On Thursday, the Commerce Department announced that the US economy had contracted for the second consecutive quarter, entering a “technical recession”.
Along with the economic contraction comes a series of layoffs that threaten to turn into a torrent as the economy slows further. This month, more than 30,000 layoffs took place in the technology sector alone. Last week, Ford announced 8,000 layoffs, suggesting further carnage in the auto industry.
Amidst the whirlwind 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 that it is based on precise social relations and that it functions through them. This is especially necessary when looking at the latest economic data.
A debate has now erupted in media and financial commentary circles over whether or not this “technical recession” – defined as two consecutive quarters of economic contraction – is real.
The key question here is not one of definition, but of knowing what are the essential class interests at stake, and especially with regard to the policies of the American Federal Reserve, the key financial institution of the capitalist state.
Federal Reserve policies are still framed in various forms of jargon that disguise the real agenda through a series of mystifications that seek to make it appear that the central bank somehow sits above class interests, regulating life. economy in the interest of the population.
Amid this flood of talk, the essence of the current situation is this: the central bank, guardian of the interests of corporations and financial capital, has set out to bring about a sharp downturn and, if necessary, a major economic contraction. The aim is to stifle working class wage demands under conditions where inflation has reached its highest level in four decades.
This assault is being waged through the mechanism of rising interest rates, which are being raised at the fastest rate in decades under the banner of fighting inflation. But interest hikes will neither lower gasoline prices nor solve supply chain problems. The objective is to cause an economic contraction in order to suppress wage demands.
The current policy agenda echoes that of Federal Reserve Chairman Paul Volcker in the 1980s, when he pushed interest rates to record highs, causing the deepest recession since the Great Depression. Current Federal Reserve Chairman Jerome Powell has expressed his admiration for Volcker on numerous occasions, making it clear that he is more than ready to follow the same path.
Former US Treasury Secretary Lawrence Summers has insisted that containing inflation means inducing higher levels of unemployment for five years or a 10 percent unemployment rate for at least one year.
Like any other economic issue and statistic, inflation is rooted in the class structure of society, the historical examination of which reveals the origins of the current American and global spiral.
The 2008 global financial crisis, triggered by more than two decades of growing financial speculation, led to the largest financial and corporate bailout in history. The government has handed out hundreds of billions of dollars in bailouts. The Federal Reserve launched a policy of “quantitative easing”: pumping money into the financial system so that the speculation on Wall Street that had precipitated the crisis could continue.
And she continued. After hitting its lowest point in March 2009, the stock market has surged dramatically. But it was based on a continuous supply of cheap money from the Federal Reserve.
In March 2020, as the COVID-19 pandemic hit, Wall Street and financial markets collapsed on fears that imposing necessary public health safeguards would impinge on the flow of profits extorted from the working class, and the stock market bubble does not burst.
Two key policies resulted. Under the banner of “the cure must not be worse than the disease,” the necessary policy of eliminating COVID-19 has been rejected in the United States and by governments around the world. At the same time, trillions of additional dollars were pumped into the financial system. In the United States, the Federal Reserve doubled its holdings of financial assets from $4 trillion to $8 trillion virtually overnight, and at one point was spending $1 million per second .
These are the origins of the global inflationary spiral. The refusal to undertake a global policy of eliminating COVID-19 due to its potential impact on stock markets has had major consequences in the real economy, with the spread of COVID-19 causing a crisis in the chains supply.
The monetary system has been inflated by central banks, leading to even more asset speculation in 2020 and 2021. Another factor is the never-ending increase in military spending, with billions of dollars being pumped into warfare. by proxy against Russia in Ukraine.
In their campaign to raise interest rates, Federal Reserve Chairman Jerome Powell and other central bankers continually refer to, what they call, the “tightness” of the labor market, where demand must be balanced with supply.
In conditions where deaths, infections and the growing impact of long-lasting COVID inflicted by the pandemic have driven millions out of the labor force, the only way to increase labor supply above of demand is to tax unemployment.
And this process is already underway due to the interest rate hikes triggered by the Federal Reserve so far. The auto industry has indicated that new hiring has stalled and layoffs will follow. In interest-sensitive high-tech sectors, layoffs have already begun and more are to come.
Faced with daily reductions in their standard of living resulting from the highest inflation in more than four decades, workers are forced into a struggle to obtain the necessary wage increases. But, as they are pushed into this struggle, it is necessary to understand what is at stake in order to better fight the battle.
Workers are not only in conflict with individual employers, but are engaged in a political struggle in which the union bureaucracy functions as the main policeman enforcing the demands of the capitalist state and its agencies.
Moreover, the fight for higher wages, however necessary, is a fight against the effects of deeper problems. An examination of the economic history of the past period shows that every step taken by the ruling class to deal with an economic crisis inevitably led to its eruption in a new and more malignant form.
Thus, the “solution” to the 2008 financial crisis created the conditions under which, in 2020, sound scientific measures to deal with COVID-19 were rejected for fear that their implementation would lead to a collapse of financial markets. . But the “politics of sloppiness” that followed has now led to an inflationary spiral that the leading agencies of finance capital are determined to “solve” by making the working class pay, if necessary through mass unemployment.
This means that starting with the struggle against the effects of the current economic collapse, the working class must develop a strategy which attacks the fundamental cause of the crisis, and this means the struggle for an independent socialist perspective which aims to end the profit system and replace it with socialism, a superior form of social and economic organization.
(Article published in English on July 30, 2022)
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