The pandemic has had the effect of intensifying the crisis of overproduction that began in 2008, further exacerbating the contradictions of the capitalist system. As a result, we are witnessing a sharp change in the policies being carried out by the ruling classes of the main imperialist countries. Austerity, the economic policy of the last few years, has been temporarily put to one side. It would have been economically and politically unsustainable to carry on with austerity policies under the current conditions.
Overnight, the bourgeoisie has rediscovered the state and public spending. Vast quantities of public money are propping up a tottering capitalist system, the utterly parasitic character of which is exposed now more than ever. Capitalism today is a picture of intolerable injustices, compounded by glaring inefficiency in production and distribution.
The so-called economic ‘experts’ are not only bewildered, they are literally groping in the dark. The latest decisions taken internationally by the representatives of capital are proof of this.
The depth of the crisis has meant that all the restraints that once gave the ruling class a semblance of rationality have now been blown away. We are in a new phase of tricks and illusions. The “solutions” they are proposing today are increasingly absurd. They belong to the realm of fantasy rather than to that of reality.
Biden’s massive spending plan is the starkest example of this. This is the first attempt for at least the last 40 years to apply Keynesian policies on a large scale. It is one thing to use financial leveraging and opening the taps of easy money through quantitative easing by central banks, as we’ve seen for the past ten years. It is quite another, however, to use this money to make relative concessions to the working class and the petty bourgeoisie as is the case with Biden’s plan.
It is quite clear that these are temporary measures, which are absolutely unsustainable in the long term. It is also doubtful whether the plan even can be fully realised, especially those passages that talk about wealth redistribution. Nevertheless, its announcement is already having profound political implications.
Is a new era of reformism and social peace, like the one we witnessed after the second world war, about to open up before us? This is not even remotely the case. The context today is totally different. The war, by directly destroying productive forces and surplus capital, had the effect of ending an epoch of capitalist stagnation and opening up a new cycle of capitalist expansion. In the current economic context, on the contrary, increased state intervention will have the effect of exacerbating the problem of fictitious capital and unused productive capacity. There is no boom on the horizon for us; only a cyclical recovery, which is the logical and natural consequence of a deep collapse in production like the one caused by the pandemic.
It is of the utmost importance that communist and socialist activists do not become confused by the impact these policies have on the thinking of the labour movement bureaucrats, and on a part of the population in the US and internationally.
Lula – who will be the likely PT candidate at the next presidential election in Brazil – referred to Biden’s plan as a “wave of democracy for the world”. Republicans in the US have gone even further. They have called Biden’s plan a “turn towards socialism”. In congress, Biden himself even called his proposal “a blue-collar blueprint to build America.” The reality however is completely different.
It was one thing to carry out Keynesian policies after the Second World War, in conditions of unprecedented boom. It is quite another to open up the taps of easy money now, at a time when US federal debt has literally exploded. During the Trump presidency, in just four years the US public deficit rose by $7 trillion, reaching a total of $21.6 trillion – more than 100% of GDP. In terms of public debt, the US economy is now on par with Greece and Italy.
Furthermore, global total debt (i.e. combined household, corporate and state debt) now stands at more than 350% of world GDP. Even countries like China – whose economies superficially appeared to be more resilient – have accumulated in a few short years the debts that the historical imperialist countries accumulated over a period of thirty years.
These are policies dictated by despair. Nevertheless, they have an internal logic of their own. Though representing an attempt by the ruling class to get around the contradictions of the capitalist system, they will end up aggravating them in the medium and long term. The effects have the potential to become truly uncontrollable.
Is inflation back?
The most serious representatives of the ruling class are beginning to understand this. Michael Burry, the man who in 2007 predicted the so-called subprime mortgage crisis (and who made a significant personal profit out of it), today claims that “hyperinflation in perfect Weimar-style” is brewing. While Burry tends towards hyperbole, it is significant that other representatives of the ruling class are thinking along the same lines. Michael Hartnett, chief investment strategist at Bank of America, in a recent report expressed his concerns over “the dynamics of the monetary deluge coming to the US, the balancing of treasury reserves, the federal pandemic stimulus plan and the monthly purchases by the Fed” (quoted by Business Insider Italia). Hartnett arrived at the same conclusion as Burry, stating that what happened at the time in Germany represents the “most epic, extreme analog of surging velocity and inflation following end of war psychology, pent-up savings, lost confidence in currency and authorities.”
To avoid the spread of panic through the market, Biden’s treasury secretary, Janet Yellen, played down the problem in early May: “It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat”. However, only a few hours later she contradicted herself by stating that she sees “no inflation problem”.
Other economic analysts have tried to come to the defence of Yellen. However, the debate has now taken on a somewhat nervous character, in the light of the rising inflation indices in the US for March, April and May (+ 2.6%, + 4.2% and +5% respectively), which are confirmed in all international indicators (above all, in Germany).
In fact, the Fed has now changed its previous stance on inflation. The idea of keeping inflation below 2% – its mantra in the last few years – has been abandoned and the Fed is now expecting to “tolerate it a little bit above” this figure. At the same time, Powell (the head of the Fed) seems committed to keeping interest rates low and continuing to buy “junk bonds” for $120 billion a month. This will provide a further boost to inflation, with the serious risk that the Fed will react to price increases only at the point when the situation is out of control.
Biden’s plan - consisting of $2 trillion of economic support against lockdowns, $2.2 trillion for the infrastructure, and $1.8 trillion for families, will, on paper, throw an additional $6 trillion into circulation. These are figures seven times greater than the recovery plan proposed by the European Union. This will all be further compounded by the release of “pent-up” demand caused by the COVID-19 lockdowns.
Americans – traditionally bad savers – have amassed a total of $1.8 trillion in the past year, because of COVID-19 restrictions. As lockdown restrictions are being lifted, a stimulus in demand of up to $8 trillion is entering the economy. In Europe, we are witnessing a similar phenomenon. In Italy, for example, the household saving rate had inexorably dropped from 29% in the 1980s, to 8% in 2019. But it has now bounced back to 15% in the course of the last year. All of this will surely cause an inflationary spiral. How strong this will be, we cannot possibly say for sure. The factors involved are far too numerous. We can say it will certainly take on a significant scale, however.
Commodity prices are also on the rise, due to the disruption of supply on the market that resulted from the pandemic. The Bloomberg Commodity Index rose from a low of 60.24 at the end of April 2020 to 90.36 at the end of April 2021. The scarcity of minerals is exacerbated by hoarding carried on by various countries – China among them – who have sought to avoid future interruptions in production due to supply shortages. Added to this, there is a shortage of semiconductor materials.
Protectionist policies did not end with Donald Trump’s departure from the White House. On the contrary, they are gathering strength across the globe, with increases in tariffs in every corner of the planet. The main conflict is with China. But everywhere, lockdowns, clashes between countries and customs duties are putting world trade in crisis (a trend that has been going on at least since 2009). So-called “globalisation” is now a fading memory of the past.
The nation-state is back
As predicted by Lenin in Imperialism: The Highest Stage of Capitalism, under such conditions there is a general tendency towards the strengthening of the economic role of the nation-state. This once more reveals the emptiness of the neo-Kautskyite ideas that gained acceptance among some reformists and post-workerists, such as Negri-Hardt, during the years of “globalisation”.
The principal imperialist conflict is between the US and China. The European Union is playing the role of a third-rate power, which tries to balance between the two main contenders. However, in all probability, it will only end up squeezed between the two.
This clash is partially responsible for the tendency towards the centralisation of power within each state. The Economist explains that “the relationship between central banks and finance ministries became particularly close during the pandemic,” and central bank independence diminished in many parts of the world. The state apparatuses closed ranks, centralised decisions and planned policies – as has already happened historically in all critical phases of capitalism’s existence.
These relatively new phenomena are compounded by other long-term ones. In recent years, many have wondered why quantitative easing policies – that enormously increased the money supply – did not cause any inflation.
The reality is that there were several “countervailing” factors that operated in the opposite direction. Among the factors that in the past have pushed prices down, we have had – in addition to the growth of world trade – new technologies (internet, cybernetics, artificial intelligence, etc.) and the exploitation of low-cost labour in countries from the so-called “Third World”. Having played a powerful role for almost 30 years, however, the effectiveness of these factors has been exhausted in the most recent period. The process of introducing new technologies, that has allowed for a significant reduction in production costs, has reached a saturation point. The constant increase in wages in countries such as Brazil, China or Turkey has now reached a situation in which a worker in Sao Paulo or Guangdong does not receive a significantly lower salary than a worker at Fiat’s Pomigliano or Melfi plants (in the South of Italy), or a worker in Greece, Portugal or Spain.
It is no coincidence that all the statistics on world trade indicate a tendency to reshoring – that is, a return of production to within the borders of the capitalist country of origin. Such a tendency has been spontaneously asserted through the strategic choices of multinationals, but it has also been strengthened by the protectionist policies of Trump and other imperialist governments.
In any case, Quantitative Easing inaugurated after the 2008 crisis represented an expansion of credit carried out in an austerity regime and had a very different character from the policies being carried out today. The old policy was mainly oriented towards saving capital. The money ended up recapitalising banks, insurance companies and businesses that were on the verge of bankruptcy. Alternatively, the money was used for stock exchange and real estate speculation. But, importantly, there was no significant broadening of the basis of mass consumption.
The expansion of credit essentially found its expression in a sort of “stock market inflation”. That is to say, there was an abnormal growth of speculative bubbles with stock and real estate values becoming completely detached from the real economy. But consumer prices were not affected in any meaningful way. They were kept down by the recession and by austerity.
Today the situation has changed. The compound effect of all these new trends strongly indicates that inflation beckons, and a series of extremely important questions are posed – questions which are also being discussed in the upper echelons of the ruling class.
What would happen if inflation exceeded the yields of government bonds? Above all, what would happen if central banks raised interest rates and stopped buying junk bonds from the market?
This discussion began on 23 March 2020, when markets stopped worrying about deflation and realised that inflation was coming. That day the Fed promised unlimited monetary stimulus for both consumers and businesses, and the dollar began falling.
Debts at every level
The problem of bad loans is once more exploding onto the scene. Though it had partially receded in the period between 2015 and 2019, it is now forcefully re-entering the scene – not only in the US but in Europe as well. We are entering a new credit crunch period at a time when some international banks are dangerously indebted, including Deutsche Bank, Société Generale, Credit Agricole, not to mention Italian banks which, in the EU at least, are certainly among those in the worst conditions.
The reality is that commercial banks across the world are heavily indebted. A crisis of the banking system would be far more serious today than the Lehman Brothers crisis of 2008-2009. It would represent the starting point for a broader financial asset crisis. In turn, this would lead to an increasing devaluation of the dollar’s purchasing power, the stability of which is closely tied up with market confidence in the US budget deficit continuing to be funded. Furthermore, the fate of the dollar will determine the future of all those currencies that are linked to it.
In the EU, “inflation panic” is mounting pressure on the ECB to return to the implementation of less generous policies towards Italy and Spain. The Frankfurter Allgemeine Zeitung called on the ECB to quit its “Good Samaritan syndrome”, i.e. to draw to a close the Recovery Fund and the massive aid plans that have kept the EU alive in recent years. However, these opinions are unlikely to gain a hearing. If applied, they would inevitably mean the rupture and dissolution of the EU – a price the German bourgeoisie is not yet ready to pay, especially as it needs protective armour against the danger now posed by Chinese capital.
The economic policy that Europe is following is in fact pointing in quite another direction. There is talk of financing infrastructure projects, large scale support plans for renewable energy and the green economy, and even talk of printing money and transferring it directly to citizens’ bank accounts as Biden has done.
This would go even beyond Keynes. Keynesianism presupposes that the state would pile up debt by issuing bonds. What is being discussed today is a qualitative leap beyond that: i.e. to follow the insane suggestions of ‘modern monetary theory’ (MMT). That is to say: the unlimited printing of money.
For all its madness, however, these policies have a logic. A rise in inflation and prices would mean a devaluation of public debts. Inflation was the means by which the bourgeoisie effectively rolled back wage gains won by workers in the 1970s and 1980s for example. It is a tool that they have used in the past, and, in all likelihood, they are preparing to use it again.
The Economist dedicated the cover of its weekly magazine to the topic, explaining that governments and central banks have become increasingly tolerant of inflation. The reality is that they are far more than tolerant: they are even beginning to think of inflation as the key to solving all their problems.
It is worth thinking about MMT itself, a theory that has proud supporters inside the US and beyond. Stephanie Kelton, one of the leading exponents of this theory and a former economic advisor to Bernie Sanders, now occupies the position of chief economist in the US Senate Budget Committee Democratic minority, and is in fact head of Biden’s economic task force.
MMT exercises a strong attraction for reformists all over the world. It seems to offer theoretical support for their idea of implementing policies of fiscal spending financed by the issuing of money from central banks. Furthermore, it promotes the idea that public debts can be tackled by implementing policies of further public spending on infrastructure projects, job creation and industry.
However, as Marx explained, money cannot be conceived without having a material basis in the exchange of goods and production. Governments and central banks cannot circumvent a crisis of overproduction by increasing the money supply. In fact, while quantitative easing has dramatically increased the balance sheets of central banks, bank credit has not increased and neither has real GDP. According to Marx, money is the representation of value and therefore of surplus value. It is the monetary representation of the socially necessary labour time for production. A state can only agree and validate a common form of currency, but it cannot generate money out of thin air.
When the creditworthiness of the state is seriously brought into question, the value of national currencies tends to collapse, and demand shifts to real commodities, usually gold. In fact, the price of gold has skyrocketed in recent years.
The reality is that the ruling class thinks it can circumvent the most serious crisis of overproduction ever seen in the history of capitalism with what Marx called “the tricks of circulation”.
The fact that a completely irrational theory like MMT enjoys the privileged position of being able to condition – and even determine – the economic choices of the main imperialist power in the world represents a really qualitative leap in the crisis of the capitalist system!
From the US to the rest of the world
The matter is not limited to the US alone, however. This is now a worldwide trend. Former Deputy Governor of the Bank of Japan (BoJ), Kikuo Iwata, recently argued that Japan must increase its fiscal spending by expanding central bank-funded public debt. Even before the pandemic, Japan was in the grip of long-term stagnation. GDP growth since the late 1980s has averaged between 1 and 2%.
Iwata was the original architect of the massive BoJ bond-buying programme, dubbed “quantitative and qualitative easing” (QQE). QQE was supposed to stimulate the economy through a massive injection of money. However, despite the Japanese government taking the path of increased public budget deficits (today debt stands at 253% of GDP), this has not served to revive economic growth, nor real incomes of households.
Accordingly to Iwata the answer to Japan's “secular stagnation” is the continuation of government deficits and spending, but this time by simply financing it by printing money rather than issuing bonds: “Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result [...] We need a mechanism where money flows out to the economy directly and permanently [..] BoJ bond purchases are just not working, because the banks are hoarding the cash in deposits and reserves and not lending. They must be by-passed”.
This proposal for “helicopter drop money”, is singled out as the solution to low growth and is based on the idea that demand can be stimulated by simply printing more money. This is precisely the claim of MMT. Even Mario Draghi gave credit to this policy in 2016, when he was president of the ECB.
Then there is state capitalism in China, which allows the Beijing government to support its companies (both public and private) with extreme resoluteness.
This is the trend emerging for capitalism across the globe, and it will be the testing ground against which social conflicts will be measured in the coming period.
Intensification of the class struggle
Mobilisations with a revolutionary character, such as those seen in Palestine, Myanmar, Colombia and other countries, will be on the agenda in advanced capitalist countries as well in the coming period. The working class – which has shown its readiness to fight – will return to the offensive. We only have to recall the days of March and April 2020, in the sharpest period of the pandemic, which saw important mobilisations in Italy, Spain, France, USA and Canada.
The situation is profoundly different from 2008 and 2009. Workers then were taken by surprise by the crisis and by the unexpected economic restructuring that resulted from it, which contributed to a paralysis of the initiative of the labour movement, which depressed it for several years.
After having absorbed the initial impact of the crisis, the working class is now more confident that struggles can achieve tangible results, and is generally more open to engaging in them. The reopening of economies will strengthen the process, as will the experience accumulated during the pandemic when the role of essential workers in society was clearly demonstrated (particularly in health, public transport, trade and industry).
The workers have paid an extremely high price, in terms of deaths and sacrifices, in the fight against COVID-19. As a result, today they are much more aware of the role that they as a class occupy in society. This will be decisive in the development of class consciousness.
Of course, the trade union bureaucracies play a treacherous role as obstacles to workers’ struggles, and in recent years they have shifted even further to the right. But this is a relative obstacle, as their ability to control the workers’ movement is limited by the lack of authority they now have. This has never been as low as it is right now.
The bourgeoisie will try to lean on them, combining this with the use of further coercive and overtly repressive measures in its attempts to curtail the class struggle. New anti-strike laws can be expected all over the planet. However, history teaches us that although these methods can delay the process, in the long run they will have the effect of increasing the impact of mobilisations when they inevitably explode.
The coming mobilisations, although they will likely begin with a predominantly economic character, will, on account of the depth of the crisis and of the enormous frustration accumulated in recent years, inevitably radicalise and more often than not take on a political character. A new “May 68” or “hot autumn” is on the cards, but this time on a global scale.
In such a context, inflation, rather than holding the movement back, will have the effect of stimulating it even more. Workers will be forced to fight to defend their wages from rising prices. We will see ever bolder trade union platforms, struggling not only for improved contract conditions but fighting also on the political front. The question of workers’ control and nationalisation will re-emerge, and will objectively pose the question of workers’ power and its role in society.
The pandemic has shown millions of workers that only by abolishing patents, nationalising pharmaceutical companies and instituting a public and universal healthcare and vaccine system, could an effective fight against COVID-19 have been fought, and the deaths of millions of people avoided.
Generalised low wages affecting the vast majority of the working class worldwide and the enormous transfer of wealth in recent years from labour to capital mean that it is inevitable that rising inflation will push workers to fight with greater and greater vigour. The union bureaucracies will find themselves faced with the alternative of either supporting the workers’ struggles or of being bypassed and losing any role.
At any rate, the working class will find a way to present the bill to the ruling class. It is in this terrain that the Marxists will be able to compete against the reformists for the leadership of the workers’ movement. Once the workers equip themselves with a leadership that truly represents their interests, there is no force that can stand in the way of the socialist transformation of society. Capitalism will have to leave the scene of history.