Wednesday, December 17, 2014

David Harvey, monomaniacs and the rate of profit

Order this book here
by Michael Roberts

David Harvey is a Distinguished Professor at the City University of New York (CUNY), Director of The Center for Place, Culture and Politics (http://pcp.gc.cuny.edu/) and author of numerous books. For over 40 years, he has been one of the world’s most trenchant and critical analysts of capitalist development. And he has developed a global audience for his on-line video lectures on reading Capital, (see http://davidharvey.org/).

Harvey won the 2010 Isaac Deutscher prize for the best Marxist book of the year with The Enigma of Capital (http://www.amazon.com/Enigma-Capital-Crises-Capitalism/dp/0199836841).
I have commented on Harvey’s contributions to Marxist economics on various occasions on my blog.
https://thenextrecession.wordpress.com/2010/09/03/views-on-the-great-recession-david-harvey-and-anwar-shaikh/
https://thenextrecession.wordpress.com/2011/11/13/david-harvey-marxs-method-and-the-enigma-of-surplus/
https://thenextrecession.wordpress.com/2014/05/19/david-harvey-piketty-and-the-central-contradiction-of-capitalism/

Professor Harvey has always been critical of the view that Marx’s law of the tendency of the rate of profit to fall plays any significant role as a cause of crises under capitalism. In his award winning book, The enigma of capital, he states that “There is, therefore, no single causal theory of crisis formation as many Marxist economists like to assert. There is, for example, no point in trying to cram all of this fluidity and complexity into some unitary theory of, say, a falling rate of profit”.
Recently, Harvey has returned to this point in the presentation of an essay to the University of Izmir, Turkey in October. You can see a You tube screening of that presentation at https://www.youtube.com/watch?v=-ZJrNgb-iiY&spfreload=10

What was particularly interesting to me was that, in his paper, Professor Harvey singles me and my work out as an example of those who support Marx’s law of profitability as the cause of crises. He opens his paper with the words “In the midst of crises, Marxists frequently appeal to the theory of the tendency of the rate of profit to fall as an underlying explanation. In a recent presentation, for example, Michael Roberts attributes the current long depression to this tendency”. He continues: “Roberts bolsters his case by attaching an array of graphs and statistical data on falling profit rates as proof of the validity of the law. Whether the data actually support his argument depends on (a) the reliability and appropriateness of the data in relation to the theory and (b) whether there are mechanisms other than the one Roberts describes that can result in falling profits.”
David Harvey

Harvey is very sceptical of my work and that of others: “Before submitting pacifically to the weight of the empirical evidence that has been amassed by Roberts and many other proponents of the falling rate of profit theory, some serious questions have to be asked”. And he proceeds to ask them.

I think that it is significant that such an eminent Marxist economist (or I think he prefers ‘historical-geographical materialist’) should produce a paper that critiques my work. It is also revealing that he reckons there is a need for him to take to task the work of those supporters of Marx’s law as the cause of crises. Clearly, recent work by such as Carchedi, Kliman, Freeman, Moseley, Shaikh, Esteban Maito, Tapia Granados, Peter Jones, Mick Brooks, Sergio Camara and others, is gaining some traction. So much so that, recently, one Marxist economist from the ‘overproduction school’ called me a ‘monomaniac’ in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organisation Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014 — http://links.org.au/node/4156).

Anyway, I approached David Harvey for his paper and suggested that we conduct a debate on the issues involved. Professor Harvey graciously agreed that a debate would be a great idea and that we could conduct this debate in public, on my blog and elsewhere. So I attach Harvey’s paper Harvey on LTRPF but also point out to you that it will eventually appear in its final form as David Harvey, Crisis theory and the falling rate of profit; to be published in 2015 in The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created?, edited by Turan Subasat (Izmir University of Economics) and John Weeks (SOAS, University of London); Publisher: Edward Elgar Publishing Limited.

It is not possible to do justice to Professor Harvey’s critique of the supporters of Marx’s law as the cause of crises. You must read the whole paper. But in essence, Harvey argues that the LTRPF is not the only or even the principal cause of crises. Thus it cannot be the basis of a Marxist theory of crisis.

Indeed, as he said above: “There is, I believe, no single causal theory of crisis formation as many Marxists like to assert”. He is sceptical of Marx’s law being relevant and accepts the views of MEGA scholars like Michael Heinrich that Marx also probably became sceptical and dropped it. “I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law” (see my posts on Heinrich, http://gesd.free.fr/mrhtprof.pdf). Indeed, Harvey has doubts that it is a law at all: “we know that Marx’s language increasingly vacillated between calling his finding a law, a law of a tendency or even on occasion just a tendency”.

Harvey argues that we proponents of Marx’s law as the basis of a theory of crises are one-sided and monocausal in our approach because: “proponents of the law typically play down the countervailing tendencies”. Thus we rule out many features of capitalism that may be better causal factors in crises. For example, we ‘monomaniacs’ (to use Mike Treen’s term) “suggest financialization had nothing to do with the crash of 2007-8. This assertion looks ridiculous in the face of the actual course of events. It also lets the bankers and financiers off the hook with respect to their role in creating the crisis.” Moreover, Professor Harvey pours cold water over our “array of graphs and statistical data on falling rates of profit as proof of the validity of the law”.

He doubts their validity because there is plenty of evidence in the ‘business press’ that the rate of profit, or at least the mass of profit, in the US has been rising, not falling. And even if it is correct that there was a post-war fall in the rate of profit, “Profit can fall for any number of reasons”. He cites a fall in demand (the post-Keynesian explanation); a rise in wages (the neo-Ricardian profit squeeze explanation); ‘resource scarcities’ (Ricardian); monopoly power (Monthly Review school view of rent extraction from industrial capital).

Professor Harvey prefers other reasons for capitalist crises than Marx’s law. There is the effect of credit, financialisation and financial markets; the devaluation of fixed constant capital in the form of obsolescence; and, above all, the limits on consumer demand imposed by the holding down of real wages relative to capitalist investment and profits. He wants us to consider alternative theories based on the “secondary circuit of capital” i.e. outside that part of the circuit to do with the production of value and surplus value and instead look at that part concerned with the distribution of that value, in particular ‘speculative overproduction’. Again, he wants us to look at the crises caused by a redistribution of the value created by ‘dispossession’, a form of ‘primitive accumulation’ where wealth is accumulated by force or seizure and not by the exploitation of wage labour in production as in fully developed modern capitalism.

Well, Professor Harvey has provided a new opportunity to debate these points and hopefully for all of us interested in this to gain a better understanding of what causes crises under capitalism so we can resist and overcome the power of capital eventually. I have replied to Professor Harvey’s paper as best as I can with my own, which can be found here reply-to-harvey.

Naturally, I do not agree with Harvey on any of his points. I think that Marx’s law of profitability does provide the cornerstone of the Marxist theory of crisis, which I think is coherent and ascertained from Marx’s works, mainly Grundrisse and Capital. I don’t think Marx’s law is logically incoherent or ‘indeterminate’ or that he dropped it in his later years, as Heinrich suggests. As for being monomaniacal or one-sided, I agree with G Carchedi: “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

I don’t think that I or other supporters of Marx’s law as the basis of the cause of crises have ignored the countervailing tendencies to the tendency of the rate or profit to fall as capital accumulates. That’s because the law is both the tendency and countertendency. Henryk Grossman, supposedly the most ‘monomaniacal’ of all supporters of the law as a theory of crises, in his book devoted 68 pages to the tendency and 71 pages to all the countertendencies.

Anybody who has read my book, The Great Recession, knows that I fill large amounts of space to the role of the US housing boom and bust, the banking crisis, exotic and toxic derivatives etc. Indeed, my current blog has at least 25 posts on the relation between profitability, credit (debt), banking and the crisis. And in 2012, the year after DH gave the Isaac Deutscher memorial speech at the Historical Materialism conference, I presented a long paper entitled Debt Matters (Debt matters). The role of credit in crises is important and I and others have spent some time trying to incorporate that into a Marxist theory of crisis.

As for the data, well, I and many others have painstakingly tried to ensure proper empirical analysis and statistical techniques to justify the case that there has been a secular fall in the rate of profit of capital in all the major economies, as well as a cyclical process(or waves) of profitability when countertendencies come into play. If these data are wrong, then I await alternative data from Professor Harvey. I don’t think anecdotal evidence from the business press is sufficient.

My and the work of others have enabled us to get a causal sequence of the development of capitalist crises. As Marx himself argued, there is a point in the accumulation process when the rate of profit on the stock of investment falls to a level where new investment actually leads to a fall in the mass of profit and new value. This ‘absolute overaccumulation’ of capital is the trigger moment for the collapse of investment and then bankruptcies, unemployment and falling incomes – in other words, a slump. A study by Tapia Granados has shown this causal sequence holds for the US economy since 1945 (does_investment_call_the_tune_may_2012__forthcoming_rpe)_and I and G Carchedi have shown it holds for the Great Recession too (The long roots of the present crisis). Profits call the tune. This seems to me a much more compelling case for explaining crises (with even predictive power) than falling back on various theories from bourgeois economics based on credit booms (Austrian school), financial speculation (Minsky), lack of demand (Keynes); low wages and inequality (Stiglitz and the post-Keynesians), as I think Harvey does – see my paper, The causes of the Great Recession (The causes of the Great Recession).

All the alternative theories have one thing in common: that, if their particular theory is right, then capitalism can be corrected through financial regulation (Martin Wolf, James Galbraith), higher wages (post-Keynesians), or progressive taxation (Piketty) without removing the capitalist mode of production itself. That’s because these theories argue that there is no fundamental contradiction in capitalist mode of production that causes recurrent and cyclical crises (as Marx claimed); there are only problems with circulation.

I am ‘monomaniacally’ convinced that the theory of crisis must be found in the production process even if it manifests itself in circulation and realisation. Appearances can be deceiving.

Anyway, let’s discuss.

Tuesday, December 16, 2014

OSHA is toothless. But business still hates it.

source: Daily Kos
By Richard Mellor
Afscme Local 444, retired
12-15-14

Michael Bloomberg’s Business Week has a little snippet in its December 8th anniversary issue about the merits of the Occupational Health and Safety act that was past in 1970.
But business groups have waged a 40-year war on OSHA despite it being a relatively mild workplace safety regulation.   The presence of unions in the workplace, especially a strong rank and file shop steward movement is the best safeguard against injury and unhealthy conditions.

BW points out that since OSHA’s passing, the US workplace death rate has declined by 81%.  Still, according to David Rosner and Gerald Markowitz Huff Post political bloggers, as of 2011 more than 3 million workers a year suffer some form of work related illness. It is almost impossible to say how many actually die of work related illnesses. The authors add “….workplace accidents fell from 13,800 in 1970 to 5,657 in 2007.”

Workplace deaths still average 13 a day with the construction industry at the top of the list but as BW points out, deaths from work related illnesses like lung cancer could be 10 times as high.

Michael Bloomberg, the owner of Business Week is worth $34 billion according to Forbes, it’s not likely he’s a big fan of OSHA.  The US Chamber of Commerce opposed OSHA as it has most agencies that protect worker’s rights, even feebly.  The US Chamber of Commerce, National Association of Manufacturers, Business Round Table and other big business gangs consider unions and all worker organizations, as well as government regulation as attacks on their freedom, freedom to make profits that is. 

The Chamber of Commerce introduced a $100 million campaign to “defend and advance economic freedom.” largely in response to the Obama Administration’s efforts to launch a consumer protection agency. The Chamber’s ally in that little venture was the banking lobby. This has been the history of Business Associations of one type or another.  They are by far the most ruthless of all of society’s gangs, the Crips, Bloods, Norteños have nothing on them…..and they’re legal which helps.

If we read labor history we will find that every advance working people and all oppressed people made was blocked by the likes of Bloomberg and the legal gangs that represent the interests of big business. Every right, every benefit every freedom we have we fought for against one of the most ruthless ruling classes in history. They opposed the eight-hour day movement, said it would destroy society.  Read the papers of that period.  “A few years after the law was passed…” Rosner and Markowitz write, “ ….a Chamber of Commerce pamphlet declared ‘This is the sorry history of OSHA - a statute which serves little useful purpose; and in its administration is even threatening the entire business system.’”

Bloomberg is not likely to be in the forefront of a movement to defend OSHA, that it exists at all is in spite of people like Bloomberg and magazines like Business Week. The agency has come under attack more and more of late and only has 2, 218 inspectors nationwide. This is a joke when we consider the number of workplaces and OSHA generally doesn’t appear on the scene until workers die. Workers can’t rely on OSHA or the US Congress to protect our workplace safety; the US Congress has blocked any efforts to increase OSHA’s effectiveness.

It should be mentioned that one of the reasons for a decline in workplace deaths other than unions and OSHA is the reduction of blue-collar factory jobs and the de-industrialization of America.  Needless to say, true workplace safety will begin when those that do the work control the labor process and the workplace with it.

Industries With the Most Fatalities 2013

·      Construction: 796
·      Transportation/Warehousing 687
·      Agriculture Forestry Fishing and Hunting 479
·      Professional and Business Services 408
·      Manufacturing 304


Source: Business Week.

Monday, December 15, 2014

California Dreamin': But an environmental nightmare looms

by Richard Mellor
Afscme Local 444, retired

I wonder if at times,  some of my FB friends might get a little exasperated at the amount of short videos I put up on the site from my hikes here in the San Francisco Bay Area. I feel I am very fortunate to live in such a beautiful place.  In many metropolitan areas one might have to travel some distance to be in the heart of nature, rural nature anyway.  But here, it's ten minutes from the heart of the city.  Yesterday, I drove out to the coast, about one hour, and hiked north from Bolinas in Marin, to the Alamere falls in Point Reyes  This is a beautiful hike with the Pacific Ocean as a backdrop.  There are many times I have walked or camped here thinking that some people save all their lives to visit some of these places.

So I thought I'd share this short video from yesterday.  I never considered myself an environmentalist but in a sense we are all environmentalists, just sometimes unconscious ones.


In the past, both the labor movement and socialists did not give this issue the attention it deserves.  But while we struggle for the basic necessities and so many people are being denied them, or having them taken away,  it is important in my opinion to recognize that the environmental issue, the catastrophic effect the capitalist mode of production has on the natural world and humans are included in that, is the most critical issue we face as a species. 

We can all still enjoy the beauty of nature. As I watched the mighty Pacific brush California's shores yesterday the reality that the Ocean is the world's largest garbage dump escaped me for a moment, it's not easy to cloud moments of pleasure with the larger reality.   But we must not bury our heads in the sand on this issue.

The Pacific I wondered at yesterday and that looks so pristine on the surface, is in a crisis.  The world's oceans are in crisis. There is the huge mass of floating garbage in the pacific described in this clip.  Plastics are a major source of contamination and deaths of marine life of all kinds.


The 1%, big business, the capitalist class, whatever we want to call  them, will not eradicate this problem, cannot direct the necessary resources at it. Capitalism cannot even manage it or halt it to any significant degree. Their mass media will not alert us as to the real dangers or the level of damage other than not to litter.   It's not an issue of individual behavior. The millions of gallons of oil that was spilled in to the Gulf of Mexico has caused untold lasting damage that we may not understand fully at this time.  The capitalist class thinks short term, of immediate profits, and even if they knew the full extent of market driven pollution, what we would be told would only be half the story.

Some have said the mass deaths of marine life like the 200 Sea Lions found on a beach in Peru are connected to the Fukushima catastrophe. I cannot imagine the damage that disaster has done to the world's oceans and will continue to do.  The effects of it are unknown really, they will become more understood as they manifest themselves.  And back in 2012, just one year after Fukushima, hundreds of dead dolphins were found along another beach in Peru, also without explanation. "Each of these events is still technically under investigation, though any consideration of Fukushima is apparently off the table as government authorities attempt to blame other less likely factors.", environmental experts say. As I wrote in a previous commentary: Who would put a three nuclear reactors, in an area known as the Ring of Fire due to its seismic activity and next to the ocean in a country whose official language gives us the word Tsunami?  Not people living next to them we know that. It was a business decision.

So none of us can escape what will become a catastrophe of historic proportions if we do not act.  The capitalist solutions, living green, recycling bottles, will not solve the problem. The issue is how we produce things, and how we interact with nature to reproduce life. Driving a Prius might make one feel good but it won't stop humanity from falling in to the abyss.  I compare it at times to the small farmer at a bend a mile down river from a hog factory. Every day he's out there scooping out the garbage, keeping his bend in the river clean.  But to no avail, in the end he has to get control of that factory. It's the only long-term solution.

The environmental crisis is a crisis of capitalism, yet capitalism cannot solve it.  Capitalism will destroy life as we know it on this planet.  I do not believe we have reached the point of no return but we will if something is not done. We have reached a point where whole swathes of the earth's surface  are becoming uninhabitable. The rivers of places like Bangladesh are cess pools.  The ocean and it's marine life which is an important source of food as well as an influence on the weather is becoming overwhelmed with trash.

We want a future for our children, but there is no future if the present social system, an unplanned system of production based on profit, is not transformed and replaced by a democratic socialist system, collectively managed and in which production is set in motion not in the rapacious quest for profits, but based on social need.

An excellent site dealing with this issue is Climate and Capitalism which is on this blogs list of links also. The reader will find a lot of very useful information and sources about the capitalist environmental crisis and how only a democratic socialist society can provide the answer.

Sunday, December 14, 2014

Protests against police killings are lasting and broad


From David Johnson *
Champaign, IL

A lot has been happening in the last several weeks here in Champaign/Urbana Illinois in regards to the killing of young black men by the police.

Two weeks ago we had over 250 people turn out for a protest in front of the Sherriff’s department which ended in blocking the major street in front of the Sherriff’s office and the county courthouse for about an hour.

Last Friday Dec. 6th, over 200 students at one of our local High Schools (Champaign Centennial) had a die in in the school and then went into the street in front of the school. A driver of a car plowed into the students and yelled at them, resulting in no injuries but a student hit the car’s windshield and cracked it. The police arrested the student for mob action and criminal damage to property and refused to either arrest the driver or release the name of the driver to the public.

The following Monday (Dec. 8th) over 100 of us packed the Champaign school board meeting in support of the student. Earlier in the day over 500 University of Illinois students had a die in on campus. Tuesday ( Dec. 9th ) students at the other High school in Champaign ( Central ) had a demonstration in front of their school,.

Friday,  (Dec. 12th) about three hundred people scattered along a main street for about a mile. The Centennial High School students marched about two miles from their High School in west Champaign to the protest. Every other vehicle honked in support as they drove by and there were only a few incidents where people yelled obscenities or other negative comments.

*David Johnson is a co-host of The World Labor Hour broadcast on WEFT 90.1 in Champaign/Urbana IL http://new.weft.org/ Saturday mornings at 11am CST.  You can contact WEFT at 217-359-9338

Saturday, December 13, 2014

The Adolph Hitler University and Med Center.


source
by Richard Mellor
Afscme Local 444, retired

I thought the title might get your attention. An institution would not fair too well with a name like that.  Adolph Hitler was a fascist and a mass murderer.  The NAZI’s as they were called, believed Slavs, Romany (Gypsies) Jews and blacks were sub human sending some 12 million people to gas chambers, six million of them Jews.

Hitler endorsed a philosophy that murdered workers’ leaders, the mentally ill, and gay people. Some of the first deportations were trade union leaders, communists (Stalinists) and socialists.  The National Socialist philosophy, its adherents and intellectuals, conducted medical experiments on human beings of the “sub human” races. They conducted experiments like giving a mother electric shocks if she refused to electrocute her child.  They wanted to see how much pain she could take before she killed her own offspring.

So why do we have a city and university named after Jeffery Amherst, or 1st Baron Amherst as he was known?  Amherst was a colonial officer of the British Army who was the first governor of what was to become Canada and was the British Crown’s governor of Virginia.  Amherst College in Massachusetts is named after the Baron and there are numerous towns and public places in Canada named after him.

Amherst, like all of his class saw workers as lesser humans as well.  How can a miner, a peasant, a guild member not be of lower intelligence?  The ruling class has to justify its social rank; it must validate its rule. In order to subjugate the masses of another nation or country; they have to be demonized. The working class that provides the cannon fodder for imperialist ventures must be convinced that it is in their interests to defend what little they have against foreigners. The Irish were referred to as “White Chimpanzees” in the British bourgeois press of the time. Cromwell wanted to slaughter the entire race. In my lifetime, the Irish were still being portrayed as lazy, stupid, dirty and promiscuous.

Amherst was a vicious racist as well. He had no love for the native population in the colonies, both in the America’s and Australia. Amherst supported the policy of selling or supplying the Native American population smallpox infected blankets.  He was quite creative in his desire to commit genocide in the America’s supporting any other method that can serve to Extirpate this Execrable Race.”.

We live in a class society, governed as we are by that class of people that own the means of producing and distributing the necessities of life.  So it should comes as no surprise that their institutions, the airports, libraries and other public institutions are named after the leaders of that class.  What worker with an ounce of class-consciousness would name a public institution after Reagan or the imbecile Bush or other members, politicians or leaders of the ruling class?

In the ruthless competition between the capitalist classes of the various nations states, there breaks out at times open warfare.  This was particularly so prior to the advent of nuclear weaponry and the ability of some of the major players, the US in particular, to blow up the entire world.  Nuclear weapons have undoubtedly made the likelihood of wars between nations states more complicated for fear it all goes up.  The US’s recent predatory wars are not wars at all but turkey shoots.  The warmongers at the Pentagon didn’t invade North Korea. Instead, we are amidst a period of never ending regional conflict fanned in particular by a substantially weaker though armed to the teeth US capitalism; but all the major players are involved.

For Europeans, workers and the ruling class, the name Hitler, represents all that is evil, one of the greatest threats to civilization, bourgeois democracy and the rule of capital, (excepting communism of course).  For Western (and many eastern) Europeans, the name Stalin is not too popular either although for a while he was in such favor with the US ruling class that he appeared on the front page of Life Magazine.

For Native American historians and others more aware of their own history, Jeffrey Amherst must surely occupy a similar place, a cruel, vicious invader bent on wiping out an entire culture.  Cromwell has a similar affect on the Irish. He wanted to wipe them all out and wreaked havoc with his invasion of that country.

Yet I’ll wager that if there was a campaign to change a place name like Amherst, there would be much opposition.  The white ruling class would lead the campaign whipping up fear among workers of European descent that “our” culture is threatened by this assault on “our” history and “our” past.  But Amherst is their historical figure, not mine. Yes they teach “white history” but it is the history of the white capitalist class, the same way  Black History Month tends to focus on black American entrepreneurs, artists, or inventors, or literary figures not that these are not an important part of history but the rich militant history of workers, the huge battles, strikes and violent struggles in the face of brutal oppression from the bosses, this is hidden. 

I’ll wager most people can go from Kindergarten through 12 grade in the US education system and know nothing about the great 1877 uprising, the Flint occupation, the strikes of Latino, Japanese and other workers in California, the wars against the lumber barons and mining corporations or the Seattle General Strike of 1919 when workers controlled that city for 5 days.

The ruling class writes history from its point of view, we know that.  But we have the ability today with the Internet to find out so much more about our history, and from the comfort of our own homes.  Working class people have our own heroes, many of them will have to be discovered, many of them are nameless yet made great sacrifices on our behalf. * They are from all different nationalities and cultures. What worker with an ounce of class-consciousness would support naming a public institution after people like Ronald Reagan?  The heroes of the ruling class in this country have historically waged the most vicious assault on the rights of workers and the rights of specially oppressed minorities and the ethnic groups.

United We Stand is an OK slogan depending with whom we stand, our class, or those of the same color, religion or ethnicity regardless of social position. In the case of the Native Americans, a simple act that would cost the rest of us nothing, standing with them on their objection to the name Redskins for a sports franchise, would a be an important act of solidarity strengthening us all.

Objecting to public institutions and places being named after individuals who had no respect for workers in general and committed genocidal acts against Native Americans in particular would be even better.

* In Mother Jones’ autobiography she mentions Big Mary Septak.  She ran a boarding house for workers and led whole troops of women against the Pinkerton’s and hired thugs of the ruling class in order to defend the workers fighting for democratic rights, independent unions and freedom.  In a genuine workers’ democracy, people like Big Mary Septak will have a library or perhaps an airport (especially in Pennsylvania) named after her.

Friday, December 12, 2014

Greece: Samaras gambles

by Michael Roberts

 Financial markets got very excited this week when Greece’s conservative PM Antonis Samaras announced that he was going to bring forward an upcoming parliamentary vote for a new president to this month from February. Greek stock prices fell nearly 20% in two days, the biggest fall since the global crash of 1987.

Investors are really worried that if Samaras fails to get his candidate elected as President after three voting chances in parliament, a general election will have to follow in January. That could lead to the victory of the leftist opposition party Syriza (Syriza leads by 6-8%pts in the polls). Then Greece would have a government pledged to renegotiate the debt owed to the EU/IMF and to reverse many of the austerity measures imposed by the Troika (the EU Commission, the IMF and the ECB) as conditions for loans of nearly €300bn made to Greece since 2010. That could provoke a new crisis in the Eurozone.

The term of Greece’s incumbent president is nearly up, and while the role is primarily ceremonial, the president still has the power to call elections and ‘arrange’ coalitions. The decision of Samaras to go for a snap presidential election vote in parliament two months early was forced on him.

Samaras and his junior partner in government, Venizelos from Pasok, are between a rock and hard place. They wanted to ‘exit’ the existing troika programme in 2015 without any ‘lines of credit’ being introduced, as Portugal has already done. But that has not proved possible because they still need a final tranche of funds from the Troika to tide them over and the Troika won’t deliver unless 1) the Greek government meets new fiscal plans and targets and 2) Greece takes a line of credit from the IMF to fall back on once the Troika program ends.

But it is political suicide in any 2015 parliamentary election for Samaras to accept more fiscal austerity beyond that agreed and a line of credit that ties him to the IMF, after having told the Greek electorate that austerity is over and the rule of the Troika is done with.

So Samaras has gambled by going for an early presidential vote without any agreement with the Troika, given that the Euro leaders have agreed to a two-month extension on the program without imposing extra austerity. This is a small window of opportunity for Samaras. However, he must win the presidential vote for his candidate or he will be forced into an early general election.

The coalition has a small majority in parliament (155 votes out of 300). But the presidency is only achieved with 180 votes, so he needs a minimum of an extra 25 MP votes. Samaras cannot get this from Syriza, the Communists and the Fascists, so he is left with independents, the Greek Independents and the smaller left parties. Up to now, they have been opposing his policies in parliament so he is up against it in getting the necessary votes.
Greek parliament
But he may get them for two reasons: 1) independent MPs may fear they will lose their seats if there is an early general election and 2) they may not want the populist left Syriza party to win an election. So the financial markets may be over-pessimistic because if Samaras can twist enough arms and offer enough bribes he may manage to get the extra votes he needs. There are three votes between 17 December and 29 December and it will probably go to the wire on the last vote.

His candidate is former European Commissioner Stavros Dimas, very acceptable to the Troika and possibly respectable in the eyes of MPs and even parts of the Greek electorate. If he can get Dilma elected, the crisis is over and the government will have another two years in office, with the hope that the Greek economy will recover along with the Eurozone and conditions for the average Greek will improve, giving him a chance to win another election in 2016.

If he manages to get this done, it will be a political blow to Syriza. Samaras’ motivation is to split the opposition, “removing uncertainty and restoring political stability ….. when the current parliament elects a president at the end of the month, the clouds will be gone and the country will be ready to officially enter the post-bailout era.” Samaras decided it was better to go now while he is still ‘resisting’ Troika demands for austerity rather than wait until February when his position would be even weaker.

But it is a gamble. Even if Samaras wins over every independent lawmaker, which is unlikely since some have openly promised to vote against the government candidate, he would still fall short by one vote. Indeed, if all opposition lawmakers vote against the government nominee, that will be enough to bring down the government: the five opposition parties control 121 seats, the exact number needed to prevent a government win.

If Samaras does fall short, then a general election in January would probably means a victory for Syriza in coalition with some smaller left parties. It is unlikely that the Euro leaders will agree to anything that Syriza wants and so a stalemate will ensue that will create huge uncertainty in financial markets and push the Greek economy back into an immediate crisis. Also, a Syriza government may well become a beacon to other populist movements in the periphery that could impel them forward.  This is the risk for the Greek ruling class. However, if Samaras can pull it off, he can ‘save’ Greek capitalism from disaster and a takeover by the ‘forces of labour’ as represented by Syriza.

The long-term problems remain, however. After five years of severe austerity and depression, when the living standards of the average Greek household have fallen by 40% and poverty (and starvation) haunt the streets of Athens and the countryside, the government is at last running a surplus on its annual budget (revenue over spending, excluding debt interest). So it does not need to borrow more from the Troika. And the government is forecasting a rise in real GDP in 2015 for the first time since 2009.  But really the best that can be said for the economy is that it has finally stopped plunging into an abyss and has hit the bottom – hard. Government debt still stands at 175% of GDP, even after a ‘restructuring’ of the debt owed to European banks back in 2012 (see my post, https://thenextrecession.wordpress.com/2012/03/09/greece-the-biggest-debt-default-in-history/).

There is no prospect of that debt ratio being reduced to 120% by the end of the decade as demanded by the Troika. And even that level is twice what is acceptable to the Euro leaders as the maximum in the decade beginning in 2020. Greece is burdened with a such a heavy level of public (and corporate) debt that Greek taxpayers and small businesses will have to service, that it will keep living standards at ‘third world’ levels for a generation. No wonder Syriza’s demand for a renegotiation of the debt with the EU is so vital.

Unemployment (26%), particularly youth unemployment (50%), remains near record levels with little sign of a significant reduction.
Greek unemployment and GDP

Those Greeks who are well off enough to leave the country have done so to seek work elsewhere and, of course, very rich Greeks have taken their money and capital already to the likes of London to purchase big mansions.

One thing has been achieved by the depression and the austerity: lower labour costs. Labour costs per unit of (falling) production have dropped 30% since 2010 (see https://thenextrecession.wordpress.com/2014/02/11/greece-cannot-escape/).
Greek ULC
And so the profitability of Greek capital has improved. But even so, profitability is still way below the peak of 2006 before the Great Recession and the Eurozone depression..
Greek ROP
… and has hardly recovered on a long term perspective.
Greek LT ROP

Investment is now lower than it was in the late 1960s! Even if Samaras succeeds in his gamble, Greek capitalism remains at the bottom of a hole.

Thursday, December 11, 2014

Congressional Staffers protest Grand Jury on Brown and Garner

Capital staffers walk out today
by Richard Mellor
 Afcme Local 444, retired

This blog suggested earlier that there is a bit of shift in the mood in the US in the wake of the continued assassinations of black men by the police.  The capitalist class is concerned as the protests are not going away.  In the case of the Eric Garner and Michael Brown murders the aftermath of the killings were as bad.  Brown's body was left for a long time in the street.  CNBC video shows that as Garner lay dying from being choked by a predatory cop's choke hold, it was as if he was a dying animal. Even when they EMT's get there they do nothing according to the video. A woman checks his pulse then they throw his body on to a gurney.

What reflects a growing concern among the 1% about the out of control militarized police forces is that both NBC and Daily News reporters in that video attacked the role of the police. This is extremely rare if it happens at all.  Also, the state is forced to question police tactics and is talking about a way to make them less confrontational.  I shared my views on the Brown killing and subsequent interview with the cop by George Stephanopoulos here.  After the Grand Jury "legitimized" the murder, Stephanopoulos felt very comfortable giving Darren Wilson a nice warm and friendly greeting.

Eric Garner can be heard complaining about the never ending harassment he has experienced by cops.  They accused him of selling illegal cigarettes, he died for that if that's what he was doing.  Imagine what sort of human being one must be to "f%*&ck with people like that when there's people like the crooks that run the venture capital firms, hedge fund outfits and others.  Pete Petersen, Schwarzman, all these thugs, "Masters of the Universe" their media calls them, destroyers of it is a more accurate term.

The problem is as I have pointed out before, the state has not beefed up its police arm providing it with military style weapons and vehicles without intending to use them. They are forced by the internal dynamics of the system to continue their war against US workers, middle class and the poorest among us and their increased internal militarization is in preparation for the social unrest that will result from it.  The recent developments including this walk out by Congressional Staffers in DC is causing some serious concern.  But as in all life, the actors on the stage are more often than not operating in conditions of our own choosing and the 1% is sliding down a road to further disaster, hopefully their own. The black population of this country will not take these assassination of black men and youth sitting down and all workers must join and support them in any way we can.  But the reality can be that, as Marx once said, their actions can lead to the ruin of both classes, us and them.  Or as we have pointed out here, if we do not build a movement that can end the dictatorship capital has over global society, especially ours, capitalism will destroy life as we know it on this planet.

Wednesday, December 10, 2014

Amazon wins: Corporations and their Government Backers 9, Workers 0


German workers strike Amazon three times last year
by Mike Benca
San Leandro Worker's Club
Member OE Local 3 Highway Maintenance Worker

Yesterday’s Supreme Court ruling in favor of Amazon should destroy any illusions workers may have as to whether either of the two corporate backed political parties in any way  represent our interests.  Readers of this blog will certainly not be surprised to learn of the 9-0 ruling in favor of the boss. 

All nine Justices, (including Obama's two nominees, the darlings of the American Liberals, Kagan and Sotomayor) ruled on the side of Amazon in its blatant wage theft from an already embarrassingly low paid workforce.  The lawsuit brought on behalf of Amazon’s employees argued that while workers wait in up to 30 minute in lines to go through mandated security check points for alleged theft, Amazon claims they are not entitled to wages because waiting in line is not "integral to the warehouse work of handling and sorting boxes "  (Justice Clarence Thomas wrote the unanimous opinion) 

I worked for a few years at a Home Depot in California and can relate to having to wait for the store manager to navigate the large building and whatever else he was doing so he could unlock the store's doors late at night to let out the workers. I remember myself and coworkers being agitated at this annoying inconvenience.  Although, I have no children to rush home and tend to, I remember having some discussions with some of my female coworkers on how they just wanted to get "out of this place so they could go home to their little ones" some of these female coworkers' husbands and mothers were waiting for them to get home so they could go to work.

Is it any wonder we have such violence, mass incarceration, (particularly people of color) failing schools, teen truancy and pregnancy, massive disparities in wealth, poverty, stress, and substance abuse in this country?  Although this ruling may seem of little importance in the wider scheme of things, I believe it exemplifies the assault against us and only exacerbates the issues raised above increasing the amount of stress workers and their families are left to live with in this country.  Imagine having to wait for even 10 minutes to leave work for just a few days a week.  The time stolen from the worker and their family quickly adds up!  

This case highlights how workers cannot depend on the electoral process or courts to help us confront the offensive being waged against us by big business and their lackeys in government.  Only mass direct action by the working class can turn back the assault. 

I learned of this ruling yesterday while operating my work truck with one of my coworkers who is originally from Russia.  As I explained what I knew of the case he exclaimed, Wow, 9-0! In his heavy Russian accent, "Does nobody care about labor in this country?"  We went on to discuss how it appears big business and the corporate state is clearly not that afraid of "big labor" at this point in time in our country.  We discussed how these workers should have a militant union that was willing to call the workers out on strike and demand they be compensated while waiting in line to leave work.

This is just one of the causes the union leadership should be taking up but are obviously not doing so and when they do take up issues like these, they do not do so in a meaningful, effective way.  Going to the courts for justice just does not seem that viable of an option, especially in light of what has happened recently in the US in regards to police brutality.  Only a wakening of the workers and their consciousness and organizing and waging mass direct action will stop the assault on workers and their families.  

Tuesday, December 9, 2014

Hilary 2016: Thatcher would be proud.

I thought this was a joke at first, perhaps a Republican attempt at humor. But it appears it is genuine. If we vote for Hilary we can all be cowboys. I warned some of my Democratic friends some time ago, Hilary is a ruthless character there's no doubt about it This video, makes it clear, patriotism, capitalism, wars upon wars. We'll have it all. What a diverse crowd we are here aren't we? From a candidate that if elected will be elected through the participation of millions of men and women of color. I think I saw one in this video. It's like an ad for a Ram Truck.

Monday, December 8, 2014

Oil, the rouble and the spectre of deflation

by Michael Roberts

Crude oil prices have dropped to five-year lows in just a few months.  And the reason is clear: it’s supply and demand!  On the supply-side, the most significant development has been the accelerating expansion of shale oil and gas production in North America, mainly in the US.

Oil and gas reserves are trapped in layers of shale rock and can be released by a process of hydraulic water pressure called fracking.  By sinking hundreds of rigs in quick succession, shale rock can produce significant supplies of tight oil and natural gas – and this process in North Dakota, Texas and other areas has turned US oil production round.  US oil output up to now had been based in traditional deep oil reserves in Texas, Louisiana and the Gulf of Mexico.  US production was in decline from the mid-1970s to around 4mbd and falling.  But with shale, annual output has rocketed back to 9mbd, near previous peaks.  Fracking for tight oil and gas is now spreading across the globe as those countries with large shale reserves look to exploit it in Poland, China, Europe and even the UK.

The other side of the price equation is demand.  Global demand for energy, particularly oil, has slowed.  That’s mainly because global economic growth has slowed since the Great Recession ended.  China has led the way with slowing growth, along with the other large emerging economies, like Brazil and India; and the major advanced capitalist economies remain in ‘low gear’ (see my post, http://thenextrecession.wordpress.com/2014/11/08/the-world-economy-in-low-gear/).  Industries are increasing their use of fossil fuels at a slower pace than expected, while transport demand is in decline (Americans are driving less).  Energy conservation has been stepped up and energy intensity (energy per unit of output) is falling everywhere.  All the international energy agencies now expect oil and gas prices to stay at these new lows for some years ahead.

The biggest losers are those countries that rely on energy exports to make their money: Saudi Arabia, the rest of the Arab oil states, super-rich Norway, super-poor Venezuela, Mexico and, above all, Russia.  The Saudis have launched a counter-offensive.  With more than five times the reserves of American shale, they are taking on the shale producers by increasing production in order to drive down the price to the point where shale producers start losing money (their production costs are way higher than the Saudis: about $50/b to $25/b).  So far this has not worked and shale production continues to rise.  But the Saudi policy is destroying the revenues of other OPEC producers like Venezuela – and Russia.

Putin may have faced up to ‘the West’ over Ukraine and refused to budge but, as I argued in a previous post (http://thenextrecession.wordpress.com/2014/11/10/from-poroshenko-to-putin-its-all-downhill/), the West has been winning the economic battle and the oil price has been the major weapon.  The collapse in the oil price has exposed the weakness of the Russian economy.

Just a year ago, Russia’s stockpile of dollars from energy exports stood at more than $515bn.  Now as oil revenues have dissipated and sanctions on Russia imposed by the West over Ukraine have been applied, Russia’s trade surplus has diminished and the flight of capital by oligarchs and others out of Russia and the rouble has rocketed to $120bn a year.  As a result, FX reserves have dropped below $400bn and the rouble has plunged in value to the dollar by 40% this year, invoking a sharp rise in the inflation of prices in Russian shops and shortages of imported goods.
Russian FX
$400bn is still a large reserve and the Russian central bank has tried to prop up the rouble by selling its dollars and buying the Russian currency in FX markets.  But it did not work.  Then the central bank just let the ruble go to save dollars.  And the rouble plunged further.  Now it has started buying roubles again with its reserves to stop the fall, again to no avail.
Russian rouble
Central bank policy is all over the place. And this is worrying Putin who has begun to criticise his own bank appointees.  The problem is that much of these reserves cannot be used to prop up the currency because enough must be kept to cover payments for essential imports (the IMF recommends at least three months worth of imports).  If reserves drop below that level, the rouble will go into even more meltdown as foreign lenders (mainly European banks) pull out their money.  Also the fall in the ruble means that all those Russian companies with big dollar debts and loans, particularly Russian banks, face huge dollar bills that they cannot meet.

According to the Russian Central Bank, the country has to repay $30bn of debt this month and another $138 bn in the next 18 months.  Only 2% of this debt is owed by the government, while non-financial enterprises accounted for more than 60%, the rest mostly belong to the banking debt, including Russia’s largest bank – the state-owned bank Sberbank.

So they are asking for (and getting money) from the government to bail them out.  State oil giant Rosneft, for example, has asked for $44bn, equalling more than half the remaining balance in the so-called Wellbeing Fund that’s earmarked to support the pension system.  VTB Bank and Gazprombank have already gotten more than $7 bn from the Wellbeing Fund and are asking for billions more.  If FX reserves and wealth funds are used up to bail out the banks, then planned infrastructure projects will be dropped and pensions will come under threat.  And the three-month import limit will get closer.  At current rates of decline in FX reserves, that limit could be reached by summer 2015.

Putin‘s annual address to the Russian parliament last week showed he was getting worried.  He even offered a complete amnesty to oligarchs who have been spiriting their money out of Russia like a waterfall in the last few months.  “I propose a full amnesty for capital returning to Russia,” Putin said. “I stress, full amnesty.”  “It means,” he continued, “that if a person legalizes his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not ‘put the squeeze’ on him, that he will not be asked about the sources of his capital and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he will not be questioned by the tax service or law enforcement agencies.”  

In Russia, two of the major classes of people who have large amounts of capital overseas are organized criminal groups and the so-called oligarchs. In stressing that there would be no prosecution, Putin appeared to explicitly leave the door open to money obtained illegally. “He’s talking to people who have engaged in corporate raiding,” said Professor Louise Shelley, founder and director of the Terrorism, Transnational Crime and Corruption Center at George Mason University in Fairfax, VA. “There are thousands of cases where people who have used criminal processes and false documents to acquire assets. He’s talking to organized crime figures who have taken over businesses.”  She added, “There are no large fortunes that are entirely clean money in Russia.”

Assuming the oil price stabilises at around $60/b next year, Putin can avoid a debt crisis next summer, if he can squeeze Russian corporations to buy roubles with their dollar export revenues (a form of capital controls) and to bail out the banks with government reserves.  Putin is doing just that.  But that does not save the domestic economy.  The sanctions plus the collapse in oil prices have pushed the Russian economy into recession.  The government admitted that the economy would contract by about 1% next year, with investment falling 3.5% and average household incomes down nearly 3% in a year!  Indeed, for the first time in 15 years, living standards for the average Russian will fall in 2015. A freeze on inflation-linked pay has been imposed and inflation is rising at nearly 10% a year now.

Putin may be very popular because of his foreign policy over Ukraine and ‘standing up’ to the West, but his popularity will now suffer because of his domestic policy.  Russian-style austerity is coming.  Whereas government spending has risen an average 10% a year in the past decade, it will now be cut.  Cutting military and police spending is politically impossible because Putin needs the support of the security establishment so he can rely on them in case of social unrest. This means the government will have to target investments, benefits and salaries. Last week, Putin announced a 5% cut in real terms from 2015-2017 by reducing “ineffective spending,” except for defence and security.  Putin used to promise Russians that their country would overtake Germany as the world’s fifth-largest economy by 2020. In May 2012, he signed a decree pledging to increase real wages by half by 2018. Those promises are now dead in the water.

Putin continues to rely on his Ukraine policy for popularity and Ukraine’s economy is in an even worse state.  Ukraine’s central bank reserves have dipped below the $10bn mark for the first time since 2005 after making a gas payment to Russia’s Gazprom (see my posts on Ukraine).  The IMF will probably hand over another $2.7bn in funding to tide the Kiev government over.  But it is clear that Ukraine needs another $20bn over the next two years to handle the war in the east and fund debt repayments.  An IMF mission arrives tomorrow to plan a massive austerity plan for the Ukrainian people in return for funding.

But probably the most important aspect of the collapse in the oil price is the spectre of global deflation.  World inflation has been very low since the Great Recession, another indicator of the Long Depression that the world economy has been locked into.  But what inflation of prices there has been has mainly been due to the sharp rise in energy prices.  Non-energy price rises have been minimal.  Now, with the sharp fall in energy and other commodity prices (metals, food etc), deflation is the spectre haunting the globe.
Global PPI
Oxford Economics finds that if oil prices were to fall to as low as $40/b, then 41 out of 45 countries it follows would experience deflation.
Deflation
Some argue that this is good news. This is the line of some neoclassical economists and the Austrian school.  Falling prices, particularly in energy and food, will raise consumer purchasing power, and help boost demand and thus economic growth.

But for profitability, it is bad news.  Inflation of corporate producer prices is another temporary counteracting tendency to falling profitability.  If it disappears, then the downward pressure on profitability from any new technology investment will be greater as falling prices squeeze profit margins.  In that sense, deflation is not good news for the capitalist sector, especially if it is burdened with heavy debts (small businesses in particular).  So the crisis brewing for Russian businesses may be followed by others.  It could be another factor leading to a new global slump, this time based in the non-financial productive sector of capitalism.