US economy: A major attack on labour rights

President Barack Obama bragged how he had saved the US auto industry by handing out billions in taxpayers’ money to the auto bosses, and even establishing what amounted to temporary federal ownership of the old General Motors plants when GM went bankrupt during the “Great Recession”.

By Sam Williams

December 23, 2012 -- A Critique of Crisis Theory, posted at Links International Journal of Socialist Journal with permission -- December 11, 2012, brought news of a major new attack on basic labour rights in the United States. The following day, the Federal Reserve [the US central bank] announced new inflationary measures designed to end the economic stagnation the US economy has been mired in since the “Great Recession” bottomed out in July 2009.

The new attack on labour rights occurred when Michigan state governor Rick Snyder signed a so-called “right to work” bill in the state that is the home of the US auto industry. Unlike the attacks in Wisconsin and some other US states that targeted the labour rights of state employees, the Michigan legislation—though it affects state employees, with the police being a significant exception—is clearly aimed at Michigan’s highly unionised automobile industry.

So-called “right to work” laws in the US have absolutely nothing to do with the right of workers to a job. The leaders of US capitalism recognise no such right. Rather, under the Taft-Hartley Act of 1947, US state governments can pass “right to work” laws that outlaw the union shop. Under a union shop, all workers are required to pay union dues after their probation period as new hires ends.

Traditionally, such laws have existed in the southern US states, with their long history of slavery and post-slavery apartheid-type Jim Crow segregation laws. Ultimately, the “right to work” laws of these states, where unions have always been weak, can be seen as part of the heritage of slavery itself. However, the passage of such legislation in Michigan, a northern state that was never a slave state and was at the very centre of the rise of the Congress of Industrial Organisations—CIO—is another matter altogether.

Michigan is the home of the United Automobile Workers (UAW), the most powerful industrial union created by the great strike movement of the 1930s. For the first time since the auto bosses were forced to recognise the UAW, the passage of this legislation opens up the real possibility that they are preparing to bust the UAW altogether.

Charles Krauthammer makes clear the UAW is the chief target

Washington Post columnist and “opinion maker” Charles Krauthammer explains that the chief target of the Michigan “right to work” law—which he enthusiastically supports—is indeed the United Automobile Workers. Krauthammer attacks what he calls “nostalgics”—by which he means New Deal-type liberals and progressives—who “look back to the immediate postwar years when the UAW was all powerful, the auto companies were highly profitable [enjoyed monopoly super-profits] and the world was flooded with American cars”. But, Krauthammer explains, though not of course quite in these words, the days of monopoly super-profits that could be shared with the autoworkers are gone.

Krauthammer writes: “America, alone among the great industrial powers, emerged unscathed from World War II. Japan was a cinder, Germany rubble and the allies—beginning with Britain and France—an exhausted shell of their former imperial selves.” But those “golden days” of the “big three” US auto monopoly are now only a memory.

Obama administration bails out auto industry

During the election campaign, President Barack Obama bragged how he had saved the US auto industry by handing out billions in taxpayers’ money to the auto bosses, and even establishing what amounted to temporary federal ownership of the old General Motors plants when GM went bankrupt during the “Great Recession”. The other part of Obama’s plan to save the auto industry was to pressure the UAW to agree to drastic cuts in the wages of auto workers. This has encouraged the auto bosses to push things to the next step—a union-free automobile industry.

Indeed, union-free auto plants have already been established in the southern former slave states that have long had “right to work for less” laws. So far, the UAW has been unable to win union recognition in these new southern auto plants. Since the witchhunts of the late 1940s and early 1950s drove out the left wing of the UAW, this once mighty industrial union has been bogged down in ever-greater class collabouration. The latest example was the UAW going all out to re-elect President Obama and the Democrats in the recent elections.

Division of labour between the Democrats and Republicans exposed

While the Michigan “right to work” law was passed by a lame-duck Republican state legislature and signed by a Republican governor—who, by the way, had promised not to sign it but then signed it anyway—this bill would have been impossible if the Democrats had kept their now long-forgotten promise to repeal the Taft-Hartley Law.[1]

After all, as recently as 2009-11 the Democrats had majorities in both houses of the US Congress and controlled the White House. But the question of repealing Taft-Hartley was never even raised. Back in the 1940s, before Taft-Hartley was passed, the UAW was committed to the formation of a mass working-class party based on the trade unions. But the UAW leaders of those days then explained that we must support the Democrats “one more time”. In time, the idea of forming a labour party was forgotten. On December 11, the auto bosses through their bought-and-paid-for state legislature and governor gave the UAW its reward for its decades of deepening class collabouration.

President Obama and the Democrats

“President Obama”, Krauthammer complains in his article celebrating Michigan’s “right to work” law, “railed against the Michigan legislation”. Krauthammer disapprovingly quotes the Democratic president as calling the proposed law “giving you the right to work for less money”.

For once President Obama was telling it like it is. But will the Democratic president introduce a law that will finally repeal Taft-Hartley? Such a bill would not only wipe the “right to work” law off the books in Michigan but in the other 24 states that have passed such laws, as well.

True, the Republicans would filibuster it in the Senate, and the Republican-controlled House of Representatives would refuse to pass such legislation. But the Democrat majority in the Senate could throw out the filibuster rule and pass a bill repealing Taft-Hartley. Then in the 2014 elections, the Democrats could campaign on a platform of repealing Taft-Hartley and finally opening up the South to unionisation. This would give many poor white working people in the South a reason to reconsider their ancient practice of voting for the “white man’s party”—once the Jim Crow Democrats but nowadays the Republicans.

Will this actually happen? Nobody is even talking about such a possibility. The reason is that the Democrats serve the same class interests as the Republicans. They merely play the “good cop” in the ancient game of “bad cop versus good cop”.

The “bad cop” threatens to beat the hell out of the prisoner unless the cops’ victim promptly confesses to his or her alleged crime, while the “good cop” pretends to be the friend of the prisoner. The “good cop” explains that he desperately wants to help the prisoner but can’t unless the prisoner promptly makes a full confession to the alleged crime. In reality, the two cops are simply playing out carefully scripted roles designed to break the resistance of the prisoner.

De-industrialisation and the war against the unions

Why are the bosses targeting what is left of the industrial unions that were established by the great labour upsurge of the 1930s? After all, the US auto monopoly has been gone for decades.

The sudden acceleration of acts against unions is part the drive to reverse or at least halt the further “de-industrialisation” of the United States. The plan of the bosses and their two parties, the “bad cop” Republicans and the “good cop” Democrats, is to raise the rate of surplus value in the United States so much that the mega-corporations decide that it is once again at least as profitable to carry out industrial production in the US as it is in China and other Asian countries.

Back before the panic of 2008, the US media boasted that the US was becoming a “high value added” economy based on services and “information” such as computer software that consists of strings of ones and zeros, and no longer needed an industrial base. US capitalism, the argument went, had left the stage of industrial production development behind. The business of actually making things could be left to backward countries like the People’s Republic of China.

However, Marxism teaches otherwise. According to Marxism, it is material production that forms the basis of every human society. Indeed, scientists have convincingly demonstrated that the differentiation of humans from the rest of the animal kingdom began at least 2.6 million years ago when a group of African apes closely related to present-day African chimpanzees and bonobos, called by scientists australopithecines, began to make crude stone tools. Over thousands of generations, these apes became increasingly dependent on tool making and labour.

At a certain point in this process, natural selection, which generally favours small brains that economise on energy, began to favour slightly larger brains among tool-making australopithecines, since the more intelligent individuals were generally better tool makers and thus more likely to pass on their genes to the next generation. Over the next several million years, the forces of natural selection, filtered through tool making, gradually transformed the australopithecines into human beings. Ever since this momentous transformation, material production has formed the foundation of every human society.

Though the US ruling class is far from Marxist in its outlook, the de-industrialisation of the United States that has unfolded under its leadership over the last 35 years has now gone so far it can no longer deny the fundamental truth of the decisive importance of material production that forms the basis of Marxist historical materialism. If the industrial base of the US continues to erode, it will be only a matter of time before the US world empire falls, and for the same basic reasons that all empires before it have fallen.

Especially since the 2007-09 crisis, this realisation has finally begun to penetrate the thick skulls of the political leaders of the US capitalist class—both Democrats and Republicans and their bought-and-paid-for “opinion makers” like Charles Krauthammer. They are now increasingly realising that they must halt and begin to reverse “de-industrialisation” if they are to save their global empire.

As a result, the US media has begun to publish stories of US corporations moving production from China back to the United States. The argument goes that with wages rising in China while they have been falling in the US, it is once again feasible—that is, profitable—to carry out industrial production in the United States. A recent example was the announcement by Apple Inc.’s CEO Tim Cook[2]—the successor to Steve Jobs—that it was going to spend $100 million next year to enable the manufacture of some Mac computers in the US.

However, a close examination of the announcement indicates that there is considerably less here than meets the eye. First, Apple does not actually plan to build a factory to manufacture these Mac computers but only spend $100 million on computers that will be manufactured by some unnamed industrial capitalists in some unnamed part of the United States. It is a pretty good bet that this unnamed manufacturer will be a non-union outfit located in a “right to work” state.

By the standards of large-scale industrial capital, $100 million in much devalued dollars doesn’t represent that much capital these days. Apple has about $100 billion in cash or near cash assets on hand, more than the US Treasury. The market for personal computers is now what is called in the business world a “mature”—that is, stagnant—market.

In Marxist terms, this mean that productive capital invested in making personal computers—desktops and laptops—can at best hope to realise the average rate of profit, if that. Apple’s super-profits are coming from the rapidly expanding—for now—market [3] in hand-held computers—smart phones and tablet computers. In recent weeks, there are reports that overproduction is beginning to appear in this market as iPhones and other “iThings” are beginning to pile up unsold in warehouses. As a result, Apple’s recently soaring stock has begun to plunge on the world’s stock exchanges.

In any case, Apple[4] lost the race to dominate the personal computer market to the so-called Wintel monopoly several decades ago. The Wintel monopoly is a joint monopoly of two companies—the California Intel Corporation, which monopolises the market for the so-called X86 CPUs—central processing units—that form the “brains” of personal and larger computers, and the Microsoft Corporation of Washington state, which writes the proprietary software based on Microsoft’s Windows operating system used on most personal computers.

So far, however, the Wintel monopoly has been largely unsuccessful in penetrating the market for hand-held computers—though it is trying with the recent release of Microsoft’s new Windows 8 operating system. In the fast-growing hand-held market, Apple and the Android/Linux-based devices are now battling it out for monopolistic domination.

So the announcement that Apple will be buying $100 million worth of personal—not hand-held—computers manufactured by some unnamed industrial corporation in the US hardly represents a major shift of production back to the United States. Indeed, it is suspected that this is hardly more than a political gesture to those who are attacking Apple’s lack of “patriotism” for relying on production in the People’s Republic of China rather than production carried out in the United States.

Importance of the US automobile industry to US capitalism

Since the 1920s, the US industrial economy has been centred around the automobile manufacturing industry. In addition to automobile manufacturing proper, this includes steel, machine tools and automobile parts. It was the huge complex of basic industry centered around the automobile industry that formed the basis of the Congress of Industrial Organisations, or CIO, the great movement of industrial unions that flourished in the US once the super-crisis proper of 1929-33 had run its course.

During the deep recession of the early 1980s, much of the basic industry of the US as well as that of Britain—the first-born country of mechanised industrial production—collapsed. However, the US auto manufacturing industry centred in Detroit, Michigan—though badly shaken—fared better than the US steel industry, whose historic centre was Pittsburgh, Pennsylvania.

The crisis of 2007-09 brought the bankruptcy of the old General Motors Corporation, a once unthinkable event. The government had to intervene to create an initially largely federal government-owned—now largely privatised—new company to take over GM’s factories, while the new, and they hope profitable, General Motors Company was organised. If the federal government had not intervened, the Michigan-based auto industry might soon have gone the way of the old Pennsylvania-centred US steel industry.

The global auto industry is entering a critical period. A general shift is occurring away from the internal combustion engine that has dominated automobiles—including trucks and buses—since the days of Henry Ford toward the electric motor. In addition, the application of computer technology in the automobile is progressing. The Google search engine monopoly is now experimenting with automobiles that are completely computer controlled. The human passenger simply indicates where he or she wants to go and leaves the driving to the computer.

Very often when an industry undergoes radical technological change, many of the existing corporations collapse and new monopolies rapidly develop. This happened when the old horse-drawn carriage industry was replaced by the automobile industry in the early years of the 20th century. In addition, if the corporations that previously monopolised a market collapse, or at least lose a good deal of their old monopoly positions, there is no guarantee that the new corporations that replace them will be located in the same country.

One of the reasons why the US rose to world dominance in the 20th century was that it was the old “big three” auto monopoly of Ford, General Motors and Chrysler that dominated the 20th-century automobile industry. One of the greatest fears that leaders of US imperialism have is that the emerging automobile industry of the 21st century will be dominated by Chinese corporations.

Remember, unlike other big players in the world automobile industry, such as Japan, Germany and Italy, the US does not control China either militarily or politically. During World War II, the ability of the US automobile industry to be rapidly converted to the production of tanks and airplanes played no small role in the victory of the US over Germany, Italy and Japan. This is why the Obama administration and the leadership of the US capitalist class have drawn a line in the sand in its bid to save the US automobile industry—even if it means a union-free automobile industry.

While busting unions is crucial to the current drive of the US government and the bosses to halt further de-industrialisation, the task would be rendered easier for them if the US and the world economy would grow at a faster rate than the recent post-Great Recession snail’s pace. This would mean a new expansion of the world market and would reduce to a certain extent the competition among the world’s industrial capitalists, allowing the US more time to re-industrialise. When the market expands rapidly, one capitalist’s gain need not be another capitalist’s loss.

Prospects for a revival of the US trade union movement

A revival of US basic industry would be good news for the US trade union movement if it occurs. Indeed, all hopes of returning the US trade union movement to anything like the power it had between the 1930s and 1960s—short of a rise of a massive revolutionary working-class movement that aims at overthrowing capitalism itself—are highly dependent on such a development. This is especially true when we consider the fact that the gains of the CIO itself would likely have been impossible in the absence of the Soviet Union with its planned economy, the Communist International and a Communist Party membership in the tens of thousands.

When the super-crisis of 1929-33 hit, many US factories were closed and their workers laid off. Since in those days, there was no unemployment insurance system in the US, workers faced dire poverty as soon as they were laid off. As a result, those factories and other capitalist businesses that maintained some level of activity were able to drastically lower wages and worsen working conditions. The bosses said to each worker individually, if you don’t like the wage and conditions I am offering you, there are thousands of desperate men and women out there who are more than willing to take your job on the terms that I am offering.

The fortunes of the then very weak US union movement plummeted. However, as soon as the economy began to recover from the ravishes of the super-crisis, beginning in 1933, the US bosses were soon reminded how dependent on the workers they really were. The bosses attempted to maintain the “gains” they had made during the super-crisis—the miserable wages and working conditions of 1932-33—while the workers struggled to regain what they had lost after 1929.

As a result, the CIO was born. Could something like this happen again? The bosses and their spokespeople like Charles Krauthammer assure us that the strength that unions enjoyed between the 1930s and the 1960s can never be restored. “[T]he UAW won wages, benefits and protections”, Krauthammer writes, “that were the envy of the world.” “One can sympathize”, Krauthammer concludes, “with those who pine for the union glory days, while at the same time welcoming the new realism that promises not an impossible restoration but desperately needed—and doable—recalibration and recovery.”

However, Krauthammer—and here he is merely the miserable voice of US capital—explains that the golden days after World War II were “not a norm but a historical anomaly”. So much for “American exceptionalism”. The “new norm” is the old norm that prevailed in the days before the CIO when workers were paid just enough to reproduce their labour power—if that—and nothing more. Is this the best that US capitalism has in store for the US workers from now on, slaving away in factories, service enterprises, mines and fields at bare subsistence without union protection?

Generally after a particularly nasty downturn such as the 2007-09 Great Recession, the rate of economic growth is faster than normal. The faster-than-normal recovery compensates for the deeper-than-average downturn. This pattern showed itself even after the 1929-33 super-crisis, playing a key role in the rise of CIO. Indeed, it was the rapid growth in industrial jobs from the lows of 1932-33 that made the gains of the CIO possible without a revolutionary transformation of US society.

In contrast, the 2007-09 Great Recession, though by far the deepest since the Depression, has been followed by the weakest recovery on record—especially as far as the recovery of employment is concerned. The current very low rate of economic growth of the US economy is simply not compatible with the re-industrialisation of the US economy that leaders of US imperialism view as necessary for its long-term survival.

Federal Reserve System’s attempt to increase the rate of economic growth

The Federal Reserve is therefore more and more preoccupied with trying to accelerate the rate of economic growth through the only weapon it has, more “monetary stimulation”—that is, monetary inflation—though this is very dangerous. Apparently, the Federal Reserve leaders feel they have no other choice.

Last month, I expressed the opinion that a recession in 2013 arising from the “fiscal cliff”—a withdrawal of more than $600 billion worth of purchasing power due to higher taxes and drastic cuts in spending by the federal government over the next year that is mandated by current legislation unless a deal is reached by the Democrats and Republicans—is virtually excluded.

Exactly as I predicted last month, the Obama administration, the Democrats and the Republicans are currently putting on a show designed to scare the US public—especially workers but also the middle class—into accepting a so-called “Grand Bargain” that will feature at most very small and essentially cosmetic tax rises for the rich—keeping the bulk of the Bush tax cuts for the rich intact—combined with cuts in so-called “entitlement spending”—largely Medicare and Social Security.

The trade union leaders and their progressive allies, pathetically using the arguments associated with Keynes, are preaching to the US bosses that “austerity” is a great mistake since it will reduce demand and thus economic growth rather than increase it. At bottom, these arguments are based on the idea that the bosses and the workers can achieve the necessary rise in the rate of profit through a rise in demand. The trade union leaders, liberals and progressives argue that demand cannot be increased if the living standards and purchasing power of the workers and the mass of the people are lowered. In this way, the progressives hope to reconcile the interests of the exploiting capitalist class and the exploited working class.

The bosses and the Republicans do not agree with this. On the contrary, they believe that key to any economic recovery and re-industrialisation is raising the ratio of unpaid to paid labour of US workers—or in Marxist terms, raising the rate of surplus value. Only this will make a massive increase in the level of industrial production carried out in the United States possible. Trade unions like the UAW only get in the way of this.

President Obama and the Democrats, playing the role of the “good cop” to the Republican “bad cop”, pretend to be sympathetic with arguments of the trade union leaders and their progressive allies. But as December 31 approaches, they will explain that with the Republicans retaining their veto power in Congress, they must come to an agreement with the Republicans or “go over the fiscal cliff”, which will mean a return of deep recession.

When an agreement is reached—and it will be reached—that will largely give in to the Republican demands, the Democrats will explain that they had to do “what is right for America” and the media will doubtless explain that the danger of recession has now been avoided and that the prospects for a rate of economic growth sufficient to re-industrialise the US economy are excellent—but on a weakened or non-union basis with far fewer “entitlements” than in the past.

Where are we in the current industrial cycle?

The current global industrial cycle began in 2007 when the boom, such as it was, of the 2000s gave way to the first stage of the cyclical crisis that became the Great Recession. Where are we in the current international industrial cycle?

Let’s begin with the US government’s latest and once again extremely deceptive report on unemployment. The US labour Department reported that the official rate of unemployment dropped to 7.7 per cent for November, a new recovery low from 7.9 per cent the previous month. However, a close examination of the government’s own figures soon reveals that in reality there was little or no drop in unemployment.

Non-farm employment rose, according to the Labor Department, by 146,000 jobs. The media claimed that the rise in employment was “greater than expected” because the disruptions caused by Hurricane-Superstorm Sandy[5] that hit the New York-New Jersey area extremely hard had been expected to considerably reduce the growth. The implication being that the underlying growth in employment must be very strong to have weathered Sandy so well.

However, if we read the fine print, we soon discover the “stronger than expected growth in employment” did not in fact occur. “A Labor Department survey of households”, Lucia Mutikani of Reuters wrote, “found 369,000 workers were unable to make it to work in the aftermath of the storm and a further 1.1 million ended up working only part time. However, the department still considered them employed [emphasis added].

The US Labor Department makes seasonal adjustments to the employment numbers but makes no attempt to adjust the numbers for natural disasters like earthquakes, floods, blizzards, hurricanes and so on. That is, until now when the Labor Department for the first time did make an adjustment for the effects of Sandy. It was this unprecedented storm-adjusted number by the Labor Department and not any underlying growth in employment that was “unexpected”. The leaders of the Federal Reserve Board were, of course, well aware of this even if the media did its best to hide the fact in the fine print from its general readership.

The rest of the reported decline in unemployment is explained by a fall in the number of people looking for work. This is the exact opposite of what we would expect in a normal economic recovery. When the rate of unemployment is actually dropping, word starts getting around that jobs are available and more and more people enter the labour force. So the latest drop in the unemployment rate reported by the Labor Department is yet another fraud.

Further evidence has come to light that the Obama administration manipulated the economy by bunching government expenditures in the months immediately preceding the elections. The US Institute of Supply Management in its latest report on industrial output reported a drop to 49.5. Any reading below 50 is considered to represent a decline in manufacturing activity. The latest figure, therefore, represents the first decline in industrial activity since the “Great Recession” hit bottom in July 2009. It seems likely that this decline was largely caused by the ebbing of the sudden surge in government procurements in the third quarter.

The Federal Reserve, in contrast, has just reported a sharp jump in industrial production for November, but the jump was almost entirely a snap back from the losses in manufacturing production caused by Sandy. Unlike the US Labor Department, the Federal Reserve System did not adjust its data to make the storm-induced decline in industrial production that occurred the previous month go away. The Federal Reserve Board’s report on manufacturing output and overall industrial production, while closely watched by economists and government policy makers, are largely ignored in the media in contrast to the Labor Department estimates on unemployment. They are therefore far less politicised.

Effects of Hurricane Superstorm Sandy

The immediate impact of Sandy on the US economy was negative, though as we saw the US Laborr Department brazenly “adjusted” its employment estimate to hide the negative short-term impact on employment. But over time Sandy, like all natural disasters, will have a “positive” impact on the capitalist economy.

The storm-surge associated with Sandy in the New Jersey-New York area destroyed many homes built in coastal areas and severely damaged others. This has the effect of reducing the housing stock and to that extent helps to eliminate the overproduction of houses that led to the housing crash.

As a result, the New York-New Jersey building industry will benefit from a reconstruction boom. When tornadoes devastate a Midwestern community, we see the same effects. Therefore, thanks to Sandy there will be more jobs available in the building industry in the New Jersey and New York area in the coming months—especially when the building season begins in the spring—than there would have been in the absence of this natural disaster. [See post on the effects of Japanese earthquake and tsunami.] However, it would take a lot more than Hurricane Sandy—or a severe tornado season—to return the US economy to the much faster rates of economic growth of yesteryear.

Once we remove the misleading data on employment and unemployment being released by the US Labor Department and the effects of short-term factors like the surge in government procurements in the third quarter and the effects of Sandy, the best that can be said is that the US economy remains locked in a pattern of a rate of economic growth that is far too slow to achieve the kind of re-industrialisation that leaders of the US capitalist class increasingly see as necessary—or even achieve a significant reduction of long-term unemployment. The situation of Europe is even worse, with the bulk of the continent experiencing outright recession, though European stock markets have been booming in response to the “quantitative easing” moves of the European Central Bank, which they hope will mean better days by late 2013 and 2014.

Even China’s economy has been slowing, though here too the Chinese central bank has been easing and China’s stock markets have recently been rising. The latest industrial production figures from China show a rising rate of growth.

Over all, the world capitalist economy, while not in the grip of a crisis like it was in late 2008 and early 2009, remains in an overall pattern of sub-par growth. The industrial cycle of 2007-? is having great difficulty gaining the momentum that leads towards a new boom.

Fed’s decision and the end of ‘Operation Twist’[6]

Back in 2011, against the background of slow growth in the US combined with the growing debt crisis and looming recession in Europe, the Federal Reserve announced a new round of "quantitative easing". The result was a sudden decline in the value of the dollar against gold. If this had continued even for a few months, the result would have been soaring inflation, which would soon have been followed by a severe global recession, in effect aborting the 2007-? industrial cycle. This was exactly the process that occurred several times during the “stagflation” of the 1970s.

In order to stave this off, the Fed was forced to take action to halt a run from the dollar into gold. To do this, it launched “Operation Twist”. The Fed announced that it would buy more long-term bonds and offset these purchases by selling an equal amount in short-term securities.

By promising to keep the dollar monetary base stable, the Federal Reserve managed to halt the run on gold. During the last year, the monetary base has remained essentially stable and so has the dollar price of gold, holding in the $1550 to $1800 range.

At the same time, the long-term rate of interest as measured by the rate on 10-year government bonds has fallen well below 2 per cent. Considering the huge amount of excess capacity in global capitalist industry, a low long-term rate of interest cannot do much to raise the rate of capital investment—the creation of new productive capital by the industrial capitalists—which is necessary if the growth of the global capitalist economy is to return to normal levels.

To achieve the kind of boom that the leaders of US imperialism view as necessary to save their empire, a low long-term rate of interest and a high rate of surplus value must combine with a rapidly falling level of excess capacity to achieve a dramatic rise in the rate and mass of profit. Remember, high rates and mass of profit depend on both the production and realisation of surplus value—that is necessary for rapid economic growth under the capitalist system of production.

Long-term interest rates and the current US housing recovery

The long-term interest rate plays a key role in determining the price of land and therefore the prices of homes, which are largely determined by the price of land on which the homes are built. With a given rent on the land, the price of land is determined by dividing the annual rental income by the long-term rate of interest. Therefore, all else remaining equal when interest rates drop, land prices rise.

By keeping the long-term interest rate extremely low without further expanding the monetary base, the Federal Reserve Board has created highly favourable conditions for a rise in home prices. The US media has lately been reporting that home prices are indeed rising, claiming that this indicates the approach of a new era of prosperity—assuming that the “fiscal cliff” is avoided.

The theory goes that as home prices continue to recover and eventually rise to new all-time records, homeowners will once again be able to resume borrowing against their home equity—though policymakers hope this time without the excesses that marked the 2006-07 boom. This will lead to a rise in the demand for all kinds of commodities, which will, they hope, increase economic growth to levels deemed necessary for re-industrialisation of the United States.

But there is a catch. In carrying out “Operation Twist” over the last year, the Fed has pretty much sold off its entire portfolio of short-term government securities. If it wants to prevent a new surge in the dollar monetary base, it must soon halt further purchases of long-term government securities. If it does this, it is likely that long-term interest rates will spike and that could set off a new decline in home prices. If this were to happen, one of the pillars of the current recovery would vanish and with it the hopes of achieving the acceleration of economic growth the leaders of the US empire so desperately need.

The other possibility is for the Fed to continue to purchase bonds, including mortgage-backed securities, in a bid to keep long-term interest rates extremely low and the housing recovery alive. But in that case, the monetary base will start to rise again, and the dollar will likely start to slip against gold putting upward pressure on prices and interest rates. The rise in nominal interest rates would at first be offset by a fall in real interest rates—interest rates measured in terms of commodities—but eventually, as the 1970s illustrated so well, real interest rates would rise as well.

There is also the very real chance that money capitalists will finally lose confidence in the US dollar and a new run on the dollar into gold would develop as was beginning to happen when Operation Twist was announced.

A third possibility is that the US government and its imperialist satellites could sell or at least lend out gold in a bid to keep long-term interest rates at today’s very low level. There have been some hints that they may be doing this, since there has recently been reports of large sales by a “large fund” in the gold market.

While a large private capitalist speculator in gold may be involved, it certainly cannot be excluded that the governments and central banks are behind these sales in an attempt to prevent a new wave of speculation in gold in the wake of the Fed’s latest moves toward “quantitative easing” that could unleash a wave of inflationary commodity price increases that would soon bring the current attempts to increase the rate of economic growth to grief.

Another short-term factor that is supporting the dollar against gold is the expectation that the capital gains tax rate will rise next year—how much will depend on the exact terms of the “Grand Bargain” that the Obama administration, the Democrats and Republicans come up with in the coming weeks. Because holders of gold have made large gains in terms of dollars over the last few years, many US gold speculators want to cash in before US capital gains tax rates rise.

This might also be part of the explanation for the recent sharp drop in Apple’s stock, and the fall in US government bonds since the Fed’s latest quantitative easing announcement. Holders of bonds have also seen huge capital gains since the “Great Recession” began in 2007.

In any event, the supply of gold that governments and central banks control, while considerable, is finite. Selling gold can buy time but nothing more. It certainly cannot be the basis for any lasting increase in the rate of economic growth.

Despite the grave dangers, the Federal Reserve has announced that it will be buying $85 billion worth of government and mortgage-backed bonds each month in its bid to keep long-term interest rates, especially mortgage rates, low. The aim is to keep housing prices on their recent upward path as part of the attempts by the leaders of US imperialism to increase the rate of economic growth. Unlike the case during Operation Twist, the new round of quantitative easing will presumably produce a considerable rise in the global dollar-denominated monetary base.

Karl Marx explained long ago that, all things remaining equal, an increase in the quantity of token money will cause the tokens—currency notes—to lose value against gold, causing a rise in prices as expressed in the devalued currency. Things never remain equal, of course. For example, any slowdown in sales tends to increase the demand for dollars as a means of payment and hoarding. But after all, the Fed is desperately trying to increase the rate of economic growth, not slow it. Any success the Federal Reserve System has in increasing economic growth means rising sales, which implies a drop in the demand for dollars as means of payment and hoarding, thereby increasing the risk of a new “run to gold”.

The leaders of the Federal Reserve System are not so stupid as to be unaware of the dangers of the course they have embarked on. They have therefore left themselves an out if the new round of quantitative easing starts to backfire.

First, it indicated that it would tighten—halt the further growth in the monetary base—if the Labor Department’s estimate of unemployment were to fall to 6.5 per cent or lower. The Labor Department can help the Federal Reserve in this respect if it continues to issue statistics that show either non-existent or greatly exaggerated declines in the unemployment rate.

Second, the Fed indicated that it would reconsider its policy if the rate of inflation should increase rapidly, even if the Labor Department’s estimate of unemployment remains above 6.5 per cent.

Is the current stagnation a permanent condition of capitalism?

During the Depression of the 1930s, many observers, both Marxist and bourgeois, drew the conclusion that the Depression was a permanent state of affairs. This theory even received a name—”secular stagnation”. Then, during the “long boom” that followed World War II, it was widely assumed that prosperity in light of new Keynesian economics had become permanent.

Very often, the very same people who had believed in the permanence of the Depression now believed in the permanence of “Keynesian prosperity”. During the high rates of inflation that prevailed during the 1970s, many believed that double-digit inflation was now a permanent feature of capitalism. Later, the Great Moderation, a period of much lower inflation combined with modest economic growth interrupted by only the occasional “mild recession” was declared to be a permanent condition of capitalism.

In every case, those who proclaimed the permanency of the current economic condition proved to be wrong. There is little doubt, in my opinion, that those who proclaim the permanency of the current economic conditions will again be proven wrong.


[1] The Taft-Hartley Law was passed over Democratic President Harry Truman’s veto in 1947 by the then Republican-controlled House and Senate. The years 1945-1946 saw a mighty wave of strikes in US industry as US workers pushed for wage increases to make up for the wage freezes and no-strike pledge of the war years. However, the great strike movement began to run of steam by 1947, enabling the bosses to go back on the offensive.

The bosses responded by launching a witch hunt against the left wing in the CIO unions. The main target was the US Communist Party, which had undermined its position by its support of the no-strike pledge of the war years. This enabled right-wing, pro-imperialist forces in the CIO unions to demagogically attack the Communist Party supporters for their lack of militancy during the war years. The witch hunters were also able to take advantage of the bitter hatred that prevailed between the US Communist Party, which strongly supported the Stalin leadership in the Soviet Union, and the Trotskyist Socialist Workers Party.

In the early stages of the witchhunt, the Socialist Workers Party sometimes supported “anti-Stalinist” union leaders who denounced pro-Communist Party rivals for selling out the economic interests of the workers. This occurred, for example, in the National Maritime Union, where the Communist Party was the dominant force. Within a few years, both the members of the Communist Party and the Socialist Workers Party were driven out of the union, and the NMU was converted into a corrupt right-wing pro-imperialist union. During the early 1950s, the bosses encouraged gangs of right-wing workers to drive all “reds” out of the automobile plants. These gangs made no distinction between “Stalinists” and “Trotskyists”.

Taft-Hartley, in addition to allowing states to pass “right to work” laws, outlawed the closed shop, where all workers must be union members from the day they are hired, and banned secondary boycotts, with the aim of breaking up worker solidarity. It also allowed the president to impose 80-day “cooling off” periods when the unions were preparing to launch major strikes, causing the strike movement to lose momentum.

Though he had vetoed the law, President Harry Truman made liberal use of the “cooling off” provision of Taft-Hartley. The United Mine Workers Union, under its politically right wing but at times militant John L. Lewis, was able to defy these cooling-off periods. By stopping the production of coal, it could bring much of US basic industry to a halt. To do Lewis justice, it must be admitted that though he was a supporter of American imperialism, he was more willing to stand up to the US government than any other major US trade union leader of his day.

However, no other union had the clout to defy Taft-Hartley in the way the miners were able to. Taft-Hartley also made it illegal for “Communists” to hold elective office in the unions. This last provision was so blatantly in conflict with the US constitution that the Supreme Court was finally forced to remove it from the books, but only in 1965 after this unconstitutional law had served its purpose in helping to drive the left out of the unions.

This saddled the industrial and other unions with a right-wing, government-approved leadership, under which the US industrial unions began their long decline that has continued to this day.

[2] In 1997, Steve Jobs, the founder of what was then called Apple Computer, returned to Apple bringing Cook along with him from his failing NeXT Corporation. Apple was in desperate need of a modern operating system to run its computers, and Jobs’ NeXT Corporation had an operating system called NeXTSTEP, a variant of the Unix operating system, which was then converted into OS X and later the iOS that runs Apple’s highly profitable hand-held computers such as the iPhone and iPad.

In those days, Apple had many US factories and was an industrial corporation. However, starting in 1998, Jobs and Cook decided to “hollow out” Apple and contract out the actual production of Apple’s products to Asian capitalists such as Foxconn. Apple would instead design hardware and write proprietary software protected by copyrights and patents but avoid the dirty business of making things. Apple has been criticised for transferring “good middle-class American jobs” to China. Cook’s announcement that Apple will sell a few Mac computers produced in the US—though not by Apple itself—seems designed to answer this criticism.

[3] It can be safely predicted that the market for hand-held computers is heading for a crash. The reason is that the ultimate size of this market is unknown, since hand-held computers are a commodity with a new use value. Though hand-held computers have existed for some time, it is only recently that they have gained the power to access the internet and run videos, in effect becoming hand-held televisions. The result—helped along by heavy advertising campaigns—has been an explosion in the demand for these devices, which despite their built-in flaws are revolutionising world communications.

As a result, the rate of profit realised by the productive capital invested in making these devices and the components such as CPUs that power them—as well as by the corporations like Apple that design them—has been far above the average rate of profit. Many capitalists have been entering the hand-held computer market in order to realise these super-profits. Inevitably, this leads to overproduction and a crash. Or as they say in the business world, “the shakeout arrives”—the centralisation of capital—leading to the “maturation” of the market.

The coming crash in the hand-held market, which will likely play a central role in the next downturn in the global industrial cycle, will not, however, mean the end of the revolution in global communications and the possibility of vastly increased working-class internationalism that these devices bring. This revolution in communications will survive the coming crash in the market for hand-held computers.

[4] Under Jobs’ leadership in the 1980s, Apple lost the struggle for dominance in the personal computer market to Wintel. The reason was that Jobs attempted to monopolise both software—computer programs—and hardware. While Apple created the first commercially successful graphical operating system, it refused to allow any other computer manufacturer to use it. If Jobs had had his way, there would have been only one computer manufacturer—Apple Computer.

Naturally, the rest of the business world did not desire this. Such a situation where Apple would have no competition at all would have allowed Apple to appropriate a huge share of the total surplus value—the profits—at the expense of its fellow capitalists. The rest of the business world wanted to see competition among computer manufacturers that would limit how much of the total surplus value produced by the global working class the computer manufacturers could appropriate.

Bill Gates of the Microsoft software monopoly limited himself to monopolising software while staying out of the hardware business. Only recently—since Gates retired—has Microsoft entered the computer hardware business in a serious way. While this denied the business world the price-lowering benefits of competition in software, it allowed them the benefits of some price-lowering competition in hardware, though not in central processing units monopolised by Intel, the other half of the Wintel monopoly.

Gates was born into an established capitalist family and had a greater knowledge of the workings of monopoly capitalism than did Jobs, who came from a petty-bourgeois family—his adopted father was among other things a used-car salesman. While Jobs died a billionaire many times over, Gates’s fortune at one point approached $100 billion, leaving Jobs—and everybody else on this planet—poor by comparison.

[5] Sandy was not simply a hurricane but a “superstorm” or “post-tropical cyclone”. Most wind and rain storms that occur in the middle latitudes form around low-pressure systems that draw their energy from the difference between cold air masses that form in the high latitudes and warm air masses that originate in the tropics.

Hurricanes, in contrast, originate over warm tropical oceans and draw their energy from convection, the rise of light warm moist air into colder air found at higher altitudes. As the rising air expands and cools, water vapour is converted into liquid water or solid ice crystals. The energy that is released fuels the storm. Unlike the low-pressure systems that draw their energy from contrasting cold and warm air masses, hurricanes rapidly die out when they move over either cold water or land that deprives them of their source of energy.

Sandy was a combination of both types of storms. It began as a late-season hurricane, and by the standard of hurricanes, it was not a particularly intense one, though it was strong enough to cause considerable damage and take lives in the Caribbean, including Cuba. However, as it moved out of the tropics towards the New Jersey and New York area, it encountered a cold air mass that had formed over Canada and began to draw energy from the contrast of the warm moist tropical air of its birth and the cold dry air of the Canadian north.

Sandy combined a massive storm surge—coastal flooding—along with very high winds that are characteristic of hurricanes, with the much larger size that is characteristic of storms that draw their energy from contrasting warm and cold air masses. It was this deadly combination that produced the disaster that occurred in the New York-New Jersey area. Many scientists think that it bears the mark of global warming. If true, there may be many more such “superstorms/post-tropical cyclones” in the years ahead.

[6] The Federal Reserve System carried out another “operation twist” maneouvre in the early 1960s when the US economy was struggling to recover from the double-dip recessions of 1957-58 and 1960-61. The idea was to lower the long-term rate of interest and thus raise the profit of enterprise and trigger a more powerful industrial boom.