Pledging “pain,” Federal Reserve declares war on the working class / by Marcus Day

“Working Class Day of Action” Call for better living and working conditions (Photo: Elitsha)

Originally published: World Socialist Web Site on August 27, 2022

In his speech Friday at the Federal Reserve’s annual summit in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell made one thing clear: America’s financial oligarchy is determined to make the working class bear the cost of the deepening economic crisis.

Speaking more bluntly than he has previously, Powell pledged that the U.S. central bank would sustain higher interest rates in the name of fighting inflation, with increased unemployment and economic “pain” to be expected as the consequences. The Fed is widely anticipated to again raise rates by 0.5 to 0.75 percentage points in September.

“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said.

Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.

Behind the Fed chair’s grey-hued euphemisms stands a ruthless class policy. With “softening of labor market conditions,” Powell is describing a deliberate jobs bloodbath, in which higher rates will encourage mass layoffs and the inevitable calamity this entails for workers and their families. It will mean staggering rises in poverty, hunger, substance abuse, foreclosures, homelessness and suicides, under conditions of an already acute social crisis.

There can be no doubt that the target of the “pain” Powell is referring to is the working class.

Powell bemoaned a so-called “out of balance” labor market and outsized demand for workers, saying,

The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers.

This cynical argument—that a labor shortage and overly large wage increases are the primary drivers of inflation—defies the most basic economic logic. If the cause of high inflation in the United States were wage increases, then workers’ wages would be rising at a level comparable to, or higher than, the level of inflation.

Workers’ pay has risen in nominal terms far below the rate of inflation, resulting in a 3 percent decline in real wages over the course of the past year, according to the Bureau of Labor Statistics, falling as much as 5 percent in some states.

The labor shortage itself is in large part the consequence of the ruling class’ catastrophic response to the COVID-19 pandemic, in which mass infection has been ever more deliberately enforced in the short-term pursuit of profit. As many as 4.1 million Americans have left the labor force and are unable to work due to the debilitating impact of Long COVID, according to an analysis by the Brookings Institution released this week. The U.S. Census Bureau has estimated that as many as 16 million people in the U.S. are suffering from Long COVID.

In reality, corporate price gouging, not wage growth, has been the primary factor driving inflation, an April study by the Economic Policy Institute found. Meanwhile, corporate profits continue to set record after record.

Profit margins at non-financial corporations have hit a 72-year high, according to data released Thursday by the U.S. Commerce Department, reaching 15.5 percent for the first time since 1950. Profits increased 8.1 percent over the past year, even after accounting for higher capital stock replacement costs from inflation.

The oil and gas giants have been in the forefront of this bonanza, with the five largest companies taking in $55 billion in profits during the second quarter of 2022 alone, as they profiteer from the U.S.-instigated proxy war against Russia in Ukraine. The intent of U.S. imperialism and its allies is to make the working class pay for their predatory wars abroad. In the UK, energy prices are set to rise 80 percent this fall, to £3,549 a year, roughly $4,200, and to as high as £6,600 in the spring, with catastrophic implications for working families.

The pro-corporate trade unions, for their part, have been working around the clock to impose the demands of the companies for below-inflation raises, higher health care costs and longer hours. Earlier this year, United Steelworkers President Thomas Conway boasted of a “responsible” contract the union coerced oil and gas workers into accepting, lauding it for not adding to “inflationary pressures,” parroting the lying claim that wage increases are driving higher prices.

Already, the Fed’s rate increases are beginning to have their intended effect, triggering a wave of mass layoffs, including 38,000 in the technology sector through mid-August. Job cuts are now spreading more widely throughout the economy. Hospitals and health care systems are increasingly slashing positions and reducing services, Kaiser Health News reported Friday, despite the health care chains receiving massive bailouts to the tune of billions of dollars during the pandemic.

Layoffs are beginning to accelerate even as many sections of the economy are already threatened with disaster and virtual collapse due to understaffing and brutally long hours, as in the health care industry and the railroads.

In his speech, Powell alluded repeatedly to former Fed Chair Paul Volcker, whom he has previously presented as his intellectual North Star. Appointed by Democratic President Jimmy Carter and retained by Republican President Ronald Reagan, Volcker oversaw a program of economic “shock therapy” in the late 1970s and early 1980s, raising interest rates to double-digit levels in order to induce mass unemployment and break the back of the militant workers’ struggles that had dominated the preceding decade. “The standard of living of the average American worker has to decline,” Volcker declared in 1982.

In the present, workers are being told by the Biden administration, the political establishment and the corporate and financial elite that they must sacrifice—and accept a lower standard of living—in the name of the “national interest” and the struggle against supposed “Russian aggression.”

But history shows again and again that the demand for “shared sacrifice” by the ruling class and its representatives is nothing but a swindle, aimed at enriching the financial oligarchy at the expense of the working class and increasing its exploitation.

The response to the ruling class policy of austerity and war must be a conscious political program representing the interests of the working class, unifying the struggles of workers in every section of industry and across national boundaries. This year has already seen an eruption of class struggle internationally, drawing in ever-larger layers, from manufacturing workers to dockworkers and truckers, pilots and flight attendants, nurses and educators, among others.

The broad support for the campaign of Will Lehman for international president of the United Auto Workers shows the enormous potential for this developing movement in the working class to find a progressive outlet. Lehman, a Mack Trucks worker and socialist, has explained that he is running in the UAW elections in order to organize a rank-and-file movement from below and take power back from the union bureaucracy.

The emerging struggles of workers against the soaring cost of living and the impact of the capitalist crisis must take up the socialist and internationalist perspective Lehman is advocating so that the needs and interests of workers—not the financial oligarchy—determine how society’s resources are organized.


World Socialist Web Site, August 27, 2022, https://www.wsws.org/

Report card on a failing economic system / by Greg Godels

On Friday, May 6, the Federal Reserve released data showing that consumer credit (debt) has been accelerating since the fourth quarter of last year, with revolving credit (largely credit card debt) speeding up at an even greater pace since the third quarter of 2021. Total consumer credit grew by an annualized rate of 7% in the fourth quarter of last year, increased to 9.7% in this year’s first quarter, and expanded to 14% in March.

At the same time, revolving credit–the debt largely incurred through credit cards–grew 8.3% in the third quarter and 12.7% in the fourth quarter of 2021, and then 21.4% in the first quarter of this year, and an astonishing 35.3% in March!

Clearly, the U.S. economy’s reliance on consumer spending is more and more dependent upon consumer debt, especially the credit card. For months, the business press has been hailing the continued expansion of consumer spending–a huge contributor to overall economic growth–as the one bright spot in the news. Now we see that consumer spending is built on the sands of consumer debt.

Likewise, personal savings (as a percentage of disposable personal income) in April, 2022 reached a low unseen since September of 2008, a sure sign that people are dipping into savings to make ends meet.

And subprime–low credit score–loans are failing. Subprime car loan and lease delinquencies hit a record high in February.

To make matters worse, the Federal Reserve has, after more than a decade of unprecedented near-zero Federal funds target interest rates, raised the rate by half a percentage point, the greatest one-time increase in 22 years. Without a doubt, this will translate into higher credit card interest rates going forward, applied to a broad, rapidly growing mass of consumer debt.

Thus, the consumer is turning to the credit card–incurring debt–precisely when the cost of using the card is rising.

Higher interest rates are exploding mortgage rates–and dampening the over-heated housing market–in some cases, doubling this year. Because of rising mortgage rates, new home sales fell 16.6% in April from March, yet prices of homes continue to rise: the median existing home price rose 14.8% from April, 2021 to April 2022. While it’s dramatically costlier for the homebuyer to finance a new home, the price of a house continues to rise alarmingly–a perfect, classic housing-market bubble on the verge of bursting!

But the plight of the consumer gets worse: inflation continues to drive the cost of living for the average consumer higher and higher. For eight months, the annualized rate of inflation has been rising, culminating in an 8.5% rate in March and 8.3% rate in April–rates rarely seen in the last 40 years. Food prices alone–the most critical consumer goods for the least advantaged–are up 10.8% for the year ending in April, 2022, the greatest 12-month increase since November, 1980.

When inflation raised its ugly head last year, pundits and the Federal Reserve dismissed it as temporary, an anomaly caused by dislocations following the Covid pandemic. In response, I wrote:

Despite the admonitions of the central bankers and financial gurus, inflation seldom self-corrects. It rarely runs its course. Instead, inflation tends to gather momentum because all the economic actors attempt to catch up and get ahead of it.

Today, the central bankers and financial gurus agree that inflation will be around for some time, eroding the buying power of the average worker.

Despite the dire accusations in the business press that increases in worker compensation is driving inflation, the truth is the opposite. The average worker’s hourly income–adjusted for inflation–has dropped by 2.6% from last April! Whatever gains are made, they are soon devoured by inflation.

Nor does the future portend well. U.S. economic growth (GDP) sunk by 1.5% in the first quarter of 2022. As they did with the inflation crisis, pundits are shrugging this off as a self-correcting aberration. Yet, it is hard to imagine that the shrinking incomes, expanding debt, and fierce inflation will not take its toll on consumer confidence and spending, the factors that contribute far-and-away the most to U.S. growth.

A powerful indicator of roadblocks ahead for growth was the first-quarter collapse of labor productivity. Thus, labor productivity dropped by an astonishing 7.5% in the nonfarm business sector, the largest decrease since the third quarter of 1947–nearly 75 years ago! This collapse was brought on by a 5.5% increase in hours worked and a 2.4% drop in economic output (this is a broad measure of hours worked, including employees, proprietors, and unpaid family workers).

Companies continue to compete for employees and hire new employees, while the economic product shrinks, a formula–under capitalism–for future slowing accumulation, a coming decline in the rate of profit. Some of the U.S.’s largest retailers are reporting a decline in earnings.

This employment boom arose especially in the technology sector, where tech start-ups round up capital, borrow heavily, and hire furiously on the faith that profits will come later. Risk taking, future high return-seeking venture capitalists and the extremely low cost of borrowing, combine with a young, educated, competitive workforce to create the perfect conditions for inflated expectations and recklessness. With interest rates rising and uncertainty growing, the tech bubble is now leaking–hiring freezes, layoffs, and austerity are occurring or in the offing.

The technology sector is the most vulnerable sector of the capitalist economy because of a long period of easy access to capital and a long incubation period before returns on investment appear. Banks have become impatient for profits from the latest glitzy app, just as they gave up waiting for returns on their investment in promiscuous fracking a few years ago (that is being corrected with the greatly increased demand for energy in Europe as a result of the Ukraine war).

The tech sector’s troubles are reflected in equity markets, with the tech-based NASDAQ sinking faster, yet dragging down the S&P index as well. So far this year, as of May 20, the NASDAQ composite has dropped well over a quarter, with the S&P falling 19%, the S&P’s worst start to a year since 1970. With 8 straight weeks of losses, the Dow Jones Industrial Averages has incurred its worst stretch since 1932. For those whose only exposure to the stock market is their 401(k) retirement plans, stock performance is a disaster–investment advisors and managers have put a greater proportion of their funds into stocks (as opposed to other investment instruments like bonds) than in the past. This will be catastrophic for those planning to retire in the next few years.

Bonds, a usual safe haven when the markets are down, are also down for the year. And bitcoin, the darling of the financial hipsters and the crooks, has lost a third of its value this year.

Nonetheless, investors are buying in the face of a deepening bear market, seduced by the old saw of “buying on the dip”–buying stocks when they are at the bottom and, therefore, a bargain. Despite the market’s abysmal performance in March, individual investors bought a net $28 billion in stocks and ETFs–a record. This would appear the greatest exercise in wishful thinking since the 2007-2009 crash. Maybe it’s an omen!

Certainly, if equity markets continue to lose trillions of dollars of hypothetical wealth (the top six Standard and Poor’s companies lost $3.76 trillion of nominal value through May 20), the negative wealth effect will restrain spending, especially among those in the middle strata and in the bourgeoisie. Bloomberg estimates that global stocks have lost over $11 trillion in value: “Investors continue to reduce their positions, particularly in technology and growth stocks,” said Andreas Lipkow, a strategist at Comdirect Bank. “But sentiment needs to deteriorate significantly more to form a potential floor.”

What does all of this bad economic news mean?

The end of the Cold War brought not a peace dividend, but a gift to the victorious capitalist ruling classes. It was, after all, a struggle between capitalism and socialism, despite what the bogus left thought about Soviet socialism. Without question, the capitalist class understood the Western confrontation with the Soviet Union as an existential battle.

With capitalist triumphalism came decades of super-exploitation of millions of workers thrust into the global labor market. Billionaires abounded, income and wealth inequality exploded, and the resultant accumulated capital sought new and creative destinations. To a large extent, the financial sector enthusiastically accommodated this need by devising innovative, complex instruments, new investment structures, and opaque financial operations.

Capital’s imperative to reproduce itself took it into riskier and riskier places; the growing volume of accumulated capital became more difficult to productively reinvest; investors booked “profits” that were more and more contingent or hypothetical; the euphoria of hyper-accumulation invited greater and greater leverage; and the accumulation mechanism finally crashed under the weight of tenuous, hypothetical, and “fictitious” capital in 2007.

The history of the twenty-first century since the 2000 tech collapse has been one continuous struggle on the part of the Central Banks, international economic organizations, government administrations, and financial institutions to rescue capitalism from the giddy orgy of speculation and overinvestment triggered by capitalist triumphalism.

These actors have attempted to seal off the trash–bad investments, overvalued, unredeemable bonds, unrecoverable debt–from the healthier economy, while injecting massive volumes of no- or low-cost (near-zero interest rates) liquidity into a shell-shocked economy.

The raging inflation that emerged late in 2021 places the masters of the capitalist economic universe in a policy vice. To stem inflation, they must raise interest rates, which invariably dampens economic growth. But economic growth has already slowed–indeed, turned negative in the U.S. for the first quarter of this year. With so many economic indicators declining or going negative, rising interest rates will only accelerate the slowdown of consumer spending, productivity, wage growth, investment, and social spending, while increasing debt and its costs.

This is truly a bleak picture and it’s not clear what useful tools remain in the hands of the policy makers to brighten it. The NATO/Russia/Ukraine blunder of a disruptive, grinding war can only worsen global economic conditions for everyone except the arms makers.

We can only hope that people will make the connection: capitalism breeds misery and war.


Originally published on May 28, 2022 by Greg Godels: http://zzs-blg.blogspot.com/

MR Online, May 31, 2022, https://mronline.org/