On Thursday, the Commerce Department reported that the US economy had contracted for a second straight quarter, plunging it into a “technical recession.”
The economic contraction is being accompanied by a series of layoffs that threaten to escalate into a torrent as the economy slows further. This month saw more than 30,000 layoffs in the tech sector alone. Last week Ford announced 8,000 layoffs, heralding another bloodbath 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 is based on and operates through specific social relationships. This is especially necessary when considering the latest economic data.
A debate has now erupted in the media and financial commentary circles as to whether or not this “technical recession” – defined as two consecutive quarters of economic contraction – is real.
This is not a question of definitions but of essential class interests, particularly with regard to the policies of the US Federal Reserve, the main financial institution of the capitalist state.
Fed policy is always formulated in various forms of jargon that obscures the real agenda with a series of mystifications designed to make it appear that the central bank is somehow above class interests and regulates economic life in the interests of the people.
Amidst the many words, the essence of the current situation is this: the central bank, the guardian of the interests of business and finance capital, has set out to bring about a significant slowdown and, if necessary, a large economic contraction. The aim is to stifle working class wage demands in conditions where inflation has soared to its highest level in four decades.
This attack is being carried out through the mechanism of higher interest rates, which are being raised at the fastest rate in decades under the banner of fighting inflation. But rate hikes won’t lower gas prices or unravel supply chains. The aim is to bring about an economic contraction so that wage demands are suppressed.
The current policy agenda echoes that of Fed Chairman Paul Volcker in the 1980s, when interest rates rose to record highs, triggering what was then the deepest recession since the Great Depression. Current Fed Chair Jerome Powell has expressed his admiration for Volcker on numerous occasions and made it clear that he is more than willing to follow the same path.
Former US Treasury Secretary Lawrence Summers has insisted that curbing inflation means achieving a higher unemployment rate for five years or at least a 10 percent unemployment rate for a year.
As with any other economic issue or statistic, inflation is embedded in the class structure of society, historical study of which reveals the origins of the current US and global spiral.
The 2008 global financial crisis, sparked by more than two decades of preceding heightened financial speculation, resulted in the largest corporate and financial bailout in history. The government handed out hundreds of billions of dollars in bailouts, and the Fed began policies of “quantitative easing” — injecting money into the financial system to allow Wall Street speculation that sparked the crisis to continue.
And keep it up. After the stock market bottomed in March 2009, a spectacular bull run ensued. But it was based on a steady supply of cheap money from the Fed.
In March 2020, as the COVID-19 pandemic hit, Wall Street and financial markets went into a meltdown over fears that the imposition of necessary public health safeguards would impede the flow of profits being extracted from the working class , and the stock market bubble would collapse.
Two key policies emerged from this. Under the motto “The cure cannot be worse than the disease”, the necessary policies of eliminating COVID-19 have been rejected in the US and by governments around the world. At the same time, trillions more dollars were pumped into the financial system. In the US, the Fed doubled its holdings of financial assets from $4 trillion to $8 trillion virtually overnight, at times spending a million dollars a second.
This is where the origins of the global inflationary spiral lie. The refusal to pursue a global policy to eliminate COVID-19 because of its potential impact on stock markets had serious consequences for the real economy as the spread of COVID-19 led to a crisis in the supply chain.
The monetary system was expanded by central banks, leading to even more wealth speculation in 2020 and 2021. Another factor is the never-ending increase in military spending as billions are poured into the proxy war against Russia in Ukraine.
In their bid to raise rates, Fed Chair Jerome Powell and other central bankers consistently refer to what they call the “tight labor market,” where demand must be matched with supply.
In conditions where the deaths caused by COVID-19, ongoing infections and the increasing impact of Long COVID have caused millions of workers to be drawn off, the only way to increase the supply of workers above demand is to do so imposition of unemployment.
And this process is already underway because of the rate hikes initiated by the Fed so far. The auto industry has indicated that hiring will stagnate and layoffs will follow. Layoffs have already begun in the interest-rate-sensitive high-tech sectors, and more are to come.
With their living standards slashed every day by the highest inflation in more than four decades, workers are forced to fight for much-needed wage increases. But when they are propelled into this battle, it is necessary to understand what is at stake in order to better fight the battle ahead.
Workers are not only in conflict with individual employers, but are engaged in a political struggle in which the union bureaucracy acts as the chief executor of the demands of the capitalist state and its agencies.
Furthermore, the fight for wage increases, necessary as they are, is a fight against the ramifications of much deeper problems. A review of the economic history of the past period shows that any action taken by the ruling class to deal with an economic crisis inevitably led to its eruption in a new and more vicious form.
Thus, the “solution” to the 2008 financial crisis created the conditions that in 2020 rational scientific measures to deal with COVID-19 were rejected because their implementation would not lead to a collapse in financial markets. But the ensuing “treaty politics” has now led to an inflationary spiral that the leading agencies of finance capital are dying to “dissolve” by making the working class pay through mass unemployment if necessary.
This means that the working class must develop a strategy that tackles the underlying cause of the crisis, starting with fighting the effects of the ongoing economic collapse, and that means fighting for an independent socialist perspective that aims to End profit system and its replacement by socialism, a higher form of social and economic organization.
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