US: Inflation today, recession tomorrow - capitalists want us to pay for their crisis

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Stephen Edwards Socialist Alternative (ISA USA)

(This article was first published on July 7, 2022)

America's working class is facing the worst inflation in 40 years, oil has risen to $6 a gallon in many places, grocery prices have risen more than 10% in 12 months; rents are skyrocketing. It's been a disaster for millions of people who live very barely, but this time there will be no government subsidy.

Official statistics show that consumer prices in May this year were 8.6% higher than last year. As early as April this year, the cost of daily necessities rose by more than 10% compared with last year, but wages rose by only 4.7%. When prices rise more than wages, it means the working class is suffering. In other words, unless you raise your salary by at least 8.6% in those twelve months, your real salary is going backwards and your affordability is declining.

The whole process started when the U.S. stock market crashed due to the new crown epidemic in February 2020. In March 2020, when the world was locked down to prevent the epidemic, central banks invested trillions of dollars into the entire financial system for repurchases. Securities of various banks and corporations.

One of the reasons for inflation is that the supply of money far exceeds the supply of goods and services. As far as the United States is concerned, the bailout of the new crown epidemic has increased the amount of money in the banking system by more than 8 trillion US dollars in the past two years. In addition, Inflation is also caused by the inability to produce goods to meet demand.

This inflation wave originated from a series of problems caused by the new crown epidemic. Amid the lockdown, demand for Chinese products continues to rise, coupled with the impact of climate change on agriculture, and Russia's invasion of Ukraine on February 24 this year contributed to food and oil shortages, making it a perfect storm.

Capitalist contradictions are the root of everything

Inflation is not all new development, a combination of factors have contributed to decades of rising housing costs - the destruction of public housing, the dodgy profiteering of the mortgage industry, and decades of speculative development - culminating in The Great Recession of 2008, 50 years later. U.S. housing spending has grown 118 percent since 1965, adjusted for inflation, and has grown 7.6 times faster than median household income, which has grown just 15 percent. Since 2008 alone, house prices have grown three times faster than incomes, and more than 8 million households are living in arrears in rent.

Fuel prices have risen nearly 50 percent in the past 12 months, while prices for new and used cars have continued to jump. The consumption of daily necessities is also shocking. The price increase of some commodities is even much higher than the official data. For example, in April this year, the price of eggs rose by 44% due to bird flu. Factory farming methods, and rising prices of fruits and vegetables have also discouraged consumers.

Already in 2021, 53 million people will have to use food banks or community programs to keep themselves fed. In March 2022, more than two-thirds of the 200 U.S. food banks said the number of people seeking food assistance had increased by more than 15 percent over the same period last year.

Inevitably, these figures are often compared to the 1970s. The last time food prices doubled was in 1979, a year before right-wing President Ronald Reagan was elected on a promise to end high inflation in the country at the time. Then-Federal Reserve Chairman Paul Volcker raised interest rates sharply to reduce inflation, leading to a recession that would later become known as the Reagan Recession.

The working-class community at the time was overwhelmed by a wave of unemployment, with the official unemployment rate reaching 11%, and until 1989 there was still more than 5% unemployment. Many disadvantaged groups suffer the most, such as the 20% unemployment rate for African Americans in 1983. In other words, when the government controlled inflation by attacking the working class and cutting their living standards, the world entered an era known as neoliberalism.

The Fed's inflation solution is worse than the epidemic

The situation may have been different, but the bourgeoisie responded the same – let workers pay for the crisis.

Six weeks ago, on May 4, Federal Reserve Chairman Jerome Powell announced that he would raise interest rates by 0.5%, in which he expressed his intention to reduce employment and thereby reduce wages to suppress prices. "By moderately adjusting demand, I could see the 'job' gap decrease, and as a result... let wages fall and then inflation fall, while avoiding a slowdown, recession and high unemployment growth."

The so-called "adjusted demand" situation is one where the cost of borrowing for businesses and individuals rises, leading to lower investment and fewer workers in the industry.

Powell reiterated his argument again on July 15, this time raising interest rates by 0.75%: "We have excessive demand, for example, the labor market has two vacancies per active job seeker, which has led to an increase in wages and salaries. The voice between job seekers and employers has become very uneven in negotiation. We will try to get back to a situation where wages continue to increase, but inflation will remain at 2%.”

In other words - cutting jobs and forcing workers to accept pay rises that are lower than inflation, that's Powell's approach. Although Powell claimed that it would avoid a recession, most economists disagreed.

Wage hikes are not a cause of inflation!

As many commentators, including Breaking Points' Krystal Ball and several mainstream economists, have pointed out, it is absurd for Powell to blame inflation on rising wages -- in fact wages are still stagnant, but prices continue to climb.

Fuel, rent and food prices are all reflected by factors within the global economic system - Powell was forced to admit in front of senators that raising interest rates had no direct impact on these prices, even as he insisted on suppressing wages and employment. On the other hand, U.S. President Biden gave full authority to the Federal Reserve, saying that he would leave the issue to experts and not intervene.

It is almost impossible to avoid a recessionary outcome, which will affect job openings and even threaten existing jobs. Already, several large corporations—especially high-tech industries such as Uber, Meta/Facebook, Twitter, and Redfin—have started laying off workers and eliminating new vacancies in response to a possible sharp economic downturn. It will be the third time the economy has been hit in the 14 years since the financial tsunami, and it will be a complete catastrophe for the working class and their families.

Harvard economics pundit calls for 15 million unemployed as 'antidote' to inflation

A glimpse into the potential depths of this recession comes from the Democratic Party's economic authority, Larry Summers, who preaches that mass unemployment is now needed:

"We need five years of unemployment above 5 per cent to contain inflation, in other words, we need two years to be at 7.5 per cent, or five years at 6 per cent, or one year at 10 per cent."

The insinuations Summers made in late June were all wishful thinking. He somehow believes that all the damage to the economy and workers' lives can be reversed by a single-year unemployment rate of 10%. But Summers, unlike his colleagues at the Federal Reserve, pointed out what the upper echelons of society do not want to say plainly, that mass unemployment is the solution prepared for us by the billionaire class and economic advisers.

The aftermath of neoliberalism

The financial tsunami of 2008-9 saw up to millions of people lose their homes and jobs, but in the late 1970s and early 1980s, when the post-war baby boom ended, business owners concluded that they could The standard of living of workers to ensure their profits, so neoliberal austerity became mainstream economic policy, and they have been planning a recession that will reduce workers' wages and never stop it ever since. Devastated American rust belts like Detroit and Flint, Michigan, Gary, Indiana, and Kenosha, Wisconsin—places that once housed the world's largest auto factories, now It became the base of armed conflict for white supremacy. All the devastated cities are crumbling memorials to brutal austerity policies, as well as many African-American populations who can't find jobs, like revenge for their unfinished civil rights movement in the 1960s.

Many workers with memories of the Reagan recession have retired, but many more are forced to stay on the ground, accepting lower pensions, volatile stock financial plans, all created under neoliberalism.

Generations under neoliberalism have seen industrial jobs replaced by low-paying service-sector jobs, growing and precarious hours, and stagnant incomes. For young people just entering the workplace, for people with disabilities, for single-parent families, and for those who need to face all kinds of social oppression, these will only lead to a large number of unemployment and displacement. level has reached a new high.

For working-class families, this wave of inflation has made life even more difficult. In May 2020, MIT's Living Wage Project calculated that the average living wage for a family of four was about $68,808 per year, but the U.S. Census Bureau announced that the median household income in 2020 was only $67,521.

In other words, more than half of U.S. households in 2020 do not have enough income to make ends meet. This living wage data has been corroborated by various sources, including Trump’s alma mater, the Wharton School of the University of Pennsylvania, and it’s getting worse:

“According to the Wharton budget model, rising inflation translates into $3,570 in additional living expenses per working-class household, while incomes rise by 4.5%, the highest growth since 1983. But such increases cannot Keeping up with rising inflation represents a real income regression for the average household."

Inflation is a global phenomenon

The Financial Times, a London-based bourgeois elite advisory media, recently reported that even before the outbreak of the war in Ukraine, prices had hit record highs in many countries for decades, with the International Monetary Fund predicting that 143 countries (more than 4 in the world) /5 countries) are facing a slowdown in economic growth, and global inflation has risen, with the February forecast of 6.2%, which is 2.25% higher than the January forecast.

The Financial Times has warned that the Fed's rate hikes will create the risk of "stagflation" - an economic condition that combines rising prices and stagnant growth that was abused by Western economies in the late 1970s. They talked about the global shock of stagflation in 2022, and explained that one country after another is going through a similar situation.

The United Nations agrees with the analysis of the Financial Times and is concerned that "the central banks of developed countries, implementing monetary tightening policies too fast" will affect the rest of the world, because the rapid increase of interest rates by the United States and the European Central Bank will cause the debt crisis of the world's poor countries , especially debt issued in U.S. dollars is more dangerous. The UN also knows this will lead to revolts by workers and the poor, as was the case with the Arab Spring in 2011, and more recently in Sudan's social uprising, and in the electoral victories of the Latin American left known as the "Pink Wave."

"Food prices are near record highs, threatening the world's poorest," a front-page report in The New York Times noted. The article quoted an expert as saying, "According to relevant United Nations data, prices have climbed by the highest level since 2011, which There will be massive social unrest."

What caused this crisis?

Many supply-side factors have contributed to the inflation caused by Fed policy, including the war in Ukraine that killed many people, the effects of climate change, unsustainable agri-food supply chains, China’s blockade of ports and factories, to truck drivers in the United States Lack of work, these phenomena are all the result of neoliberal deregulation and 40 years of employers attacking the standard of living of truck drivers.

But the real cause of this crisis lies in the nature of capitalist disorderly production. As former U.S. Labor Secretary Robert Reich pointed out, several large corporations with oligarchic status will do their best to manipulate market prices instead of eliminating inflation.

The central bank tried to solve the collapse of the 2008 financial tsunami, and repeated it in 2020-21, printing money on an unprecedented scale in order to restart the economy, injecting huge amounts of "liquidity" into the market, and the "stimulus policy" of 2020-21 Much of the money goes into the pockets of big corporations, which is collectively referred to by many financial media as an "easy money" policy. Represents a reversal of 30 years of neoliberalism and monetary policy.

Many media and commentators claim that the bailout money has flowed into the general public, but the actual situation is quite different. Otherwise, it is reasonable to say that the bailout amount has been confirmed for more than one year, and the savings accounts of many low-income households should be "filled" That's the bailout.

But in fact, one-third of the $6 trillion in relief passed by the House of Representatives has never been used, of which only $1.497 trillion has been spent on individuals and families. The House of Representatives is not the real money printing machine that cannot vote on resolutions, the money comes from the Federal Reserve and the European Central Bank, and the big names never mention it. The United Nations' investigation report in February 2022 pointed out where these huge sums are going.

"Since the start of the Covid-19 pandemic, central banks in Japan, the United Kingdom, the United States and the euro area have added about $10.2 trillion in securities assets to their massive balance sheets, bringing their total to $25.9 trillion by the end of September 2021. USD. The Fed spends $120 billion a month on securities, and in total has invested more than $2.6 trillion in mortgage-backed securities and $5.5 trillion in U.S. Treasury securities.”

Although this successfully restarted the economy, the vast majority of the funds were used to buy back shares, creating inflationary pressures, the United Nations bluntly admitted:

“One of the factors that inhibits investment is that companies buy back treasury stock, which is especially serious in the United States. A rise in stock prices is usually only beneficial to board members and large shareholders... Rather than continuing to increase investment, we found that companies have always had supply-side bottlenecks, This fuels inflationary pressures."

In other words, the huge sums of money from 2010 to 2020 have not been used to increase technology capacity, build affordable housing, improve education or health care, or update the country's crumbling infrastructure for railroads and roads. This money is flowing into the pockets of the super-rich, and the economists quoted above on behalf of the United Nations acknowledge the problem.

In the past 14 years, the capitalist system has caused waves of crises, and the inability of capitalism to develop the real economy reflects the deepening of the crisis. The bourgeoisie, which has grown rich on the basis of private property rights, is bound by nation-state boundaries and an increasingly unstable political system, changing the methods it implements in desperation time and time again, creating new problems each time, including the possibility of an imminent recession.

The third economic shock in just 14 years will drastically change the lives and consciousness of workers, and many youths are already questioning the ability of capitalism to solve social problems (and climate). Such a new wave of crises will make radical ideas more deeply rooted and supported by a wider population, and find ways to permanently end inequality and exploitation.

How to do?

One of the reasons central banks are afraid of continued inflation is that inflation will motivate workers to rebel, as in the major rebellions of the 1970s, when workers' fighting spirit was rooted in social movements that developed anti-racism, anti-sexism, anti-terrorism. With and against the forces of the Vietnam War.

By building militant unions, workers will be able to secure their livelihoods through the establishment of cost-of-living allowances in collective bargaining agreements. For these actions to succeed, the focus is on the influence of socialist and other radical activists, who have always been important players in the struggle. Unfortunately, there is currently no broad working-class party forging the struggle that could have strengthened these best fighters, provided the working class with a direction, and passed on the experience of the struggle. Conversely, it was the union leaders who embraced capitalist indoctrination, including the fact that wage hikes lead to inflation, who paved the way for America to enter the Reagan era; these union leaders even misled workers that wage hikes were causing inflation, Instead of defending workers' living standards, they advocated labor-management reconciliation to preserve their comfortable positions as union leaders.

Today is nothing like the Reagan era, where the Great Recession of 2008 has shattered capitalist dreams of the future, Democrats have betrayed the working class and led to the rise of the right. These situations have created different consciousnesses, especially among youth and unionized workers. This includes essential workers in the United States (generally referring to the workers who maintain social medical care, logistics, living, necessities and other services during the COVID-19 outbreak) one after another went on strike during the outbreak, and even in the summer of 2021, workers took a series of powerful strikes Fight back against the system.

At the John Deere Group, despite the bureaucratic leadership of the UAW (United Auto Workers) forcing members to accept consensus negotiations and even being investigated for embezzlement kickbacks, workers chose to fight back and prevent jobs from being outsourced. To the third-tier manufacturers, they also fought for the rights of employees during the probationary period, and most importantly, won back the previously canceled living allowance. Other strikes, such as Nabisco and Kellogg's, showed the same fighting spirit at the grassroots level, despite weak union tops. Meanwhile, carpenters in western Washington rose up against a poached (and ultimately corrupted) union leadership, launching a feral cat strike, setting up wandering pickets, and blocking many important construction sites in the Seattle area.

Workers will need to demand higher-than-inflation pay raises and include subsistence allowances in future contracts to ensure steady pay rises, or we'll just keep losing. Historically, when inflationary pressures rise, Fed bureaucrats are under pressure to adjust the consumer price index in order to minimize the actual suffering of workers, so unions have to fight and fight for a working-class homebuyers council , an economic index set to serve the working class.

In the UK, the Trade Union Confederation (TUC, the US equivalent of the AFL-CIO - the American Federation of Labour and the Confederation of Industrial Trade Unions) has called for a major protest in London on June 18 - with "better demands". Tens of thousands marched and demanded a pay rise to fight inflation. The following week, Britain's rail union RMT (National Union of Rail, Maritime and Transport Workers) led the national rail network in three one-day strikes, with more action expected to come. We just need this kind of action, regardless of whether the masses are in unions or not, the unions lead the masses of the working class to protest, but the AFL-CIO in the United States has not called for a nationwide protest since 1981.

To this day, union leaders have a close relationship with the Democrats and have said little about the plight of workers, and the AFL-CIO should propose price controls on monopoly businesses, especially food and energy companies, and should also ask Democratic members of Congress Set a nationally applicable minimum wage tied to a living wage. But these leaders have backed down from their employers for decades, and are not going to stand up to the current situation, which is why union membership in the United States has plummeted.

To counter the blow to workers from big business, we need to rebuild the militant labor movement. The uplifting development of unions at Amazon, as well as the union movement sparked by the retail and coffee industries, represents a younger generation of workers ready to rise up.

These union cadres must continue to challenge existing union leaders and replace them for future struggles. We need union leaders to be paid only at the level of ordinary workers, supported by active union members, and accountable for their words and deeds. In order to fight inflation, and to fight back against bipartisan politicians who only burden workers with the consequences of the capitalist crisis, workers' organizations must arm themselves with a clear class struggle plan, a movement-led approach, and they need to become independent of pro-consortium Bipartisan political voices.