U.S. facing economic recession



The entire world is facing economic contraction. The British economy contracted .3% quarter over quarter in Q3; Hong Kong has 3 consecutive quarters of contraction; there is virtually unanimous expectation of recession  throughout the EU. According to the Financial Times: “Output growth in the 27-member EU will decelerate to just 0.3 per cent in 2023, far below a prior forecast of 1.5 per cent published this summer, the commission projections showed. Germany is on course for a 0.6 per cent full-year decline in real gross domestic product in 2023, according to the outlook, the worst performance in the euro area” (“Brussels warns of EU recession as German output slides”).

Things are not different in the United States, which experienced by some metrics the most “promising” recovery out of the G7 countries (see, for example, “The U.S. Economic Recovery in International Context,” U.S. Department of the Treasury). In fact, the majority of bourgeois analysts—whether economists, financial speculators, journalists, etc.—are in agreement that a recession is highly likely for 2023. In one small example, a survey of CEOs carried out by the investment firm KPMG found that 90% think that a recession is coming, and out of those, two-thirds believe it will be particularly bad. At the same time, most of the reporting in the bourgeois press is predicting a “short” and “easy” recession with a “soft landing” piloted by the Federal Reserve. The evidence tends to back the CEOs on this one.

Workers’ Voice has been forecasting an upcoming crisis of U.S. capital as part of the general trend of world capitalism’s inability to restore profitability following the 2007-2008 market crash. In the United States, this has been particularly pronounced, with a fall in profitability directly causing a fall in productive (surplus-value producing) investment. Two results of these facts are a decline in productivity (output-per-worker) and a massive increase in fictitious capital (stock prices, speculation in land, crypto, art, etc).

Before the pandemic, there was a well-known “recession” in manufacturing, which may very well have been part of the trigger to a larger economic crisis; however, the pandemic shock and government response maintained a sense of stability and even the appearance of a new economic situation through most of 2021. In fact, at the end of 2019, JP Morgan analysts expected a recession within a year, with 40-60% probability. Marxist economist Michael Roberts wrote at the time that “the period from 2014 to 2019 is now the longest period of contraction in US profitability since 1946. Recessions have usually followed after just 2-3 years. A recession is long overdue.”

Between the beginning of the pandemic in 2020 through the so-called Inflation Reduction Act, the federal government has been buoying the economy through direct cash transfers to workers (child tax credit, increased unemployment insurance, etc.) and even more massive hand-outs to corporations. These two factors have confounded some bourgeois economists into believing that the coming crisis will really not be so bad. One prominent example of this optimistic outlook is the reluctance to say that there is already a recession happening, despite three quarters of negative real GDP growth (the “normal” definition of recession is six months of GDP contraction). The reasons given are “strong” consumer spending and low unemployment.

The reality is that neither consumer spending nor unemployment are the cause for capitalist crisis. The actual cause is the lack of profitable avenues for productive investment. In any case, consumer spending has been increasing due in large part to inflation and is being funded, in these initial stages, by the largest increase in credit card debt in over 20 years. Unemployment lags behind economic contraction, so we can expect it to rise as the effects of decreased investment and shuttering plants begin to be felt on a broader scale.

What about productive investment? That is on the decline, signified before the pandemic by a drop in the mass of profits (see, for example, “US rate of profit measures for 2018,” Michael Roberts Blog). The only way to “restart” capital accumulation on a positive level is the destruction of unproductive capital (capital that produces below the average rate of profit) and massive investment in highly productive industries. This is part of the hoped for effect of increasing interest rates—the mass bankruptcy of so-called zombie companies. Zombie companies make up between 5% and 20% of the U.S. economy and are defined as businesses whose profitability is below that of their interest repayments. Due to historically low interest rates and government help, these companies have been able to exist and lower the general rate of profit and productivity for the entire economy. Now, many are due to become bankrupt and their capital absorbed by larger corporations, which will implement layoffs in order to “rationalize” production.

Instead, the general situation has been one of speculation, hoarding, and unproductive investment, leading to massive increases in market capitalization of “unicorns” and other, stranger, sectors (for example crypto-currency). As the general productive slowdown, interest rate increases, and inflation are eating away at profit margins, the high valuations from 2021 are beginning to come back to earth—for example, Microsoft and Meta losing around $2 trillion in market capitalization this year—which is a sure sign for a coming downward spiral in markets, but does not necessarily signify a decrease in cost of living.

Some snapshots of the IRA

The federal government is attempting to aid in this process by giving large subsidies for capital development in what it sees as both strategically important and economically superior sectors. The recent Inflation Reduction and CHIPS Acts serve this purpose, offering major incentives for “reshoring” and developing more research and development and productive capacity in emergent sectors.

The most well-known of these sectors are semi-conductor and electric vehicle production. During the first period in the pandemic, semiconductor shortages indicated to the U.S. ruling class that they are particularly vulnerable in this area, as around 70% of global semiconductor production happens in Taiwan. However, the likelihood of the United States becoming competitive in semiconductor manufacturing is fairly low. On the one hand, there are massive secondary industries and supply chains developed in geographic proximity and collectively integrated around the large plants in Taiwan. On the other, in the wake of supply-chain disruptions and previous shortages, there is now a developing crisis of overproduction in semiconductors, which indicates a lack of ability to expand. This would mean that either the United States could not profitably expand semiconductor production or it would have to seriously erode market share from Taiwanese companies and seriously outcompete the developing semiconductor industry in Europe.

It is similar with electric vehicles. Electric vehicle production has the possibility to be more cost efficient than internal combustion engines due to higher productivity of labor and lower number of parts. There are two main limitations on accumulation in this sector. One is that battery prices are very high due to the currently low number and productivity of lithium mines. The other is, again, international competition—in which the United States is very far behind on electric vehicle development and production.

At the same time, there have been large investments by the “Big Four” auto companies in electric vehicle and battery plants throughout the United States—which is an essential sector for the labor movement due to very low union density, despite the centrality of the industry to possible U.S. economic growth. Regardless, in order to expand production, automakers will have to deal with the fact that, according to bourgeois analysts speaking to CNBC, “profits for U.S. and European car companies are set to drop by half next year as weakening demand leads to an oversupply of vehicles.”

Lastly, it should be noted that fossil fuel production is one of the few profitable industries—propped up also by massive state subsidies—and is being targeted for expansion as a precondition for allowing the development of renewables. According to the Financial Post, “Under the [IRA], the Interior Department would only be able to issue new onshore wind and solar rights of way on federal land if the agency had held an onshore oil and gas lease sale in the prior four months. For offshore wind, the requirement would be for an auction of offshore oil and gas leases spanning at least 60 million acres in the year beforehand.”

The coming crisis

In the next period, we can expect layoffs, increased consolidation of land ownership (already at historic-highs with the top 10% of landowners controlling over 80% of privately owned land), massive business closures and concentration of capital, and increasing competition—vacilating between economic, political, and military—with the rest of the imperialist world. It is not at all clear that prices will go down, even if inflation subsides, meaning a permanent loss in workers’ purchasing power and decrease in living standards.

Also important to note is that these crises will have an especially hard effect on the petit bourgeoisie. Small farmers, for example, are very over-leveraged and have been facing very high increases in costs of inputs, which are not likely to come down. According to Indystar, “The price of essentially every aspect of farming—seed, fertilizer, fuel, equipment, etc.—has continued to tick upward, and by startling amounts. Some farmers have seen costs double and triple, and that’s if they can even get the supplies they need. … Farmers have to outlay massive amounts of money at the beginning of the season to pay for everything. They often do that with profits carried over from the past year and massive bank loans—these loans can be millions of dollars. They spend all this money, hoping for a good yield, without knowing how much they’ll get paid at the end of the year….

“While consumers are paying more, little of that money is making it back to farmers. Only about 14 cents of every retail dollar spent on food ends up in farmers’ pockets. … The rest of the money goes to off-farm costs such as marketing, processing, distributing and retailing. That amount going to farmers has declined by more than half since 1980, while their costs continue to rise. … Production costs are expected to remain high into 2023 while prices for the crops are trending down.” These conditions are the objective basis for the “radicalization” of sections of the middle classes—either towards the workers’ movement or towards fascism.

On top of general crisis of profitability and productivity, farming, and poultry production in particular, is especially prone to “natural” crises due to the capitalist destruction of zoonotic buffer zones, disruption of hydrological and other climatic cycles, and generally anarchic methods of food production. A useful example of this from The Washington Post explains that “the poultry industry sustained devastating losses from a bad strain of bird flu this year, with more than 50 million broiler chickens and turkeys infected and euthanized in the past nine months.” That is out of over 9.6 billion birds produced by the poultry industry, but in itself the space used to produce the birds euthanized this year alone is greater than the total square footage for all Amazon facilities. These are held in massive production facilities that are themselves important and likely vectors for future zoonotic disease transformation—affecting most immediately the largely immigrant workforce involved with poultry production.

The current crisis of capitalism that has working-class folks by the neck (inflation, increased interest rates) is accompanied by a crisis in social reproduction. The absolute gutting of care facilities for children, the elderly, and people with disabilities places new demands on domestic and family units. The U.S. currently has no paid maternity leave. According to a recent survey, 51% of parents say they spend 20% of their household income on child care, and costs are increasing. The costs and care associated with having a child are also horrific in this country: For years, maternity units in rural communities have been closing their doors at an alarming rate—and we know that a lack of prenatal care results in higher risks to baby and mother. Health care, as tied to markets, creates an unequal situation between those with private versus public insurance.

As in other industries, there has been and will continue to be accelerating centralization in health care—most prominently through the development of urgent cares, conglomeration of hospital “systems,” and dying away of individual private practices for physicians.

A socialist solution

Working people, in defending their standard of living, should not concern themselves with preserving or restoring the profitability of their bosses’ businesses. This is underlined further by the fact that capitalist profitability can only be restored temporarily through a massive destruction of value—through depression or war—and that in the longer run, capitalist profitability depends upon a nearly unthinkable level of environmental destruction.

Instead, leaders of working class struggles must strive to build movements that fight for what working people need—regardless of the needs of capital—and that increasingly show working people how they must go from a fight to stop capital from making workers pay for the bosses’ crisis to a fight for power. For example, this period presents an excellent moment to popularize demands around fixing wages to the cost of living in a similar way as Social Security currently does. Social Security payments have adjusted annually, using a narrow measure of inflation, since 1975. Despite the conservatism of the index used, those receiving Social Security will see their checks go up 8.7% in 2023. Why can’t all paychecks?

Every union right now that is beginning negotiations for its next contract is undermined because it must negotiate for an extraordinary wage increase just to catch up to inflation, along with every other aspect of their contract. It must expend considerable bargaining power just to meet the price-increases imposed by capital. Unions in the U.S. are handicapped in this way because they are facing an offensive organized by the entire capitalist class, but they meet this offensive divided into little bargaining units.

The call to peg all wages to the cost of living has the potential to bring all organized labor together to oppose the bosses’ offensive, and even to lead other layers of working people into the fight as well. A generalized campaign to fix wages to the cost of living would give unions leverage in winning such language in their contracts in a short term sense, but it also could win such language in minimum wage law, and even for law pertaining to all wages.

However, inflation is not growing evenly across all sectors like some magical malaise. Prices are rising sharply in specific sectors faster than others. And while some price increases are produced by problems that cannot easily be ameliorated without the seizure of power by working people (such as energy prices or logistical jams) others have far more direct social causes that can be addressed by direct conquests of the class struggle.

Another bear in every round of contract negotiations is the cost of employer-provided health care. In 2023, rates that employers pay for employee health insurance are expected to rise roughly 6%. The cost passed on to workers could be even higher, especially as profits are squeezed. Rates for workers in pandemic frontline sectors may go up even faster as they have had to use health insurance more than before the pandemic (for COVID tests, medical treatment for COVID, and even psychological care). Again, these price increases are being levied by a large sector of the capitalist class, but workers are at best fighting back in fragmented bargaining units. The call for a national public health plan—already widely understood and supported—raises the fight to a political level that can bring all working people behind its banner. And, in the wake of a pandemic that showed the weakness of the present profit-driven health system, the call for socialized medicine carries with it more logic than ever before.

In response to housing costs that are rising seemingly without end, the call to establish housing as a human right has the potential to increase in popularity. Socialists have a special obligation to show how this right can be secured through nationalization of real estate and its management by elected committees of workers and community members. The reality, illusion and dream of home ownership in the U.S. presents a strong bulwark against this perspective, but all three continue to sustain some major blows.

Most Americans who think they own their own home really just have a mortgage. The cycle of boom and bust has recently served to undermine even this nominal form of home ownership. As capital increasingly seeks non-productive outlets for investment it is inevitable that home-ownership in the U.S. will continue to drop over time and support for nationalization of real estate will have the potential to grow.

At this time, the call for rent control may gain potency more rapidly, along with a movement against evictions and foreclosures, and perhaps even a movement for quality public housing.

Of course, there is a more far-reaching solution: All of the underlying causes of the extraordinary price growth and the coming recession could be addressed quite rapidly with the seizure of power by working people around the world, and with the socialization of industry’s commanding heights: Workers in power could bring an immediate halt to Russian capital’s war in Ukraine, and they could end price gouging by socializing the firms implementing it. They could organize the vaccination of the world, and if desirable, the elimination of COVID through globally and locally coordinated decisive public health measures. This, along with the centralization of production under elected workers’ councils, and the cutting out of tremendous capitalist waste, would allow working people to end the supply chain crisis. Workers could lower energy costs first by eliminating unnecessary, wasteful, and destructive production (for warfare, luxury products for the rich, sprawl, etc.) and then by rapidly converting society to renewable power. In a society that does not depend upon the profit motive to produce, the coming recession could be averted altogether.

Photo: Spencer Platt / Getty Images

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