“Peak China” – a new low in Western attempts to persuade China to commit suicide / By John Ross

Image credit: The Economist, May 11, 2023

Posted in MR Online on May 23, 2023

One of the latest covers of the magazine The Economist carries a headline “Peak China”. This, as its name suggests, is a claim that while during the last seven decades China’s has enjoyed a peaceful “rise”, specifically in relation to the U.S., this has now ended:

Whereas a decade ago forecasters predicted that China’s GDP would zoom past America’s during the mid-21st century (at market exchange rates) and retain a commanding lead, now a much less dramatic shift is in the offing, resulting in something closer to economic parity… One view is that Chinese power will fall relative to that of its rivals… The Peak China thesis rests on the… observation that certain tailwinds are turning to headwinds… All of this is dampening long-run forecasts of China’s economic potential. Twelve years ago Goldman Sachs thought China’s GDP would overtake America’s… and become over 50% larger by mid-century. Last year it revised that prediction, saying China would… peak at less than 15% bigger. Others are more gloomy. Capital Economics, a research firm, argues that the country’s economy will never become top dog, instead peaking at 90% of America’s size in 2035… the most plausible ones [of these projections] seem to agree that China and America will approach economic parity in the next decade or so—and remain locked in this position for decades to come.

| Will China be next | MR Online

The first reaction, was really to literally laugh at what, as will be seen, was the latest of decades long wildly inaccurate predictions by The Economist regarding China. Indeed, the record shows that probably a good working guide to what will happen in China is to take what The Economist says and assume that the opposite will occur! Second, to reflect on what are the deep reasons for such a combination of ignorance and arrogance that it leads to a refusal to make any balance sheet of entirely wrong analyses repeated for these decades but when it still claims to be taken seriously on an issue on which it has such a provenly lamentable record. As the latter applies not only to The Economist but to many other Western publications that make similar claims it will be returned to at the end of this article.

The Economist on China and the Asian Financial Crisis

First, however, in order to avoid any suggestion that we are misrepresenting The Economist, let us factually establish its prolonged inaccuracies on China. Similarly, to avoid any suggestion of seizing on incidental or secondary remarks, taken out of context, which do not represent the central views of the publication, only front pages, and special supplements, that is the journal’s most important publications, on China will be used.

| Out of Puff | MR Online

A suitably distant starting point is to go back 25 years to The Economist’s analysis of China and the Asian Financial Crisis of 1997-98. The Economist’s front page on 24 October 1998, referring to this, was “Will China be next?” Inside it posed the question: “whether China’s growth is slowing or even grinding to a halt… yes”. It then posed the question:

whether the resulting unemployment will prompt political unrest, or a power struggle among the leadership… yes.

In fact, as is well known, China was fundamentally economically stable during the Asian financial crisis. There was no unemployment leading to political unrest, let alone a “power struggle”. In short, The Economist was completely inaccurate.

The Economist “out of puff”

Moving ahead four years, on 15 June 2002 The Economist published a a special supplement on China. This had the title “A Dragon Out of Puff”—a self-explanatory analysis. Its conclusion on China was the following:

the economy still relies primarily on domestic engines of growth, which are sputtering. Growth over the last five years has relied heavily on massive government spending. As a result, the government’s debt is rising fast. Coupled with the banks’ bad loans and the state’s huge pension liabilities, this is a financial crisis in the making… In the coming decade, therefore, China seems set to become more unstable. It will face growing unrest as unemployment mounts. And if growth were to slow significantly, public confidence could collapse, triggering a run on banks.

| How India | MR Online's growth will outpace china's

Turning from The Economist’s analysis to reality, what actually happened in the decade that followed was simple. China’s economy from 2002-2012 expanded by a total of 173% or an annual average of 10.5%. For comparison, in the same decade world GDP grew by a total 37%, or an annual average 3.2%. The U.S. grew by 21% or an annual average of 1.9%. In summary, China’s GDP grew 4.7 time as much as the world average and 8.4 times as time as much as the U.S.

And this is supposed to be China “out of puff”? It is just known as The Economist being hilariously wrong.

The Economist wrong on China and India

Let us now turn to another major sortie of The Economist into analysing China. Its front cover headline of 2 October 2010 was “How India’s Growth Will Outpace China’s”—also self-explanatory. The analysis this headline referred to stated: “Chetan Ahya and Tanvee Gupta of Morgan Stanley, an investment bank, predict that India’s growth will start to outpace China’s within three to five years… For the next 20-25 years, India will grow faster than any other large country, they expect. Other long-range forecasters paint a similar picture.” The Economist approvingly quoted that India would “outpace” China because socialist “China’s growth has been largely state-directed. India’s, by contrast, is driven by 45m entrepreneurs.”

Once more, turning from a comparison of what The Economist predicted to what happened, the reality was clear and is shown in Figure 1. Taking the data from the Economist’s prediction in 2010 up to the present, that is to the end of 2022, China’s economy grew by 116.0% and India’s by 94.6%. Far from India “outpacing” China, China’s total economic growth in this period was 23% greater than India’s. China’s annual average GDP growth was 6.6% compared to India’s 5.7%.

Figure 1

| Figure 1 | MR Online

Regarding the supposedly negative features of China’s socialist “largely state-directed” economy even more striking, because it is an index of overall economic efficiency, was the result in terms of per capita GDP growth. From 2010-2022 China experienced an average annual population increase of 0.4% and India of 1.2%. So, China’s more rapid growth of total GDP than India was despite the fact that India had significantly more rapid population increase.

In terms of per capita GDP, as Figure 2 shows, China’s total growth from 2010 to 2022 was 105% and India’s 69.6%. That is, China’s per capita GDP growth was 51% higher than India. China’s annual average per capita GDP growth was 6.2% compared to India’s 4.5%. It turns out that China’s socialist “state directed growth” was far more effective at producing per capita GDP growth than India’s “45 million entrepreneurs”. Once more The Economist was not wrong on details but got the entire course of events wrong.

The significance of population trends in China’s economic growth will be considered in more detail below.

Figure 2

| Figure 2 | MR Online

The current claims by The Economist

Having established the successive previous errors of The Economist on China let us now turn to its claims in its most recent issue. This, as already noted, is summarised in the front cover issue with the headline “Peak China?”—that is the claim that China’s rise has stopped. Regarding the details of this inside we read supposedly regarding the “certain tailwinds are turning to headwinds” that:

The first big gust comes from demography. China’s working-age population has been declining for about a decade. Last year its population as a whole peaked… Wave goodbye to the masses of young workers who once filled ‘the world’s factory’.

The Economist then goes on to claim: “China has this year liberated its economy from the lockdowns, quarantines and other strictures of its ‘zero-covid’ regime. But it has not freed itself from longer-term worries about its growth prospects. Its population is shrinking. Its epic housing boom is over.” Supposedly China has problems from “a regulatory crackdown on e-commerce firms.” Regarding comparison with the U.S.: “Some ask how much longer China’s economy can grow faster than America’s.” Quoting works which it considers notable, and which coined the “peak” claim:

Hal Brands and Michael Beckley, two American political scientists, argue that China’s rise is already coming to a halt. The age of ‘peak China’, as they call it, is upon us.

As already noted, The Economist justifies these claims in particular with reference to population trends—the bogus claim, promoted for several years, that “China will grow old before it grows rich.” More precisely: “What accounts for the lower expectations for China’s economy?… Start with population. China’s workforce has already peaked, according to official statistics. It has 4.5 times as many 15- to 64-year-olds as America. By mid-century it will have only 3.4 times as many, according to the UN’s ‘median’ forecast.” It then goes on to discuss issues such as productivity—which are analysed below.

The Economist then goes on to conclude:

It also seems safe to say that China and America will remain in a position of near-parity for decades. In Goldman Sachs’s scenario, China maintains a small but persistent lead over America for more than 40 years… in Capital Economics’s projection, China’s GDP will… be over 80% of America’s as late as 2050…. if China’s peak is more Table Mountain [a flat-topped mountain in South Africa only slightly over 1,000 metres high] than K2 [Qogir Feng, the world’s second highest mountain at 8,611 metres] its leaders will have little incentive to rush to confrontation before decline sets in.

Leaving aside that China’s leaders have not shown any desire whatever to “rush to confrontation” let us dissect this evaluation of The Economist.

Elementary reality checks

Because no angle should be ignored in dealing with this analysis by The Economist, we will discuss below its assertions using technical methods of economic “growth accounting”. But actually, elementary reality checks and calculations, which can be understood by almost anyone (apparently apart from The Economist’s writers), shows their falsity.

Start with the question of population, on which The Economist lays such emphasis. China’s average annual population growth from 1978-2022, that is since the start of “Reform and Opening Up” is 0.9%. China’s annual average GDP growth in the same period is 9.0%. So, 8.1% a year GDP increase, that is 90% of the growth, could not possibly be accounted for by population changes. In summary, even before doing detailed growth accounting, it is clear that population growth could have played only a very small role in China’s economic development. This will be fully confirmed by the growth accounting data.

Turn to the second feature. According to The Economist we ae entering “the coming age of superpower parity”. What this means in GDP terms is that China and the U.S.’s economies will be roughly the same size—one possible a little bit bigger than the other. Let us analyse the implications of this claim.

Of course, no one doubts that after the “century of humiliation” China’s economic starting point was far behind the U.S. In 1950, in purchasing power parities (PPPs), on the calculations of Angus Maddison, who was the world’s leading expert on long term economic growth, China’s per capita GDP was slightly under 5% of the U.S.. By 2022, measured in PPPs by the IMF, China’s per capita GDP was 28% of the U.S.. That is, since the creation of the People’s Republic in 1949, China has improved its per capita GDP position relative to the U.S. by more than five times.

What is the overall implication of this? In 2022 Mainland China’s population was 4.24 times that of the U.S.—put in other terms, the U.S. population was less than 24%, approximately a quarter, that of China. That means, in turn, that for China to remain having the same, or a smaller, GDP than the U.S. its per capita GDP would have to remain less than one quarter of the U.S..

Why should China be incapable of reaching anything more than one quarter the per capita GDP, with therefore roughly one quarter the living standards, of the U.S.? Is it some xenophobic illusion that the average Chinese person is only one quarter as smart, or only works one quarter as hard, or cannot work out a way to achieve more than a quarter of the living standard of an average American? Or to put it the other way round, that the average American works more than four times as hard, or is four time as smart, or can work out a way to remain living more than four times as well as the average Chinese person?

That type of thinking is delusional and is also leaving the U.S. open to a terrible shock not only in regard to China but a second one later in this century when it finds out that the average member of the more than 1.4 billion Indian people is just as smart, just as hard working and just as capable of working out how their country can develop as the average American.

In fact, China’s development has come from successful policies by the Communist Party of China (CPC) and work by the Chinese people—not from economic “miracles”. China is perfectly aware that, given its extremely low economic starting point after a century of foreign intervention in 1949, it has set its goal of becoming a “strong, democratic, civilized, harmonious, and modern socialist country” to be achieved only by 2049. In the more immediate term, at the 20th Party Congress, its goal was stated as reaching the level of a “medium-developed country by 2035”. Slightly earlier, in 2020’s discussion around the 14th Five Year plan, it was concluded that by 2035 for China: “It is entirely possible to double the total or per capita income”. These two goals are essentially the same. This target requires an average annual growth of GDP of at least 4.6% a year by 2035. That this target can be achieved will be shown in detail below.

But the size of China’s population, and the speed of its economic development, does have an inevitable consequence. Those who believe that China will never significantly exceed one quarter of the per capita GDP of the U.S. and therefore that China’s GDP will never become significantly greater than the U.S., are deluding themselves. It is only necessary to be able to multiply by four to know what will be the final result.

Growth accounting

So far only issues that can be understood by anyone, whether or not they are an economist, regarding the elementary errors of the thesis of “peak China” have been dealt with—that is, the facts that the very slow growth of China’s population compared to its GDP growth shows that increase in labour supply plays only a very small role in its economic growth, and the consequences of the fact that China has over four times the population of the U.S. Actually, these are quite sufficient to understand why the theory of “peak China” is false. The fact that these false arguments can ignore such elementary realities shows how blinded people can be by their own propaganda. But nevertheless, it is also useful to analyse more detailed issues of economics—it should not be thought that any questions are being avoided. Therefore, more detailed issues of economic growth will now be examined. Analysing these, furthermore, does cast a light on important questions and further clarifies the fundamental errors of the theory of “peak China”—and what lies behind it.

Turning from the most fundamental trends to detailed growth accounting the most recent data will be examined in order to avoid any accusations that what is really being analysed is the effects of the period immediately after 1978—which almost no one would dispute brought gains but which some claim have now disappeared. Figure 3 therefore shows the latest 10 years, 2011-2021, for which detailed growth accounting data exists—it is not yet available for 2022.

Changes in labour inputs in China

As labour is the aspect most concentrated on in the theory of “peak China” it will be dealt with first. Initially, to get these out of the way, some elementary conceptual mistakes of the “peak China” brigade will be dealt with and then their most fundamental fallacy will be shown.

The detailed data on labour inputs in Figure 3 immediately shows one of the first elementary arithmetical fallacies of the old “China will get old before it gets rich” argument—which is essentially the same as that of “peak China”. This is that this fails to distinguish between the “quality” of labour inputs (that this their level of education, training etc) and the “quantity” of labour inputs—that is simply the number of hours worked.

Figure 3

| Figure 3 | MR Online

This fallacy can be easily illustrated for non-specialists in economics. Take an hour of labour in South Korea—this country is chosen because today it has one of the highest levels of higher education in the world. In 1945 85% of South Korea’s population lived in rural areas and Illiteracy was 88%. Today 85% of South Korea’s population lives in urban areas and enrolment in tertiary education is equivalent to the entire population of the relevant age groups. China’s is passing through the same historical process from its own extremely rural past—with urbanisation reaching 65% by 2021, and enrolment in higher education reaching 60% by 2022.

The value produced by an hour’s labour by someone with a university degree in Korea, very possibly a PhD in engineering or computing, in 2022 is obviously far higher than that of a peasant who was illiterate in 1945. Similarly, as China’s population becomes more and more highly educated and trained the inputs of “labour quality” (to use the technical economic term) will rise even if “labour quantity” (the total number of workers and therefore the number of hours worked) goes down.

This is precisely what occurred in China from 2011-2021. As Figure 3 shows, the total number of hours worked (labour quantity) fell, reducing GDP growth by 0.4%. But the contribution of labour quality, that is better training and education, increased GDP growth by 0.4%. Therefore, the actual change in total labour inputs was zero. (As a side note for technical economists, calculating labour inputs simply by hours worked, without taking into account labour quality, was an error in Solow’s original formulation of growth accounting which has been replaced in modern growth accounting. For non-technical economists the difference between the value created by an hour of labour by someone who is illiterate with someone who has an engineering PhD makes the point clear).

But even leaving aside this basic distinction, actually regarding labour quantity itself China’s position is not remotely as bad as claimed by “peak China”. For example, approximately a quarter of China’s working population is still in the countryside—the passing of a substantial part of this into urban areas, as will occur over the coming decades, will increase productivity, China’s current retirement age, of 60 for men and 50-55 for women, is extremely low by international standards and is bound to gradually increase given China’s great increase in life expectancy—which will produce an increase in available labour quantity compared to if the retirement age had not been raised .

In short, because they make the elementary mistake of failing to distinguish between labour quantity and labour quality, because they do not take into account the consequences of shift of labour from the countryside to urban areas, and because they do not note that China’s very low retirement age is bound to gradually increase with growing life expectancy, claims about the reduction of labour inputs in the theory of “peak China” are greatly exaggerated even in their own terms.

The small role of increases in labour inputs in China

But actually, even all the above issues are secondary to the main one which was already analysed in fundamental terms above—the point that China’s average annual population growth from 1978-2022 is 0.9% and China’s annual average GDP growth in the same period is 9.0%. Therefore, 8.1% a year GDP increase, that is 90% of the growth, could not possibly be accounted for by population changes. What this shows is that the increase in labour inputs has played a very small role in China’s economic growth.

Turning to analyse this in detail, it was already noted that in 2011-2021 the contribution of labour inputs to GDP growth was zero—a 0.4% annual increase in GDP due to improvements in labour quality, offset by a 0.4% of GDP fall caused by a reduction in labour quantity (hours worked). Even if the longer period from 1990-2021 is taken, the contribution of labour inputs to GDP growth was only 0.7% a year out of an average of 8.7% annual GDP growth—that is 92% of GDP growth was due to factors other than increase in labour inputs.

The reason that a slowdown in labour inputs will not produce a very sharp fall in China’s economic growth is therefore very simple. Because the detailed growth accounting data naturally confirms what was already obvious from the most fundamental facts on China’ population and GDP changes since 1978. That population and labour input changes have only played a very small role in China’s economic growth!

The fundamental factors which really do affect China’s economic growth, and their consequences, will be analysed below.

The reasons for China’s rapid economic growth

Turning from what has not made a large contribution to China’s economic growth, labour inputs, to those which have made a big difference, again the latest period 2011-2021 will be taken. China’s annual average GDP growth in that period was 6.7%. The detailed contributions to growth of the different inputs are shown in Figure 4. This chart is simply a different way of presenting the facts given in Figure 3—which showed the relative weight of different inputs into China’s economy. Figure 4 is merely more convenient for present purposes because by showing how much of China’s GDP growth is due to different inputs it makes it easy to see which changes would, and which changes would not, seriously affect China’s economic growth. That is, what would, and what would not, create a real situation of “peak China”. It also allows an easy calculation of whether China can or cannot achieve the 4.6% annual average economic growth necessary to achieve its target of doubling per capita GDP by 2035.

Figure 4

| Figure 4 | MR Online

The role of labour inputs

The first reality from these facts which is obvious, as already noted, is the relatively small effect that changes in labour supply will make. Assume that no changes are made to offset the decline in labour quantity, for example there is no increase in the retirement age, and this continues to deduct 0.4% a year from GDP growth. Assume also that the increase in the beneficial effect of increases in labour quality is eliminated and therefore this deducts the 0.4% a year from GDP growth due to this factor—there is no justification for making such an assumption as China’s education and training growth will continue, but it is hypothetically assumed here just to analyse a “worst case” scenario. What then happens? It means that China’s GDP growth would fall from 6.7% a year to 6.3%—easily enough to surpass the 4.6% a year growth required to achieve the doubling of per capita GDP by 2035.

The role of Total Factor Productivity

Now consider productivity, more precisely Total Factor Productivity (TFP)—for non-economists, TFP measures all processes raising the output of the economy which are not due to increases in capital or labour (for example, improvements in technology, the benefits of larger scale of production, improvements in management techniques, scientific discoveries, benefits of increased specialisation in production etc). Assume a catastrophic case that China’s rate of TFP increase fell to zero—once again there is no justification for such an assumption and China’s rate of TFP growth is one of the fastest in the world, but it is analysed here just to demonstrate the effects of the most extreme negative assumptions. What then happens is that China’s GDP growth would fall by 1.5% a year—from 6.7% to 5.2% a year. China would then still achieve the 4.6% a year target to double per capita GDP by 2035.

Even if the ludicrous assumption is made both that China achieved no increase in labour quality, deducting 0.4% of GDP growth a year, and that its rate of TFP growth collapsed to zero, deducting 1.5% a year from GDP growth, then the combined slowdown of 1.9% a year would still leave China growing at 4.8% a year—enough to achieve its 2035 target.

These negative assumptions are of course themselves ridiculous—there is no reason China’s improvement in labour quality will fall to zero, on the contrary it is pouring resources into education and training, and there is equally no reason why its TFP growth will fall to zero. But these extremely unrealistic assumptions have the benefit that even with them the thesis of “peak China” will not work.

Cutting China’s investment

It is factually clear that only one assumption would justify the argument of “peak China”—i.e. that a drastic slowdown in China’s economy will occur. This is that there is a huge fall in China’s level of investment in GDP—that is, in technical terms, in capital inputs into the economy (it should be understood that by “capital” in this sense is simply meant fixed investment—it is irrelevant whether this investment is carried out by the state, private capitalists, or any other form of ownership). This is, indeed, an inevitable result of the fact that 78% of China’s economic growth is due to capital/investment inputs—or in other terms that these account for 5.2% annual GDP growth out of a total of 6.7% growth. China’s dependence on capital inputs for economic growth is furthermore fairly standard, the average percentage contribution of capital inputs to economic growth of the world’s 20 largest economies in 2011-2021 being 81%. This is indeed why reductions in the level of investment in GDP do produce very large slowdowns in economic growth. This was analysed in the earlier article 它曾成功“谋杀”了德国、日本、四小龙,现在想要劝中国“经济自杀” and is dealt with in detail below.

In reality, although they spend large amounts of space discussing other issues which would have no great effect even if true, the statistics of those arguing for the theory of “peak China” show that they arrive at their claims because they assume that China will drastically cut the percentage of its economy devoted to investment. The reasons this claim is made will be analysed below, but first, to clarify the issue, the arithmetic of those who present serious quantified justifications for the “peak China” arguments will be examined—although, it is striking, that some who makes such claims don’t even bother to attempt to quantify them.

Taking first, among those studied by The Economist, an analysis by Roland Rajah and Alyssa Leng for the Lowy Institute with the self-explanatory title “Revising down the rise of China”. This concludes regarding China that: “our projections suggest growth will slow sharply to roughly 3% a year by 2030”. This analysis precisely assumes a huge fall in the percentage of China’s economy devoted to fixed investment/capital inputs:

total investment falls from the current 43% of GDP to 33% of GDP on average over the coming decades.

The same assumption is made by Goldman Sachs, which projects that China’s GDP growth will fall from an annual average 6.0% in 2013-2022 to 3.4% in 2023-2032—that is a decline of 2.6%. The reason for this alleged slowdown is because of the overwhelming effect of a single fact that the annual increase in GDP growth created by capital investment is projected to fall by 2.4%—from 4.8% to 2.4%. As this fall in capital investment accounts for 92% of the decline in the GDP growth rate, only 8% of the decline the Goldman Sachs report projects, or 0.2% GDP growth a year, is attributable to factors other than the decline in investment. Without the investment decline, the Goldman Sachs report’s data shows that China’s annual GDP growth would only fall from 6.0% to 5.8%—a level which would easily allow China to exceed its own targets for 2035. In short, Goldman Sachs shows that only the decline in investment makes a decisive difference to China’s growth rate, and therefore, to use The Economist’s terms, accounts for “peak China”.

Of course, these calls for, or predictions that, China will cut the level of investment in its economy are put forward in a concealed way. They are presented as calls for China to increase the percentage of consumption in its economy. But as consumption and capital creation/investment combined necessarily add up to 100% of China’s economy the call for China to increase the percentage of consumption in its economy is necessarily to call for it to reduce its level of investment. This would indeed, of course, for the reasons already given, lead to a drastic slowdown in China’s economy—to “peak China”. But it would simply be a case of China deciding to commit economic suicide.

While the studies published by the Lowy Institute and Goldman Sachs at least have the virtue of being clear, others don’t—so these will be examined below.

A leader is certainly different

There is no doubt that from the facts already given that if China drastically cuts its level of investment its rate of economic growth would indeed substantially fall—as capital inputs account for 78% of China’s economic growth that is inevitable. But why should China make such a drastic cut in its level of investment in GDP?

The alleged reason for this is because China is different from other “Western” economies. For example Capital Economics, which unlike the Lowy Institute or Goldman Sachs studies, does not even properly quantify its findings, but is nevertheless cited by The Economist as a source, argues: “we expect China’s trend rate of economic growth to fall to around 2% by 2030.” It notes:

China… has an unusually large capital stock…. If China’s capital stock to GDP ratio were to continue to rise at the rapid pace of the past decade, it would soon be much higher than in other major economies.

Similarly, Goldman Sachs argues that China’s level of investment in its economy will fall sharply: “Investment as a share of GDP is forecast to decline from 42% in 2022 to 35% by 2032.” The reason that this will happen is apparently because China is at present an upper middle-income economy, although approaching the level of a high-income economy by World Bank standards, and:

Investment as a share of GDP in upper-middle-income countries is 34%.

Well certainly China is different from other economies. Why? For the simple reason that its economy is growing much more rapidly than they are! Therefore, it is producing a more rapid increase in average living standards than they are, it has produced a more rapid reduction in poverty than they have etc. Naturally the leader is different to those who are further behind£ The economy with the most rapid economic development is different to the countries with slower economic development.

Why should the more rapidly developing copy the less rapidly developing

But then it is a completely bizarre logic that says that the economy which is most rapidly developing should change to become like the less successful ones! What would a client of Goldman Sachs, or any other bank or consultancy, say if it argued “We notice that you are developing more rapidly than your competitors—so you need to stop that and reduce yourself to their level.” Or if they said to a company: “We notice that in this field one company is developing much more rapidly than the others. Therefore, you should ignore that company and copy the less successful ones. Incidentally we are advising this most successful company to abandon its advantages and instead accept the approach of its less successful competitors.” Anyone who made such a proposal would be laughed at—in the few seconds before the contract with them was immediately terminated.

But that is exactly what those who are arguing the case for “peak China! are doing. They are saying: “We note that China’s economy is developing more rapidly than others. Therefore, it should abandon the reasons for this success and adopt the methods of the less rapidly developing.” Instead, of course, what any sensible person would argue is: “China is different because it is the most rapidly developing. Therefore, other countries should learn from the reasons for China’s success (which is not, of course, to pursue the impossible course of mechanically copying it).” This entirely logical argument is, of course, what other countries are doing. It explains the increasing international interest in China’s socialist development strategy.

Instead, what those arguing the case for “peak China” propose is that China should voluntarily commit economic suicide. That it should abandon the methods that have made it the most rapidly developing economy in the world and adopt the methods of the less successful. If China decides to commit economic “suicide” then that certainly would produce “peak China”—if someone decides to commit suicide they will undoubtedly be dead. But it would be very bizarre for China and the CPC to adopt such a logic! Why, having brought China from almost the poorest country in the world in 1949, after a century of foreign intervention, to achieve the most sustained rapid economic growth of any major country in world history should the CPC decide to adopt a less successful approach? Gorbachev may have decided that the USSR should commit suicide, bringing ruin to his country, by adopting Western approaches, but the CPC has shown no similar inclination.

The reasons for blind arrogance

Turning from these specific economic points to more general considerations, these factual issues are so obvious to anyone who thinks about them seriously, that it takes us back to a point made before the discussion of detailed analysis of growth accounting. That is, what is the explanation of the blindness to reality, to facts, that is created by unconscious arrogance?

The Economist, Goldman Sachs etc note that China’s economy differs from their capitalist ones. But instead of drawing from the more rapid development of China’s economy than theirs the conclusion that China’s system shows its superiority, they conclude that necessarily China must be wrong—and that they are right! The reason is because to accept the facts would be to overturn their, conscious or unconscious, arrogant way of looking at the world. It is worth looking at just a few of these implications to understand the reasons for the blindness.

The first is the role of CPC. It is the CPC, no other political force, which created the socialist market economy, an economic system which had never before existed in history, which has created the most rapid economic growth of any major country in human history, which has produced the most rapid increase in living standards or any country, which has produced the greatest reduction in poverty in any country in human history, and which overall has produced the most rapid sustained improvement in the living standards of any country in human history. The idea that such gigantic achievements could occur by “accident”, that is without thought or theory leading it, is laughable. What it means is that the CPC not only produced better practical results for its people than any other political force but that the CPC out thought every other political force.

Second, it means that China has achieved what every country that was once dominated by imperialism dreams of—that China, and China alone, will decide its destiny. This is indeed the greatest of all the CPC’s national achievements. That after a “century of humiliation”, in which China was simply trampled on by other states, only China will now decide its own fate. If China takes wise decisions it will prosper. If China takes foolish decisions it will suffer. But no one else will decide the outcome. In a fundamental sense that is precisely the basis of the “great rejuvenation of the Chinese nation”..

Third, China’s success, brought by the CPC, brings to an end an entire centuries long epoch in human history—perhaps this is particularly to be commented on by someone from Europe? During approximately the last 500 years, “white” European countries, and their offshoots, became the most powerful in the world. That 500 years is certainly a short period in the approximately 5,000-year history of human civilization. For most of that time it was Asia’s people—China, India, West Asia/parts of North Africa (falsely labelled the “Middle East” in Eurocentric worldviews) who were the most advanced. But, of course, 500 years is far longer than the life of anyone alive today. And during that 500 years these “white” countries built into the foundations of their capitalist system the vile dregs of racism—this is a point particularly emphasised in recent material produced by the Tricontinental Institute for Social Research which should be regarded as of fundamental importance. Slavery, the treatment of non-“white” people as not equal in order to justify colonialism, were built into the foundations of that European originated capitalist system.

China’s rise, that of almost one fifth of humanity, which it should be remembered is more than the population of all “advanced” economies in the world put together today, not only creates a socialist society but completely destroys the entire cultural basis and assumptions of that 500-year-old epoch in human history. A long time Afro-Caribbean friend of mine, knowing I followed China as closely as I could, once said to me “but what does China’s rise mean for the rest of us?” I said: “Well among other things it destroys the myth of the ‘superiority’ of the white race”. To which their reply was “well that’s a victory for everyone.”

Indeed, in terms of the entire moral dignity of humanity, China’s success is playing an indispensable role in putting an end to the shameful traits of an entire period of human history. It is in large part because of that entire 500 year history that those proclaiming “peak China” can continue to write views that are so completely out of touch with the facts and with reality and why they refuse to draw any lessons even when they are repeatedly shown to be wrong—as was shown with the test case of The Economist at the beginning of this article (and many more examples could be taken). The stubborn blindness of the refusal of Western reporters and analysts to face the fact they have repeatedly been proven entirely wrong reflects not only bad journalism or a love of capitalism. It reflects the blindness to reality produced by 500 years of an unconscious cultural arrogance produced by a system which is fortunately now progressively disintegrating.

Xi Jinping noted carefully at his first press conference after becoming General Secretary of the CPC that China directly sees its own national rejuvenation as a part of the overall progress of humanity:

Throughout 5,000 years of development, the Chinese nation has made significant contributions to the progress of human civilization… Our responsibility is… to pursue the goal of the rejuvenation of the Chinese nation, so that China can stand firmer and stronger among the world’s nations, and make new and greater contributions to mankind.

This is not simply a goal for the future. This is a process that is underway today. It is a part of China’s great achievement, brought about by the extraordinary struggle of its people for national rejuvenation, that the rest of humanity benefits from it. That certainly involves economics. But it goes far beyond it.

[This article was originally published in Chinese at Guancha.cn.]

John Ross is a senior fellow at Chongyang Institute for Financial Studies, Renmin University of China. He was formerly director of economic policy for the mayor of London.

The Indian economy since Independence / by Prabhat Patnaik

Indian Farmers – Bacbone of Economy | Photo credit: IJR

The post-colonial state in India had two primary tasks before it: one was to overcome the hegemony of metropolitan capital, so that a development strategy in relative autonomy from imperialism could be pursued; the second was to attack landlordism both to free the agrarian population from its clutches, and to increase agricultural output for rapid industrialisation based on a growing home market. These two tasks were interlinked: unless agricultural growth was stepped up considerably by attacking landlordism, the inflationary and balance of payments pressures associated with a relatively autonomous development strategy would keep overall growth constrained, generating social contradictions that would force an eventual capitulation before imperialism.

The attack on landlordism however was limited. It amounted to getting rid of absentee landlords, turning the remaining landlords into agricultural capitalists on the land they retained as khudkasht, and giving ownership rights on whatever land was taken from the landlords to the upper layer of tenants. Land concentration in the sense of the proportion of land owned by, say, the top 15 per cent of landowners, remained unchanged, but the composition of this top 15 per cent changed; and the ground was cleared for capitalist farming in the countryside. At the same time, State investment in irrigation, in the development of better agricultural practices, and in extension activities, were all stepped up.

The main instruments used for overcoming the hegemony of metropolitan capital were: pervasive protection of the domestic economy; control over trade especially in agricultural products; keeping out agribusiness altogether (and even preventing Indian business houses from having any direct relationship with the peasantry); strict control over cross-border capital flows;  nationalisation in certain key areas, notably finance (though the substantial nationalisation of banks was to come later); and the development of the public sector as a bulwark against such hegemony. The development of a relatively autonomous capitalism which was the sine qua non of this strategy was sought to be kept under control by the institution of a policy of investment–and foreign exchange–licensing that also covered collaboration agreements with foreign capital.

This dirigiste period marked a substantial break from the dismal state of the colonial era. The growth-rate of both the overall gross domestic product and of the agricultural sector accelerated greatly. There was a remarkable turnaround in foodgrain availability per capita: the per capita foodgrain availability in British India which had been about 200 kg per annum at the beginning of the twentieth century, had dropped to an abysmal 136.8 kg by 1946-47; this drastic retrogression was reversed and per capita availability reached close to 180 kg by the end of the 1980s.

But this pace of change, though rapid relative to the colonial period, could not satisfy people’s aspirations. Even in 1973-74, despite the rise in per capita foodgrain availability and the associated fall in poverty defined through a nutritional norm, 56 per cent of the rural population could not access 2200 calories per person per day, and 60 per cent of the urban population could not access 2100 calories per person per day. Likewise, the 2 per cent annual increase in the magnitude of employment, while it may have broadly matched population growth, also meant a growth in the backlog of unemployment, which specially alienated the youth. The big bourgeoisie which had supported the project of building an autonomous capitalism, found the growth-rate of the economy too stifling once it had grown to a considerable extent and had become more ambitious; and even this growth rate became difficult to sustain because of the growing fiscal crisis of the State.

The push for a regime change, away from dirigisme towards neo-liberalism, came from the big bourgeoisie. It saw greater opportunities for itself in the new situation by getting integrated with international finance capital that had emerged as the hegemonic element after the oil price shocks of the seventies. The middle class backed it up: it was lured by the prospects of greater employment if activities were outsourced from the metropolitan economies to India, as neo-liberalism promised. And the working people, who might have been expected to stand up in defence of dirigisme, did not do so, as that regime had belied their expectations. Starting from 1985 therefore, but especially after 1991, India moved to a neo-liberal regime which meant freer cross-border flows of goods and services, and of capital, including above all of finance; it also meant the end of licensing.

This was not just a change of economic regime. It entailed the reassertion of the hegemony of metropolitan capital over the Indian economy, though in a vastly altered context, with the big bourgeoisie integrated with it and with segments of the upper middle class acquiescing in this reassertion. The contradiction between imperialism and the Indian society that had united several classes against imperialism in the pre-independence period, of which the dirigiste strategy after independence was seen to be a carryover, now divided the nation itself. The dividing line in short shifted from its location between imperialism and the nation to within the nation itself, between international finance capital, together with the domestic big bourgeoisie integrated with it, on the one hand, and the working people on the other.

An immediate fall-out of this related to the State. Instead of being an entity apparently standing above classes, it became concerned exclusively with the interests of the big business and landlords, and international finance capital with which big business got integrated. A manifestation of this shift was the withdrawal of State support from petty production, including peasant agriculture, and an opening up of this sector to encroachment by international agribusiness and the domestic big bourgeoisie. Such withdrawal of support, eg, of price-support for cash crops (the attempt to withdraw price support for foodgrains was defeated by the year-long kisan agitation), and of subsidies on inputs including credit, led to a sharp decline in the profitability of peasant agriculture. The crisis that followed for peasant agriculture resulted in mass suicides and also peasant emigration to cities in search of non-existent jobs, which only swelled the relative size of the reserve army of labour.

Neo-liberalism in short was loaded with false promises. No doubt the growth rate of GDP in the economy went up, but the rate of growth of employment was halved compared to earlier, to about 1 per cent per annum, because of the high rate of productivity growth that was simultaneously labour-displacing. This acceleration in labour productivity growth came about because of the exposure of domestic producers, not just those exporting but even those producing for the home market, to foreign competition because of the withdrawal of protection under neo-liberalism. The rise in the relative size of the reserve army of labour showed itself not necessarily as a higher unemployment rate, but as the sharing of a given number of jobs (each with a given wage) among more and more people. This rise however kept down the wages even of the organised workers by reducing their bargaining strength.

By squeezing the peasants and petty producers, and by reducing the bargaining strength even of the organised workers, the neo-liberal regime necessarily reduced the average real income per capita of the working people of the country which manifested itself in an increase in the poverty ratio, no matter how high the GDP growth might have been. The per capita foodgrain availability that had risen until the end of the 1980s, at best stagnated thereafter. The proportion of the rural population that fell below 2200 calories per person per day in 1993-94 was, according to the National Sample Survey, 58 per cent; it went up to 68 per cent by 2011-12. The next NSS in 2017-18 came with such dismal findings (apparently per capita real expenditure had fallen by 9 per cent between 2011-12 and 2017-18 in rural India) that the Modi government suppressed them, and decided even to discontinue the NSS in its old form! In urban India the proportion of people falling below 2100 calories per person per day had increased from 57 to 65 per cent between 1993-94 and 2011-12.

The working people’s misery, increasing even in the heyday of neo-liberalism (and thus showing the bogusness of the theory of “trickle down”), has accentuated sharply as neo-liberalism has moved into a crisis, from which there is no clear way out. This crisis is hardly surprising. We saw earlier the tendency under neo-liberalism for the per capita real incomes of the working people to decline on average, even as labour productivity increases, which increases the share of economic surplus in output (this in fact is a world-wide phenomenon). This is the reason behind the sharp rise in income inequality in India and elsewhere during the period of neo-liberalism.

Since a rupee in the hands of the surplus earners generates less consumption than the same rupee in the hands of the working people, such an income shift tends to create a tendency towards over-production. This tendency, kept in check in the world economy because of the asset-price bubbles in the U.S., which artificially increase demand by making asset-holders feel spuriously wealthier, has asserted itself after the collapse of the American housing bubble. The world economy has been more or less in a state of stagnation since then, and this has caught up with the Indian economy too, pushing it towards greater unemployment, and accentuated distress. Matters have been made even worse by the Modi government’s ill-conceived measures like demonetisation and the introduction of the GST (the work on which had begun under the Congress earlier).

This crisis cannot be overcome within the neo-liberal regime. The only possible mechanism for overcoming it, viz. larger State expenditure, can work if this expenditure is financed either by a fiscal deficit or by taxing the surplus- earning rich; if it is financed by taxing the working people, who more or less spend their entire income anyway, then one kind of demand would simply get substituted by another, with no net expansion in demand. But both an increase in the fiscal deficit and an increase in taxes on the rich are unacceptable to international finance capital; if they are resorted to under neo-liberalism then finance will simply quit the country en masse, causing an acute financial crisis.

On the other hand, neo-liberalism’s own way of coping with the crisis, which is to give tax concessions to the capitalists in the hope that they will raise investment, actually worsens the crisis: the capitalists just pocket the money without investing a rupee more (they will do so only if demand has increased), while the reduction of expenditure elsewhere for financing these handouts to capitalists, actually reduces demand.

Getting out of this crisis, which has nothing to do with the pandemic and which predates the pandemic (though the pandemic has added to it in the short-run) requires therefore a transcendence of neo-liberalism. But precisely to forestall such a possibility, neo-liberalism in crisis has made an alliance with Hindu communalism to change the discourse. The aim of this corporate-Hindutva alliance is to shift the discourse away from issues of material life to the alleged “atrocities” committed, whether in the present or in the past, by a hapless minority group. Its aim is to keep people engaged in hatred against this group while they suffer growing distress, even as international capital and domestic big business add to their wealth despite the crisis, by getting hold of assets, of raw material extracting rights, and of investment opportunities, from the public sector and the petty production sector.

Big business finances the Hindutva Party to come to power and supports it through the media it controls; in return it increases its wealth inter alia through measures of primitive accumulation of capital. And any opposition to this process is stifled through a combination of blatant authoritarianism, the creation of disunity among the people, and the use of hoodlum elements against dissenters.

Neo-liberalism even in its heyday increases economic inequalities greatly, abrogates whatever democratic content there was in the operation of the State, subverts the autonomy of the State, and increases absolute poverty; in addition however it ends up getting enmeshed in stagnation and mass unemployment from which there is no exit. Because of this dead-end, it imposes a neo-fascist political regime upon the country. This regime can be overthrown not just by democratic elements coming together. That of course is necessary; but the transcendence of neo-fascism requires the transcendence of the conjuncture that produced it, viz. the crisis produced by the neo-liberal order, for which this order itself has to be transcended. This is a difficult task; it can be accomplished only by the widest mobilisation of the working people.

Prabhat Patnaik is an Indian political economist and political commentator. His books include Accumulation and Stability Under Capitalism (1997), The Value of Money (2009), and Re-envisioning Socialism (2011).

MR Online, August, 13, 2022, The Indian economy since Independence / by Prabhat Patnaik

“Notes on Exterminism” for the Twenty-First-Century Ecology and Peace Movements / by John Bellamy Foster

Hiroshima Peace Memorial Park | photo credit: nippon.com

Originally published in Monthly Review

In 1980, the great English historian and Marxist theorist E. P. Thompson, author of The Making of the English Working Class and leader of the European Nuclear Disarmament movement, wrote the pathbreaking essay “Notes on Exterminism, the Last Stage of Civilization.”1 Although the world has undergone a number of significant changes since, Thompson’s essay remains a useful starting point in approaching the central contradictions of our times, characterized by the planetary ecological crisis, COVID-19 pandemic, New Cold War, and current “empire of chaos”—all arising from features deeply embedded in the contemporary capitalist political economy.2

For Thompson, the term exterminism referred not to the extinction of life itself, since some life would remain even in the face of a global thermonuclear exchange, but rather to the tendency toward the “extermination of our [contemporary] civilization,” understood in its most universal sense. Nevertheless, exterminism pointed to mass annihilation and was defined as consisting of those “characteristics of society—expressed, in differing degrees, within its economy, its polity, and its ideology—which thrust it in a direction whose outcome must be the extermination of multitudes.”3 “Notes on Exterminism” was written eight years before climatologist James Hansen’s famous 1988 testimony on global warming to the U.S. Congress and the formation that same year of the UN Intergovernmental Panel on Climate Change. Hence, Thompson’s treatment of exterminism focused squarely on nuclear war and did not directly address the other emerging exterminist tendency of contemporary society: the planetary ecological crisis. Yet, his perspective was a deeply socioecological one. The tendency toward exterminism in modern society was thus seen as directly opposed to “the imperatives of human ecological survival,” demanding a worldwide struggle for a socially egalitarian and ecologically sustainable world.4

With the demise of the Soviet Union and the end of the Cold War in 1991, the nuclear threat that had loomed over the post-Second World War world seemed to subside. Consequently, most subsequent considerations of Thompson’s exterminism thesis have considered it primarily in the context of the planetary ecological crisis, itself a source of “the extermination of multitudes.”5 But the advent over the last decade of the New Cold War has brought the threat of nuclear holocaust back into the center of world concerns. The 2022 Ukraine War, the origins of which date back to the 2014 U.S.-engineered Maidan coup and the resulting Ukrainian Civil War fought between Kyiv and the breakaway republics of the Russian-speaking Donbass region in Ukraine, has now evolved into a full-scale war between Moscow and Kyiv. This took on an ominous worldwide significance on February 27, 2022, with Russia, three days into its military offensive in Ukraine, placing its nuclear forces on high alert as a warning against a direct NATO intervention in the war, non-nuclear or nuclear.6 The potential for a global thermonuclear war between the leading nuclear powers is now greater than at any time in the post-Cold War world.

It is necessary therefore to address these dual exterminist tendencies: both the planetary ecological crisis (including not only climate change but also the crossing of other key planetary boundaries defining the earth as a safe home for humanity) and the growing threat of global nuclear annihilation. But in approaching the dialectical interconnections between these two global existential threats, emphasis must be placed today on updating the historical understanding of the thrust toward nuclear exterminism as it metamorphosed in the decades of U.S. unipolar power, while the world’s attention was directed elsewhere. How is it that the threat of global thermonuclear war is once again hanging over the globe, three decades after the end of the Cold War and at a time when the risk of irreversible climate change looms on the horizon? What approaches need to be adopted within the peace and environmental movements to counter these interrelated global existential threats? To answer these questions, it is important to address such issues as the nuclear winter controversy, the counterforce doctrine, and the U.S. quest for global nuclear supremacy. Only then can we perceive the full dimensions of the global existential threats imposed by today’s catastrophe capitalism.

Nuclear Winter

In 1983, in the midst of the nuclear buildup of the Ronald Reagan administration, associated with the Strategic Defense Initiative (better known as Star Wars) and the growing threat of nuclear Armageddon, teams of atmospheric scientists in both the United States and the Soviet Union produced models, appearing in the major scientific journals, predicting that a nuclear war would lead to a “nuclear winter.” The outcome of a global thermonuclear exchange resulting in megafires in a hundred or more cities, it was discovered, could enormously reduce the average temperature of the earth by pushing soot and smoke into the atmosphere and blocking solar radiation. The climate would be altered much more abruptly and in the opposite direction from global warming, introducing a rapid global cooling causing global (or at least hemispheric) temperatures to drop by several degrees or even “several tens of degrees” Celsius in a matter of a month, with horrific consequences for life on Earth. Thus, although hundreds of millions, perhaps even a billion or more people, would be killed by the direct effects of a global thermonuclear exchange, the indirect effects would be far worse, annihilating most people on the planet, even those not caught up in the direct effects of nuclear firebombs, via starvation. The nuclear winter thesis had a powerful effect on the nuclear arms race that was then occurring and played a role in getting the U.S. and Soviet governments to pull back from the brink.7

The nuclear winter model, however, was seen within the power elite in the United States as a direct attack on the nuclear armaments industry and the Pentagon, aimed at the Star Wars program in particular. It therefore led to one of the biggest scientific controversies of all time, although the controversy was more political than scientific, since the scientific results were never really in doubt. Although claims were made that the initial nuclear winter models from NASA scientists were too simple, and studies were produced pointing to effects less extreme than originally envisioned—“nuclear autumn” rather than nuclear winter—the nuclear winter thesis was validated again and again by scientific models.8

Nevertheless, if the initial response of the public and political leaders to the nuclear winter studies helped to create a powerful movement to dismantle nuclear weapons, contributing to nuclear arms control and the end of the Cold War, this was soon countered by powerful military, political, and economic interests behind the U.S. nuclear war machine. Thus, the corporate media together with political forces launched various campaigns meant to discredit the nuclear winter thesis.9 In 2000, the popular science magazine Discover went so far as to list nuclear winter as one of its “Twenty Greatest Scientific Blunders in the Last 20 Years.” Yet, the most that Discover could claim in this respect was that the key scientists behind the most influential nuclear winter study in the 1980s had pulled back by 1990, claiming that the average temperature reduction as a result of a global nuclear exchange was estimated to be somewhat smaller than originally conceived and would at most constitute a 36°F (20°C) drop in average temperature in the Northern Hemisphere. This, however, remained apocalyptic on a planetary level.10

In one of the greatest instances of denialism in the history of science, surpassing even the denial of climate change, these scientific findings on nuclear winter were widely rejected out of hand within the public sphere and within the military, based on the charge that the original estimate had somehow been “exaggerated.” The exaggeration charge was then used in ruling circles for decades down to the present to downplay the full effects of nuclear war. In the case of Pentagon capitalism, such denial was clearly motivated by the reality that, if the scientific results on nuclear winter were allowed to stand, the strategic planning aimed at fighting a “winnable” nuclear war, or at least one in which one’s own side would “prevail,” would be senseless. Once the atmospheric effects were considered, the global devastation could not be confined to a particular nuclear theater, but the devastating effects would, within several years of the global thermonuclear exchange, destroy all but a tiny fraction of the population of the earth, going beyond what was even envisioned by mutual assured destruction (MAD).

In some ways, the devastating effects of nuclear war had always been downplayed by the nuclear planners. As Daniel Ellsberg points out in The Doomsday Machine, the “estimates of fatalities” from all-out nuclear warfare provided by U.S. strategic analysts were a “fantastic underestimate” from the start, “even before the discovery of nuclear winter,” since they deliberately omitted the firestorms in cities resulting from nuclear blasts, the largest impact on the overall urban population, on the questionable grounds that the level of devastation was too difficult to estimate.11 As Ellsberg writes:

Yet even in the sixties the firestorms caused by thermonuclear weapons were known to be predictably the largest production of fatalities in a nuclear war. Moreover, what no one would recognize…[until the first nuclear winter studies emerged some twenty-one years after the Cuban Missile Crisis] were the indirect effects of our planned first strike that gravely threatened the other two thirds of humanity. These effects arose from another neglected consequence of our attacks on cities: smoke. In effect, in ignoring fire the [Joint] Chiefs [of Staff] and their planners ignored that where there’s fire there’s smoke. But what is dangerous to our survival is not the smoke from ordinary fires, even very large ones—smoke that remained in the lower atmosphere and soon would be rained out—but smoke propelled into the upper atmosphere from the firestorms that our nuclear weapons were sure to create in the cities we targeted.

Ferocious updrafts from these multiple firestorms would loft millions of tons of smoke and soot into the stratosphere, which would not be rained out and would quickly encircle the globe, forming a blanket blocking most sunlight around the earth for a decade or more. This would reduce sunlight and lower temperatures worldwide to a point that it would eliminate all harvests and starve to death—not all but nearly all—humans (and other animals that depend on vegetation for food). The population of the southern hemisphere—spared nearly all direct effects from nuclear explosions, even from fallout—would be nearly annihilated, as would that of Eurasia (which the Joint Chiefs already foresaw, from direct effects), Africa and North America.12

Worse than the original pushback against the nuclear winter thesis, according to Ellsberg, writing in 2017, was the fact that, over the decades that followed, nuclear planners in the United States and Russia have “continued to include ‘options’ for detonating hundreds of nuclear explosions near cities, which would loft enough soot and smoke into the upper stratosphere to lead [via nuclear winter] to death by starvation of nearly everyone on earth, including, after all, ourselves.”13

The Memorial Cenotaph at the Hiroshima Peace Memorial Park. Credit: Balon Greyjoy

This denialism built into the Doomsday Machine—or the thrust to exterminism entrenched in Pentagon capitalism—is all the more significant given that not only were the original nuclear winter studies never disproven, but twenty-first-century nuclear winter studies, based on computer models more sophisticated than those of the early 1980s, have gone on to show that nuclear winter can be set off at lower levels of nuclear exchange than envisioned in the original models.14 The importance of these new studies is symbolized by Discover magazine, which in 2007, only seven years after it had included nuclear winter in its list of the twenty “greatest scientific blunders” of the previous two decades, carried an article on “The Return of Nuclear Winter,” essentially repudiating its earlier piece.15

The most recent studies, motivated in part by nuclear proliferation, demonstrated that a hypothetical nuclear war between India and Pakistan fought with one hundred fifteen kiloton (Hiroshima-sized) atomic bombs could produce direct fatalities comparable to all deaths in the Second World War. However, the long-term effect would be global famine. The atomic explosions would immediately ignite firestorms of three to five square miles. Burning cities would release some five million tons of smoke into the stratosphere, circling the earth within two weeks, which could not be removed by rainfall and might remain for more than a decade. By blocking sunlight, it would decrease food production globally by 20 to 40 percent. The stratospheric smoke layer would absorb warming sunlight, heating the smoke to temperatures near water’s boiling point, resulting in an ozone layer reduction of 20 to 50 percent near populated areas and generating UV-B increases unprecedented in human history, such that fair-skinned individuals could get severe sunburns in around six minutes and levels of skin cancer would go off the charts. Meanwhile, it is estimated that up to 2 billion people would die of famine.16

The new series of nuclear winter studies, published in major peer-reviewed scientific journals, beginning in 2007 and continuing to the present, however, did not stop there. They also looked at what would happen if there were a global thermonuclear exchange involving the five leading nuclear powers: the United States, Russia, China, France, and United Kingdom. The United States and Russia alone, accounting for most of the world’s nuclear arsenal, have thousands of strategic nuclear weapons with an explosive power ranging from seven to eighty times that of the Hiroshima bomb (although some thermonuclear weapons developed in the 1950s and ’60s were a thousand times as powerful as the atom bomb). A single strategic nuclear weapon hitting a city will ignite a firestorm covering a surface area of 90 to 152 square miles. Scientists calculated that the fires from a full-scale global thermonuclear exchange would propel into the stratosphere 150 to 180 million tons of black carbon soot and smoke that would remain for twenty to thirty years and would prevent up to 70 percent of solar energy from reaching the Northern Hemisphere and up to 35 percent with respect to the Southern Hemisphere. The noonday sun would end up looking like a full moon at midnight. Global average temperatures would fall below freezing every day for one or two years, or even longer, in the main agricultural regions of the Northern Hemisphere. Average temperatures would dip below those experienced in the last Ice Age. The growing seasons of agricultural areas would disappear for more than a decade, while rainfall would decrease by up to 90 percent. Most of the human population would die of starvation.17

In his 1960 book On Thermonuclear War, RAND Corporation physicist Herman Kahn presented the notion of the “doomsday machine” that would, in the event of a nuclear war, kill everyone on Earth.18 Kahn did not actually advocate building such a machine, nor did he contend that either the United States or the Soviet Union had done so or were then seeking to do so. He merely suggested that a mechanism that would ensure no survivability from nuclear war would be a cheap alternative with which to achieve complete and irrevocable deterrence on all sides and take nuclear warfare off the table. Set against Kahn’s analysis, as Ellsberg, himself a former nuclear strategist, has remarked—in line with scientists Carl Sagan and Richard Turco who helped develop the nuclear winter model—today’s strategic arsenals in the hands of the dominant nuclear powers constitute an actual doomsday machine. Once set in motion, the doomsday machine would almost certainly annihilate directly or indirectly most of the population on the planet.19

Counterforce and the U.S. Drive to Nuclear Primacy

From the 1960s, when Moscow achieved rough nuclear parity with Washington, until the demise of the Soviet Union, the dominant nuclear strategy during the Cold War between the United States and the Soviet Union was based on the notion of MAD. Nuclear parity translates into MAD, usually seen as utter devastation on both sides, including the deaths of hundreds of millions of people. However, as nuclear winter studies indicate, the consequences of an all-out nuclear war would go far beyond even this, extending to the destruction of almost all human life (as well as most other species) on the entire planet. Still, ignoring the nuclear winter warnings, the United States, with far more resources than the Soviet Union, sought to transcend MAD in the direction of U.S. “nuclear primacy,” so as to restore the level of U.S. nuclear preeminence of the early Cold War years. Nuclear primacy, as opposed to nuclear parity, means “eliminating the possibility of a retaliatory strike,” and thus is also referred to as “first strike capability.”20 In this respect, it is significant that Washington’s official defense posture has consistently included the possibility of the United States carrying out a first strike nuclear attack on nuclear or non-nuclear states.

In addition to introducing the doomsday machine concept, Kahn, as one of the leading U.S. strategic planners, also coined the key terms countervalue and counterforce.21 Countervalue refers to the targeting of enemy’s cities, civilian population, and economy, aimed at complete annihilation, thus leading to MAD. Counterforce, in contrast, refers to the targeting of the enemy’s nuclear weapons facilities to prevent retaliation.

When the counterforce strategy was originally introduced by U.S. defense secretary Robert McNamara in the John F. Kennedy administration, it was seen as a “no cities” strategy that would attack the opponent’s nuclear weapons rather than civilian populations, and it has sometimes been fallaciously justified in those terms since. McNamara, however, soon realized the flaws in the counterforce strategy, namely that it provokes a nuclear arms race directed at achieving (or denying) nuclear primacy. Moreover, the notion that a “preemptive” counterforce strike did not involve attacks on cities was incorrect from that start, as targets included nuclear command centers in cities. He therefore abandoned the effort shortly after, in favor of a nuclear strategy based on MAD, which he saw as the only true approach to nuclear deterrence.22

This U.S. nuclear strategy for most of the 1960s and ’70s was characterized by the acceptance of rough nuclear parity with the Soviet Union and thus of MAD. This broke down in the final year of the Jimmy Carter administration. In 1979, Washington strong-armed NATO into allowing the siting in Europe of nuclear-armed cruise and Pershing II missiles, both counterforce weapons aimed at the Soviet nuclear arsenal, a decision that ignited the European antinuclear movement.23 In the subsequent U.S. administration under Ronald Reagan, Washington adopted the counterforce strategy in full force.24 The Reagan administration introduced Star Wars, aimed at the development of a comprehensive antiballistic missile system capable of defending the U.S. homeland, subsequently abandoned as impractical, but leading to other antiballistic missile systems in later administrations.25 In addition, the United States in the Reagan administration pushed the MX (later Peacemaker) missile, viewed as a counterforce weapon able to destroy the Soviet missiles before they were launched. All of these weapons threatened the “decapitation” of Soviet forces in a first attack and the ability through antiballistic missile systems to intercept what few Soviet missiles survived.26 Counterforce weapons required greater accuracy since they were no longer conceived as city-busters as in “countervalue” attacks, but rather as precision targeting of hardened missile silos, mobile land-based missiles, nuclear submarines, and command-and-control centers. It was here, in counterforce weapons, that the United States had a technological advantage.

It was this major nuclear arms buildup beginning in 1979, with the planned deployment in Europe of missile delivery systems carrying nuclear warheads, that generated the great nuclear war protests of the 1980s in Europe and North America and Thompson’s critique of exterminism, as well as the scientific research into nuclear winter. Nevertheless, today, more than four decades later, in the words of Janne Nolan of the Arms Control Association, “counterforce remains the sacrosanct principle of American nuclear strategy,” aimed at nuclear primacy.27

With the dissolution of the Soviet Union in 1991 and the end of the Cold War, Washington immediately commenced, beginning with the February 1992 Defense Policy Guidance issued by undersecretary of defense Paul Wolfowitz in 1992, the process of translating its new unipolar position into a vision of permanent U.S. supremacy over the entire globe.28 This was to be enacted through a geopolitical expansion of the areas of Western dominance to areas formerly part of the Soviet Union or within its sphere of influence, in order to thwart the reemergence of Russia as a great power. At the same time, in a climate of nuclear disarmament and with the deterioration of the Russian nuclear force under Boris Yeltsin, the United States sought to “modernize” its nuclear weapons, replacing existing weapons with more technologically advanced strategic weaponry, with the object not of enhancing deterrence, but rather of achieving nuclear primacy.29

The U.S. pursuit of nuclear primacy in the post-Cold War world by continuing to promote counterforce weapons was known as the “maximalist” strategy in the debates over nuclear policy at the time, and was opposed by those who advocated a “minimalist” strategy simply relying on MAD. In the end, the maximalists won, and the New World Order came to be defined by both the enlargement of NATO, with Ukraine seen as the ultimate geopolitical and strategic pivot, and by the U.S. pursuit of a maximalist goal of absolute nuclear dominance and first strike capability.30

In 2006, Keir A. Lieber and Daryl G. Press published a landmark article, “The Rise of U.S. Nuclear Primacy,” in Foreign Affairs, the flagship journal of the Council of Foreign Relations. In their article, Lieber and Press argued that the United States was “on the verge of attaining nuclear primacy,” or first strike capability, and that this had been its aim since at least the end of the Cold War. As they put it, “the weight of evidence suggests that Washington is, in fact, deliberately seeking nuclear primacy.”31

What placed such first strike capability seemingly within Washington’s reach was the new nuclear weaponry, associated with nuclear modernization, which, if anything, accelerated after the Cold War. Weapons such as nuclear-armed cruise missiles, nuclear submarines able to fire their missiles near the shore, and low-flying B-52 stealth bombers carrying both nuclear armed cruise missiles and nuclear gravity bombs could more effectively penetrate Russian or Chinese defenses. More accurate intercontinental ballistic missiles could fully eliminate hardened missile silos. Improved surveillance could allow for the tracking and destruction of mobile-land based missiles and nuclear submarines. Meanwhile, the more accurate Trident II D-5 missiles being introduced on U.S. nuclear submarines carried larger-yield warheads to use on hardened silos. More advanced remote sensing technology in which the United States has had the lead has greatly enhanced its ability to detect mobile land-based missiles and nuclear submarines. The ability to target the satellites of other nuclear powers could weaken or eliminate their nuclear missile delivery capacity.32 The siting of strategic weapons in countries recently admitted to NATO and near or on Russian borders—the Aegis ballistic missile defense facilities that the United States established in Poland and Romania are also potential offensive weapons capable of launching nuclear-armed tomahawk cruise missiles—would serve to enhance the speed with which nuclear weapons could strike Moscow and other Russian targets, giving the Kremlin no time to react.33 Nuclear missile defense facilities, mainly useful in the case of countering retaliation to a first strike by the United States, could shoot down the limited number of missiles that had survived on the other side. (Such “missile defense systems” would be ineffective in the face of a first attack by the other side since they would be overwhelmed by the sheer number of missiles and decoys.) In recent decades, the United States has developed large numbers of high-precision, non-nuclear aerospace weapons to be used in a counterforce strike aimed at enemy missiles or command-and-control facilities that, due to precision targeting based on satellites, are comparable to nuclear weapons in their counterforce effects.34

According to Lieber and Press, writing in 2006, “the odds that Beijing will acquire a survivable nuclear deterrent in the next decade are slim,” while the survivability of the Russian deterrent was in question. “What our analysis suggests is profound: Russia’s leaders can no longer count on a survivable nuclear deterrent.” As they wrote, the United States is “seeking primacy in every dimension of modern military technology, both in its conventional arsenal and its nuclear forces,” something known as “escalation dominance.”35

The signing of the New START Treaty between the United States and Russia in 2010, while limiting nuclear weapons, did not prevent a race toward modernization of counterforce weapons to destroy the other side’s weapons. In fact, the limits on numbers made a counterforce strategy, in which the United States had the upper hand, more feasible, since one of the three primary bases for survivability of a nuclear retaliatory arsenal (along with hardening of land-based missile sites and concealment) is the sheer number and thus redundancy of such weapons.36 With nuclear primacy as the goal set in Washington, the United States began unilaterally to withdraw from some of the main nuclear treaties established in the Cold War. In 2002, under the George W. Bush administration, the United States unilaterally withdrew from the Anti-Ballistic Missile Treaty. In 2019, under the Donald Trump administration, Washington withdrew from the Intermediate Nuclear Forces Treaty, claiming that Russia had violated the treaty. In 2020, again under Trump, the United States withdrew from the Open Skies Treaty (which placed limits on reconnaissance flights over other countries), followed by Russia’s withdrawal the following year. There is little doubt that withdrawal from these treaties was favorable to Washington in expanding its counterforce options in its quest for nuclear primacy.

Given U.S. pursuit of overall nuclear dominance, Russia has attempted to modernize its nuclear weapon systems over the last two decades, but it is at a distinct disadvantage when compared to the United States with respect to counterforce capability. Its fundamental nuclear strategy is therefore determined by fears of a U.S. first strike that could effectively eliminate its nuclear deterrent and its ability to retaliate. Thus, it has strived to reestablish a credible deterrent. As Cynthia Roberts of the Saltzman Institute of War and Peace at Columbia wrote in “Revelations About Russia’s Nuclear Deterrence Strategy” in 2020, Russians perceive further U.S. improvements to strategic forces, both conventional and nuclear, as part of a continuous effort to “stalk Russia’s nuclear deterrent” and deny Moscow a viable second-strike option, effectively eliminating its nuclear deterrent altogether, through “decapitation.”37 While the United States has adopted a maximum nuclear “defense” posture of threatening “nuclear first use and phased escalation” in which it retains dominance at every level of escalation, this compares to Russia’s approach of “all-out war once deterrence fails” through which it continues to rely primarily on MAD.38

However, in recent years, Russia and China have leaped ahead in strategic weapons technology and systems. In order to counter Washington’s attempts to develop first strike capability, neutralizing their nuclear deterrents, both Moscow and Beijing have turned to asymmetrical strategic weapons systems designed to neutralize U.S. superiority in missile defense and high-precision targeting. Intercontinental ballistic missiles are vulnerable because, while they reach hypersonic speeds—usually defined as Mach 5, or five times the speed of sound or greater—when they reenter the atmosphere, they follow an arc that constitutes a predictable ballistic path, like a bullet. They thus lack surprise; their targets are predictable, and they can theoretically be intercepted by antiballistic missiles. Hardened missile silos housing intercontinental ballistic missiles are also distinct targets, and today are far more vulnerable given U.S. high-precision, satellite-guided missiles, nuclear and non-nuclear. Confronted with these counterforce threats to their basic deterrents, Russia and China have pushed ahead of the United States in developing hypersonic missiles that can maneuver aerodynamically in order to dodge missile defenses and prevent the adversary from knowing the ultimate intended target. Russia has developed a hypersonic missile called the Kinzhal that is reputed to reach Mach 10 or more on its own, and another hypersonic weapon, Avangard, that, boosted by a rocket, can reach the astounding speed of Mach 27. China has a “waverider” hypersonic cruise missile that reaches Mach 6. Borrowing from Chinese folklore, it is referred to as an “assassin’s mace,” a weapon effective against a much better-armed adversary.39 Russia and China, meanwhile, have been developing antisatellite “counterspace” weapons designed to remove the U.S. advantage of high-precision nuclear and non-nuclear weapons.40

Though Washington has sought so-called nuclear primacy, it has remained just beyond its grasp, given the technological prowess of the other leading nuclear powers. Moreover, a nuclear arms race spurred by a counterforce strategy is fundamentally irrational, threatening a global thermonuclear conflagration with consequences far greater than even those envisioned by the MAD scenario, with its hundreds of millions of deaths on both sides. Nuclear winter means that, in a global nuclear exchange, the entire planet would be engulfed by the smoke and soot circling the stratosphere, killing off almost all of humanity.

Given this reality, the U.S. nuclear posture, which is based on the notion of prevailing in an all-out nuclear war, is particularly dangerous, since it denies the role of firestorms in cities and thereby the effects of smoke lofted up into the upper atmosphere and blotting out most of the rays of the sun. The search for nuclear primacy, therefore, leads from MAD to madness.41 As Ellsberg writes, “The hope,” entertained by U.S. strategic planners—who alone, in their denialism and sense of approaching nuclear primacy, could envision such a possibility—of “successfully avoiding mutual annihilation by a decapitating attack has always been as ill-founded as any other. The realistic conclusion would be that a nuclear exchange between the United States and the Soviets[/Russians] was—and is—virtually certain to be an unmitigated catastrophe, not only for the two parties but for the world,” triggering nuclear winter and “global omnicide.”42

The New Cold War and the European Theater

In “Notes on Exterminism” and his general stance as a leader of European Nuclear Disarmament in the 1980s, Thompson presented the nuclear arms buildup in Europe then occurring as the product of military machines and technological imperatives largely acting on their own. This was part of a strategy of uniting the peace movements of the West and East against their respective establishments, based on the premise that nuclear buildup was equally a product of both sides. However, in this regard, he belied his own evidence, which pointed to Washington’s aggressive nuclear buildup of counterforce weapons and the placement of strategic weapons in Europe targeting the Soviet Union. In an article on “Nuclear Chicken” in the September 1982 issue of Monthly Review, Harry Magdoff and Paul M. Sweezy challenged this part of Thompson’s argument, pointing not only to the strategic expansions of NATO under the United States, but also to the fact that the U.S. imperial order was heavily dependent on credible threats of nuclear first strikes directed at other countries, both nuclear and non-nuclear.43

In a 1981 introduction to the U.S. edition of Protest and Survive edited by Thompson and Dan Cohen, Ellsberg listed a long series of documented instances where the United States used threats of nuclear first strikes, beginning in 1949, to pressure other countries to back down and achieve its imperial ends.44 Today, the list of such documented cases has risen to twenty-five.45 In this sense, the use of nuclear warfare as a threat is built into U.S. strategy. Development of nuclear primacy through counterforce weapons held out the possibility that such threats could once again be credibly directed even at major nuclear powers such as Russia and China. Magdoff and Sweezy called this whole approach a game of “nuclear chicken,” in which the United States was the most aggressive player.

Nuclear chicken did not end with the end of the Cold War. The U.S. national security state, influenced by key figures such as Zbigniew Brzezinski, Carter’s national security advisor and one of the principal architects of the post-Cold War NATO expansion, continued to seek ultimate U.S. geopolitical hegemony over Eurasia, referring to this as the “grand chessboard.” Checkmate, according to Brzezinski, would constitute bringing Ukraine into NATO as a strategic-nuclear alliance (though Brzezinski carefully excluded the nuclear aspect in presenting his geopolitical strategy), spelling the end of Russia as a great power and possibly leading to its breakup into various states.46 This would mark U.S. supremacy over the entire globe. This attempt to turn U.S. unipolar power after the Cold War into a permanent global empire required the expansion of NATO to the east, which commenced in 1997 during the Bill Clinton administration, gradually annexing to the Atlantic Alliance all the countries between Western Europe and Ukraine, with the latter as the ultimate prize and a dagger at Russia’s heart.47 Here there was a kind of oneness exhibited between the U.S.-directed strategy of NATO expansion and Washington’s drive for nuclear primacy, which proceeded in almost lockstep.

The fact that Russia was compelled to consider the question of its own national security in the face of NATO’s attempt to expand militarily into Ukraine should hardly surprise anyone. A decade into the NATO expansion, which already encompassed eleven nations formerly either in the Warsaw Pact or previously part of the Soviet Union, and only a year after near U.S. nuclear primacy was highlighted in Foreign Affairs, Russian president Vladimir Putin startled the world by unequivocally declaring at the Munich Security Conference that “the unipolar world was not only unacceptable but impossible in today’s world.”48 Nevertheless, consistent with its long-term strategy to extend into what Brzezinski had called the “geopolitical pivot” of Eurasia, thereby fatally weakening Russia, NATO in 2008 declared outright at its Bucharest Summit that it intended to bring Ukraine into the military-strategic (nuclear) alliance.

In 2014, the Maidan coup in Ukraine, engineered by Washington, deposed the democratically elected president of Ukraine and imposed in his place a leader chosen by the White House, putting Ukraine in the hands of right-wing, ultra-nationalist forces. Russia’s response was to incorporate Crimea into its territory, after a popular referendum that gave the predominantly Russian-speaking Crimean population, who regarded themselves as independent and not part of Ukraine, a choice as to whether to remain in Ukraine or join with Russia. The coup (or “color revolution”) led to the violent repression by Kyiv of the populations in the Russian-speaking Donbass region of Ukraine, resulting in the Ukrainian Civil War between Kyiv (supported by Washington) and the breakaway Russian-speaking Donbass republics of Donetsk and Luhansk (supported by Moscow). The Ukrainian Civil War, which initially resulted in more than 14,000 deaths, continued at a low ebb over the following eight years despite the signing of the Minsk peace agreements in 2014, which were meant to end the conflict and give autonomy to the Donbass republics within Ukraine. In February 2022, Kyiv had massed 130,000 troops on the borders of Donbass in eastern Ukraine firing on Donetsk and Luhansk.49

As the Ukrainian crisis worsened, Putin insisted on a number of “red lines” for Russia, referring to its essential security needs, consisting of: (1) adherence to the previous Minsk agreement (worked out by Russia, Ukraine, France, and Germany, and supported by the UN Security Council) guaranteeing the autonomy and security of Donetsk and Luhansk, (2) an end to NATO’s militarization of Ukraine, and (3) an agreement that Ukraine will remain outside NATO.50 All of these red lines continued to be crossed with NATO, urged on by the United States, providing increased military aid to Kyiv in its war on the Donbass republics, in what Russia interpreted as a de facto attempt to incorporate Ukraine into NATO.

On February 24, 2022, Russia intervened in the Ukrainian Civil War on the side of Donbass, attacking the military forces of the Kyiv government. On February 27, Moscow put its nuclear forces on high alert for the first time since the end of the Cold War, confronting the world with the possibility of global nuclear holocaust, this time between competing capitalist great powers. Figures in Washington, such as Senator Joe Manchin III (Democrat, West Virginia), have backed the idea of U.S. imposition of a no-fly zone in Ukraine, which would mean shooting down Russian planes, in all probability escalating into a Third World War.51

Exterminism in Two Directions

It is common today to recognize that climate change represents a “global existential threat” that places in jeopardy the very survival of humanity. Today we are faced with a situation in which the continual expansion of capitalism based on the burning of ever larger amounts of fossil fuels points to the possibility—even probability, if the system of production is not altered radically in a matter of decades—of the downfall of industrial civilization, placing the survival of humanity in question. This is the meaning of environmental exterminism in our time. According to the UN Intergovernmental Panel on Climate Change (IPCC), net zero carbon dioxide emissions must be reached by 2050 if the world is to have a reasonable hope of keeping global average temperatures below a 1.5°C, or even a 2°C, increase over preindustrial levels. Not to accomplish this is to invite the devastation of the earth as a safe home for humanity and innumerable other species.

Climate change is part of a more general planetary ecological crisis associated with the crossing of planetary boundaries in general, including those—beyond climate change itself—related to species extinction, stratospheric ozone depletion, ocean acidification, disruption of the nitrogen and phosphorous cycles, loss of ground cover/forests, declining fresh water sources associated with desertification, atmospheric aerosol loading, and the introduction of novel entities (new synthetic chemicals and new genetic forms).52 To this should be added the emergence of new zoonoses, as in the COVID-19 pandemic, resulting principally from the agribusiness transformation of the human relation to the environment.53

Yet, there is no doubt that climate change is at the center of the current global ecological crisis. Like nuclear winter, it poses a threat to civilization and the continuation of the human species itself. Even now, the IPCC tells us in its most recent reports (2021–22) on the physical science of climate change and its impacts that the most optimistic scenario, though warding off irreversible climate change, is still one of growing global catastrophe in the decades ahead, and requires immediate action to protect the lives and living conditions of hundreds of millions, and perhaps billions, of people who will be exposed to extreme weather events of a kind that global civilization has never seen before.54 To counter this requires the greatest movement of workers and peoples the world has ever seen in order to restore the conditions of their existence, which have been usurped by the regime of capital, and to reestablish an ecologically sustainable world rooted in substantive equality.55

Ironically, the latest IPCC report, which was meant to draw world attention to the catastrophic nature of today’s climate crisis and the rapidly worsening prospects for humanity if revolutionary-scale changes are not made, was published on February 28, 2022, four days after the Russian entry into the Ukrainian Civil War in defiance of NATO, resulting in growing concern over the possibility of a global thermonuclear exchange. Hence, the world’s attention was drawn away from considering one global existential threat, endangering all of humanity, namely carbon omnicide, by the sudden reemergence of another, nuclear omnicide.

Still, even as the world turned its attention to the possibility of war between the leading nuclear powers, the full planetary scale of the nuclear threat, as understood by science in terms of nuclear winter, was absent from the picture. Global warming and nuclear winter, though arising in different ways, are closely connected in climate terms, demonstrating that the world is on the brink of destroying most of the inhabitants of the earth, in one direction or another: global warming over decades leading to a point of no return for humanity, or the death of hundreds of millions by nuclear fire, followed by global cooling in days and months, exterminating most of the rest of the world’s population through starvation. Just as the full destructive implications of climate change threatening the very existence of humanity are in large part denied by the powers that be, so are the full planetary effects of nuclear war, which scientific research into nuclear winter tells us will effectively annihilate the population of every continent on Earth.56

Today we are confronted with a choice between exterminism and the human ecological imperative.57 The causal agent in the two global existential crises now threatening the human species is capitalism and its irrational quest for exponentially increasing capital accumulation and imperial power in a limited global environment. The only possible response to this unlimited threat is a universal revolutionary movement rooted in both ecology and peace, turning away from the current systematic destruction of the earth and its inhabitants, and providing as its alternative a world of substantive equality and ecological sustainability, namely socialism.

  1.  P. Thompson, “Notes on Exterminism, the Last Stage of Civilization,” New Left Review 121 (1980): 3–31. Citations to this essay in the present article are taken from the slightly revised version in E. P. Thompson, Beyond the Cold War (New York: Pantheon, 1982), 41–79. See also Edward Thompson et al., Exterminism and the Cold War (London: Verso, 1982); E. P. Thompson and Dan Smith, ed., Protest and Survive (New York: Monthly Review Press, 1981).
  2.  Thompson, Beyond the Cold War, 55; Samir Amin, Empire of Chaos (New York: Monthly Review Press, 1992).
  3.  Thompson, Beyond the Cold War, 64, 73.
  4.  Thompson, Beyond the Cold War, 75–76.
  5.  Rudolf Bahro, Avoiding Social and Ecological Disaster (Bath: Gateway Books, 1994), 19–20; John Bellamy Foster, Ecological Revolution (New York: Monthly Review Press, 2009), 27–28; Ian Angus, Facing the Anthropocene (New York: Monthly Review Press, 2016), 178–81.
  6.  For a brief discussion of the events leading up the present Ukraine War, see The Editors, “Notes from the Editors,” Monthly Review 73, no. 11 (April 2022).
  7.  Stephen Schneider, “Whatever Happened to Nuclear Winter?,” Climatic Change 12 (1988): 215; Matthew R. Francis, “When Carl Sagan Warned About Nuclear Winter,” Smithsonian Magazine, November 15, 2017; Carl Sagan and Richard Turco, A Path Where No Man Thought: Nuclear Winter and the End of the Arms Race (New York: Random House, 1990), 19–44.
  8.  Malcolm W. Browne, “Nuclear Winter Theorists Pull Back,” New York Times, January 23, 1990.
  9.  Steven Starr, “Turning a Blind Eye Towards Armageddon—U.S. Leaders Reject Nuclear Winter Studies,” Public Interest Report (Federation of American Scientists) 69, no. 2 (2016–17): 24.
  10.  Judith Newman, “20 of the Greatest Blunders in Science in the Last 20 Years,” Discover, January 19, 2000.
  11.  Daniel Ellsberg, The Doomsday Machine: Confessions of a Nuclear War Planner (New York: Bloomsbury, 2017), 140. The failure to include the foremost cause of death from thermonuclear weapons directed at cities in the form of firestorms is deeply ingrained in the Pentagon. Thus, the declassified practical guide on nuclear weapons stockpile and management published by the U.S. Department of Defense for 2008 includes more than twenty pages on the effects of a nuclear weapons explosion in a city, without a single mention of firestorms. See U.S. Department of Defense, Nuclear Matters: A Practical Guide (Washington: Pentagon, 2008), 135–58.
  12.  Ellsberg, The Doomsday Machine, 141–42.
  13.  Ellsberg, The Doomsday Machine, 18, 142.
  14.  Owen B. Toon, Allan Robock, and Richard P. Turco, “Environmental Consequences of Nuclear War,” Physics Today (2008): 37–42; Alan Robock and Owen Brian Toon, Local Nuclear War, Global Suffering (New York: Scientific American, 2009).
  15.  Emily Saarman, “The Return of Nuclear Winter,” Discover, May 2, 2007.
  16.  Starr, “Turning a Blind Eye Toward Armageddon,” 4–5; Alan Robock, Luke Oman, and Geeorgiy L. Stenchikov, “Nuclear Winter Revisited with a Modern Climate Model and Current Nuclear Arsenals: Still Catastrophic Consequences,” Journal of Geophysical Research 112 (2007) (D13107): 1–14.
  17.  Starr, “Turning a Blind Eye Toward Armageddon,” 5–6; Robock, Oman, and Stenchikov, “Nuclear Winter Revisited”; Joshua Coupe, Charles G. Bardeen, Alan Robock, and Owen B. Toon, “Nuclear Winter Responses to Nuclear War Between the United States and Russia in the Whole Atmosphere Community Climate Model Version 4 and the Goddard Institute for Space Studies ModelE,” Journal of Geophysical Research: Atmospheres (2019): 8522–43; Alan Robock and Owen B. Toon, “Self-Assured Destruction: The Climate Impacts of Nuclear War,” Bulletin of the Atomic Scientists 68, no. 5 (2012): 66–74; Steven Starr, “Nuclear War, Nuclear Winter, and Human Extinction,” Federation of American Scientists, October 14, 2015.
  18.  Herman Kahn, On Thermonuclear War (New Brunswick, NJ: Transaction Publishers, 2007), 145–51.
  19.  Ellsberg, The Doomsday Machine, 18–19; Sagan and Turco, A Path Where No Man Thought, 213–19. Here, the doomsday machine is not to be confused with the version of the doomsday machine in Stanley Kubrick’s film Strangelove. Yet, Kubrick’s film drew on Kahn’s notion and retains a concrete significance in the context of contemporary nuclear reality. See Ellsberg, The Doomsday Machine, 18–19.
  20.  Keir A. Lieber and Daryl G. Press, “The Rise of U.S. Nuclear Primacy,” Foreign Affairs (2006), 44.
  21.  Sagan and Turco, A Path Where No Man Thought, 215.
  22.  John T. Correll, “The Ups and Downs of Counterforce,” Air Force Magazine, October 1, 2005; Ellsberg, The Doomsday Machine, 120–23, 178–79.
  23.  Harry Magdoff and Paul M. Sweezy, “Nuclear Chicken,” Monthly Review 34, no. 4 (September 1981): 4; Richard J. Barnet, “Why Trust the Soviets?,” World Policy Journal 1, no. 3 (1984): 461–62.
  24.  Correll, “The Ups and Downs of Counterforce.”
  25.  Steven Pifer, “The Limits of U.S. Missile Defense,” Brookings Institution, March 30, 2015.
  26.  Cynthia Roberts, “Revelations About Russia’s Nuclear Deterrence Policy,” War on the Rocks (Texas National Security Review), June 19, 2020; Correll, “The Ups and Downs of Counterforce.”
  27.  Janne Nolan, quoted in Correll, “The Ups and Downs of Counterforce.”
  28.  “Excerpts from Pentagon’s Plan: Preventing the Re-emergence of a New Rival,” New York Times, March 8, 1992.
  29.  Lieber and Press, “The Rise of U.S. Nuclear Primacy,” 45–48.
  30.  Richard A. Paulsen, The Role of U.S. Nuclear Weapons in the Post-Cold War Era (Maxwell Air Force Base, Alabama: Air University Press, 1994), 84; Michael J. Mazarr, “Nuclear Weapons After the Cold War,” Washington Quarterly 15, no. 3 (1992): 185, 190–94; Zbigniew Brzezinski, The Grand Chessboard (New York: Basic Books, 1997), 46.
  31.  Lieber and Press, “The Rise of U.S. Nuclear Primacy,” 43, 50.
  32.  Lieber and Press, “The Rise of U.S. Nuclear Primacy,” 45.
  33.  Jack Detsch, “Putin’s Fixation with an Old-School U.S. Missile Launcher,” Foreign Policy, January 12, 2022; Jacques Baud (interview), “The Policy of USA Has Always Been to Prevent Germany and Russia from Cooperating More Closely,” Swiss Standpoint, March 15, 2022; Starr, “Turning a Blind Eye Toward Armageddon.” Estonia has cruise missiles supplied by Israel: David Axe, “Estonia’s Getting a Powerful Cruise Missile. Now It Needs to Find Targets,” Forbes, October 12, 2021. Russia is also concerned with the possible reintroduction of Pershing II intermediate ballistic missiles in Europe.
  34.  Jaganath Sankaran, “Russia’s Anti-Satellite Weapons: An Asymmetrical Response to U.S. Aerospace Superiority,” Arms Control Association, March 2022.
  35.  Lieber and Press, “The Rise of U.S. Nuclear Primacy,” 48–49, 52–53; Karl A. Lieber and Daryl G. Press, “The New Era of Counterforce: Technological Change and the Future of Nuclear Deterrence,” International Security 41, no. 4 (2017). A key element of Beijing’s nuclear deterrent is reducing the acoustic signature or noise level of its nuclear submarines. In 2011, it was believed that it would take China decades to reduce the acoustic signature of its submarines enough to survive a U.S. first strike. However, in less than a decade, China made significant advances toward that goal. Lieber and Press, “The New Era of Counterforce,” 47; Caleb Larson, “Chinese Submarines Are Becoming Quieter,” National Interest, September 10, 2020; Wu Riqiang, “Survivability of China’s Sea-Based Nuclear Forces,” Science and Global Security 19, no. 2 (2011): 91–120.
  36.  Lieber and Mann, “The New Era of Counterforce,” 16–17.
  37.  Roberts, “Revelations About Russia’s Nuclear Deterrence Policy”; Sankaran, “Russia’s Anti-Satellite Weapons.”
  38.  Alexey Arbatove, “The Hidden Side of the U.S.-Russian Strategic Confrontation,” Arms Control Association, September 2016; Brad Roberts, The Case for Nuclear Weapons in the 21st Century (Stanford: Stanford University Press, 2015).
  39.  Richard Stone, “National Pride Is at Stake: Russia, China, United States Race to Build Hypersonic Weapons,” Science, January 8, 2020, 176–96; Dagobert L. Brito, Bruce Bueno de Mesquita, Michael D. Intriligator, “The Case for Submarine Launched Non-Nuclear Ballistic Missiles,” Baker Institute, January 2002.
  40.  Sankaran, “Russia’s Anti-Satellite Weapons.” The development of “countermeasure” strategies and technologies to elude counterforce attack on a nation’s nuclear deterrence is emphasized by Russia and China, given the U.S. lead in counterforce. See Lieber and Mann, “The New Era of Counterforce,” 46–48.
  41.  See Diane Johnstone, “Doomsday Postponed?,” in Paul Johnston, From Mad to Madness: Inside Pentagon Nuclear Planning (Atlanta, GA: Clarity, 2017), 272–86.
  42.  Ellsberg, The Doomsday Machine, 307. Today, there is once again increased discussion in U.S. strategic circles of a “low-casualty” or “decapitation” first-strike capability on the part of the United States, which would seem to make nuclear firestorms less likely. See Lieber and Man, “The New Era of Counterforce,” 27–32.
  43.  Magdoff and Sweezy, “Nuclear Chicken,” 3–6.
  44.  Daniel Ellsberg, “Introduction: Call to Mutiny,” in Thompson and Smith, ed., Protest and Survive, i–xxviii. It was reprinted as “Call to Mutiny,” Monthly Review 33, no. 4 (September 1981): 1–26.
  45.  Ellsberg, The Doomsday Machine, 319–22.
  46.  Brzezinski, The Grand Chessboard, 46, 92–96, 103.
  47.  Editors, “Notes from the Editors.”
  48.  Diana Johnstone, “Doomsday Postponed?,” 277.
  49.  Editors, “Notes from the Editors”; Diane Johnstone, “For Washington, War Never Ends,” Consortium News 27, no. 76 (2022); John Mearsheimer, “On Why the West Is Principally Responsible for the Ukrainian Crisis,” Economist, March 19, 2022.
  50.  Mark Episkopos, “Putin Warns the West to Heed Russia’s Redlines in Donbass,” National Interest, December 21, 2021; “Russia Publishes ‘Red Line’ Demands of US and NATO Amid Heightened Tension Over Kremlin Threat to Ukraine,” Marketwatch, December 18, 2021.
  51.  “U.S. Lawmakers Say They Are Largely Opposed to a No-Fly Zone Over Ukraine,” New York Times, March 6, 2022.
  52.  Will Steffen et al., “Planetary Boundaries: Guiding Human Development on a Changing Planet,” Science 347 no. 6223 (2015): 736–46.
  53.  See Rob Wallace, Dead Epidemiologists: On the Origins of COVID-19 (New York: Monthly Review Press, 2020).
  54.  UN Intergovernmental Panel on Climate Change, “Summary for Policymakers,” Climate Change 2022: Impacts, Adaption and Vulnerability (Geneva: IPCC, 2022). See also “Summary for Policymakers,” Climate Change 2021.
  55.  This conclusion is in fact consistent with the third part of the IPCC’s Sixth Assessment Report, in the form of the mitigation report to be published in March but leaked by scientists in advance. See the “Summary for Policy Makers” of Part III of the UN Intergovernmental Panel on Climate Change’s Sixth Assessment Report on Climate Change.
  56.  Ellsberg, The Doomsday Machine, 18. Global warming and nuclear winter are related in another respect. If global warming increases to the extent that global civilization is destabilized, something that natural scientists predict could happen if global average temperatures increase by 4°C, competition between capitalist nation states will increase, thereby enhancing the risk of a nuclear conflagration and thus nuclear winter.
  57.  Thompson, Beyond the Cold War, 76.

John Bellamy Fosteris an American professor of sociology at the University of Oregon and editor of the Monthly Review. He writes about political economy of capitalism and economic crisis, ecology and ecological crisis, and Marxist theory.

Monthly Review, May 1, 2022, https://monthlyreview.org/

The class dynamics of the Fed’s recession program / by Nick Beams

Originally published: World Socialist Web Site (WSWS) on July 30, 2022

On Thursday, the Commerce Department reported that the U.S. economy shrank for the second quarter in a row, bringing it into a “technical recession.”

The economic contraction is being accompanied by a series of layoffs that threatens to become a torrent as the economy slows further. This month, more than 30,000 layoffs occurred in the technology sector alone. Last week, Ford announced 8,000 layoffs, heralding a further bloodbath in the auto industry.

Amid the swirl of economic data, it is always necessary to understand that these numbers are the abstract expression of underlying social and class forces, that “the economy” is not some kind of machine, but is based on definite social relations and operates through them. This is particularly necessary when considering the latest economic data.

A debate has now broken out in the media and financial commentary circles as to whether this “technical recession”—defined as two consecutive quarters of economic contraction—is a real one or not.

The key issue here is not one of definitions, but what are the essential class interests at work, particularly with regard to the policies of the U.S. Federal Reserve, the key financial institution of the capitalist state.

Fed policies are always couched in various forms of jargon that cover up the real agenda through a series of mystifications aimed at making it appear the central bank somehow stands above class interests, regulating economic life in the interests of the population.

Amid the flurry of words, the essence of the present situation is this: The central bank, the guardian of the interests of the corporations and finance capital, has set out to engineer a marked slowdown, and, if necessary, a major economic contraction. The aim is to suppress the wage demands of the working class under conditions where inflation has risen to the highest level in four decades.

This assault is being waged through the mechanism of higher interest rates, which are being lifted at the fastest rate in decades under the banner of the fight against inflation. But interest hikes will not bring down gas prices or untangle supply chains. The objective is to bring about an economic contraction so that pay demands are suppressed.

The present policy agenda reprises that of Fed Chair Paul Volcker in the 1980s, when interest rates were lifted to record heights, inducing the deepest recession to that point since the Great Depression. Today’s Fed Chair Jerome Powell has expressed his admiration for Volcker on numerous occasions, making clear he is more than prepared to follow the same path.

Former U.S. Treasury Secretary Lawrence Summers has insisted that containing inflation means inducing higher jobless levels for five years or a 10 percent unemployment rate for at least a year.

As with every other economic issue and statistic, inflation is embedded in the class structure of society, a historical examination of which reveals the origins of the present U.S. and global spiral.

The global financial crisis of 2008, set off by the more than two decades of increasing financial speculation preceding it, led to the largest corporate and financial bailout in history. The U.S. government handed out hundreds of billions of dollars in rescue packages, and the Fed began the policy of “quantitative easing”—injecting money into the financial system so that the speculation on Wall Street that had precipitated the crisis could continue.

And continue it did. After reaching a nadir in March 2009, the stock market went on a spectacular bull run. But it was based on a continuous supply of cheap money by the Fed.

In March 2020, as the COVID-19 pandemic struck, Wall Street and financial markets went into a meltdown, fearing that the imposition of necessary public health safety measures would impinge on the flow of profits extracted from the working class, and the stock market bubble would collapse.

Two key policies resulted. Under the banner of the “cure cannot be worse than the disease,” the necessary policy of COVID-19 elimination was rejected in the U.S. and by governments around the world. At the same time, trillions more dollars were pumped into the financial system. In the U.S., the Fed doubled its holdings of financial assets from $4 trillion to $8 trillion virtually overnight, at one point spending a million dollars a second.

Herein are the origins of the global inflationary spiral. The refusal to undertake a global policy of COVID-19 elimination because of its potential impact on the stock markets had major consequences in the real economy, as the spread of COVID-19 led to a supply chain crisis.

The monetary system was expanded by the central banks, leading to still further asset speculation in 2020 and 2021. Another factor is the endless increases in military spending as billions are funneled into the proxy war against Russia in Ukraine.

In their drive to increase interest rates, Fed Chair Jerome Powell along with other central bankers continually refer to what they call the “tight labour” market, in which demand must be brought into balance with supply.

Under conditions where the deaths inflicted by COVID-19, ongoing infections and the growing impact of Long COVID have led to the withdrawal of millions from the workforce, the only way to lift the increase of the supply of labour above demand is through the imposition of unemployment.

And that process is already underway as a result of the interest rate hikes initiated by the Fed so far. The auto industry has indicated new hirings are at a standstill, and layoffs are set to follow. In the interest-rate sensitive sectors of high-tech, layoffs have already started with more to come.

In the face of the daily cuts in their standard of living resulting from the highest inflation in more than four decades, workers are compelled to undertake a struggle for necessary wage increases. But as they are driven into this fight, it is necessary for workers to understand what is at stake in order to better conduct the battle at hand.

Workers are not just in a conflict with individual employers, but are engaged in a political struggle in which the union bureaucracy functions as the chief enforcer of the demands of the capitalist state and its agencies.

Moreover, the fight for wage increases, necessary as that is, is a struggle against the effects of much deeper-going problems. A review of the economic history of the past period shows that every measure taken by the ruling class to deal with an economic crisis led inevitably to its eruption in a new and more malignant form.

Thus the “solution” to the financial crisis of 2008 set up the conditions where in 2020 rational scientific measures to deal with COVID-19 were rejected, lest their implementation lead to a financial market collapse. But the “let it rip policy” that ensued has now led to an inflationary spiral which the leading agencies of finance capital are determined to “resolve” by making the working class pay, if necessary through mass unemployment.

This signifies that starting with the fight against the effects of the ongoing economic breakdown, the working class must develop a strategy which comes to grips with the underlying cause of the crisis, and that means the struggle for an independent socialist perspective directed at ending the profit system and replacing it with socialism, a higher form of social and economic organization.

Nick Beams is a member of the international editorial board of the World Socialist Web Site. He is an authority on Marxist political economy. Beams was politically radicalised during the international upsurge of workers and youth of 1968, and played a key role in the establishment of the Socialist Labour League, the predecessor of the Socialist Equality Party (Australia), in April 1972, and its affiliation to the International Committee of the Fourth International several months later. He retired as national secretary of the SEP in 2010, after having served in that position for 35 years.

Russia and the Ukraine crisis: The Eurasian Project in conflict with the triad imperialist policies / by Samir Amin

State flag of Ukraine behind a wall of anonymous protesters in Kyiv Ukraine (February 18, 2014). | MR Online | By Mstyslav Chernov/Unframe – Own work, CC BY-SA 3.0, Link.

We [MR Online Eds.] wanted to draw readers attention to this piece by Samir Amin, which was written at the time of the Maidan Coup in 2014.

1. The current global stage is dominated by the attempt of historical centers of imperialism (the U.S., Western and Central Europe, Japan—hereafter called “the Triad”) to maintain their exclusive control over the planet through a combination of:

  1. so-called neo-liberal economic globalization policies allowing financial transnational capital of the Triad to decide alone on all issues in their exclusive interests;
  2. the military control of the planet by the U.S. and its subordinate allies (NATO and Japan) in order to annihilate any attempt by any country not of the Triad to move out from under their yoke.

In that respect all countries of the world not of the Triad are enemies or potential enemies, except those who accept complete submission to the economic and political strategy of the Triad—such as the two new “democratic republics” of Saudi Arabia and Qatar!  The so-called “international community” to which the Western medias refer continuously is indeed reduced to the G7 plus Saudi Arabia and Qatar.  Any other country, even when its government is currently aligned with the Triad, is a potential enemy since the peoples of those countries may reject that submission.

2. In that frame Russia is “an enemy.”

Whatever might be our assessment of what the Soviet Union was (“socialist” or something else), the Triad fought it simply because it was an attempt to develop independently of dominant capitalism/imperialism.

After the breakdown of the Soviet system, some people (in Russia in particular) thought that the “West” would not antagonize a “capitalist Russia”—just as Germany and Japan had “lost the war but won the peace.”  They forgot that the Western powers supported the reconstruction of the former fascist countries precisely to face the challenge of the independent policies of the Soviet Union.  Now, this challenge having disappeared, the target of the Triad is complete submission, to destroy the capacity of Russia to resist.

3. The current development of the Ukraine tragedy illustrates the reality of the strategic target of the Triad.

The Triad organized in Kiev what ought to be called a “Euro/Nazi putsch.”  To achieve their target (separating the historical twin sister nations—the Russian and the Ukrainian), they needed the support of local Nazis.

The rhetoric of the Western medias, claiming that the policies of the Triad aim at promoting democracy, is simply a lie.  Nowhere has the Triad promoted democracy.  On the contrary these policies have systematically been supporting the most anti-democratic (in some cases “fascist”) local forces.  Quasi-fascist in the former Yugoslavia—in Croatia and Kosovo—as well as in the Baltic states and Eastern Europe, Hungary for instance.  Eastern Europe has been “integrated” in the European Union not as equal partners, but as “semi-colonies” of major Western and Central European capitalist/imperialist powers.  The relation between West and East in the European system is in some degree similar to that which rules the relations between the U.S. and Latin America!  In the countries of the South the Triad supported the extreme anti-democratic forces such as, for instance, ultra-reactionary political Islam and, with their complicity, has destroyed societies; the cases of Iraq, Syria, Egypt, Libya illustrate these targets of the Triad imperialist project.

4. Therefore the policy of Russia (as developed by the administration of Putin) to resist the project of colonization of Ukraine (and of other countries of the former Soviet Union, in Transcaucasia and Central Asia) must be supported.  The Baltic states’ experience should not be repeated.  The target of constructing a “Eurasian” community, independent from the Triad and its subordinate European partners, is also to be supported.

But this positive Russian “international policy” is bound to fail if it is not supported by the Russian people.  And this support cannot be won on the exclusive basis of “nationalism,” even a positive progressive—not chauvinistic—brand of “nationalism,” a fortiori not by a “chauvinistic” Russian rhetoric.  Fascism in Ukraine cannot be challenged by Russian fascism.  The support can be won only if the internal economic and social policy pursued promotes the interests of the majority of the working people.

What do I mean by a “people-oriented” policy favoring the working classes?

Do I mean “socialism,” or even a nostalgia of the Soviet system?  This is not the place to re-assess the Soviet experience, in a few lines!  I shall only summarize my views in a few sentences.  The authentic Russian socialist revolution produced a state socialism which was the only possible first step toward socialism; after Stalin that state socialism moved towards becoming state capitalism (explaining the difference between the two concepts is important but not the subject of this short paper).  As of 1991 state capitalism was dismantled and replaced by “normal” capitalism based on private property, which, as in all countries of contemporary capitalism, is basically the property of financial monopolies, owned by the oligarchy (similar to, not different from, the oligarchies running capitalism in the Triad), many coming out of the former nomenklatura, and some newcomers.

The explosion of creative authentic democratic practices initiated by the Russian (October) revolution was subsequently tamed and replaced by an autocratic pattern of management of society, albeit granting social rights to the working classes.  This system led to massive depoliticization and was not protected from despotic and even criminal deviations.  The new pattern of savage capitalism is based on the continuation of depoliticization and the non-respect of democratic rights.

Such a system rules not only Russia, but all the other former Soviet republics.  Differences relate to the practice of the so-called “Western” electoral democracy, more effective in Ukraine, for instance, than in Russia.  Nonetheless this pattern of rule is not “democracy” but a farce compared to bourgeois democracy as it functioned at previous stages of capitalist development, including in the “traditional democracies” of the West, since real power is now restricted to the rule of monopolies and operates to their exclusive benefit.

A people-oriented policy implies therefore moving away, as much as possible, from the “liberal” recipe and the electoral masquerade associated with it, which claims to give legitimacy to regressive social policies.  I would suggest setting up in its place a brand of new state capitalism with a social dimension (I say social, not socialist).  That system would open the road to eventual advances toward a socialization of the management of the economy and therefore authentic new advances toward an invention of democracy responding to the challenges of a modern economy.

It is only if Russia moves along such lines that the current conflict between, on the one hand, the intended independent international policy of Moscow and, on the other hand, the pursuit of a reactionary social internal policy can be given a positive outcome.  Such a move is needed and possible: fragments of the political ruling class could align on such a program if popular mobilization and action promote it.  To the extent that similar advances are also carried out in Ukraine, Transcaucasia, and Central Asia, an authentic community of Eurasian nations can be established and become a powerful actor in the reconstruction of the world system.

5. Russian state power remaining within the strict limits of the neo-liberal recipe annihilates the chances of success of an independent foreign policy and the chances of Russia becoming a really emerging country acting as an important international actor.

Neo-liberalism can produce for Russia only a tragic economic and social regression, a pattern of “lumpen development” and a growing subordinate status in the global imperialist order.  Russia would provide to the Triad oil, gas, and some other natural resources; its industries would be reduced to the status of sub-contracting for the benefit of Western financial monopolies.

In such a position, which is not very far from that of Russia today in the global system, attempts to act independently in the international area will remain extremely fragile, threatened by “sanctions” which will strengthen the disastrous alignment of the ruling economic oligarchy to the demands of dominant monopolies of the Triad.  The current outflow of “Russian capital” associated with the Ukraine crisis illustrates the danger.  Re-establishing state control over the movements of capital is the only effective response to that danger.

—Moscow, March 2014

Further Readings

About Samir Amin

Samir Amin (1931-2018) was one of the world’s greatest radical thinkers. Born in Egypt, he served as director of Third World Forum in Dakar from 1980 until his death. He has written numerous articles and books for Monthly Review and Monthly Review Press, including Accumulation on a World Scale: A Critique of the Theory of Underdevelopment (1974), The Law of Worldwide Value (2010), and Samir Amin: Memoirs of an Independent Marxist (2018).

MR Online, May 7, 2022, https://mronline.org/

The anatomy of inflation / by Jack Rasmus

Whether the Fed can succeed in taming inflation and do so without precipitating a recession remains to be seen but is highly unlikely.

The focus of the U.S. media and economists for the past several months has been increasingly on inflation. In recent weeks, however, U.S. policymakers awoke as well to the realization that inflation is chronic, firmly embedded, and growing threat to the immediate future of the U.S. economy.

A qualitative ‘threshold of awareness’ was reached this past week when the U.S. central bank, the Federal Reserve, accelerated its pace of rate hikes by 75 basis points—purportedly to bring the rate of price hikes under control. Whether the Fed can succeed in taming inflation and do so without precipitating a recession remains to be seen but is highly unlikely. Taming inflation without provoking a recession is thus the central economic question for the remainder of 2022.

Clearly some think this is possible—i.e. that further rate hikes will moderate the pace of inflation without driving the real economy into recession and result in what is called a ‘soft landing’. Clearly the Fed and the Biden administration believe that will happen. But a growing chorus of even mainstream economists and bank research departments don’t think so. Almost daily new forecasts by global banks and analysts appear indicating recession is more than 50-50 likely—and arriving sooner in late 2022 than in 2023.

This article concludes unequivocally that today’s Fed monetary policy of escalating interest rates is not capable of reducing inflation while avoiding recession—any more than similar Fed rate hikes in 1980-81 did. And this time rate hikes will not need to rise as high as in 1980-81 before they trip the economy into another bona fide recession.

As of June 2022 the Fed raised its benchmark federal funds interest rate to a high end range of 1.75%. It plans to double that at least by the end of 2022, to a 3.5% to 4% range. But the U.S. economy is already nearly stagnant and signs are growing it is becoming even weaker. As this writer has argued since the fall of 2021, a Fed rate to 4% or more will almost certainly mean a ‘hard landing’, i.e. recession. Moreover, it will not reduce inflation that much either. Prices will not slow appreciably until the U.S. is actually well into a recession. That means a condition called stagflation, a contracting real economy amidst rising prices and an economic scenario not seen in the U.S. since the late 1970s. Stagflation has already arrived if one considers the almost flat U.S. economy in the first half of 2022; and it will deepen once recession begins in the second half.

To understand why inflation won’t abate much in 2022, and why recession will occur sometime before the current year’s end, it is necessary first to understand the Anatomy of Inflation (i.e. structure and evolution) that has emerged over the past year. That anatomy, or structure, of inflation shows its current causes are not responsive to Fed rate hikes in either the short or even intermediate term of the next twelve months.

It is necessary to understand why monetary policy in the form of Fed rate hikes will not dampen inflation much before recession occurs—as well as why those same rate hikes will have a greater effect on precipitating a recession long before the Fed can bring the inflation rate down to its long run historic target of only 2%.

The Anatomy of U.S. Inflation: 2021-22

After rising moderately around 4% annual rate when the U.S. economy first opened in the spring of 2021, it is important to note the pace of consumer prices remained virtually steady for the following four months throughout the summer of 2020, at around 5.5%. (Bureau of Labor Statistics New Release, May 11, 2022, Chart 2). That pace began to rise steadily every month only after late August 2021.

Beginning last September 2021 U.S. Inflation not only began accelerating but has since become embedded and chronic. Even U.S. policy elites can no longer deny it. Earlier in 2022 Treasury Secretary Janet Yellen opined publicly that U.S. inflation would be ‘short lived and temporary’. In June she then recanted and apologized for the inaccurate prediction. And this past week admitted that inflation is now ‘locked in’ for the remainder of 2022.

What then are the reasons and evidence inflation has become permanent and chronic—at least until recession sets in?

There’s no doubt that Demand, due to the reopening of the U.S. economy after the worst of Covid in March-April 2021 contributed to the emergence of inflation last spring-summer 2021. But excess Demand is not the primary explanation for it. Demand for goods and services rose during April-May 2021 as workers returned to their jobs and wage incomes grew. However, the record shows after rising modestly in April-May 2021, consumer prices leveled off throughout the summer of 2021, June to August 2021, at just over 5%. It remained steady thereafter at that level for those months as the economy continued to re-open.

The surge in prices at a faster pace only began in the late summer, around August-September. That price escalation coincided with rising problems in Supply chains—both in the form of global imports to the U.S. as well as domestic U.S. supply issues associated with goods transport, warehousing, and skilled labor access. In short, as the U.S. economy attempted to reopen global supply chains were still broken and, domestically, U.S. Product and Labor markets were severely wounded by the impact of Covid events of March 2020 through March 2021.

Conservative politicians, business interests, and their wing of the mainstream media nonetheless claimed at the time—and mostly still maintain today—that it was the too generous, excess income support from the American Relief Plan (ARP) social safety net programs passed by Congress in March 2021, and their predecessor programs a year before, that was responsible for excess Demand in mid-2021 and thus the escalating inflation that followed after September of that year.

But even U.S. government data don’t support that view. The ARP authorized only $800 billion spending in the entire next twelve months. The 3rd quarter—the first full quarter when ARP program spending hit the economy and when prices began their accelerations around August—saw probably no more than $200 billion from ARP programs entering the economy. The supplemental income checks had already been distributed and mostly spent in the 2nd quarter. What remained in the 3rd of any magnitude were supplemental unemployment benefits, modest rental assistance, and the child care subsidies for median and low income families introduced that July. $200 billion injection was probably high as well. Certainly not all the $200 billion income injected was actually spent that quarter. (As economists admit, consumers’ marginal propensity to spend added income is always less than ‘one’—i.e. they don’t immediately spend it all). $150 billion or so was probably actually spent. That $150 billion compares to a 3rd quarter overall GDP of more than $5 trillion! There’s no way an economy that size could result in the price acceleration that began at that time from an injection of $150 billion on more than $5 trillion.

Moreover, $150 billion may be too high an estimate as well. Much of the ARP stimulus was cut off significantly by early September, the last month of the 3rd quarter: for example, supplemental unemployment benefits provided previously for 10 million workers was ended, along with rental assistance, the Payroll Protection Plan grants for small businesses, and other lesser injections.

In short, to the extent Demand contributed to the rise in prices in both the 2nd and 3rd quarters, that Demand effect is explainable far more by the continued reopening of the economy rather than attributable to the income support programs of the American Rescue Plan that amounted to no more than $100-$150 billion throughout the entire 3rd quarter when prices began to accelerate. So much for arguments that workers were too flush with income from jobs they were returning to and the government over-generous ARP income programs! The data just don’t support the view it was Demand and government spending Demand in particular that was responsible for the onset of escalating prices last September 2021.

The more likely explanation behind escalating prices in late summer 2021 was global supply chain bottlenecks, especially involving goods imports from Asia and China in particular. In August-September it was mostly goods prices driving inflation. Consumer spending on services again was just emerging. A problem with Supply chains was corporations around the world had shuttered their operations during the worst of Covid, allowing workers and suppliers to drift away. When the economy began to reopen in the summer of 2021, many of these workers and suppliers were not available. That was especially true with global container and other shipping companies. There just weren’t enough ships available to deliver goods from Asia to North America. What shipping was available was initially dedicated to transport between Asia countries first. In addition, USA West Coast ports had a similar problem: the ports were short of traditional workers and transport. Not only port workers but independent truckers that carried the freight from the Los Angeles port, for example, to inland central warehouses. And from those mega-warehouses to regional warehouses from which goods are then distributed to companies’ storage and stores. Like the trucker shortage, there was an insufficient return of workers to warehouses as well. A similar, somewhat lesser labor shortage problem existed with railway workers. In other words, domestic U.S. supply chains were still broken—along with global supply.

As inflation rose and the public was increasingly aware of it, corporations with monopolistic power (i.e. where four or five or fewer companies produced 80% or more of the product or service in the economy) manipulated and took advantage of that public awareness of rising inflation in order to raise their prices—even when their respective industry was not experiencing supply chain issues.

A good example is the U.S. oil corporations that didn’t have a supply problem at all at the time and still don’t. U.S. oil corps were capable then, as now, of raising their output of oil in the U.S. (i.e. supply) by at least 2 million more barrels/day. They chose instead to leave that oil in the ground, not to expand production at U.S. refineries, and refused to reopen many of the drilling wells they had capped during the worst of the preceding 2020-21.

In the months preceding the onset of Covid shutdowns in March 2021 U.S. oil corps were producing more than 13 million barrels per day; by fall 2021 they were producing barely 11 million per day (and still are). Nevertheless, U.S. oil corporations raised their prices faster than perhaps any other industry. By the fourth quarter 2021 energy prices were rising at 34.2% annual rate, according to the U.S. GDP accounts (U.S. Bureau of National Economics, NIPA Table 2.3.7).

With prices now surging after September 2021 the important new factor also driving prices was thus neither supply nor demand related. It was price manipulation by U.S. corporations with market power to do so. And it was not just oil corporations, although they were responsible for more than half of the price index surge at the time—and still are. Other food processing corporations, airlines, utilities, and so forth with monopolistic power did so as well. This political (market power) cause, combined with Demand and Supply forces, after August resulted in yet a further surge of prices through the remainder of 2021.

Beginning in 2022 further forces also began to determine the U.S. Anatomy of Inflation:

Commencing March 2022, added and overlaid onto 2021 inflation drivers was U.S. and EU sanctions on Russia commodities, which were especially critical as the global economy was still in the process of trying to reopen and restore and heal Covid shattered global supply chains.

Russia supplies 20% to 30% of many key global commodities—including oil, gas and nuclear fuel processing in the energy sector. But also industrial metals commodities like nickel, palladium, aluminum and other resources required for auto, steel and other goods manufacturing in the U.S. and EU. Also agricultural commodities like 30% of the world’s wheat; 20% of global corn production used in production of animal feed; 75% of critical vegetable oils like sunflowers; and 75% potash fertilizer—to name the more important.

Even before U.S./EU sanctions on these key Russian commodities began affecting actual supply, global financial commodities futures market speculators began driving up commodity inflation in anticipation of the sanctions eventually taking effect. Speculators were quickly followed by global shipping companies that jacked up their prices before actual sanctions. They were joined in turn by shipping insurance companies. All along the commodities supply chain, capitalists in sectors capable of exploiting the coming sanctions-driven shortages began manipulating prices in anticipation. Physical shortages from sanctions thereafter began to have a further impact late in 2nd quarter 2022 as war in Ukraine intensified and sanctions were implemented. The speculators, shippers and insurers thereafter added further price increases to the general sanctions effect.

When U.S. Treasury Secretary Yellen voiced her prediction earlier in 2022 that inflation would be temporary she no doubt did so based on the erroneous assumptions that somehow the global and domestic supply chain problems of late summer 2021 would be resolved in 2022, and corporate price gouging that overlaid supply chain issues would also somehow abate. She clearly did not factor in to her inflation prediction the very significant effect of war and sanctions.

President Biden called the now further escalation of prices in spring 2022 as ‘Putin’s Inflation’. That claim might be laid on shortages of some agricultural products directly disrupted in Ukraine war zones, but can’t be laid on global energy prices which were virtually all from within Russia’s economy not Ukraine’s. Thus to the extent inflation is due to rising energy prices—which accounts for more than half the total price rise at the consumer level—it is more attributable to Biden’s sanctions and thus is ‘Biden’s Inflation’ rather than Putin’s.

By the 2nd quarter 2022 all the above combined forces driving inflation (i.e. moderate Demand, global & domestic broken Supply chains, widespread corporate price gouging, oil, energy & commodities prices) converged to produce an embedded, chronic, and continued rise of inflation.

For the period for which latest prices are available, March-May, consumer prices (CPI Index) have been rising at a steady 8.5% rate while producer prices that eventually feed into consumer prices have been rising at an even faster rate of 10-11% for the three months. Furthermore, pressure on producer prices (that feed into consumer prices) may accelerate even that 10-11% current producer price hike average. For example, the most recent Producer Price Index released for May shows the category of ‘Intermediate’ goods and services prices are rising even faster. Intermediate processed goods (e.g. steel) have been rising at a 21.6% annual rate over the past year, while intermediate unprocessed goods (e.g. natural gas) have risen at a 39.7% annual rate.

Supply chain and Demand forces of the past year, May 2021 through May 2022, will likely continue driving prices at similar rates through this summer 2022 and likely the rest of the year as well. There appears no end in sight, for example, for the Ukraine war and the Sanctions on Russia which continue to tighten. Price gouging in these commodities impacted by war and sanctions will certainly continue as will the general phenomenon of monopolistic corporations price gouging. Commodity futures financial speculators will continue to speculate; shipping companies continue to manipulate price to their advantage; and insurers continue to hike their rates on bulk commodity shipping worldwide.

In addition, new forces are also emerging this summer 2022 that will contribute still further to chronic inflation throughout the rest of 2022 and possibly even further beyond.

One such new factor is rising Unit Labor Costs for businesses, which many will try to pass through to consumers this summer and beyond. Unit labor costs (ULCs) are determined by productivity change for businesses and/or wages. If wages rise, ULCs rise; similarly if productivity falls, ULCs rise. While wages appear to be moderately rising in nominal terms, productivity is falling precipitously. The most recent data on productivity trends in the U.S. indicate productivity collapsing at the fastest rate since data was first gathered in 1947. That’s because business investment is stalling in the face of growing economic uncertainty about inflation as well as likely recession. Wage rise contribution to rising ULCs is on average modest, as Fed chair Jerome Powell has admitted. Wage pressures are mostly skewed to the high end of the labor force where highly skilled professionals are ‘job hopping’ to realize wage income gains of 18% on average; meanwhile, low paid service workers’ wages are also rising some as many have refused to return to work at the U.S. minimum wage of only $7.25/hr which hasn’t changed since 2009. Service businesses have had to offer more. But the great middle of the U.S. labor force is not experiencing wage gains to any significant extent. Thus the ‘average’ wage hikes, as moderate as they are, do not account for the rising ULCs which businesses will soon, if not already, begin to ‘pass on’ to consumers in higher prices for the remainder of 2022. Treasury Secretary Yellen herself now admits inflation will continue high throughout 2022—no doubt in part reflecting the new forces adding to inflation pressure.

Another emerging factor of growing importance to the continuation of inflation trends throughout 2022 is the now emerging ‘inflationary expectations’ effect. Cited by Fed chair, Jerome Powell, in his most recent press conference following the Fed’s latest interest rate announcement, Powell referred to the recent University of Michigan consumer survey showing inflationary expectations now definitely emerging as well.

As inflation continues to rise, inflationary expectations mean consumers will purchase early, or even items they had not planned to buy, in order to avoid future price hikes. That means another Demand force that adds to the general anatomy of inflation, just as falling productivity and higher ULCs represent an additional Supply force contributing to future price hikes.

In short, now entering the mix of causes in 2022 are inflationary expectations, falling productivity driving up ULCs and cost pass-through to consumers, and the growing pressures on commodity inflation due to the Ukraine war and sanctions on Russia.

When all these emerging 2022 factors are added to the 2021 economy reopening and Supply chain causes of inflation—as well as the continuing corporate price gouging—the broader picture that appears reveals multiple causes of inflation—many of which mutually feed back on the other; some political, some unrelated to market supply or demand, and none of which appear to be moderating significantly. In fact, corporate price gouging, manipulation of commodities markets by speculators, Ukraine war, and sanctions on Russia all represent contributions to inflation that may well accelerate over the next six months.

Stagflation May Have Already Arrived

Stagflation is generally defined as inflation amidst stagnate growth of the real economy. That is already upon us in its first phase: U.S. GDP for the 1st quarter of 2022 recorded a decline of -1.5% while the Atlanta Federal Reserve bank’s ‘shadow’ GDP estimates zero GDP (0.0%) growth for the current April-June 2nd quarter! Should the Atlanta Fed’s forecast prove accurate, that’s stagnation at best. And if the 2nd quarter actually contracts, then it represents a yet deeper phase of Stagflation.

Just as mainstream economists and media debated for months whether current inflation was chronic or temporary, the same pundits now debate whether stagflation will soon occur when in fact it’s actually already arrived. (see Larry Summers’ latest pontification to the business media where he warns of stagflation around the corner when it’s already turned it).

The next phase of stagflation coming late 2022 and early 2023 will reflect the contraction of the real economy—i.e. a recession. GDP won’t simply stagnate with no growth, but decline. Indeed, recession is already damn close if we are to believe the Atlanta Fed’s 2nd quarter GDP forecast and the various early economic indicators now appearing. Stagflation may already be here, as the 1st quarter U.S. GDP -1.5% contraction is followed by another contraction—not just zero growth—in the current 2nd quarter. Two consecutive quarters of contraction define what’s called a ‘technical recession’. Actual definition of a recession is left to the National Bureau of Economic Analysis, NBER, economists to call. They always wait months after the fact to make their call. But ‘technical recessions’ almost always result in NBER declarations subsequently of actual recession. And the U.S. economy is clearly on the cusp of a technical recession at minimum.

Biden’s Empty Inflation Solutions

Biden’s various solutions to date are more public relations events designed to make it appear something is being done instead of actions that directly address the problem of embedded and chronic U.S. inflation.

Biden’s proposed solutions include getting U.S. oil corporations and other global producers of oil to raise their output; somehow convincing countries who agree with U.S. sanctions in Russia to enforce a ‘cap’ on the price of oil worldwide; reducing tariffs on imports from China to the U.S.; offsetting the price of energy productions for U.S. consumers by lowering the price of other consumer goods; increasing competition among U.S. monopolistic corporations by subsidizing new competitors to enter their industries; introducing a federal gas tax suspension.

Despite Biden’s railing against the oil companies, shipping companies, and other obvious price gougers, it’s been all talk and no action. All his proposals have not been implemented to date. They’ve been either just ideas raised with no actual executive or legislative proposals. Or they’ve already been rejected by Congress. Or, even if implemented, will be ‘gamed’ and absorbed by corporations with little net impact on consumer prices. Or will produce insufficient additional global output of oil, gas, and energy products to dampen energy price escalation much.

Biden’s strategy has been to ‘talk the talk’ without the walk, as the saying goes.

The only actual solution the administration has quietly agreed upon, but dares not admit publicly, is to have the Fed precipitate a recession by means of its record level of rapid interest rate hikes over this summer 2022 now in progress. And as they say, ‘that train has left the station’. It’s a done deal. Biden’s ‘solution’ is to have the Fed precipitate a recession.

Enter the Federal Reserve

The Fed itself has already decided on recession! Moreover, it’s a policy template that’s been employed before.

The origins of the coming recession appear very much like the 1981-82 recession. At that time the Fed also precipitated a recession by aggressively hiking interest rates with the objective of ‘Demand destruction’ as it is called. In other words, then as now, the strategy was to make households’ and workers’ pay by destroying wage incomes by means of layoffs, for what was essentially at the time a Supply caused inflation associated with rising global oil access destruction by OPEC and middle east oil producers.

At 75 basis points Fed rates are already rising at a pace not seen since 1994. !981-82 rate hikes were even more aggressive. However, as this writer has argued, the global economy is more fragile and interconnected today than it was in 1980-81 when the Fed raised rates to 15% and more. Today’s global capitalist economy won’t sustain rate hikes even a third of that 15% before contracting sharply.

It is more likely than not that the Fed will continue raising interest rates at the 75 basis points when it next meets in July, and possibly the same in the subsequent meeting. At 4% for its benchmark federal funds rate (not at 1.75%) the economic damn will crack. It won’t even get to the one-third of 1982 level, the 5%.

Why the economy will slide into recession well before the 5% rate level was discussed by this writer in 2017 in the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press.

In the sequel to this essay, why the U.S. real economy is quite fragile today is addressed including most recent evidence of a weakening U.S. real economy. Also addressed is why Fed federal funds rate increases to 4% or more will precipitate a serious U.S. recession sooner rather than later, and, not least, why Fed rate hikes of that magnitude will likely have severe negative impacts on financial asset markets as well, provoking serious liquidity and even insolvency crises in the global capitalist financial system.

Should financial asset contraction occur along with a contraction of the real economy, then the 2022 recession will almost certainly deepen in 2023. And in that case the economic crisis will appear more like 2008-10 as well as 1981-82. Or perhaps a merging of the two recession dynamics into one.

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, 2020.

L.A. Progressive, June 21, 2022, https://www.laprogressive.com/

Inflation, wages, and profits / by David Ruccio

CEOs Get Huge Raises While Workers Suffer (Photo: Jobsanger)

On one side of the debate are mainstream economists and lobbyists for big business, the people Lydia DePillis refers to as having a simple mantra: “Supply and demand, Economics 101.” In their view, inflation is caused by supply and demand in the labor market, which is allowing workers’ wages to increase at an unsustainable rate (a story that, as I showed in April, has no validity), and supply and demand in the economy as a whole, with too much money chasing too few goods.

Simple, straightforward, and. . . wrong.

Fortunately, there’s another side to the debate, with heterodox economists and progressive activists arguing that increasingly dominant corporations are taking advantage of the current situation (the pandemic, disruptions in global supply-chains, the war in Ukraine, and so on) to jack up prices and rake in even higher profits than they’ve been able to do in recent times.

Josh Bivens, of the Economic Policy Institute, has offered two arguments that challenge the mainstream story: First, while “It is unlikely that either the extent of corporate greed or even the power of corporations generally has increased during the past two years. . . the already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages.” Second, inflation can’t simply be the result of macroeconomic overheating. That would suggest, at this point in a classic economic recovery, that profits should be shrinking and the labor share of income should be rising. As Biven notes,

The fact that the exact opposite pattern has happened so far in the recovery should cast much doubt on inflation expectations rooted simply in claims of macroeconomic overheating.*

So, we have dramatically different analyses of the causes of the current inflation, and of course two very different strategies for combatting inflation. The mainstream policy (as I also wrote about in April) is to slow the rate of growth of the economy (for example, by raising interest rates) and increase the level of unemployment, thus slowing the rate of increase of both wages and prices. And the alternative? Bivens supports a temporary excess profits tax. Other possibilities—which, alas, are not yet being raised in the debate—include price controls (especially on commodities that make up workers’ wage bundles), government provisioning of basic wage goods (including, for example, baby formula), and subsidies to workers (which, while they wouldn’t necessarily lower inflation, would at least make it easier for workers to maintain their current standard of living).

What we’re witnessing, then, is an important debate about the causes and consequences of inflation. But, as DePillis understands, the debate is about much more than that:

The real disagreement is over whether higher profits are natural and good.

In the end, that’s what all key debates in economics are about. Profits are the most contentious issue in economics precisely because the analysis of profits reflects both a theory and ethics about two things: whether capitalists deserve the profits they capture and what they can and should do with those profits. For example, profits can be theorized as a return to capital (and therefore natural and fair, as in mainstream economics) or they are the result of price-gouging (and therefore social and unfair, as in Bivens’s theory of corporate power).**

Similarly, capitalists can be seen as investing their profits (and therefore making their firms and the economy as a whole more productive, with everyone benefitting) or they can distribute a significant portion of their profits toward other uses (such as pursuing mergers and acquisitions, engaging in stock buybacks, and offering higher dividends, which do nothing to increase productivity but instead lead to more corporate concentration and make the distribution of income and wealth even more unequal).

Mainstream economists and capitalists have long sought to convince us that profits are both natural and good. In other words, when it comes to corporate profits and escalating charges of “greedflation,” they prefer to see, hear, and say no evil. The rest of us know what’s actually going on—that corporations are taking advantage of current conditions to raise prices, both to increase their profits and to lower workers’ real wages. We also know that traditional attempts to contain inflation through monetary policy will hurt workers but not their employers or the tiny group that sits at the top of the economic pyramid.

It’s clear then: the debate about inflation is actually a debate about profits. And the debate about profits is, in the end, a debate about capitalism. The sooner we recognize that, the better off we’ll all be.


*Even the Wall Street Journal admits that the wage share is not in fact growing: “The labor share of national output is roughly where it was before the pandemic.” Moreover, the current situation represents just a continuation of the trend of recent decades: “Over the last two decades. . . the share of U.S. income that goes to labor has fallen, despite periods of low unemployment.”

**Corporate profits can also be theorized as the result of exploitation (and thus a different kind of social determination and unfairness, as in Marxian theory).

David Ruccio (@Dfruccio) used to teach in the Department of Economics at the University of Notre Dame (until it was split and renamed) and then in the Department of Economics and Policy Studies (until it was dissolved). He is currently Professor of Economics “at large” as well as a member of the Higgins Labor Studies Program and Faculty Fellow of the Joan B. Kroc Institute for International Peace Studies. Ruccio blogs at Occasional Links and Commentary on Economics Culture and Society and is a contributor to the Real-World Economics Review Blog.

MR Online, June 11, 2022, https://mronline.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/