Over the past few months there has been a bumper crop of articles in elite publications such as the Financial Times making the case that Karl Marx was right—or mostly right. This is understandable given the perilous times we are living through. The kind of Panglossian message found in Fukuyama’s End of History is ill-suited to a world edged on the precipice of economic ruin, largely beyond the capability of the world bourgeoisie to resolve.
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The new inflation goes beyond all markets, turning them into art forms or play grounds for economic playboys. - Marshall McLuhan, 1974
CPI excluding food and energy. The most commonly used measure of core inflation is the CPI excluding food and energy, published by the BLS. [The term "core CPI" is often used to refer to this measure.] This measure of core inflation systematically excludes food and energy prices because, historically, they have been highly volatile. More specifically, food and energy prices are widely thought to be subject to large changes that often fail to persist and frequently represent relative price changes.So the idea is that, there are many ways to measure CPI, and the Fed has picked one that paints the rosiest picture for capitalists. The problem is that it is an incomplete picture which does not reflect reality. Even worse, this neoliberal econometric mechanism has been foisted onto all of the other major economies, including China and the Eurozone, in recent years.
Cleveland Fed
In China, consumer price inflation in October reached 6.5%, matching the 11-year highs tapped in August, as the cost of staples foods such as pork and vegetables vaulted.From Marxists.org:
Pork prices jumped 55%, and vegetable prices surged 30% after a 12% gain during September.
The data are expected to spur further action from Beijing to rein in spiraling prices.
Analysts speculated a further tightening could be imminent, with Beijing poised to lift interest rates for a sixth time this year after the data's release. China's central bank lifted the reserve-requirement ratio for banks for a ninth time this year on Saturday in an attempt to cool lending growth.
"Today's CPI release is likely to persuade the government to closely monitor prices and, in our view, supports our forecast that the PBoC will raise the benchmark one-year lending and deposit rates in the near term," said Yan Zheng, an economist at Barclays Capital, in a note to clients.
Credit Suisse economist Dong Tao added persistently high food prices were a particular worry for the authorities because they signaled broad-based inflationary pressures may be taking hold throughout the economy.
"If the cost of food at the dinner table continues to hold at high levels, people will demand higher wages," Tao added.
English breakfast, mou-shou, baguette prices rise. Market Watch. 13-Nov-2007.
Inflation is the situation wherein the prices of all commodities of whatever kind are subject to a steady and more or less uniform increase in price over time. The term dates from 1838.In Capital (Vol I, Chapter 25) Marx discusses inflation and its relationship to the crisis of capital.
Given that price expresses the ratio between a given quantity of a commodity and its equivalent in money, it is self-evident that inflation manifests the falling value of money, rather than the increasing value of all other commodities. Thus, the reasons underlying inflation need to be sought in factors which may be undermining the value of money.
Thus, when the industrial cycle is in the phase of crisis, a general fall in the price of commodities is expressed as a rise in the value of money, and, in the phase of prosperity, a general rise in the price of commodities, as a fall in the value of money. The so-called currency school concludes from this that with high prices too much, with low prices too little money is in circulation. Their ignorance and complete misunderstanding of facts are worthily paralleled by the economists, who interpret the above phenomena of accumulation by saying that there are now too few, now too many wage-labourers. Marx, Karl. Capital, Volume I, Chapter 25. 1867.Inflation has always been blamed by classical economics on the increase of workers wages. The logic being that, the more workers get paid, the more money is in the system, and therefore the less value the currency has vis-a-vis goods and services.
The most common cause of the loss of value of money is the creation of “Fictitious capital”, i.e., the creation of money or credit exchangeable for money without the creation of commensurate value in the form of goods and services, thus undermining the value of all forms of money and credit: for example, the excessive printing of paper money by the government to finance public works, the creation of fictitious value by banks through unsecured loans, the declining exchange rate of a country's currency, causing prices of all imports to increase, and so forth.Does this sound familiar? Does this sound like a good description of what has been happening in our economy? First the dot.com fueled stock market bubble, then the housing fueled mortgage crisis credit bubble, both examples of "fictitious capital."
Eric Weiner in an article published in Tuesday's LA Times (Use time wisely -- by slacking off) writes, "Attitudes toward work differ not only across time but also place. Corinne Maier's appropriately slim volume, "Bonjour Laziness: Why Hard Work Doesn't Pay," advocated that workers resort to "active disengagement" at the office. It was a bestseller in France but didn't resonate on these shores."And later:13-Sep-2007: Minyanville, Five Things You Need to Know
- Yes, when it was published a year ago, Maier's book advocating laziness didn't resonate on these shores.
- But that is already changing.
- Weiner writes in the Times:
"In his essay, "In Praise of Idleness," British philosopher Bertrand Russell proposed reducing the workday to four hours, convinced that "the road to happiness and prosperity lies in an organized diminution of work." I agree. So be creative, be happy and waste some more time. Read this article again and again. Try reading it backward. E-mail it to co-workers. Translate it into Mandarin, then back into English. Then grab a coffee and enjoy some down time."- What is the connection with financial markets?
- Think back for a moment to the Greenspan Productivity Miracle.
- Well, the former Fed Chairman was certainly right about that.
- The U.N.'s International Labor Organization recently issued a report that found that the U.S. leads the world in worker productivity -- and by a wide margin, Weiner notes.
- So why would it change?
- Productivity, like most "financial virtues," is the products of positive social mood trends.
- As social mood transitions to negative, we can expect to see less and less "virtue" in hard work.
- Think about it: real wages are virtually stagnant, so it's not as if people have experienced real reward for their work.
- What has been experienced is an unconscious and shared herding impulse trending upward; a shared optimistic mood finding "joy" and "happiness" in work and denigrating the sole pursuit of leisure, idleness.
- If social mood has, in fact, peaked, we can expect to see a different attitude toward work and productivity emerge.
- Note that Weiner's article doesn't simply value leisure - it values "slacking off."
- The phrase itself carries negative connotations:
- Slacking - loosening, becoming less tight, less taut
- Off - disengaging, dropping, deflating
- These are not accidental connotations.
- Within a positive social mood regime this might instead be called "pursuit of leisure."
Prof. Depew,Pretty amazing stuff. Of course, these guys are very faithful to their religion, and believe strongly that allowing the "free-market" to work without interference from central banks (such as the Federal Reserve) or from the governments would solve all the ills of the world. They believe that the crisis is an exception to the rule, rather than the rule itself.
I think you've hit on one of the major causes of the productivity backpedaling when you point out that workers have long been receiving deteriorating real compensation. I think that as credit dries up, they will be left to face the impact of this lack of real income growth. Credit has simply masked that impact for years (indeed, the deteriorating real incomes have probably spurred the very same runaway consumer credit growth).
But I think there is another side to the drop in productivity, which I also expect to continue in force: the business world in general seems to have forgotten how to create progress at its financial core (wisely financing innovation). If too much malinvestment predominates, then you have entire enterprises of people running around to no profitable end, regardless of how "hard" they work. Ultimately, the debt tied to malinvestment does not get paid back, at which point it effectively subtracts from the GDP, and shows up as lower bulk productivity in the economy.
In a series of mass economic bubbles, such as those which have come to dominate the U.S. economy, you have a rolling pool of malinvestment, which remains even if the current bubble changes. The bubble sucks millions of people into fictitious bubble jobs, all of which are essentially malinvestment. Just think of the hundreds of thousands of pointless and unnecessary jobs and trillions of dollars of fictitious wealth created in the housing finance bubble (ignoring the companion home building bubble).
I would place the number of such jobs in our economy at at least 5 mln, including the housing bubble, the (overpriced) health care bubble, and the Homeland Security bubble. That's a lot of productivity decline baked into the cake...
14-Sep-2007: Minyanville, Malinvestment Behind the Return of the Slacker
The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.and:
Capital Vol. I, Ch. 3, Karl Marx, 1967
It is to finance-capital that the capitalist future belongs. But this, both in the international struggle of competition and in the internal class struggle, means the most brutal and violent form of capital.The best solution is to overturn the system itself and replace it with a socialist system based on the logic of human need, as opposed to the exploitive capitalist system which is only interested in profit.
Finance-Capital and Crises, Karl Kautsky, 1911
" All contradictions of bourgeois production collectively come into eruption in the general crises on the world market." (Marx, Theories on Surplus-value, Vol. II, Part II, P. 318.)Today CountryWide Financial Corp, one of the largest mortgage lenders in the United States, announced that it is tapping a $11.5 billion loan to stay out of bankruptcy due to overextending itself in the sub-prime lending market (full story). The stock of this company slid 13% on the news, after shedding nearly 50% of its value already this year.
Nearly two years ago, Mario and Leticia Montes found a home they loved, a gray stucco bungalow with a hot tub in the backyard in a middle-class neighborhood of Orange County.The Montes annual income is $90K whereas their yearly mortgage loan payments (sans-taxes) are nearly $40K. They are in terrible shape, have no equity in their home and have very difficult decisions ahead of them. However, their plight could be considered relatively good news in the sub-prime market. Why?
The price was a major stretch at $567,000. But the couple, who had sold a home a few years earlier to move to a better area, was tired of renting. Mr. and Mrs. Montes convened a meeting with their two teenage daughters around the kitchen table to hash out the implications. "We agreed we wanted to be homeowners again," says Mr. Montes, "even if it meant the end of vacations and not eating out as often."
[...]
With a December "reset" on their loan looming, however, the refinancing option now looks impossible. A friend who works as a loan officer called with some bad news this week: Similar homes in their area have been selling for $535,000 to $565,000 recently. That means the Monteses' loan balance may exceed the value of their home.
[...]
"We have a disaster on our hands," says Mr. Montes, a 48-year-old warehouse manager. He fears he won't be able to handle the payments after the December reset and wonders whether the family can avert foreclosure. "At this point," he says, "we really don't have a plan."
Wall Street Journal: One Family's Journey Into a Subprime Trap
When the housing market began its rapid ascent in the mid-’90s, many observers waxed rhapsodic about the potential of high-interest, subprime loans to merge the financial interests of investors and low income and minority communities.The cyclical nature of the capitalist system is designed to concentrate wealth into the hands of the few. This latest cycle is an example of that process writ large. Real estate values will rebound eventually but only after many people loose their homes as foreclosures and bankruptcies commence. Capitalist enterprises and wealthy individuals will swoop in to buy up the properties and do with them as they please.
[...]
Industry representatives typically cite the poor credit histories of most subprime borrowers to explain increasing foreclosure rates. Consumer and community advocates, however, paint a darker picture. “Predatory lending is definitely a systemic problem within the subprime mortgage industry,” says Al Hofeld Jr., a litigation attorney and chair of the South Side Community Federal Credit Union in Chicago (SSCFU). “There are very few subprime lenders who will make a subprime loan where the interest rate actually reflects the risk involved.”
According to Smith, predatory lenders put borrowers into loans that they cannot afford. While blatant fraud, such as the falsification of a borrower’s income to justify a larger loan, is becoming less common, the misrepresentation of a loan’s characteristics, like the concealment of a fixed rate “teaser” period that adjusts upward after two years, is a growing problem.
Hofeld says subprime mortgage companies routinely use bait-and-switch tactics to lure in potential borrowers and maximize the amount of money loaned out. At closing, borrowers are often presented with terms that do not match those previously offered by the company, and then pressured into signing documents which they have not had time to review. Ameriquest Mortgage Company is currently facing hundreds of lawsuits which allege that they routinely baited potential customers by promising fixed interest rates, low or no fees, lower monthly payments, no prepayment penalties, or by representing to borrowers that they qualify for a particular set of terms.
[...]
As they later discovered, however, the terms of the loan were not as they expected. Not only did the loan have an adjustable rate that can go as high as 13.4 percent, but the Walkers allege that Ameriquest falsely told them that their home had doubled in value since they had bought it a few years earlier, thus qualifying them for a larger loan amount. Ameriquest didn’t give them copies of their loan documents at closing, and as a result the Walkers did not realize that the terms had been changed until well after the three-day period during which they could legally cancel the loan. They have since tried to refinance, but have been unable to find another lender willing to lend them the amount currently owed to Ameriquest; the artificially inflated appraisal value has in effect trapped them in a loan with a rising interest rate.
[...]
“The problems in the subprime mortgage industry should be framed as an affordable housing issue,” says Hofeld. “We often compartmentalize the way we think about issues, but I really think that predatory lending is something that is decreasing the supply of affordable housing. And the lack of access to mortgage credit on fair terms is something that prevents people from getting into homes.”
In These Times: The Subprime Bait and Switch
The general possibility of crises which is inherent in the commodity form of social production, attains its further development in the expansion of credit and the functioning of money as a means of payment (i.e., goods are sold but the money for it is paid only after the lapse of a certain time, and it is then only that the business is concluded; money thus exercises the function of credit).Clearly, not the borrowers, but the capitalist system itself is subprime, unable to meet the basic needs of housing in a fair, equitable and sustainable fashion for the vast majority of citizens who labor under its dominion. A bold new direction is needed which can guarantee fair and affordable housing standards for all people. This can only be accomplished by breaking with the capitalist profit model through adoption of a democratic socialist program.
During the space of time which lies between the moment of inception of the credit operation and that of the actual payment of the money, the value of the commodity may change. The payment might, besides this, not be made in time. The separation between purchase and sale and the independence of one from the other then again become revealed. The [consumer] for instance buys 20 yards of linen at the price of $40. He does not, however, pay this money immediately, as he has not yet sold his wheat, the value of which is similarly $40. The weaver, on his part, buys machinery which he promises to pay after he will have received the money from the [consumer]. But if the value of the wheat changes at the time when the [consumer] can sell it and he can realize for it less than $40 or if the [consumer] cannot sell it at all, he can of course make no final settlement with the weaver. The result of this is that the weaver is also unable to pay the manufacturer of the machinery, etc.
Credit ties up in this way all commodity producers who participate in credit operations by a chain of reciprocal dependence. The consequence of the break of any link of financial obligations may result in a shock to the whole chain, i.e., a crisis might break out.
Political Economy: The Marxian Crises Theory
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