Posted bymichael robertsJune 19, 2024July 14, 2024Posted inmarxism
Last week the World Bank issued its latest Global Economic Prospects. The WB economists reckon that the world economy “is stabilising” in 2024, the first time in three years. The world economy avoided an outright recession in 2023 that many predicted (including me – to some degree) and is now making a ‘soft landing’. Global real GDP growth will be 2.6% in 2024, the same as 2023 and will rise slightly to 2.7% next year.
The term ‘soft landing’ is somewhat odd. I suppose it means that the world economy has not crashed into the runway, but instead lightly settled down. But really, there has been no landing at all – if we mean by that a slump or contraction in real GDP globally. Anyway, to use another aphorism, the world economy is really ‘a curate’s egg’, an old-fashioned term to described something that is partly bad and partly good, or more exactly something that is obviously and entirely bad, but is described out of politeness as nonetheless having good features that might redeem it.
The reality is that, despite no overall contraction in real GDP globally, several major economies continue to stagnate at best and world growth will remain well under the pre-pandemic average rate of 3.1% – even though that global figure includes faster-growing India, Indonesia and China. As the World Bank put it: “countries that collectively account for more than 80% of the world’s population and global GDP would still be growing more slowly than they did in the decade before COVID-19.” And, worse, “one in four developing economies is expected to remain poorer than it was on the eve of the pandemic in 2019. This proportion is twice as high for countries in fragile- and conflict-affected situations.” The WB economists conclude that “the income gap between developing economies and advanced economies is set to widen in nearly half of developing economies over 2020-24.”
When we drill down to growth rates in each of the major economies, the ‘soft landing’ looks even more inappropriate as a term. Take the US economy, the best performing of the top seven capitalist economies (G7). After the ‘sugar rush’ year of recovery in 2021 following the pandemic slump of 2020, there was actually a ‘technical recession’ (i.e. two successive quarterly contractions in real GDP) in 2022. Then 2023 saw modest growth, which appeared to accelerate in the second half. However, there was a significant slowdown in the first quarter of this year, with the US economy expanding at its slowest rate since the recession of early 2022.
Looking ahead, various forecasts for the qoq increase in the current quarter (Q2 2024) are about 0.4-0.5%.
And that’s the US. Performance was much worse in the other G7 economies. The Eurozone as a whole was a total write-off in 2023.
As for Japan, a ‘soft landing’ has clearly not been achieved.
And let’s not leave out Canada, the smallest G7 economy. The economy was basically stagnant in the last half of 2023.
You find the same story in Australia, Sweden and the Netherlands. As for the British economy, it is the worst performing in the G7, rivalling even Italy.
Sure, some of the large ‘emerging’ economies are doing ok. Among the so-called BRICS, India is growing at 6% a year (if you can believe the official figures), China at 5% a year and the Russian war economy at 3% a year. But Brazil is crawling along at well under 1% while South Africa is in a slump. And many other poorer, smaller economies in the so-called Global South are in deep distress.
What the latest data reveal is that the major economies remain in what I have called a Long Depression, namely where after each slump or contraction (2008-9 and 2020), there follows a lower trajectory of real GDP growth – the previous trend is not restored. The trend growth rate before the global financial crash (GFC) and the Great Recession is not returned to; and the growth trajectory dropped even further after the pandemic slump of 2020. Canada is still 9% below the pre-GFC trend; the Eurozone is 15% below; the UK 17% below and even the US is still 9% below.
The world economy is now stuck in what the IMF chief Kristalina Georgieva called the ‘tepid twenties’. The World Bank economists reckon that the global economy is on track for “its worst half-decade of growth in 30 years”.
And if we drill down into the Eurozone itself, we get the full picture of the disaster of the German economy, previously the manufacturing powerhouse of Europe. Since 2021, there have been five quarters of contraction out of 12 and only one quarter higher than 1%.
That’s a performance worse than permanently stagnant Japan. Germany’s manufacturing sector activity is not achieving a soft landing – not even a curate’s egg. It is a total car crash, nearly back to the pandemic of 2020.
No wonder German workers’ real wages have plummeted in the last four years – down a staggering 6% since the end of the pandemic in 2020, despite a modest recovery in the last half of 2023. And no wonder that the ‘hard right’ parties in Germany have done so well in the recent EU Assembly elections.
Meanwhile inflation rates in the major economies are looking sticky. Prices have risen on average 20% since the end of the pandemic. The rate of that rise slowed through 2023. But now the rates are no longer falling, and in some countries, they are picking up again. The EZ inflation rate is still above the European Central Bank (ECB) target of 2%. Indeed, it rose in May to 2.6% yoy. Core inflation (which excludes food and energy) also rose to 2.9% yoy. Indeed, the ECB has raised its forecast for annual inflation for 2024 to 2.5% and for next year to 2.2%. It does not see its 2% inflation target being met before 2026! At the beginning of 2021, inflation was just 0.9% and it peaked at 10.6% in October 2022. That means, even if the ECB forecasts are proved right, the ECB target will have been breached for nearly five years! So much for the efficacy of central bank monetary policy.
This month, the ECB tentatively cut its interest rate by 25bp to 4.25%, the first cut since the ECB started raising rates from 0.5% in July 2022 to (supposedly) curb inflation. That’s because it is worried that the Eurozone economy cannot sustain any economic recovery while the cost of borrowing to invest or spend remains so high. In contrast, the US Federal Reserve held its policy interest-rate unchanged at its last meeting. It remains at a 23-year high of 5.5%. Again, contrary to the hopes of the Fed, US consumer price inflation has stopped falling. The Fed members now expect inflation to remain near 3% and for the 2% inflation target also not to be met before 2026!
Much is made of the low unemployment rate and net growth in jobs in the US. Officially, the US economy added 272K jobs in May 2024, the most in five months. But the unemployment rate rose to 4% in May. And all the net rise in jobs comes from part-time work. Part-time jobs rose 286k in May, but full-time jobs fell 625k. Indeed, in the last 12 months, full-time jobs have shrunk by 1.1m while part-time jobs rose 1.5m. After taking into account inflation, real weekly earnings are still some 7% below where they were four years ago and have been flat in the last year. As a result, the number of Americans doing multiple jobs hit 8.4m in May, rise of 3m since 2020. It needs two jobs to make ends meet. So the US economy is not shooting along as the mainstream pundits claim. The acceleration in growth in 2023 seems to be over.
The main reason for slowing growth in the US in the first quarter of this year was a drop-off in growth in the consumption of goods and business investment (the boom in building offices and factories is over). And there are two reasons for that. First, there has been an absolute fall in corporate profits, down $114bn in the non-financial sector. And second is the high Fed interest rate, which means the continuance of high mortgage rates for households and debt servicing costs for many weak unprofitable companies. That’s a recipe for more bankruptcies ahead.
We all read about the huge profits being made by the so-called Magnificent Seven of social media and technology behemoths. But it is only these companies that are doing well. The market capitalization of 10 largest US stocks accounts for over 13% of global stock market value This is way above the Dot-com bubble peak of 9.9% in March 2000. In a blaze of unprecedented rise in stock market price, Nvidia, AI chip company has become the most highly valued in the world, surpassing Apple and Microsoft.
In contrast, 42% of US small-cap companies are unprofitable, the most since the 2020 pandemic when 53% of small caps were losing money. Small-cap companies are struggling.
There is no escape for stagnant domestic economies through increased trade. Global trade has been floundering for years and suffered a sharp downturn during the pandemic slump. World trade actually contracted in 2023.
Source: CPD
Again, no wonder the US and its allies have launched at attack on China’s export success by imposing tariffs and other sanctions on Chinese goods. To combat that, China has switched (been forced?) into other markets rather than the US and Europe.
But the great tariff war has hardly started. Recent measures by Biden are going to be ‘trumped’ in 2025 if ‘the Donald’ is re-elected this year. Trump plans to impose a 10 per cent levy on all US imports and a 60 per cent tax on goods coming from China. The tariffs will fund his plans to extend a series of tax cuts, which he introduced while president in 2017, beyond 2025. Indeed, Trump is talking of imposing tariffs sufficiently high to allow him to end income tax altogether!
A recent study suggests that Trump’s policies are “sharply regressive tax policy changes, shifting tax burdens away from the well-off and towards lower-income members of society”. The paper, by Kim Clausing and Mary Lovely, puts the cost of existing levies plus Trump’s tariff plans for his second term at 1.8 per cent of GDP. It warns that this estimate “does not consider further damage from America’s trading partners retaliating and other side effects such as lost competitiveness.”
This calculation “implies that the costs from Trump’s proposed new tariffs will be nearly five times those caused by the Trump tariff shocks through late 2019, generating additional costs to consumers from this channel alone of about $500bn per year,” the paper said. The average hit to a middle-income household would be $1,700 a year. The poorest 50 per cent of households, who tend to spend a bigger proportion of their earnings, will see their disposable income dented by an average of 3.5 per cent.
Mainstream economists continue to claim that the major economies have achieved a ‘soft landing’ and things are now on an even keel. But a recent survey found that 56% of Americans thought the US was in a recession and 72% thought inflation was rising. Economists like Paul Krugman reckon European and American households seem to be ‘out of touch’. But who is really out of touch? American households or the expert economists?
All indicators point to the conclusion that capitalism is through. It stopped being able to surpass the crises that it originated and there´s no way to give the turn it used to do. The obstacles are too serious to be overcome by the usual recipes. USA and UE are heading to a rising inferiority and no one comes with a solution. Quite the opposite. All leaders keep insisting on the same errors and falacies. The result cannot be different from what it has been. They seem to know it and so they strive for more war. All they say is ever more war. Total madness.
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“… capitalism is through.” -> YOU ARE RIGHT. But not capitalism per se but INDUSTRIAL SOCIETY in general (capitalist, communist, anarchist, whatever). The society made around MACHINES. Machines need ENERGY to operate. That energy comes from FOSSIL FUELS (ALL STARTED with them, ALL WILL END with them): coal yesterday, OIL today. And what’s happening to oil?: “Global conventional crude oil production peaked in 2008 at 69.5 mb/d and has since fallen by around 2.5 mb/d.” (Page 45 of the World Energy Outlook 2018 by the International Energy Agency). Find out more: “Railroad Commission of Texas”, Marion King Hubbert’s Oil Depletion Report for Shell in 1956, “Peak-oil” topic, Matt Simmons’ “Twilight in the desert”, Campbell-Laherrère’s “The end of cheap oil” in Scientific American 1998 magazine, “EROEI” (Energy Returned On Energy Invested) topic. Leave the darkness of energy blindness economic theories and come under the light shedded by the wisdom of our Lord Frederick Soddy before it’s too late! (“Financial debts grow exponentially at compound interest but the real economy is based on exhaustible stocks of fossil fuels whose energy can not be used again.” – “The world’s bankers … have not been content to take their share of modern wealth production – great as it has been – but they have refused to allow the masses of mankind to receive theirs.”). THE END IS NIGH! THE END IS NIGH!
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Looks like this Long Depression was a political decision by the capitalist class. After 2008, they decided that capitalism will never face recession again. But the cost of that will be eternal stagnation (which, in capitalism, takes the form of a long depression because it needs constant positive profit rates to exist).
The question is: why?
In my opinion, three main reasons:
- The trauma of the two World Wars and the ascension of socialism in this period made the capitalist class aware that pure laissez faire administration of this mode of production is not sustainable in the long term because it forms a dialectical unity with the relations of production. Long story short, it isn’t politically sustainable even though it would be the best option economically;
- Capitalism itself has reached a very advanced stage of the development of the productive forces, to the point its average profit rate is too low and its OCC is too high. Put it simply: it has reached a level of technological and technical complexity where laissez faire is literally impossible;
- Socialism was not exterminated with the end of the First Cold War (1943-1991); the USSR was never defeated militarily, and it left a child that has the material base to be its legitimate inheritor: the People’s Republic of China. The gravitational pressure the PRC exerts over the capitalist world inhibits it from going full libertarian mode, i.e. full creative destruction mode (a la Milei in Argentina today).
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There won’t be a soft landing because the FED cannot avoid the crisis of overproduction by printing paper “money”; real money is gold. The more paper “money” they print to postpone the recession, the worse the recession will be. The gold price is still at an all-time high of $2328.57, and the yield curve still inverted. If the gold price falls below $1000 and the yield curve normalizes, and no recession arrives, then the paper “money” printers have won and the commodity money theory of Marx is wrong. Until then, i’m not conviced in soft landing.
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“real money is gold”
Why not silver or copper? Both were historically commodity money?
Why not oil? The notion energy is the essential commodity may not be theoretically established but the notion of energy as fundamental to expanded reproduction is not
Why not some basket of commodities? Imagine turning Sraffa’s Standard Commodity into a real world basis for “money.”
Why not land, aka real estate? The French assignat was backed by a commodity, expropriated lands, as I understand it. In many ways modern banks private fiat money, the deposits they create when they make a loan, can be considered as commodity money. Mortgages are still one of the mainstays of all banking, if I remember correctly.
Why not non-reproducible commodities like art?
My understanding or misunderstanding of Marxian economics is that the origin of capitalism’s dynamic is in production, not circulation, i.e., finance, anyhow and such effort to cure capitalism of finance always threatens to lapse into goldbuggery. But the history of the gold standard does not suggest real money stabilizes economies, quite the opposite so far as I can tell. And the dispute between the Banking School and the Currency/Real Bills school was not resolved either theoretically or practically. So why the obsession with real money, a la Bullionists/Mercantilists/(I think) Cameralists? Those approaches seem to stem from the relative weight of the early capitalist arena in those states. The need for gold seems to have been the need for trading for resources from the non-capitalist arena, both within a single state and in world economy. (Consider silver exports to China.) These people seem to me to have made it a cardinal principle of their theory because that was their experience. One of the typical forms of capitalist crisis/stagnation in its earlier phases if I read history correctly was currency shortages (plus giant speculative bubbles that acted in the end to concentrate money into fewer hands, also serving to extract wealth from from the larger non-capitalist arena.
That raises the question: Why do we need real money? Credit/debt practically speaking serves many practically necessary functions in a capitalist economy hence the perpetual search for some way to (magically?) regulate finance while still serving those. It appears the function “real money” serves most, and most uniquely, is hoarding. Even the gold bugs tacitly concede this when they emphasize keeping the value of money stable, I think. This is something both individual capitalists need to consider but also their states.
The best I can conclude is that gold bugs forget that Adam Smith ever lived. The real wealth of nations comes from the division of labor (in capitalism mediated by the exchange of commodities at prices set by market interactions rather than local customs or guilds or command. Seemingly paradoxically, real money, gold, is not the essence of wealth. (You could maybe think of this in Marxian terms as epitomized by the organic composition of capital.) In this perspective, so called fiat money is roughly similar to a ticket to a walled bazaar. The “value” of this ticket is proportional to the need for the goods sold in that bazaar. So-called fiat currency, legal tender, is the expression of the state defending the prerequisites of capitalism, in the way the guards of the walled bazaar bar anyone who does not have an entry ticket.
That’s why true hyperinflation to my mind is really only found when war, military or economic, has undermined the state. When the guards of the bazaar cannot bar anyone, the tickets are worthless. Historically it seems the role of a bank holding government debt was effectively a way of monetizing the national division of labor, providing liquidity. That’s why the value of a nation’s currency is not just founded on their share of world division of labor but also on military power. Again that’s very material, ultimately also based on production. The relevance to the domination of the US dollar should be obvious, to my mind. In sum, so-called fiat currency is “backed’ by a completely material thing, however intangible or collective, not in some fetishized element. In a sense the only true fiat currency is bitcoin. I think that’s why experiments with demonetization have inflicted such trauma in India and Nigeria, as central bank digital currency is even more detached from production, more based on the incorrect belief circulation is fundamental. (Paging Dr. Rasmus?)
My apologies for the length. My writing is too bad to permit more concision. Of course if the real problem is my confusion, a talent for easy brevity can’t help. Michael Roberts can delete everything but what may be interesting, of course.
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Thank you Professor Roberts for reintroducing the Commentary section, although I was not an active participant in it.
One question, the book you are going to publish in Spanish later this year by a Spanish language publisher is still going ahead, when will it be ready, could you give us an introductory announcement of its contents.
It is off topic, but these days a lot is being written about the risk of a big war in Europe (again!) Pepe Escobar, Stephe Bryan, etc., who are not even of the same political and intellectual persuasion. What do you think about it? I could address it in a post.
Thank you and best regards from Spain
Rodolfo Cresporodohc21@gmail.com
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Rodolfo – the book is running behind schedule! When it comes it will be an update of my Long Depression thesis but with some new ideas as well and will focus on Spanish speaking countries. War in Europe is already with us if you include Ukraine; a wider war involving NATO countries directly remains a possibility but unlikely.
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“German workers’ real wages have plummeted in the last four years – down a staggering 6% since the end of the pandemic in 2020 … no wonder that the ‘hard right’ parties in Germany have done so well in the recent EU Assembly elections.” It is “no wonder” when we observe two more supporting conditions for the hard right vote: 1) the social democrats in government are front men and women for European big capital, and 2) the communists (hard communists, if you will) have not worked out how to move things toward revolution.
Incidentally, Greece by way of exception has a real communist party, the KKE, and it increased its percentage of the EU parliamentary vote to 9.25%, up from 5.25% back in 2019.Reply
Just came out:
We’re [USA] in a selective recession, says JPMorgan’s Matthew Boss
Corroborate with my observation on the cultural front that the social fabric of the First World carefully and painfully weaved during the Cold War is degrading. Capitalism will go through a process of “dekulakization” (destruction of the middle class) and will return to its normal state of a bipolar society made of mainly capitalists and proletarians, as Marx correctly diagnosed.
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Re the first figure?
For your blog, which aims to critically understand world economy as it truly is, the projected trends can serve as the economics profession’s substitute, a metric to estimate shortfalls in the real world performance. Thus your use of them as an educational tool is valid I believe.
But, isn’t the true (propagandistic in my estimation) claim that capitalism is capable of infinite extension? And doesn’t that necessarily imply either such trends should accelerate? Or that making a simple linear extrapolation is equivalent to moving the goal posts?
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I have restored comments but very long ones (as per subjective opinion) will be rejected
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