NEWS & LETTERS, SepOct 11, Economic reality of deranged capitalism

At the end of a months-long political spectacle in Washington--manufactured over irrelevancies concerning what should have been a routine raising of the national debt limit before the Aug. 2 deadline--reality struck with a bombshell: the anemic "jobless" recovery in the U.S. has stalled. The economy is getting worse and there is no solution under capitalism. Revised data revealed that the economy grew at less than 1% in the first half of the year. The 9.1% unemployment rate is really over 16% when you consider that at 63.9% the level of labor participation in the economy is the lowest since the Great Recession started in 2007.

Verizon workers all across the U.S. went out on strike for 15 days to force the company to bargain in good faith. Represented by the Communications Workers of America and the International Brotherhood of Electrical Workers, they agreed not to strike again for 30 days. Verizon called for draconian measures that would have destroyed the union. The workers are ready to resume their strike when necessary.
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Economists worry that the global economy is poised for a double dip recession. Most agree that, for the foreseeable future, at best there will be low or no growth--namely, a prolonged depression in employment. The government spared no expense in immediately rescuing the finance sector in the face of a total meltdown in 2008. A completely inadequate stimulus package, which is about to run out, barely made a dent in mass unemployment. Now, in the face of a new downturn, there is the highest long-term unemployment since the Great Depression.

Republican Tea Party fanatics, who control the U.S. House of Representatives, were willing to risk a default on the national debt by refusing to raise the debt limit. A default would have triggered a "financial Armageddon" and pushed the already weak U.S. and world economies into an abyss. The mass misery this would have generated was of no consequence to the Tea Party, for whom nothing mattered except gutting spending on all social programs and stopping any tax increases for the wealthy.

The tax structure in the U.S. is so outrageous that billionaire Warren Buffett pleaded with the politicians to stop "coddling" the rich like him whose tax burden, at 17.4%, is less than half of the average 36% paid by the other 20 employees in his office. Inequality in the U.S., where the top fifth has 84% of the national wealth while the bottom two fifths have a mere 0.3%, is one of the most extreme in the world. One fifth of children in this richest country on earth grow up in poverty. Thus, as the Aug. 2 deadline approached, without a care to these facts or the consequences of their actions, the Republicans got what they wanted. Standard & Poors (S&P) promptly lowered the U.S. credit rating from AAA to AA+, not because of a U.S. inability to pay its debts, but because such a deranged political system can no longer be counted on to do so.

The religious fanatics who control the Republican Party like Michele Bachmann and Texas governor Rick Perry adhere to "Dominionism," which holds that certain Christians should not let anything get in the way of fulfilling their destiny: to run the government according to their strictures and in turn impose them throughout society. Dominionist views are totally divorced from reality--whether on evolution, global warming or the nature of homosexuality--but, when they include ruining the economy, then many capitalists get scared. Such a deranged single-minded reach for power on the part of these ideologues can't be dismissed, however, precisely because capitalists are still so willing to use them to force cuts on workers' pensions, healthcare and education to pay for deficits from wars, tax cuts for the rich, and speculative excesses that caused the downturn.

Photo by The Rick Smith Show, http://www.flickr.com/photos/ricksmithshow/6054182428/

Student "guest workers" walked off the job packing Hershey's chocolates in Palmyra, Penn., in August. They worked long hours at pay lower than promised, many of them doing heavy lifting, and were gouged for housing, in what was supposed to be an educational experience. The students protested exploitative conditions as well as the fact that they were being used to eliminate union jobs for local workers--who are supporting the students' action.
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The capitalist dilemma is that austerity has also revealed itself as a deranged policy that makes the deficits worse because it drives down economic growth. In Europe, an austerity-induced downward spiral in employment and living conditions has been met with mass strikes, riots and "Take the Square" movements inspired by the Arab Spring and demands for "Real Democracy." Nationalism is tearing apart Europe's economic union as countries like Germany, with financial prowess due to an export-driven economy, have dictated harsh conditions for bailouts of other countries. Bailouts became necessary after bond dealers, who were rescued from their own speculative bubble, forced one country after another to face exorbitant interest rates on their debt. The contagion spread from marginal countries like Ireland, Portugal and Greece to Spain and even Italy. Now economic growth in Germany itself has collapsed to almost nothing. Economists fear not just another global recession but another financial meltdown like 2008.

After S&P's downgrade, far from fleeing from U.S. debt, investors demanded more of it, making it even cheaper for the government to borrow. The interest rate on ten-year Treasuries fell to historic lows of under 2%. U.S. capitalists have a huge cash hoard of nearly $2 trillion that is not being invested in the real economy. It gets lent to the government for almost nothing. The near religious faith that capital creates jobs has met the reality of stalled capital accumulation creating permanent mass unemployment.

As economists like Paul Krugman and Robert Reich keep saying, Keynesian economics arose in the 1930s to deal with a similar deranged moment when capitalism kept digging itself into a deeper hole. Today is said to be akin to 1937, when President Roosevelt listened to those who wanted to cut the deficit and the Depression returned with a vengeance.

Only when Roosevelt turned to several years of what would in today's dollars be $3 trillion deficits in the buildup and execution of World War II did the U.S. exit the Depression. Krugman claims the economic impact of the war--the massive physical destruction of capital, which left the U.S. as the lone economic superpower--wasn't necessary for ending the Depression and restarting capital accumulation.

But total war was not separate from the Depression. War was preceded by the monstrosity of Nazism arising in an advanced capitalist country. A more thoughtful evaluation came from another renowned academic economist, Simon Kuznets, who also saw only "transient difficulties" in the collapse in the rate of capital accumulation, but nevertheless questioned the capitalist basis of economic growth if it is "susceptible to such a barbaric deformation" (Postwar Economic Growth, Harvard University Press, 1964).

Karl Marx showed that the collapse in capitalist growth is no "transient difficulty," but is rather a reflection, despite many countervailing tendencies, of an overall tendency for the rate of profit to decline. (See "Deep recession, rate of profit and the supreme commodity, labor power".) A financial meltdown reveals a dramatically lower rate of profit in the real economy where capitalists balk at investment and produce not jobs but a growing army of unemployed and mass pauperization.

Profit can only come from surplus value extracted from living labor, and the rate of profit falls when there is relatively less living labor in proportion to dead labor or capital. Capital's self-contradictory motivation is to diminish living labor as much as possible--this goose that lays their golden eggs--by constantly revolutionizing production with new dead labor or machines. With a given level of technological development and ratio of capital to living labor, the only way to boost profit is to lower the cost of labor through a class war on labor rights, wages, benefits and pensions.

The capitalist system will not collapse on its own, but will continue as long as it can in a protracted painful decline. There are persistent new revolts on the ground searching for a new path as when mass demonstrations and sit-ins in Wisconsin confronted Governor Walker--not only because of his huge take-backs but because of the repeal of public workers' basic labor rights. The opposition to Walker also came within one vote of taking control of the State Senate in recall elections and effectively ended his majority for the most extreme of his agenda items. The political arena of elections, however, is where capitalists have infinite cash to spin facts in the media according to their inverted reality.

President Obama, who was elected on a promise of change that inspired masses of new people to work for his election, behaves as if he also believes fervently in the political process that operates on a different plane than the conditions of life and labor of those who elected him. Obama kept exclaiming that high unemployment is unacceptable and a prime concern, but the political process, divorced from the aspirations of those who elected him, revolved around deficit cuts that undermined employment. His new promise to introduce a jobs program has little credibility.

Workers experience the process of accumulating capital as an alien one, where the object, capital in the form of a machine, dominates the subject, the living laborer. The capitalist begins from total costs and views labor not as the source of value but only as an expense. In this way, says Marx, "the extortion of surplus-value loses its specific character." For the capitalists it always appears as though an increase in value results from technology. New technology lowers socially necessary labor-time and makes those commodities issuing from it temporarily sell above their value, which is determined by the average socially necessary labor-time. The "crisis" hits when all capitalists get the same technology (or are driven out of business) and all commodities sell for their now lower value, the amount of labor-time "in" them. What pervades the totally dysfunctional political system is the capitalist's fantasy thinking that treats capital as the generator not only of jobs but of value itself.

The appearance of creating value from nothing through speculative finance capital is twice removed from the "specific character" of creating value in production and greatly amplifies the hallucinatory thinking of capitalists and their political allies. Production is the source of both profit and the illusions of finance capital. Under finance capital, as Marx put it, "the way that surplus-value is transformed into the form of profit...is only further extension of that inversion of subject and object which already occurs in the course of the production process itself. We saw in that case how all the subjective forces of labor present themselves as productive forces of capital" (Capital, Vol. 3, Fernbach trans, p. 136).

Ideologues never tire of projecting anew this disordered consciousness in which humans begin from reality not as our own creative powers in metabolism with nature, but bow to technology as capital. In Foreign Affairs (July/August, 2011), Michael Spence warns of "structural underpinnings" driving a divergence between "growth and employment," which means "the United States should brace itself for a long period of high unemployment" because of the impending loss of even "high-value-added" jobs that revolutionize technology. "Value-added" fantastically becomes "capital and labor that turn the inputs into outputs." Capital produces no new value. Only living labor, whose proportion diminishes relative to dead labor, creates new value even as it transfers the value of the machine over its lifetime in production.

Apple Corp. came to be the iconic center of high-tech jobs and briefly the company with the largest market capitalization in the world based on an abundance of alienated, sweated labor. Foxconn, which employs a million workers in China manufacturing high-tech gadgets for Apple and others, has an ignominious reputation for workplace injuries and a rash of suicides from long hours and high production quotas. Workers, who make at most $200 a month, must sign a promise to not commit suicide. Safety nets have been placed outside factory windows. Foxconn chairman Terry Gou wants to deal with these erratic humans by replacing as many as possible with a million robots by 2013. This is in the name of wanting his employees to move "higher up the value chain" ("Cheap Robots vs. Cheap Labor", New York Times, Aug. 14, 2011) in a country which still has 300 million peasants. Nothing will stop China, rife with worker revolts, from a reckoning, not only with speculative excesses in finance, but with its own internal barriers to accumulation.

New revolts, emerging outside the familiar players like political parties and labor unions--including the mass demonstrations that forced the shutdown of an ecologically disastrous chemical plant in Dalian, China, or the new people's assemblies that have filled the public squares in Europe--reveal masses of people searching for a way out of capitalism's upside-down thinking. It's time to stop digging ourselves into not only deeper economic stagnation but also the stagnation of the mental hole that just reproduces capitalist illusions. For Marx, the only way to wipe away those illusions is when production is run by freely associated laborers, a conceptual guide-rail for all the new spontaneous and self-organized revolts.

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Political spectacles cannot hide reality of deranged capitalism

by Ron Kelch