Brown trousers time

According to the BBC: Chinese growth is falling. Now, you might say, wow, 7.6% growth (however much of that is real), but China has been growing much faster than that recently. Given it's scale, its importance to the world economy, China doesn't actually have to go into recession in order to cause a great deal of damage. Here's former Aussie PM Kevin Rudd explaining why. Couple this with warning squeaks from Germany and we may be seeing the world crisis move into a new phase: first the shock, then the slow down. Bob alone help us if China goes into negative growth (or, such negative growth that it can't massage the stats to look positive). I have my tins of beans and sacks of porridge ready.

About those tins of beans...

...I think I'd add a tin helmet to the shopping list. My favourite source, Der Spiegel strikes again:

This October was the third straight month Chinese exports decreased. Along with it, the hopes of German manufacturers that Asia's growth market might help lift them out of the global crisis as it did in 2008 are also evaporating. This time China faces enormous challenges of its own -- a real estate market bubble and local government debt -- that could even pose a risk to the global economy.

The Germans can't borrow, and Chinese growth is about to hit the skids. *Gulp*

It's worth reading that article in full. In world terms, this is the crisis spreading from the financial sector into the real economy of manufacturing: coupled with a massive balance of trade gap. Remember, China holds much of the dollar debt in the world, and it has been China that has helped prop up the debt bubble in America in order to keep its markets going.

I also note the mention of the ghost cities -- so reminiscent of Ireland's boom/slump situation (and, I believe consistent with David Harvey's model of capitalist crisis).

Part of what this shows is that even state capitalism and pump priming isn't enough to end the crisis: we've seen austerity here and spending for growth there, eventually, someone has to admit that a market economy just doesn't work for the majority of humanity. In the meantime, get tying kitchen knives to broomsticks and start a pike practice squad in your street:you may be needing it soon.

Buy beans!

The time may have come to start hoarding tins of baked beans, wearing furs and running around in a post apocalyptic landscape:

Germany has been considered a safe haven of financial stability amid the ongoing euro crisis -- but that may be changing. Growing mistrust from investors seems apparent after what has been described as a "disastrous" government bond auction on Wednesday. Just two-thirds of the German bonds sold, leaving analysts concerned but not panicked[Spiegel].

I suggest now is precisely the time to panic, while the analysts are being cautiously worried. If we leave panicking till everyone is doing it, we'll have to fight for those tins of beans with our teeth.

The fucking Germans cannot borrow money! the country that escaped recession, the one that is still growing, the one that has been bailing everyone else out. Now, the Spiegel article suggests this may be a lack of confidence in the Eurozone as a whole, and of some of the fundamentals in the German economy; but it also has an expert suggest:

"Because of the low rate of return in Germany, some investors are now cautiously going to countries that they had recently avoided," he added. "In France, or even in Ireland, chances for returns are certainly promising."

that's right, it's more profitable to lend to risky countries because you get more interest. There is the cause of this mess in the first place: it's more profitable to lend to people who a less able to pay back (until the day they actually default that is, at which point you own their soul).

More to the point, though, this seems to me to reflect that there may not be as much money floating around generally: surely, normally, someone, someone, would want to pick up safe, unprofitable low hanging fruit.

Start breaking out the old family blunderbus: the apocalypse is here.

Factoring productivity

OK, I've been lazy of late.

So, I've started doing a little research, I came across this little beauty an ONS report on 'Multi–factor productivity: estimates for 1970 to 2009' (if that title doesn't engorge your erogenous parts, no economic text book will).

Basically, Multi-factor productivity (or Total factor productivity) is the nearest empirical measure we have top the Marxist idea of 'the rate of profit' - it is a measure of the value added over labour and capital inputs (normal productivity is just measured against labour inputs).

So, if I told you that between 1995 and 2009 the MFP/ROP for the UK was 0.3% you'd have a clear idea that this is *not a good thing (for capitalists)*, it means, out of the trend overall growth rate of about 2% only a tiny fraction was true capital profit. Check out the relatively easy to read annex at the end, that compares Gross Value Added (GVA) and MFP.

It also explains why in the recent trends, we can see financial services performing so highly - people were chucking money into the financial casino because there just wasn't a proper industrial outlet (it also means that the current drops in output are actually genuine corrections for the inflated activity not justified by the real growth rate of the MFP/ROI.

The big Marxist question is what comes first, the crisis, or the fall in the ROP - clearly, as the report says, they seem to be related, and the collapse of ROP in essence is the crisis.

Joining the dots

This post from Charles Stross.

This report from the BBC.

This post from Energy Bulletin.

Put them together, and we get:

According to IEEE Spectrum, a 70 millisecond power drop in a single factory is going to cause a 7.5% reduction in shipments of FLASH memory over the next two months. Worldwide. The news this week that about one-third of Australia's coal production has been halted by massive flooding in the state of Queensland is an opportunity to look at the coal supply situation in Asia and the impact it could have on global energy prices in the next few months.The flooding has been so widespread that while some communities are still bracing themselves for the worst, in others the clean-up is well under way. The forecast is for more rain to come, and there are reports of flooding in neighbouring New South Wales. Prime Minister Julia Gillard has warned that the recovery will take a long time.

This is what a crisis looks like

From the Daily Mail (I know, I know), the reality of crisis:Martin Stopford, managing director of Clarksons, London's biggest ship broker, says container shipping has been hit particularly hard: 'In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

'Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything - and it's come out of nowhere.' That is, a vast fleet of unused ships are moored off Singapore, hundreds and hundreds of empty crewless tankers.

Whats more, the ship yards are running out of orders, and will be at a standstill by 2011 - the long tail of the recession shows itself here, recovery will only soak up the available stocks, there will be a lag before new capacity is needed.

Via Grinding.be

PFI - the truth is out there.

Well, the Government are going to bail out the PFI companies. The crisis has made the inevitable happen sooner. After all, the point of running critical services is that they must be run, and can't be allowed to fail, transferring control to another firm or organisation costs money and causes disruption - the risk of PFI has always been mitigated.

The only reason, aside from bunkum about risk and private sector innovation and management, is that it creates legally different employers within the public sector, i.e. it is about breaking the unions, and using laws against solidarity striking to undermine union solidarity and national pay bargaining.

All the tosh talked by Unison and the labour left about public sector borrowing, etc. was exploded by the RMT, who managed to co-ordinate strikes against the fragmented companies, thus undermining the manoeuvre by effective solidarity. If we want to combat PFI and workforce fragmentation, we need co-ordinated targetted strike action,not pleadings to Government or campaigns to "keep it public" - it is purely a union matter.

Crisis explained

Economic crisis explained.

It is a plot of which Jorge Luis Borges would have been proud: some of the best military and juridical minds in Italy are wrestling with the problem of how to dispose of the unwelcome legacy of tens - perhaps hundreds - of thousands of soldiers who never existed.

Though commanded by a real Lieutenant General, headquartered in Padua, Italy's so-called Terzo corpo designato d'Armata was a fiction - a giant cold-war bluff. It was dreamed up in the early 50s to convince Moscow that Nato's frontline was altogether more solid than was the case.

[...]

The army was disbanded in 1972 but archives and barracks the length of Italy have remained clogged with what La Stampa said was "tonnes" of paper. And none of it can be destroyed. Under Italian law, officially secret documents can only be pulped once they have been declassified. And they can only be declassified by the office or unit that created them. And, of course, this no longer exists ...

That is, an army existed almost entirely on paper, in the form of notional essence that allows physical armies, and still exists. The paper records cannot be cleared away, because of the lack of a real force to remove this notional existence.

The Italian state borrowed a notional army in order to be a player in a real military conflict, a conflict that never really happened, and so the debt never made a profit. The military archive market continues to suffer, but this notional essence locks up those archives.

A clearer example of what happens in an economic crisis couldn't be found.

How we got here, a quick guide

In capitalism, entrepreneurs identify needs (effective demand) and try and fulfil them. This, though, is impossible, so they use market forces, the pricing system, as a proxy for knowing the real state of demand. Another name for market forces, is trial and error. The entrepreneurs allocate capital according to profitability, again on the basis of trial and error. Now, the return on this capital will always be a simple fraction of the investment, i.e. it will always in a given period be less than the value of the investment itself.

Thus, for a, say, E1,000,000 annual return, E10,000,000 is invested. If the entrepreneur gets it wrong, all of that capital is lost. That is the punishment of trial and error. Simple really, the value of the risk is less than the value of the reward. When, as it inevitably must, it goes wrong, capital gets lost.

A crisis is capitalism functioning perfectly correctly. Perfectly smoothly, the situation today is capitalism being normal.

This is what capitalism looks like. Entrepreneurs must get it wrong, and the value of capital must be adjusted, and the lives of all those dependent upon it must change. The point is, that value is a ghost in the shell, that lives on beyond the actual goods deployed in production, its exorcism is a painful process.

Spot the the theme

From Marx and Coca Cola, he reports that Senate Republicans killed the Car maker bailout because: "This is the democrats first opportunity to payoff organized labor after the election. This is a precursor to card check and other items. Republicans should stand firm and take their first shot against organized labor, instead of taking their first blow from it."

Who said the class war was dead? The same theme emerges over at electoral vote:"A striking pattern has emerged in the fight over bailing out the big three automobile companies. Senators from the north are for it and senators from the south are against it. Why? It turns out there are assembly plants in both the North and the South. The ones in the North are owned by American companies and are highly unionized; the ones in the South are owned by foreign (mostly Japanese) companies and are not unionized. Hourly pay in northern and southern ones is comparable but benefits are much better in the North. Southern senators who oppose the bailout don't really object to the government interfering with private industry and don't really even mind a government-appointed car czar running the companies. The sticking point is that they want to break the unions and force union members to take cuts in pay and benefits to bring them down to the level that the workers in the South get."

Over at Dave's Part young master Osler notes the drive is now on over here for paycuts, and hopes that Unions will resist. Of course, we know that unions are powerless in the face of unemployment, and with a stagnant pool of around two million to start with, when it grows to (fingers crossed against) 5 million, there'll be fuck all we can do. I'm afraid it's political action or nothing.

To be clear, I noted Charlies reproduction schemas and disportionality as being the means of analysing crisis - I noted that only destroying capital really gets us out of the mess, but hammering wages might enable some firms to survive. It would be counter productive because, like pump priming it leaves the root cause intact, but it would help some capitalists maybe to the disadvantage of others. Certainly, they'll try it, because the only alternative is suicide - that's the point of crisis, that in trying to save themselves, capitalists make it worse for themselves (and for us).

To the ballot boxes, mes braves, to take up cudgels against the crisis that is capitalism.

A financial classic

A classic feature of economic crises is that suddenly corruption is unveiled - economic growth is the great rock that, when it is lifted, is found to be covering for the lice festering beneath.

Simply put, during the good times, a plausible story can allow an otherwise worthless company to keep on borrowing, so long as investors keep making profits, no-one looks too closely, but when the chips are down, and someone gets bilked, suddenly we all realise that everyone gets bilked. In this case, not, that the firm was judged to be reasonably sound and a secure investment, not a fringe risky business, level headed investment folk, not mad speculators, have been burnt here.

Of course, Davy Cameron reckons there must be a day of reckoning. of course, it has to be the consciously bourgeois party that says that, coming from Labour it would be called a return to class war. I always laugh at the cretins who see the PRC (China)'s long prison sentences for fraud as being some proof of socialism.

Quoth J.M.

From the Marx and Coca Cola Blog:

Ms. Darling, who was pregnant when her insurance ran out, worked at Archway for eight years, and her father, Franklin J. Phillips, worked there for 24 years. ...So Ms. Darling asked her midwife to induce labor two days before her health insurance expired.

I checked his source (New York Times) and came across this line he didn't quote: "“I was scared. I remember that the bill for my son’s delivery in 2005 was about $9,000, and I knew I would never be able to pay that by myself.”"

The Socialist Programme against the cuts

I think this point needs to get across. the left are wetting their knickers over the increased top rate of tax.

Lets get down to socialist brass tacks on tax. The burden of taxation doesn't fall on wages/salaries. That is, when taxed, formally, wages/salaries adjust so that the loss, the pain, falls elsewhere, mainly on capitalist profits.

The real wage, the take home wage, the money in your pocket is, to borrow a Darwinian term, the unit of selection. It is take home pay that drives the market, it's rises and falls in real wages that prompt market behaviour. If a tax hike lowers real wages, then wages were due to fall anyway under prevailing market conditions, and tax has stepped in a taken the share that would have gone to the employer.

Ordinarily, however, market pressure, through individual informal and formal action (and preferably through collective union action) would act to restore the previous status quo.

What this means is that our "immediate" objective is to shore up our unions, they are the only hope of seeing this through - although when unemployment rises, they'll be shredded too. So we urgently need to organise a conscious and explicitly socialist movement, not for tax rises or capitalist bailouts or passing the burden back and forth, but clearly and resolutely set on the abolition of capitalism. This is the only practical self defence we have.

Really, seriously, get your mates, get anyone you've ever heard, meet together, debate, discuss. Form a socialist group. Form an international. Form a reading circle. Join the Socialist Party. Set up workers' councils. Whatever you do, raise the banner of "the abolition of the wages system" now, before its too late.

Jottings on a crisis...

OK, lets see.

In strict Marxian terms lowering taxes does not change the amount of consumption in the economy. the state is a non-productive consumer, and putting money into the hands of consumers doesn't change the magnitude of that part of the economy, just the shape and nature of the consumption being undertaken (home rather than office furnishing, for example). Cutting taxes, and borrowing simply means the office furnishing spending doesn't go down, but that money is being taken from profits and (more importantly) from capital accumulation:

So, to take uncle Charlie's reproduction schemas:

I. Production of Means of Production:
Capital. . . . . . . . . . . . . 4,000c + 1,000v = 5,000
Commodity-Product . . . 4,000c + 1 ,000v, + 1,000s = 6,000,

existing in means of production.

II. Production of Articles of Consumption:
Capital . . . . . . . . . . . 2,000c + 500v = 2,500
Commodity-Product . . 2,000c + 500v + 500s = 3,000,

existing in articles of consumption.

Recapitulation: Total annual commodity-product:
I. 4,000c + 1,000v + 1,000s = 6,000 means of production
II. 2,000c + 500v + 500s = 3,000 articles of consumption.

(Obviously, this is the simple reproduction schema, so it's assumed all surplus value is spent on means of consumption, we can stick with that, for now). Now, the point of this schema is that the total capital need to equal the value of the means of production, and the total wages+surplus value, the means of consumption.

Now, put those figures in a spread sheet, and try monkeying around with them. Say, move 1,000c from production to consumption. The total capital remains equal, but suddenly, the total means of production no longer equals the amount of capital available. This is a crisis of disproportion, much like the one we are suffering, as banks, housing and other means of consumption have outstripped production by a long chalk.

No amount of simply transferring between wages and surplus will affect this imbalance, the short way out is to destroy the capital (even though this will, bizarrely lead to an overall shrinkage). Indeed, this has been the traditional mechanism for capitalism, called bankruptcy. Of course, the owners of capital are unwilling to lose their capital, and so will try and pass the buck on. And it's difficult to alter one of these allocations without changing the ratios to the others (ratios which have real world constraints, you can't simply fling capital at a problem without adding labour)...

Raising the wages in means of production does offer another route to sort out the imbalance. Another way out is external resources, whilst bad debt clogs up the spokes, expanding the size of the economy can re-balance it...

I'll keep pondering, but I really don't think Darling's plan will work.

Round up on a crisis

It's been hard to know what to write over the last few months - so much has been happening, yet so little - I just couldn't bring myself to comment on the ins and outs of George Bush becoming the biggest failure in history (I mean, a pretty rabid right Republican president carrying out one of the most swinging nationalisations in history, he should get an order of Lenin award).

I'll just pip in with a small observation - in the 1930's international competition for finance, particularly the US cornering the market in gold - lead to a deepening of the crisis and war. This time round, the liberal democracies of the world have co-operated, and the various national capitalist classes have fallen in with the establishment in taking action to secure their future.

That is all. A blip. Let's move on and talk about socialising the economy so we won't have to go through this again.

p.s. Unemployment is >begining to rise at the time of the Great Depression unemployment of 1 million was seen as a national calamity - today that is the base line, they reckon we'll hit two - lets hope not more, I remember what 20% unemployment on Teesside looked like in the 80's - let's no go back, eh? This is something to worry about - lets hunker behind our unions while we organise a political fight back.

Honest accounting

Quoth Alistair Darling:

The Financial Services Authority has announced a further increase from tomorrow to the compensation limit for retail bank deposits to £50,000 per depositor, which means £100,000 for joint accounts. That measure will ensure that 98 per cent. of accounts are fully covered.

Now, quoth Iain Duncan Smith:

At the Dispatch Box, the Chancellor mentioned, quite rightly, that our protection covers about 98 per cent. of all depositors, but he will also recognise that we have significantly more money on deposit than Germany does. The reality is that that 2 per cent. represents a very significant amount of money. What concerns me right now is that, given the febrile nature of the markets—watching little things and then panicking—if they see any flight of capital, even that 2 per cent., towards Germany, it could cause another stampede and another crisis. I recognise the Chancellor's problem about indicating what he may or may not do, but does he not recognise that that 2 per cent. alone is perhaps enough to tip over the markets if they saw a flight of that money to, say, Germany or even Ireland?

So, what they are saying is that the vast majority of accounts in the UK hold less than £50,000 (£100,000 for joint accounts) in retail banks.

What they are saying is that there is an incredible disparity of wealth - but that the very wealthy have the capacity to cause crises by the overwhelming might of their money.

Let's be clear, what this means. Economic crises are not natural phenomena, they are the results of the owners of society exerting their influence. they are profoundly political - the wealthy making us dance to their tune. The wealthy on strike. Capitalism causes a crisis by its very existence, starvation, starvation related diseases, gross poverty, curtailed life-spans, wars - they are all ignored as background noise. When the capitalists feel the pain, then we are all made to jump.

This isn't a case of being for or against bail-outs - after all, who can blame the man with a gun to his head - but a matter of being for or against capitalism. Our only demand must be: "End class society!" else this will all happen again. It is not a glitch, it is politics, the political decision of the real voters to vote with their feat.

I've been quiet too long...

So, I'll just quote the CIA World Fact book:

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $46,000. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get
comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The response to the terrorist attacks of 11 September 2001 showed the remarkable resilience of the economy. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. The rise in GDP in 2004-07 was undergirded by substantial gains in labor productivity. Hurricane Katrina caused extensive damage in the Gulf Coast region in August 2005, but had a small impact on overall GDP growth for the year. Soaring oil prices in 2005-2007 threatened inflation and unemployment, yet the economy continued to grow through year-end 2007. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $847 billion in 2007. Together, these problems caused a marked reduction in the value and status of the dollar worldwide in 2007.

The free market in action

The US government is going to provide security on the firms Freddy Mac and Fanny Mae (the ones that provide security on mortgages).

This is the free market in action, it seems - in the heart of free enterprise capitalism, the state is going to prop up the finances of the capitalists who own the firm, let their bankruptcy leads to social collapse.

Just as the Inca Empire used to keep on operating the property of the dead kings as if they were still alive, enacting the will of the long dead - just so the functionaries of the US state capitalism will continue to obey the formalities of private ownership whilst in effect socialising the risk of capital.

Will this have a long term effect? Well, it will if things get so bad that they have to explicitly break with the formalities of private capitalism. Until then, if stability is maintained, and the fiction of private capitalism is maintained, then things will carry on as before. Watch this space.

Update: The New York Times covers the story nicely...

Gold finger

Follow up from here.

According to the BBC, Gold has now hit $1,000 an ounce.

Now, mark you, this is a significant sign of recession. The beeb points out people are fleeing the dollar, looking for secure investments - gold is the ultimate safe commodity.

Imagine, as my previous post did, that we had gold backed currencies. If that were the case, what we'd be seeing now, would be massive deflation, as the value of money rose and rose, and more things could be bought. Prices would tumble, left and right. That is a classic part of a crisis.

The effect of a massive down push on nominal prices would be that firms would be harder pressed to make the nominal price of their debts. Many would go under.

The fact that we are under a fiat money system means such massive deflation doesn't occur. Instead, we have bankers behaving as if inflation is still the problem (and we have official government inflation targets).

Inflation in a time of economic slow down, I believe, is called stagflation.