The following article is based on a presentation at a Party
for Socialism and Liberation forum in San Francisco, Sept 30.
So many people are out of work because the U.S. economy as
well as the economies of Japan and most of Europe remain mired in the aftermath
of a crisis of overproduction of historic
proportions. The crisis began in the United States in 2007, the U.S. economy
formed a shallow trough in 2009, and the United States—along with Japan and
most of Europe—has remained in a depressed state ever since.
A general crisis of overproduction occurs when at the peak
of an economic upturn money becomes tight, interest rates soar and industrial
capitalists realize that their operations are producing a lower return than
they would get by simply investing in low-risk government bonds.
At this point, the capitalist bosses cease expanding
production, then cut back production and lay off workers en mass. The market for
the commodities being produced quickly collapses, due to both the
cutbacks in production—reducing demand for raw materials, energy supplies and
other means of production—and the loss of wages, and therefore purchasing
power, by the now unemployed workers. The result is a “glut” of surplus
commodities on the market and growing “excess capacity” for the capitalists.
This surplus of commodities must be sold off or otherwise
liquidated for a sustained “healthy” (within capitalism) recovery to occur. Government deficit spending can aid in
liquidating such overproduction but only at the expense of using up credit that
will shorten and weaken the subsequent cyclical upturn.
The U.S. government has been deficit spending for years,
mainly to finance its imperialist wars, and the deficit is now at a record
level. And so Obama’s “jobs plan” is designed to produce no additional red ink
longer term in the federal budget. Moreover, the plan includes major
concessions to the reactionary and false ideas of “supply-side economics.”
Long history of
general crises of overproduction
Following the industrial revolution of the 18th century,
which included, very importantly, the development of steam power, capitalist
economies at a certain point gained the capability of expanding production
faster than the market for those commodities could expand. This has been a
clear trend for many decades going back to the early 19th century.
The result has been periodic general crises of
overproduction, typically about every 10 years. The first such crisis occurred
in 1825.
Since that time, pro-capitalist economists and
policy-makers have tried everything they could think of to rid the capitalist
system of these politically dangerous crises, but to no avail. The crises have
shown a tendency to get worse over time in spite of these measures.
Non-Marxist
theories about overproduction
Since the first general crisis of overproduction did not
occur until 1825, the outstanding English classical political economist David
Ricardo, who died two years before that crisis hit, along with lesser figures
such as James Mill, the father of John Stuart Mill and a contempory of Ricardo,
did not believe that “general gluts” were possible. General gluts are what the
hypothetical (at that time) general overproduction crises were called back
then. These economists believed that production would create its own demand.
This idea was most clearly spelled out by the French
businessman and economist Jean-Baptiste Say, who lived from 1767 to 1832. In
1803, in his treatise on political economy, Say wrote that in reality “products
are paid for with products” and therefore that “a glut can take place only when
there are too many means of production applied to one kind of product and not
enough to another.”
In other words, according to Say, you can get partial
gluts because of the decentralized, uncoordinated character of capitalist
production. But because “products are paid for with products”—that is, because
money functions simply to facilitate exchange of one product for another and
therefore can be abstracted out of the picture—the economy really operates on
the principle of barter. In a barter economy, it is impossible to have a general
glut.
This conclusion came to be known as “Say’s Law,” and is
upheld by right-wing economists and ideologues right up to the present day.
The Tea Party-influenced politicians in Congress, for
example, pooh-pooh the idea that the current
depressed state of the economy could have anything to do with a lack of
money or credit available to people to buy the goods and services coming onto
the market. They claim it is due rather to incompetent monetary policy by the
Federal Reserve and other central banks as well as strangulation of businesses
by excessive taxation and regulation. In the Reagan era, this view was part of
what came to be called “supply-side economics.”
Marx on
overproduction
Karl Marx came along after Ricardo, Mill and Say and had
the benefit of observing several general crises of overproduction first hand.
In fact, the young Marx and his friend Frederick Engels were radicalized by the
crisis that hit in 1837. And so, in his writings he subjected Say’s “law” to a
withering criticism and refutation. Marx based his criticism on a deep
understanding of the nature and role of money as a commodity in its own right.
Now, according to the labor theory of value, a commodity—a
good or service produced for sale on the market—has a value or “natural price”
based on the amount of labor necessary on average to produce it. The market
price—the price we see in the supermarket, for example—gravitates toward this “natural
price” while fluctuating above and below it over time.
Marx explained that the money commodity, which historically
has mainly been the precious metal gold, itself serves as a measure of labor
value embodied in other commodities and can only do this by virtue of being
a commodity embodying labor value itself. As you know, it takes a lot of labor
on average to mine and refine gold, and so a small amount of gold contains a
lot of value. Marx explained that prices of commodities are in reality the
exchange values of commodities expressed in the money commodity.
The money commodity therefore plays a critical role in
regulating the whole process of capitalist production and exchange—that is, allocating
society’s labor in accordance with what Marx called the law of labor value. He
rejected the notion that money is simply a technical means of facilitating what
are in essence barter exchanges.
To the contrary, Marx believed that money can at times be a
barrier to the production and exchange of commodities.
In Volume III of “Capital,” for example, he states,
referring to the money commodity, “[C]apitalist production continually strives
to overcome the metal barrier, which is simultaneously a material and
imaginative barrier of wealth and its movement, but again and again it breaks
its back on this barrier.”
Going off gold standard fails to prevent crises
Policy-makers attempted to eliminate the metal barrier to
capitalist production twice in the last century.
The first during the New Deal of Franklin Roosevelt
involved taking the United States partially off the gold standard. This
included removing the gold convertibility of the dollar for private U.S.
citizens and making it illegal for them to own gold bullion.
Roosevelt also devalued the dollar by about 40 percent in
response to demands of farmers and progressives who wanted prices, which had
fallen sharply due to deflation, to be pushed back up. The convertability of
the dollar into gold, now at a fixed rate of $35 per ounce, was retained for
financial transactions with other countries.
The second attempt was by President Nixon, when he took the
United States off the gold standard entirely in 1971. Since that time, the
dollar has not been linked to gold at a fixed exchange rate but has been
allowed to “float,” both in relation to gold and to other currencies.
The result, many economists and policy-makers believed,
would be a more flexible monetary system that would enable governments and
central banks to follow fiscal and monetary policies that would virtually
eliminate economic crises. Instead, it has made the system more unstable and
more prone to currency devaluations and inflation.
And it failed to eliminate the role of the money commodity
as the universal measure of labor value and a barrier to capitalist production.
Paper currencies continue effectively to stand in for gold
and represent it in all financial transactions, though now at exchange rates
that are no longer fixed but vary minute to minute as determined by trading on
the London metals exchange. Industrial booms still lead to sharply higher
interest rates that squeeze profits and precipitate crises of overproduction.
Both historical experience and Marx’s theory of money
demonstrate that attempts by the Federal Reserve System and other central banks
to expand the money supply by “running the printing press” cannot overcome this
law of capitalist accumulation. The same holds true for expansion of credit,
which expands checking account balances, or credit money. It simply results in
a devaluation of the currency and rising prices expressed in the currency,
since a larger number of currency units—dollars, for example—still represents
the same amount of gold. And such inflation means lower real wages for workers.
Housing
overproduction in the face of homelessness and foreclosures
While the 2007 to 2009 general crisis of overproduction
affected almost all commodities produced in the global economy, the most
extreme overproduction in the U.S. occurred this time in housing. In the
feeble recovery that has occurred since then, the excess inventories of cars,
TVs, smartphones and many other consumer goods were gradually worked off as
production was slashed.
But that was not the case with housing. Unlike cars and
other consumer durables that wear out relatively quickly, houses tend to last a
long time. And so housing remains in great oversupply relative to market
demand. This is the case even though new construction has been cut to a
fraction of what it was during the boom years, housing prices continue in a
steep decline, and millions of people are homeless.
These facts when stated together highlight the
irrationality of the capitalist system. It seems crazy that overproduction of
housing should result in increased homelessness.
In fact, the oversupply keeps being augmented by additional
homes coming onto the market as a result of foreclosures and evictions. This is
largely due to the delayed result of layoffs and especially long-term
joblessness, which now threaten to get even worse.
Will Obama’s jobs plan make a difference?
According to an outline on the
BusinessInsider.com website, the president’s plan has five main parts.
At the very top of the list is “Tax
Cuts to Help America’s Small Businesses Hire and Grow.” This part of the plan
claims to benefit 98 percent of the “smaller” capitalists a bit more than the
top 2 percent, which the Obama administration no doubt hopes will make the plan
more attractive to Tea Party Republicans.
But these tax cuts are highly
reactionary. That is because the cuts mainly involve the payroll taxes
businesses pay into the Social Security and Medicare trust funds for their
employees. This will undercut the financing of Social Security and Medicare,
paving the way for privatizing or otherwise getting rid of these essential
programs for seniors and the disabled.
Another reactionary tax break for
businesses in the proposal extends the current 100 percent immediate
deductibility of new investment such as for machinery to expand production or
for a new factory. This tax cut deprives the federal government of tax revenues
which could be used to finance education and other programs that benefit the
working class. The federal deficit grows as a result, providing the rationale
for further cuts in social spending.
This part of Obama’s plan also
lifts certain regulations supposedly to help entrepreneurs and small businesses
access capital—in other words, get loans from the banks—another sop to Tea
Party Republicans.
By the way, probably a majority of
so-called “small businesses” are franchises that function as subordinate units
of big corporations—giant retail chains such as McDonald’s and Burger King, for
example. These should be given no special treatment.
Genuine small businesses run
solely by family members, on the other hand, while in serious straits these
days, pay little in the way of payroll taxes and so won’t benefit much from the
payroll tax cut.
The second part of Obama’s plan is
entitled “Putting Workers Back on the Job While Rebuilding and Modernizing
America.”
The first item in this list is
another tax break for the capitalists: a “Returning Heroes” tax credit of
$5,600 to $9,600 for hiring veterans of the current imperialist wars. Calling
it a “Returning Heroes” tax break enhances its appeal to Tea Party patriots and
other pro-war elements.
The rest of the list is a mixed
bag:
- Preventing up to 280,000 teacher layoffs and
keeping firefighters on the job, though also providing funds to keep police
departments up to strength, and no provision for calling back the hundreds of
thousands of teachers and other public employees already laid off; - Modernizing 35,000 public schools, presumably by
contracting out the work to various capitalist firms; - Investments in infrastructure and modernizing
roads, rail, airports and waterways while putting hundreds of thousands of
workers back on the job (this is positive and deserves support, but keep in
mind that hundreds of thousands are a drop in the bucket compared to the more
than 25 million who are currently unemployed or underemployed in this country); - A new “Project Rebuild,” rehabilitating homes,
businesses and communities to “repurpose vacant property” and stabilize
neighborhoods; and finally - Expanding access to high-speed wireless as part
of a plan for freeing up the country’s wireless spectrum. No doubt the $10
billion earmarked for this will end up as subsidies to AT&T and other
telecom giants.
The third part of Obama’s jobs
plan is entitled “Pathways Back to Work for Americans Looking for Jobs.” The
first item on this list promises “the most innovative reform to the
unemployment insurance program in 40 years.”
As part of an extension of
unemployment insurance to prevent long-term unemployed from losing their
benefits, the plan includes “work-based reforms” to prevent layoffs such as
providing unemployment insurance funds for workers whose employers choose
work-sharing over layoffs—in other words for workers whose hours and pay have
been cut by their employers.
‘Bridge to Work’ = free labor for bosses?
It also includes a new “Bridge to
Work” program where those laid off do voluntary work or pursue on-the-job
training while collecting unemployment benefits. In other words, employers will
get these workers full-time for free while the workers are collecting their
unemployment benefits. And the employers are under no obligation to keep these “volunteers”
on once the “training” and benefits end.
There will also be a $4,000 tax
credit to employers for hiring long-term unemployed workers, another tax break
for the capitalists. Employers will also be prohibited from discriminating
against unemployed workers when hiring. That could be helpful, since according
to a Sept. 25 CBS News report, this is a widespread practice these days. But
who will do the enforcing? And will it be enforced?
Part three of the plan promises to
selectively expand job opportunities for low-income youth and adults by funding
“successful” approaches for subsidized employment, innovative training programs
and jobs for youth.
The fourth part of Obama’s jobs
plan will extend the payroll tax cut for employed workers that was passed last
year through 2012. The result will be no cut in workers’ take-home pay due to
restored payroll taxes next year but at the expense of further undercutting the
finances of Social Security and Medicare.
Another provision allows more
Americans to refinance their mortgages at today’s interest rates, supposedly
saving some homeowners more than $2,000 a year.
Finally, part five of the plan
promises that the above-listed tax breaks and subsidies for the capitalists,
along with some tax breaks for workers that will undercut Social Security and
Medicare, will be “fully paid for” through additional budget cuts:
“To ensure that the American Jobs
Act is fully paid for, the President will call on the Joint Committee to come
up with additional deficit reduction necessary to pay for the Act and still
meet its deficit target.”
Paying for jobs plan with more budget cuts?
The additional cuts needed to pay
for Obama’s jobs plan are estimated at $447 billion. The Joint Committee
referred to here is the committee that was set up as part of the recent
deficit-reduction deal that is charged with coming up with $1.5 trillion in
cuts from the federal budget over the next 10 years. If Obama’s jobs plan were
passed, the committee would have to come up with additional cuts of
nearly half a trillion dollars!
All in all, it is clear that Obama’s
jobs plan is designed much more to serve the profit interests of the capitalist
class and appeal to right-wing Republican politicians rather than truly benefit
the working-class majority.
Will it make a difference? The
plan as a whole won’t be passed by Congress, since the Republicans have already
declared it dead on arrival. But if it were to be passed, it would certainly
boost the profits of big corporations. It might also give a temporary small
boost to the economy, though at the expense of a further devaluation of the
dollar and higher gas, food and other prices down the road.
The truth is that, within the
framework of capitalism, there are two key requirements for a sustained recovery from the
current economic malaise—until, that is, the next crisis hits. These
are:
(1) The remaining supply of
overproduced goods must be liquidated, especially the oversupply of housing
relative to market demand; and (2) the dollar, the world’s reserve currency,
must be stabilized—that is, further devaluation of the dollar must be halted.
It looks like it will take a long time and a lot more austerity in the form of
cutbacks and layoffs before these requirements are met.
And that means we need to step up
the fight for measures that protect working-class families from the ravages of
this crisis now. These should focus on relief for the unemployed for however
long is necessary—especially the long-term unemployed and young people, many of
whom have built up tens of thousands of dollars in debts to finance their
education and now face dismal job prospects.
We also need to fight for a much
bigger public works program than is included in Obama’s jobs plan to provide
jobs and meet pressing social needs. And right now we need to support the
postal service workers fighting to save their jobs.
We also need to continue fighting
for an end to the current imperialist wars and occupations so that the huge
resources being used to kill Afghan and other peoples and destroy their
countries are used instead to meet human needs—including paying reparations to
the Afghan and other oppressed peoples plundered by imperialism.
But even if such measures were
won, it will not solve the fundamental problems we face. While progressives as
well as reactionaries are proposing various ways to give capitalism a new lease
on life, we in the PSL have a different perspective. We aim to achieve a permanent
recovery through a socialist revolution that abolishes capitalism. Only a
class-conscious and organized working class, along with its allies, can achieve
that end.
