The persistence of global capitalism’s Long Depression: An interview with Michael Roberts

First published at Spectre.

While the Biden administration and its liberal apologists crow about the economic recovery, US capitalism and indeed global capitalism in reality remain stuck in a slump with seemingly no end in sight. Spectre’s Ashley Smith interviews Michael Roberts about the state of the US and world economy, the reasons for what he calls the Long Depression, and how it is driving political polarization within countries and imperial rivalries between the globe’s dominant and rising powers. 

Michael Roberts is the author of The Long Depression: Marxism and the Global Crisis of Capitalism (Haymarket 2016) and with Guglielmo Carchedi, Capitalism in the 21st Century (Pluto, 2022). He is also co-editor of World in Crisis: A Global Analysis of Marx’s Law of Profitability (Haymarket, 2018) and Marx 200: A Review of Marx’s Economics (Lulu, 2020). He writes regular commentary and analysis on his blog, The Next Recession.

I have argued that the major capitalist economies have been in what I call a Long Depression since at least 2008-9. I mean by that real GDP growth rates have been slowing through the 21st century, along with slower investment and trade growth. And after each recession or slump (2001, 2008-9, and 2020), the ensuing trend growth in production, investment and trade does not return to previous levels but recovers at a much lower trend.

This Long Depression has only happened twice before in the history of modern capitalism: in the late 19th century (for the United States from 1873 to 1995); in the Great Depression of the 1930s (1929 to 1946); and now (from about 2008 to the present).

Much is being made of the so-called “soft landing” in the US economy, or no landing at all. Contrary to most expectations, the US economy grew 2.5 percent in real terms (after inflation) in 2023, faster than in 2022. But as you can see from the graph above, that the US rate of “recovery” since the end of the pandemic slump in 2020 was still slower than the rate of recovery after the Great Recession of 2008-9 and the rate of recovery in the 2010s was slower again than in the decade of the 2000s. 

That’s real gross domestic product (GDP). When we look at Gross Domestic Income (GDI) which theoretically should be the same, GDI growth was less than half that of GDP, suggesting that output growth has not been reflected in income growth. The main reason is that GDP growth has not been transformed into increased sales and revenue at the same rate. Stocks of goods produced have instead built up. US manufacturing industry is in fact mired in the longest slump in more than two decades.

And the United States was the best performing top capitalist economy in 2023. The rest of the so-called G7 (top 7) economies were in recession (contracting real GDP) – the UK, Germany; or stagnating – France, Italy, Japan, Canada. The average real GDP growth in 2023 for the advanced capitalist economies was just 1.3 percent (down from 1.4 percent in 2022). 

Moreover, we are measuring the real GDP growth rate here. In the case of countries like the United States, the United Kingdom, Canada, Australia, and others, real GDP growth has mainly been driven by an increase of workers, in particular a sharp rise in immigrants of working age into these countries. 

If we look at growth in real GDP per person, the “recovery” is much weaker. Indeed, since the beginning of the pandemic in 2020, the US economy has achieved only about 1.1 percent annual per capita growth and the other G7 economies have contracted or stagnated.

Yes, the United States and other G7 economies have near “full employment” on official stats, although the US unemployment rate is now ticking up. But in 2023, all the net US jobs increase was in part-time work. Part-time jobs were up 870k, while better paid (net) full-time jobs hardly rose. 

If we look ahead, the World Bank expects global real GDP growth to expand just 2.4 percent this year (and that includes India, China, Indonesia etc. which will grow at 5-6 percent). This would mark the third year in a row where growth would prove weaker than the previous 12 months.

Indeed, the World Bank reckons that the global economy is on track for its worst half-decade of growth in 30 years. Similarly, global trade growth in 2024 is expected to be only half the average in the decade before the pandemic. Global goods trade contracted in 2023, marking the first annual decline outside of global recessions in the past 20 years. The recovery in global trade in 2021-24 is projected to be the weakest following a global recession in the past half century. 

And all these data are averages. When we take into account the inequality of incomes and wealth in all the major economies, the situation is far worse for those in the bottom half of households than the top half. The top 1 percent have never seen such a rise in wealth and incomes, while the bottom half has never seen such a long-lasting fall in real incomes and wealth. 

During the pandemic and cost-of-living crisis years since 2020, $26 trillion (63 percent) of all new wealth was captured by the richest 1 percent, while $16 trillion (37 percent) went to the rest of the world put together. A billionaire gained roughly $1.7 million for every $1 of new global wealth earned by a person in the bottom 90 percent.

That brings me to your question about inflation. It is now well-established by a series of research papers, that the post-pandemic inflationary spike from 2021-23 was caused by “supply-side” factors, i.e. rocketing energy and food prices globally, a breakdown of supply chains, trade and transport for goods and raw materials, a shortage of workers who did not return to their jobs after COVID; and the poor recovery in the productivity of the labor force that did. It was not caused by “excessive” money supply by central banks; or by “excessive demand” caused by government spending; or by “excessive wage increases” creating a “wage-price spiral.” 

These were the claims made by central banks and governments everywhere. But we know that there was an average price rise in all the major economies of up to 20 percent (on official figures) over the period which outstripped wage rises by some way. Indeed, it was more a “profit-price spiral” as profits for energy, tech, finance and food companies skyrocketed.

The fall in inflation rates in the major economies during 2023 was not due to central banks hiking interest rates. The main reason was a fallback in energy and food prices and the impact spilling through into other sectors. Nevertheless, governments and central banks like to claim the credit for lower inflation. Bur lower inflation does not mean lower prices; it means a slower increase in prices (already as I say up 20 percent since 2021). 

And now there is a risk of energy and food prices starting to turn up again from the impact of the ensuing Russia-Ukraine conflict and the horrific Israeli destruction of Gaza as they begin to affect energy and food producing regions. I predict that the central bank targets of 2 percent inflation a year will not be met in the foreseeable future.

Yes, the Biden administration has put in $500 billion in public money (over ten years) to try and boost the economy and encourage private investment to increase. But the underlying principle of this so-called industrial policy is really to bribe companies to invest with tax allowances, subsidies, loans and grants. 

The decisions on investment remain in the hands of corporate boards and the profits accrued go to them, not to the government. Public investment programs are not through public or state-owned companies but through handouts to the private sector. To put it in the words of the Biden administration, it’s about “crowding in” private investment. 

In the case of the Chips Act, huge amounts of public funds are going to the already hugely rich tech companies in order to build plant for a much higher cost domestic industry. Subsidies to fossil fuel companies are still much higher than any financial support for renewables. And much of these funds are being used to make armaments and enrich the arms companies. 

Technology boomed in 2023, as government subsidies for technology companies mushroomed. The Inflation Reduction Act offered tax incentives for renewable-energy equipment manufacturers and buyers of electric vehicles. The Chips and Science Act included $39 billion in subsidies for semiconductor makers.

Even so, has it boosted US investment?  Certainly, there has been a huge jump in the construction of manufacturing plant, but other sectors have not shown little growth – business orders of capital goods, excluding aircraft and military goods, have been falling for about two years.

Moreover, much of the funds have gone to sectors that do not generate much employment, so that the bulk of American workers remain in low-paid, often precarious, jobs with no career prospects, healthcare or pensions.

The Biden measures are being paid only partly by raising taxes on the rich – much of the previous tax cuts brought in by Trump have not been reversed. Spending on arms and defense has reached record levels while spending on public services outside social security and Medicare are falling in real terms. 

Even worse, it is now the case that spending on the interest paid to Wall Street and foreign investors for buying US government debt is larger than spending on discretionary public services. Bidenomics now means ‘crowding in private investment’ at the expense of “crowding out” public services, both federally and state wise.

Krugman talks of “vibecession” going on i.e. even though the US economy is apparently on a roll, many Americans don’t seem to see that. They think things are getting worse for them. This is not some misperception, as Krugman thinks. It is one thing to claim the US economy is doing well by looking at real GDP (but as I argue above, even that is not great); it is another thing to argue that the majority of Americans are seeing better living standards. 

Take inflation. The official inflation rate has been coming down quite fast, but this measure leaves out important expenses for most Americans – particularly mortgage and credit borrowing rates that have shot up and stayed up. Sure, the prices of food and energy may have dropped back somewhat and electrical goods, but the cost of utilities, transport, taxation and other services have not come down at all. A recent research paper from that other Keynesian guru, Larry Summers, argued that if these costs were included in the official inflation data, inflation rates would be double and would explain about 70 percent of the fall in Americans’ sentiment about the economy.

The financial markets, led by the tech and media sectors, may be booming, given Bidenomics and the prospect of falling interest rates, but there is no boom in the living standards of most American households.

Yes, as I briefly argued above, most of the major advanced capitalist economies have made a very weak recovery from the scars of the COVID pandemic slump. It’s no better even in the “growth economies” of the other G20 economies like Korea, China, Brazil, or South Africa where growth has also slowed. 

It’s even worse for the poor so-called Global South countries. Export revenues from their commodity exports have not been enough to turn things around, inflation remains high and above all many of these countries are suffering “debt distress” i.e. an increasing inability to meet the rising costs of debt owed to foreigners given high interest rates and a strong US dollar.

The debt crisis has spread across many Global South countries from Egypt to Pakistan; from Argentina to Colombia; from Sri Lanka to Myanmar. In general, the IMF and World Bak have called for “debt relief” i.e. reducing the interest rate on debt or extending and rolling over the debt for a longer period. They have also sought to negotiate a ‘restructuring’ of the debt with foreign investors, hedge funds and governments. But at no time have they called for the cancellation of these onerous debts and freed poor countries from these debt traps.

But there is also a debt crisis brewing in the advanced capitalist economies. The media talks about large government budget deficits and rising public debt levels in the G7 economies, but they say little about a bigger problem: rising private sector debt (for households and companies). And remember much of the currently high public sector debt is due to bailing out the banks in the global financial crash and making huge handouts to COVID relief during the pandemic. The public sector (i.e. most citizens) is still paying for the private sector’s mess.

We read in the media that US companies are making huge profits and doing well. But this is true only for a handful of top companies in energy, tech and finance. The vast swathe of companies in North America and Europe has relatively low profitability on their investments. And there are up to 20 percent of companies that are “zombies,” i.e. they do not make enough profit to meet even their debt servicing costs and so must borrow more to cover that. And there is another layer of companies called “fallen angels,” companies that were doing well but are now close to becoming zombies.

Bankruptcies are rising in the major economies, but not yet at levels seen in the Great Recession. That’s because these companies have been bailed out by the banks and government credits try to see them through. And these companies built in debt deals with relatively low interest rates before central banks hiked rates.

But this means the capitalist economy is not ‘cleansed’ of the weak and unproductive. That holds back the whole economy from boosting productivity and raising profitability for the rest.

The previous two depressions lasted on and off for about 20 years or more. The current depression has been going for about 15 years. It looks as though it could continue for the rest of this decade. What could bring it to an end?  Well, there must be a step change in the average level of profitability for the capitalist sector in the major economies. 

How could that happen?  Well, first there would probably have to be yet another seriously deep slump in order to cleanse the unprofitable companies from the system. That has been avoided up to now because of the impact it would have on employment and incomes for hundreds of millions. The political consequences of that for the ruling orders are just too much to contemplate for now.

But if that were to happen in the next 5-10 years and the ruling orders managed to impose severe austerity and reduction in living standards, then increased profitability for capital would encourage investment in new technologies like AI, robots, biotechnology – and perhaps that would set the scene for a new boom in capitalism. That’s what happened at the end of 19th century depression in the 1890s and after WW2 – technologies that had been invented during the depression were then exploited afterwards.

The hope of the optimists is that AI and LLMs will kick-start a “roaring 20s.” similar to that experienced in the United States after the end of the Spanish flu epidemic from 1918-20 and the subsequent slump of 1920 and 1921. But some things are different now. In 1921, the United States was fast-rising manufacturing power, sweeping past war-torn Europe and a declining Britain. Now the US economy is in relative decline, manufacturing is stagnating, and the United States faces the threat of the rise of China. 

The problem is that it is increasingly difficult for global capital to find new markets and more labor to exploit, facing as it does a working class globally that has never been larger. The vast majority of people are now workers, and the vast majority are urbanized. Moreover, capital now faces huge challenges in the 21st century that did not exist before: climate change and global warming; huge inequalities; rising global displacement of populations; etc.

The weakness of capitalist growth and investment and rising inequality has meant that the ruling orders have demanded austerity, privatization, the cutting of public services; the deregulation of markets, environment and health; the freeing of international capital movements; the crushing of trade unions etc. And the mainstream parties, not only of the “center-right” but often even more so, the social democratic center left, have accepted and adopted these policies as “there is no alternative” (TINA). 

But with these measures imposed now for decades, capitalism is not meeting the needs of billions. The political result is the increasing collapse in support for the “mainstream,” particularly liberal, social democratic left. Everywhere these parties have slumped in support, while so-called “populist” parties of the hard right have gained in support and even entered governments in Europe. The American phenomena of Trumpism is emerging everywhere in Europe, Latin America, and even in parts of Asia. 

What does the new right offer?  They claim the failure of capitalism is due to immigrants, “globalization;” big business; and “wokeism.” They want protectionist policies for trade and industry, getting out of international organizations, the removal of immigrants, particularly those of different skin color or religion, the ending of welfare for the poor and the privatization of public services. 

At the moment, these policies have some traction. They herald the first seeds of neo-fascism. And while the socialist left remains in disarray and unable to mount an effective movement, those seeds will grow.

In the depression of the late 19th century, geopolitical rivalry between old hegemonic powers (then Britain and France) and new rising powers (the United States and Germany) intensified. The world entered an arms race, adopted protectionist trade and other measures, and eventually went to war. The Great Depression of the 1930s saw a similar result.

In the post-1945 period, US capitalism was dominant and set the international rules for trade, investment and politics. But US hegemony began to decline relatively in the 1970s as Germany and Japan rose. The collapse of the Soviet Union at the end of the 1980s gave a new lease of life to US “globalization” of capital, as the imperialist countries moved their manufacturing abroad and reduced barriers to the free movement of their capital.

However, the Great Recession changed that. Globalization stuttered, US hegemony declined, and a new economic colossus, China, emerged to threaten the imperialist bloc. Russia too gradually refused to play ball with US-European capital. 

We have entered an increasingly multi-polar world. US imperialism is still dominant, but it is desperately trying to strangle, surround and crush China’s growing economic power. This is the great geopolitical struggle of the 2020s – with the real risk of military conflict down the road, as at the end of previous depressions.