A ZOOM DISCUSSION WITH MICHAEL ROBERTS ON THE PROSPECTS FOR THE WORLD ECONOMY post-LOCKDOWN.
May 7, 2020 11 Comments
This is a very topical discussion and one with which the Bank of England has engaged in. It projects a 14% fall in GDP this year (the most in 300 years) followed by a 15% jump next year. This means a net rise in GDP of 1% over two years. This bounce back could have been justified had the world economy been in good health, instead of suffering a severe underlying condition, chronically low profitability. In the face of a profit crisis, Brexit and a fracturing global economy, that projection of bounce back is the most optimistic since capital first deprived labourers of their instruments of production turning them into an industrial proletariat.
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Hi Brian,
You say “Now this fall in profitability should have led to a fall in production. When examining the global economy in 2019 this is confirmed. Whether it was investment, or industrial production or the trade in goods, we find at best stagnation or at worst actual contraction. And yet the global economy apparently continued to expand. This expansion was driven by personal consumption expenditures which was derived mainly from capital gains in the stock and bond markets.”
So the expansion is due to consumption and defied the fall in profitability. Does it matter the source of funding for the consumption? Consumption in department II can drive expansion and avoid slumps when in fact should have to due contraction in department I as a result of the fall in profitability.
Yes capitalism had serious underlying health issues before the virus and now it’s in ICU on ventilator. Will it survive this time? Giant US tech companies have already announced that work from home will continue through the end of this year. They figure inoculation won’t be available anytime soon. It’s also been a boon for these company saving on office space, food, and other perks. I also think they are worried about law suits.
In the absence of a vaccine economies will reopen in measured ways. More than 45 states by Sunday will have relaxed restrictions but according to Pew 68% of people are concerned about their states being reopened too quickly and so I think things will pickup very slowly due to that as well as job losses, and additional cost of doing business. For example, I hear some restaurants have decided not to reopen when lockdowns are relaxed. They say that it’ll be costly because they have to hire additional employees to sanitize, provide sanitation+protection supplies and can only sit about 30% of capacity.
Unemployment claims figures in the US do not reflect the reality completely. There are at least three groups that have not included yet. For example, last week there were 17,000 layoffs in Silicon Valley. A lot of them would receive severance packages. They can’t file for unemployment benefits until they exhaust their severance pay. The second group is the gig workers who are beginning to file. The third group is the undocumented workers who have no access to unemployment benefits.
Excess capacity will be deflationary going forward as you point out. This excess capacity maybe exacerbated by the halt in immigration. To that I’d add the demand from “periphery” countries will be subdued. Those countries do not have the wherewithal of reserve currency countries and consequently hyper inflationary. So I’m guessing that it’ll be a bifurcated. Deflation in centers and hyper inflation in peripheries.
Thank you.
Your point about differing rates of inflation between the centre and the periphery is prescient and now that you have alerted us to this possibility I for one will be keeping an eye on it.
Thanks for the fine detail you provided. Cameron, the consumer spending I refer to is not a function of the rate of profit but of the rate of interest. Here is the full quote from Marx in Volume 3, Chapter 25, Credit and Fictitious Capital (8 pages in). “The cheapness of capital gives facilities to speculation, just as in the same way as the cheapness of beef and of beer gives facilities to gluttony and drunkenness”. What Marx is discussing here is that speculation is always latent in commerce. What keeps it at bay is how expensive money is, aka the rate of interest, and the lack of funds and what encourages it is low interest rates and a source of liquidity. Precisely the conditions provided by Central Banks today. This explains what is currently happening in the markets where a visitor from Alpha Centauri landing in Wall Street could be excused for thinking everything is fine in Main Street.
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