppressed.
A survey released June 14 by Bankrate.com found that nearly a quarter of U.S. workers reported they were worse off since the 2007 economic crash. Surely, this tells only part of the story of the profound ways in which the lives of many workers across the globe were impacted by the capitalist financial crisis of 2007, which wiped out workers’ savings and pensions, led to a massive wave of foreclosures and layoffs, introduced punishing austerity, invigorated attacks on workers’ ability to organize and fight and gave rise to the gig economy and greater insecurity for wider sections of the working class.
The same survey found that the median family income in 2016 was nearly the same as in 2000. The price of a gallon of gas, a carton of milk, a college degree, a visit to the doctor and nearly every other good or service has risen substantially since that time, leading many to take on increasing amounts of debt. Many workers, particularly the most oppressed, live paycheck to paycheck.
Signs point to impending downturn
The bankers’ bank — the U.S. Federal Reserve — has pumped trillions upon trillions of dollars into the economy to keep it afloat, from direct handovers to the banks during the bailouts in 2008, to interest rate cuts that make it easier for bankers and other large capitalist corporations to borrow money. The central banks of many of the major capitalist powers across the world have taken similar interventions to prevent their economies from contracting and entering a recession. This is on top of the massive handout to the super-rich via Trump’s tax cuts in 2017.
The effectiveness of this strategy to resuscitate the capitalist economy by the cabal of central bankers who exercise a considerable amount of control over the global economy appears to be reaching its conclusion.
On June 13, Morgan Stanley reported that its Business Conditions Index, which reflects sentiment about economic conditions, fell by 32 points — a record decline month to month — reaching its lowest level since December 2008.
The May report by the Bureau of Labor Statistics showed that the U.S. economy added only 75,000 jobs that month, far below expectations. Unemployment claims in May also spiked. Although the official U.S. employment rate remains below 4 percent, the unemployment rate for Black and Latinx workers, as well as women workers, is nearly double that — by official counts. These official statistics artificially conceal the reality for many U.S. workers, who have to take on two or three low-wage, part-time or “gig” jobs or work in informal sectors of the economy just to make ends meet, or have given up looking for work altogether.
The first quarter of the 2019 gross domestic product was officially reported as having grown by 3.2 percent. However, a deeper look reveals that the core metrics of the economy — spending and investment — grew only 1.1 percent. (Forbes, April 30)
Several indicators viewed as benchmarks showing the direction that the economy is heading also revealed an impending financial crisis. The Cass Freight Index, which measures the volume of movement of commodities, showed negative growth year over year for the past five months. This echoes similar statistics showing that air freight at many of the global capitalist economies’ most important ports — from London to Singapore, Memphis to Frankfurt — were all flat or in negative territory compared with this time in 2018, some by significant margins. Orders for new aircraft also declined.
A topic of much discussion in the capitalist media has been the inverted yield curve on government bonds, or debt. This refers to the fact that interest rates paid on government short-term bonds are now greater than those on longer-term bonds. This has happened before, when there was pessimism about the longer-term prospects for the economy. And it has preceded every U.S. economic crisis. Banks and major corporations are the primary purchasers of U.S. Treasury bonds. The curve inverted briefly in March, and has once again been inverted since late May.
Newly released data also show that consumer debt in the U.S. — on things like student loans, credit cards, car loans, etc. — has ballooned to over $14 trillion, surpassing levels that preceded the 2008 financial collapse. Student debt alone has risen to nearly $1.5 trillion, compared to $611 billion in 2008.
Manufacturing data in the U.S. have shown a steep decline in recent months. The Empire State Manufacturing Index in June registered its largest one-month decline in its 18-year history. A similar index measured by the Philadelphia Federal Reserve also reflected a steep decline. Meanwhile, as jobs are being cut and production slows in manufacturing, the trucking industry is reporting a pronounced slowdown, and there have also been a series of bankruptcies of shipping companies.
We have no crystal ball, but these are just a few of the many signs that point to an impending contraction of the capitalist economy, not just in the U.S., but on a worldwide basis.
Role of global developments
The aggressive posture of U.S. imperialism in decline, coupled with the fracturing of long-standing imperialist alliances, is contributing to the concerns among ruling circles of an impending economic contraction and revealing divisions among them.
In an effort to contain and undermine China, the U.S. has opened an expanding trade war, with tariffs targeting key sectors of the world’s second-largest economy.
U.S. imperialism’s desperate attempts to recapture markets and regain an advantage over China are revealing emerging divisions within the ruling class here. They focus on Trump’s imposition of tariffs on Chinese products and his continued threats to raise them even higher. These efforts are causing fear among some sections of the ruling class that a prolonged trade war may end up negatively impacting their capitalist plunder of the world.
This is on top of the brutal and racist war Trump is waging on migrant workers, which has been accompanied by the threat of tariffs of up to 25 percent on imports from Mexico.
The threat of U.S. war on Iran looms as the U.S. seeks to expand its export of oil and natural gas. Nearly a third of the world’s tanker-carried oil and petroleum passes close to Iran through the Strait of Hormuz. The U.S. Energy Information Center describes the Strait as “the most important chokepoint for the world’s oil industry.”
Tendency of rate of profit to fall and capitalist overproduction
An article in the June 11 New York Times pointed out: “Corporate profits may be particularly vulnerable right now. Revenue overall is growing faster than earnings. In the first quarter, sales rose about 5 percent from a year earlier, while profits declined 0.4 percent … [and] that dynamic is expected to persist over the next two quarters … suggest[ing] companies have little ability to increase their bottom lines by expanding profit margins.”
One of Karl Marx’s key discoveries about the capitalist system was a contradiction that leads to crises of overproduction and the tendency of the rate of profit to fall.
This system is driven by competition among the owners of capital to carve out wider markets for their commodities and expand production. If they do not, they will be gobbled up and taken over by other capitalists who succeed in doing so. This leads the capitalist class to invest more and more capital into the process of production itself, including more efficient machinery for the production of commodities while reducing the amount of labor needed.
But profits are derived from the value that workers produce above and beyond what they are paid.
At first, the capitalists using the more efficient technology get a competitive edge. But eventually the new technology, requiring fewer workers, becomes the industry standard.
Marx called the capital invested in plant and machinery “constant capital.” Its cost is pretty much the same for all capitalists in the same industry and is incorporated into the value of the commodities produced.
What the bosses pay out for the human labor consumed in production, however, is called “variable capital” because it varies depending on how much the bosses can squeeze out of the workers by speeding up production and reducing wages.
The more the bosses spend on machinery, etc., in order to replace workers, the greater the ratio of constant capital to variable capital. But profits come from variable capital, the exploitation of labor. So spending more on machines and less on labor eventually causes the rate of profit to fall. This is a key contradiction of the capitalist system.
While the quote from the New York Times does not in and of itself indicate this phenomenon, it is an interesting revelation when taken as a whole. Based on official historical data compiled through 2017, the rate of profit in the U.S. has declined substantially over the last few decades. After the capitalist economic crisis in 2007-08, as jobs were slashed and the means of production destroyed, the rate of profit recovered somewhat and peaked in 2014. It has been on a relative decline ever since. (tinyurl.com/y5e2vgg5)
This contradiction leads to the crisis of overproduction — which is where the capitalist system on a worldwide basis is currently heading. The anarchic nature of production under capitalism and the need to expand in order to increase profit leads to the overproduction of commodities — not more than what people need, but more than can be sold — which in turn causes the system to eventually fall into depression. Workers and the oppressed know all too well what this means: mass layoffs, cutbacks, austerity and a wholesale attack on our class, particularly the most oppressed.
It can also be a time of explosive and dynamic struggles of the working class as the depravity and inhumanity of the capitalist system are on stark display in these crises. Elevating global solidarity on a class basis, which rejects and confronts the many ways the ruling class attempts to divide workers with racism, sexism, anti-LGBTQ2S+ bigotry and other walls of oppression, will be key.
It’s up to communists and revolutionary forces to lay the foundation to raise revolutionary class consciousness and organization to intervene in these crises and help point the way forward for struggle that can resolve the contradictions of the capitalist system by prosecuting the class struggle and socialist revolution.
Capitalism at a dead end: Struggle orientation needed
There is widespread speculation that the Federal Reserve will cut interest rates at least once, and perhaps several times, before the end of the year. 2020 is a presidential election year, and Trump will do all he can to prevent an economic crisis before then, which would certainly vanquish his chances of re-election.
Trump plans to hold the Republican National Convention in Charlotte, N.C. — the city with the second-largest concentration of finance capital in the U.S., also known as the “Wall Street of the South.”
Despite the fact that sections of the ruling class may be forced to reluctantly admonish Trump for his more odious comments and policies, he has brought them lavish profits and most will likely be happy to oblige him to undertake any measures to safeguard his re-election and their profitability.
What will Trump do, however, if a contraction occurs before the election? The dangers are very real of war, increased attacks on the most oppressed, including migrants, LGBTQ2S+ people, women and people of color, or other drastic measures to distract from an economic crisis.
The capitalist system is on life support, and has relied upon intervention from the central banks to keep it afloat. A new crisis of the system is not a question of if, but when.
The impending capitalist crisis threatens to be violent and devastating for workers and oppressed in the U.S. and around the world, who already face a battery of attacks every day.
As in every previous crisis, Wall Street will do all it can to place the burden of the crisis onto the backs of workers. The 2020 elections will be (and already are) used to demobilize the struggle. We must be prepared to mobilize on a global basis in our class interests to direct the fury of the workers and the oppressed against the capitalist system itself.