The crisis, 3 years and counting

Three years of the deepest economic crisis since the 1930s, and no end in sight. The following piece gives a sketch of where things are at. Eddy Laing is the author of the three-part Costs of Empire (to be found here, here, and here on this site), as well as the essay Why Historical Materialism Matters.

The economic crisis is forcing a reshaping of political superstructural elements in every capitalist country….

The crisis raises deep questions about the nature of capitalism for those who would like to find a way beyond this madness as well. The global parasitism of financial capital has been revealed in many of its interlinked parts…. Most importantly, global capitalism has severely weakened itself economically and politically through the course of this economic crisis, presenting opportunities for it to be deliberately weakened much further from without, both politically and ideologically. But its current condition is only the starting point for the more profound, active and deliberate social critique that is required.

Great Recession, Age 3

by Eddy Laing
8/30/2010

“There are many contradictions in the process of development of a complex thing, and one of them is necessarily the principal contradiction whose existence and development determines or influences the existence and development of the other contradictions.” – Mao Tsetung, On Contradiction

September 2010 marks the second anniversary of the grand collapse of the global debt markets on which so much of the world imperialist system has depended for the last 35 years. This fourth quarter will also mark the third anniversary of the onset of the ‘technical’ recession of which the banking collapse is a major part. Three years later, despite all their best efforts to manipulate debt markets and monetary ‘tools,’ the world capitalist economy remains the metaphorical overturned cart in the ditch, horses splayed on the ground beside it, legs broken and twitching. Even their champion horse whisperer Ben Bernanke says it will remain as it is for several years.

Those financial circuits were and remain key segments of speculative money capital from which the ‘shining city on the hill’ derived its glow and was able to lord it over the rest of the world. The power for those circuits has always been the labor of billions of real people, throughout the colonial and neo-colonial world.

In the imperial homelands, for many people the old price of security meant averting your eyes from everything being done by imperialism in the Third World, keeping your shoulder to the wheel, staying in line, and making a deal with the devil in the form of a mortgage and personal debts so that you could pretend to live a ‘good life.’ The current recession, the most recent and most severe economic crisis in many decades, has brought that charade to an abrupt end and posed exceptionally serious questions for those who just a few years ago led rather different economic lives under this system.

This essay examines the reality of the recession three years later and presents evidence that it is ongoing, deepening, and that the measures taken by the ruling classes have only exacerbated their problems. This recession is effecting the political superstructures of many of those societies and effecting the ideological frames with which individuals and groups in them are interpreting and interacting with current socio-economic situations. In sum, this essay suggests how the current economic recession emerged as the overarching contradiction that is influencing the development of the other social contradictions currently inherent in most capitalist societies.

I

Three years after the ‘technical’ onset of the recession (in the U.S. as defined by the National Bureau of Economic Research) at the end of 2007, the impact is very real on thousands of millions of people globally. The official rate of unemployment in the U.S. — which is skewed downward to count only those who have just been sacked and are collecting the small government stipend, which normally terminates after 26 weeks — was at 4.3% in November and December 2007 when the recession began. It rose gradually throughout the year to 7.1% in December 2008, and hit 9.7% by June 2009. It fluctuated around that level through the rest of 2009, rising to 10.6% in January 2010. It is currently at 9.7%, or about 14,600,000 persons, not including everyone the Labor Department considers to be ‘out of the labor force’ or ‘discouraged’. Adding in those ‘not in the labor force’ (6,500,000) brings the count to 21,000,000, or 14%. ^(1,2,3)

In any event, there are millions more who are not included in these government statistics. People who have never been part of the ‘official’ labor force or who dropped out of it years ago or were forced out and have not been able to get back in. Consider this: in some states, persons who have been convicted of a felony are nearly unemployable as well as ineligible for any type of social assistance, including food stamps. During the last 25 years, the incarceration rate in the U.S. has skyrocketed for all types of newly criminalized acts — or simply for being a young African-American male! Multiple misdemeanors have also been ‘felonized’ with ‘three strike’ sentencing laws, resulting in many more ex-felons now than ever before. For these and many more reasons the real unemployment rate in the U.S. is probably twice the official rate.

For those employed, with the threat of unemployment held overhead, productivity drives and wage reductions have become the routine. It is not an aberration that in the midst of financial crisis, capitals are enhancing their profitability by rationalization regimes intended to wring the very last bit of surplus-value out of ‘their’ workforces. In the U.S., hourly wages in manufacturing have averaged a decline in six of the ten quarters since the start of the recession in December 2007. But before that, wages declined overall in 2004 (coming out of the prior recession) and in 2006, while the rises in 2007 (0.4%) and 2008 (0.1%) were both essentially nil. ⁽⁴⁾

Conversely, manufacturing output per hour showed large quarterly rises (+6.2% in Q2, +16.9% in Q3, +8.1% in Q4) through 2009 before halting in the first quarter of 2010 (+1.2%) as the last drops of profit were squeezed out of workers at capital’s command. ⁽⁵⁾ Indeed, as it has historically, and most recently in the 1997-1999 and the 2001-2004 recessions, capital responds to its market dysfunction by ‘disciplining’ labor. Both unit labor costs ⁽⁶⁾ and hourly compensation have been almost flat throughout the last decade, and when compared to inflationary pressures during this period — the ‘cost of living’ — workers’ wages have declined even further than the ‘official’ numbers indicate.

The productivity drives are hitting limits, no doubt both in terms of resistance and inefficiency. But undoubtedly they are also hitting limits of safety as well. The disaster on the Deepwater Horizon that killed eleven oil workers and released millions of barrels of oil into the Gulf of Mexico was caused by a series of ‘risk-reward’ decisions by British Petroleum managers who expected to save $10 million in drilling costs. ⁽⁷⁾

Reuters quoted one business analyst groping for a truth: ‘If working people longer and harder is no longer bringing large returns to businesses, executives may have to find other ways to expand production — they might actually have to hire more workers.’ ⁽⁸⁾ The requirement that they draw surplus-value out of human labor is locked up against the short-range horizon of the next quarter’s balance sheet of costs, which is further clouded by the persistent anxiety and confusion of the recession itself.

Instead, unemployment, productivity drives and wage reductions, along with the dramatic effects that the housing market has had on personal finances, have combined to dramatically reduce the level of domestic consumer spending in the U.S. Since the end of 2007, retail sales have declined steadily, and as wholesale inventories increase, this puts further pressure on production and ultimately on some prices. Some of this effect is already being seen in so-called durable goods, such as automobiles and light trucks, prices of which have declined significantly since the end of 2007. There is growing concern (by capital) that this type of deflationary pressure will spread to other retail sectors and/or impact the sectors behind the retail sectors, such as the financial sector. There is also increasing concern about the global effects of deflationary pressures at a distance, in particular to/from China and India, which are both important manufacturing workshops and consumer markets.

Deflation is especially deadly in regard to the circuits of capital. Many people have now heard of the home mortgage that is ‘under water’ — the mortgage loan that is priced higher than the appraised value of the house. That is an example of the lethal problem of deflation. It will be catastrophic if that phenomenon spreads into the debt markets. All of capital’s attempted recovery mechanisms have consisted of piling on ever-larger amounts of mid-term and long-term debt. On August 11, 2010, Reuters quoted the president of the St. Louis Federal Reserve Bank saying that he thought the U.S. was closer to a period of prolonged deflation than at any time in recent history. Not coincidentally, the Federal Reserve Bank, through its avatar Ben Bernanke, pronounced at its August 27, 2010 meeting that its priority going forward would be to ‘strongly resist deviations from price stability in the downward direction’ — in other words, to try to control deflation. ⁽⁹⁾

Deflation has not been a concern for capital in regard to consumer food prices, which have remained stable or increased slightly during the recession. Back in the early 1980s, Ronald Reagan famously declared that hunger did not exist in America and ordered the US Department of Agriculture to undertake a series of measures to ‘rationalize’ how it monitored the sector. The most recent salmonella infestations of hundreds of millions of chicken eggs are a tribute to those efforts, of course, but in 1981 a sterling moment was the USDA’s failed effort to reclassify tomato ketchup and pickle relish as ‘vegetables’ for the purpose of its school lunch program.

Every fall, this same Department of Agriculture surveys what it now euphemistically calls the level of food security in the country; the number of people who have ‘access at all times to enough food for an active, healthy life.’ In the course of doing that, it conversely measures the level of food insecurity; the number of people who have ‘limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire acceptable foods in socially acceptable ways.’ The survey released at the start of 2010 showed that 49.1 million people in the U.S. were ‘food insecure’ at some point during the preceding 12 months, a rise of 11% over the year earlier. ⁽¹⁰⁾

II

The collapse in the financial sector that took place in September 2008 was the tipping point in an inherently unstable maze of global debt processes. Having happened, it accelerated reactions throughout the web of debt mechanisms, triggering further defaults and liquidations, and dragging other capitals over or very close to the edge. Very quickly, during the first several weeks of that financial crisis, more than a trillion dollars of obligations were wiped from the ledger sheets of scores of U.S. banking institutions; a pattern that was followed in all of the major OECD economies — the UK, Germany, France, Netherlands, Spain, etc. U.S. commercial banks lost more than $2.5 trillion in assets between the end of 2008 and the end of 2009. ⁽¹¹⁾

Even as some of the biggest banks were being forced into mergers or liquidation, key players in the ruling class and the news media stepped forward to direct public attention to the home mortgage market, and especially to the sub-prime lending sector (along with a few investment swindlers, like Bernard Madoff). In retrospect, this stands out ever more clearly as scape-goating particularly small (lower-income) home owners as ‘deadbeat borrowers’ and distracting attention from the spectacles of capitalist speculation, debt, anarchy and blatant ignorance in the centers of finance in New York, London, Zurich, Hong Kong, etc.

Behind the foregrounded home mortgage market collapse, the much larger markets of corporate and financial debt were contracting at quickening rates. This caused the near liquidation of the entire US automobile sector (and the formation of Government Motors), the herding of forced mergers and acquisitions of (until recently) Fortune 500 firms, the prying open of equity stakes in still other corporations by ‘ready and willing’ lenders (such as Berkshire Hathaway’s loan/purchase of a large chunk of General Electric at ‘preferred’ terms), and the demise of tens of thousands of smaller capital formations. For example, from October 2008 to mid-August 2010, 270 U.S. banks with assets once totaling hundreds of billions of dollars were seized by the Federal Deposit Insurance Corporation and sold — at marked down prices — to larger banks. 43% of those failures (118) have taken place since January 1, 2010. ⁽¹²⁾

Outstanding U.S. domestic financial sector debt, a key speculative mechanism for capital expansion over the past thirty-five years, has declined from its late 2008 high of $17.1 trillion (Q4 2008) by about $2.1 trillion (11%). Undoubtedly, this includes a significant amount of defaults. ⁽¹³⁾

Conversely, U.S. federal government debt has grown by about 12% during this period, or about $1.8 trillion, to $8.16 trillion, as the central government through its treasury and central bank (Federal Reserve Bank system) injects money capital to prop up the financial sectors, primarily banking and insurance, but also manufacturing such as in the case of General Motors.

(Corporate debt as a category has remained flat, perhaps signaling its position as a holy ground among capitals, with a slight increase from $7.1 trillion in Q4 2008 to $7.2 trillion in the first quarter of 2010.) ⁽¹³⁾

By comparison, the amount of outstanding home mortgage debt in the U.S. over this same period has declined about 3% from about $10.5 trillion to $10.23 trillion (about 270 billion) and the amount of outstanding consumer credit debt has declined 9.5% from $2.59 to $2.47 trillions (about 220 billion).⁽¹³⁾ These reductions result from increasing numbers of people driven to destitute conditions (personal bankruptcies, mortgage defaults), from individuals being denied access to credit, and from practical frugality in the face of the deepening recession. The residential housing market is at a 15-year low (if not lower, since data collection is only partial).⁽¹⁴⁾ The cumulative result is that the housing and retail markets that have depended upon ‘consumer spending’ now have much less of it to appropriate, and many retail capitals are pitching over into the void of bankruptcy as a result.

III

The fundamental qualities of the Great Recession have replicated all around the world. If it has been significantly felt by sectors of the population in the United States it has been felt ever more so by those living in smaller capitalist economies. Within the European Union, the collapse has devastated Greece, Portugal, Ireland, Spain, and the more recent members in eastern Europe. Reported unemployment is 20% in Spain, 13% in Ireland, 12% in Greece, 11.4% in Poland, and 11.1% in Hungary. The average across the entire Euro zone is 10%.⁽¹⁵⁾

In response to the collapse of the financial markets, those European economies that are structured to include centralized social service schemes (much more so than the US) have responded with austerity measures that refinance public debt in large part by eliminating public services, sacking government workers, raising taxes, and borrowing funds from other EU countries or the IMF. All of this further borrowing takes place with more austerity strings attached.

The UK recently went through a parliamentary change and has begun implementing a range of new austerity measures of just this type. The current coalition is eliminating or cutting back various agencies and departments (such as the National Health Service, and the Museums, Libraries & Archives Council), raising taxes (VAT was raised to 20%) and implementing various other measures across the board to extract additional revenue, reduce costs and meet debt obligations. There is also an important additional ideological message being sent, invoking the phantom of Margaret Thatcher who declared back in the ’80s that ‘there is no such thing as society.’

Within the EU economies, the high ratio of government debt to GDP translates into very high risk debt and a growing fear by lenders that not only might specific central banks default on their obligations but that in doing so they will drag other central banks down with them. Two of the leading debtor countries in the EU are Greece, with a public debt obligation that is now more than 113% of its $333Bn GDP, and Italy, with a public debt that exceeds 115% of its $2.11 trillion GDP.⁽¹⁶⁾

This pattern is systemic, however, and most of the EU states exhibit the same weaknesses. The international banking community singled out Portugal (77% of a 228Bn GDP), Ireland (56% of a $228Bn GDP) and Spain (53% of a $1.46Tn GDP) as special dysfunctional cases and, along with Italy and Greece, they were referred to as the PIIGS economies for a time last year until a banker with apparently more public sense read the memo. But they are hardly isolated examples. Germany’s public debt is 72% of its $3.335Tn GDP; France’s public debt is at 77.5% of its $2.67Tn GDP; and the UK’s pubic debt is 68% of its $2.18Tn GDP.⁽¹⁶⁾

Austerity measures in Greece have been met with vocal and militant protests from workers, students, small farmers and others, alternately aimed at the Greek government, the IMF, the European Commission, universities, as well as other sectors of the population such as teachers, trash collectors and health care professionals (all public sector workers). One of the Greek government’s major creditors in the current round of debt re-negotiations with the European Central Bank is the German central bank and this situation has also been used to further promote nationalist politics and ideology, particularly in Germany.^(17,18,19)

Only a few years ago, the so-called emerging markets of Brazil, Russia, India and China (BRIC) were held up as economic engines that would pull global capitalism forward into the 21st century. But of course none of these markets stood outside the international debt cartels or the effects of their collapse. China, being the third or second largest national economy is a case in point. Despite the absolute size of its GDP ($4.9 trillion), the per capital GDP is less than $6,600^(20,21), the official unemployment rate stands at 9.6%, and there are several hundred million additional migrant workers roaming the country in search of work. Many academic and government economists in China consider the period of fast economic growth to have come to an end and that a major concern now is how to control price deflation.⁽²²⁾ This fear of deflation has long been underlying U.S. complaints about Chinese monetary policy — e.g. not allowing the yuan to ‘float’ — and as one market analyst recently remarked regarding trade, ‘it is easy to forget that one of the largest exports from China is deflation’ in terms of inexpensive manufactured goods.⁽²³⁾ Global finance capital worries about the wider impact if price deflation in China spills over into other sectors, such as real estate with its more extensive foreign creditor ties.

In much of the rest of Asia, the Americas, and through all of Africa, the recession has greatly exacerbated the ‘normal’ conditions of neo-colonialism and grinding poverty in ways that may be unimaginable to many people living in ‘high-income’ countries in North America or Europe.

As it has been for more than 600 years, Africa is the source of tremendous wealth for global capitalism. In a recent newsletter, business consultants McKinsey & Co. were glowing in their description of ways in which the savvy capitalist could further rip long-term profits out of Africa workers, where the ‘average return on capital (is) around two-thirds higher than that of comparable companies in China, India, Indonesia, and Vietnam’ and since China’s ‘days as the low-wage factory of the world are limited, Africa will soon be the last remaining major low-wage region.’⁽²⁴⁾

In South Africa, recent host of the FIFA World Cup, the official unemployment rate stood at 25.3% for the second quarter of 2010. As the games got underway in June, the stadium security staff in Durban staged a small protest over the fact that they had been paid only 190 Rand of the 1500 Rand wage they had been promised. The police responded by attacking them with rubber bullets, gas, clubs and arrests.^(25,26) This is a small example of the larger iniquity: an estimated £2.5 billion was spent preparing for the games, but the construction workers who actually labored on building or repairing the 10 stadiums were paid an average of £1.20/hour.⁽²⁷⁾ Replicating the nationalism within the games, during the final week leaflets began circulating in some townships warning immigrants to ‘leave now or be burnt alive,’ recalling the pogroms against Zimbabweans in 2008.⁽²⁸⁾

Workers, students, the unemployed, as well as younger factions within the ruling African National Congress itself, are confronting various power centers about the social and especially the economic conditions within the country. In August, strikes were engaged by autoworkers, teachers, police, health workers, customs officials and other public sector workers, and by students protesting financial assistance cuts.^(29,30,31)

IV

In the United States, since the start of the recession, millions of people have lost their jobs, had their pay cut or been compelled into part-time employment. The number and rate of residential mortgage foreclosures continues to grow and exceeded 325,000 in July 2010.⁽³²⁾ Since the start of 2008 about six million mortgages have been foreclosed. It is an understatement to say that all of this has had a dramatic physical impact on millions of peoples’ lives. What should not be overlooked is the impact this has had and is having on the mentality of those most ideologically invested in the American Dream.

The Pew Research Center conducted a sociological study in May 2010 to evaluate public attitudes about the economy. It found that a majority (54%) of respondents thought that the U.S. was still in a recession, not in a recovery despite the claims that were then being made by government and in the press. And notably this number roughly paralleled the finding that 55% of respondents reported experiencing some type of work-related cut-back during the previous 30 months, such as a pay-cut, unpaid leave, reduction in hours or lay-off.⁽³³⁾

In the Pew study, those respondents who were most likely to report dissatisfaction with their current status included those who may have taken the hardest jolts to their former social status: ‘whites’ and registered Republicans. Coincidentally, we see this same demographic assembling in Tea Party rallies, cheering the proto-fascist demagogues on Fox TV, and joining in anti-immigrant and anti-Islamic pogroms in Arizona, Florida and New York.

The economic crisis is forcing a reshaping of political superstructural elements in every capitalist country, from the U.S. and UK outward. Those restructurings will continue to present themselves as arenas of sharp struggle, which may stay confined mainly to economic issues, as in South Africa or Greece, or which may grow into challenges (although not necessarily fundamental) of political status quo. In many parts of the world (other than the U.S.), this economic and political restructuring, through the instrumentality of the World Bank and IMF, for example, often raises questions of the global relationships of imperialism and political power, including geo-political power.

The crisis is also compelling millions of people to rethink their perceptions of themselves in society and even to consider how a society should operate. And certainly, many other personal and social events and phenomenon are contributing to each of these ideological re-formations. This is where the fascist right’s revivalism and its nostalgia for the triumphalism of the 1980s (or some other imaginary past) come into play, providing the ideological reassurance that what’s wrong with the current picture is simply that some people don’t appreciate their place in the grand imperial scheme of things (but join with the Tea Party to bring them to their senses and share the spoils, or else).

The crisis raises deep questions about the nature of capitalism for those who would like to find a way beyond this madness as well. The global parasitism of financial capital has been revealed in many of its interlinked parts; the greed of individual capitals has been the subject of discussion at regular intervals throughout the last two years as has their egregious modes of behavior; the intentional refusal of governments to ‘regulate’ or take any action to control the banks as they looted clarified what role governments play in all this. Most importantly, global capitalism has severely weakened itself economically and politically through the course of this economic crisis, presenting opportunities for it to be deliberately weakened much further from without, both politically and ideologically. But its current condition is only the starting point for the more profound, active and deliberate social critique that is required.

Notes

1. Labor Force Statistics from the Current Population Survey. Series ID LNS13000000. (Seas) Unemployment Level. Bureau of Labor Statistics (BLS). Data compiled July 2010. Accessed 26 August 2010.

2. Labor Force Statistics from the Current Population Survey. Series ID LNU05026639. (Unadj) Not in Labor Force, Want a Job Now. BLS. Data compiled July 2010. Accessed 26 August 2010.

3. Labor Force Statistics from the Current Population Survey. Series ID LNU04000000. (Unadj) Unemployment Rate. BLS. Data compiled July 2010. Accessed 26 August 2010.

4. Major Sector Productivity and Costs Index. Series ID PRS30006152. % change quarter ago, at annual rate, Real Hourly Compensation, Manufacturing. BLS. Data compiled July 2010. Accessed 26 August 2010.

5. Major Sector Productivity and Costs Index. Series ID PRS30006092. % change quarter ago, Output Per Hour, Manufacturing. BLS. Data compiled July 2010. Accessed 26 August 2010.

6. Major Sector Productivity and Costs Index. Series ID PRS30006112. % change quarter ago, Unit Labor Costs, Manufacturing. BLS. Data compiled July 2010. Accessed 26 August 2010.

7. BP manager, boss both ignored warnings before Deepwater Horizon blew, panel learns at oil spill hearings. The Times Picayune (New Orleans). 26 August 2010. Accessed 28 August 2010 at http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/08/bp_manager_boss_both_ignored_w.html#incart_rh

8. Productivity falls, Fed mulls stimulus. Reuters. Tue Aug 10 15:07:06 UTC 2010.

9. Bernanke Signals Fed Is Ready to Prop Up Economy. New York Times. 27 August 2010. Accessed at http://www.nytimes.com/2010/08/28/business/economy/28fed.html

10. Household Food Security in the United States, 2008. USDA. Economic Research Report Number 83. November 2009.

11. Report Z.1. Flow of Funds Accounts of the United States, 10 June 2010. Table F.109. Federal Reserve Bank of the United States.

12. Federal Deposit Insurance Corporation. 2010. Failed Bank List. Accessed 27 August 2010 at http://www.fdic.gov/bank/individual/failed/banklist.html

13. Report Z.1. Flow of Funds Accounts of the United States, 10 June 2010. Table D.3. Federal Reserve Bank of the United States.

14. Home sales at multiyear lows. Reuters. 24 August 2010. 3:05 EDT.

15. Economic and financial indicators. The Economist. 28 August 2010. p. 81.

16. CIA World Fact Book. 2010. Accessed 28 August 2010 at https://www.cia.gov/library/publications/the-world-factbook/index.html

17. Neither a borrower nor a lender be. The Economist. 1 May 2010. p. 65

18. The spectre that haunts Europe. The Economist. 13 February 2010. p. 26.

19. The labours of Hercules. The Economist. 13 February 2010. p. 27.

20. CIA World Fact Book. 2010. Accessed 28 August 2010 at https://www.cia.gov/library/publications/the-world-factbook/index.html

21. China’s economy as No. 2: How it’s playing in Japan. Christian Science Monitor. 17 August 2010.

22. Slowdown ahead but no hard landing. Chinadaily.com.cn. 7 July 2010.

23. Trading Ideas: Shanghai downtrend has strong confirmation. The Edge (Singapore). 10 May 2010.

24. Collier, P. 2010. The case for investing in Africa. McKinsey Quarterly. June 2010.

25. Police break up Cup wages protest. Mail & Guardian (South Africa). 14 June 2010.

26. Police clash with workers in first unrest. Mail & Guardian (South Africa). 14 June 2010.

27. Poverty in the Shadow of Pounds 5bn World Cup. Daily Record (Scotland). 4 June 2010. p.22-23.

28. World Cup is over: leave now or be burnt alive. The Sunday Times (London). 11 July 2010. Edition 1. Scotland. p. 28.

29. S.Africa autoworkers, firms in deal to end strike. Reuters. 20 August 2010.

30. S.Africa court stops some state workers from striking. Reuters. 21 August 2010.

31. DUT suspends academic activity. Mail & Guardian. 18 August 2010.

32. http://www.realtytrac.com/home/

33. The Great Recession at 30 Months. Pew Research Center Publications. 30 June 2010.

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