Committee for the Abolition of Illegitimate Debt

You have argued that the long crisis of profitability since the Great Recession is not over. Given that, how do you explain the decline of inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. and a continued tight labor market, the current so-called soft landing, and the recovery in the US economy? What is the character of this recovery and what are its contradictions and limitations?

I have argued that the major capitalist economies have been in what I call a Long Depression since at least 2008–9. I mean by that real GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. growth rates have been slowing through the 21^st century, along with slower investment and trade growth. And after each recession or slump (2001, 2008–9, and 2020), the ensuing trend growth in production, investment and trade does not return to previous levels but recovers at a much lower trend.

This Long Depression has only happened twice before in the history of modern capitalism: in the late 19^th century (for the United States from 1873 to 1995); in the Great Depression of the 1930s (1929 to 1946); and now (from about 2008 to the present).

Much is being made of the so-called “soft landing” in the US economy, or no landing at all. Contrary to most expectations, the US economy grew 2.5 percent in real terms (after inflation) in 2023, faster than in 2022. But as you can see from the graph above, the US rate of “recovery” since the end of the pandemic slump in 2020 was still slower than the rate of recovery after the Great Recession of 2008–9 and the rate of recovery in the 2010s was slower again than in the decade of the 2000s. 

That’s real gross domestic product (GDP). When we look at Gross Domestic Income (GDI) which theoretically should be the same, GDI growth was less than half that of GDP, suggesting that output growth has not been reflected in income growth. The main reason is that GDP growth has not been transformed into increased sales and revenue at the same rate. Stocks of goods produced have instead built up. The US manufacturing industry is in fact mired in the longest slump in more than two decades.

And the United States was the best performing top capitalist economy in 2023. The rest of the so-called G7 (top 7) economies were either in recession (that is, with a contracting real GDP as in the UK and Germany) or stagnating (as in France, Italy, Japan, and Canada). The average real GDP growth in 2023 for the advanced capitalist economies was just 1.3 percent (down from 1.4 percent in 2022). 

Moreover, we are measuring the real GDP growth rate here. In the case of countries like the United States, the United Kingdom, Canada, Australia, and others, real GDP growth has mainly been driven by an increase of workers, in particular a sharp rise in immigrants of working age into these countries. 

If we look at growth in real GDP per person, the “recovery” is much weaker. Indeed, since the beginning of the pandemic in 2020, the US economy has achieved only about 1.1 percent annual per capita growth and the other G7 economies have contracted or stagnated.

While the United States and other G7 economies have near “full employment” on official stats, the US unemployment rate is now ticking up. In 2023, all the net US jobs increase was in part-time work. Part-time jobs were up 870 000, while better paid (net) full-time jobs hardly rose. 

If we look ahead, the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

expects global real GDP growth to expand just 2.4 percent this year (and that includes India, China, Indonesia etc. which will grow at 5-6 percent). This would mark the third year in a row where growth would prove weaker than the previous 12 months.

Indeed, the World Bank reckons that the global economy is on track for its worst half-decade of growth in 30 years. Similarly, global trade growth in 2024 is expected to be only half the average in the decade before the pandemic. Global goods trade contracted in 2023, marking the first annual decline outside of global recessions in the past 20 years. The recovery in global trade from 2021 to 2024 is projected to be the weakest following a global recession in the past half century. 

And all these data are averages. When we take into account the inequality of incomes and wealth in all the major economies, the situation is far worse for those in the bottom half of households than the top half. The top 1 percent have never seen such a rise in wealth and incomes, while the bottom half has never seen such a long-lasting fall in real incomes and wealth. 

During the pandemic and cost-of-living crisis years since 2020, $26 trillion (63 percent) of all new wealth was captured by the richest 1 percent, while $16 trillion (37 percent) went to the rest of the world put together. A billionaire gained roughly $1.7 million for every $1 of new global wealth earned by a person in the bottom 90 percent.

That brings me to your question about inflation. It is now well established by a series of research papers, that the post-pandemic inflationary spike from 2021-23 was caused by “supply-side” factors—that is, rocketing energy and food prices globally, a breakdown of supply chains, trade and transport for goods and raw materials, a shortage of workers who did not return to their jobs after COVID, and the poor recovery in the productivity of the labor force that did. It was not caused by “excessive” money supply by central banks, “excessive demand” caused by government spending, or “excessive wage increases” creating a “wage-price spiral.” 

These were the claims made by central banks and governments everywhere. But we know that there was an average price rise in all the major economies of up to 20 percent (on official figures) over the period which outstripped wage rises by some way. Indeed, it was more a “profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. -price spiral” as profits for energy, tech, finance and food companies skyrocketed.

The fall in inflation rates in the major economies during 2023 was not due to central banks hiking interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. . The main reason was a fallback in energy and food prices and the impact spilling through into other sectors. Nevertheless, governments and central banks like to claim the credit for lower inflation. Bur lower inflation does not mean lower prices; it means a slower increase in prices (already as I say up 20 percent since 2021). 

And now there is a risk of energy and food prices starting to turn up again as the impact of the ensuing Russia-Ukraine conflict and the horrific Israeli destruction of Gaza begin to affect energy- and food-producing regions. I predict that the central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx targets of 2 percent inflation a year will not be met in the foreseeable future.

The Biden administration has poured tons of money into the US economy, including launching his version of an industrial policy with billions for the high tech industry. How successful has Biden been and what problems has his program run into?

Yes, the Biden administration has put in $500 billion in public money (over ten years) to try and boost the economy and encourage private investment to increase. But the underlying principle of this so-called industrial policy is really to bribe companies to invest with tax allowances, subsidies, loans and grants. 

The decisions on investment remain in the hands of corporate boards and the profits accrued go to them, not to the government. Public investment programs are not through public or state-owned companies but through handouts to the private sector. To put it in the words of the Biden administration, it’s about “crowding in” private investment. 

In the case of the CHIPS Act, huge amounts of public funds are going to the already hugely rich tech companies in order to build plants for a much higher-cost domestic industry. Subsidies to fossil fuel companies are still much higher than any financial support for renewables. And much of these funds are being used to make armaments and enrich the arms companies. 

Technology boomed in 2023, as government subsidies for technology companies mushroomed. The Inflation Reduction Act offered tax incentives for renewable-energy equipment manufacturers and buyers of electric vehicles. The CHIPS and Science Act included $39 billion in subsidies for semiconductor makers.

Even so, has it boosted US investment? Certainly, there has been a huge jump in the construction of manufacturing plants, but other sectors have shown little growth; business orders of capital goods, excluding aircraft and military goods, have been falling for about two years.

Moreover, much of the funds have gone to sectors that do not generate much employment, so that the bulk of American workers remain in low-paid, often precarious, jobs with no career prospects, healthcare or pensions.

The Biden measures are being paid only partly by raising taxes on the rich—much of the previous tax cuts brought in by Trump have not been reversed. Spending on arms and defense has reached record levels while spending on public services outside social security and Medicare are falling in real terms. 

Even worse, it is now the case that spending on the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. paid to Wall Street and foreign investors for buying US government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. is larger than spending on discretionary public services. Bidenomics now means ‘crowding in private investment’ at the expense of “crowding out” public services, both federally and on the state level.

Liberal economists like Paul Krugman are celebrating Biden’s economy and claiming that it is has improved conditions for workers. When faced with low approval ratings for Bidenomics, they essentially claim workers ideas are at odds with their material conditions. How do you respond to their claims?

Krugman talks of a “vibecession” going on—that is, even though the US economy is apparently on a roll, many Americans don’t seem to see that. They think things are getting worse for them. This is not a misperception, as Krugman thinks. It is one thing to claim the US economy is doing well by looking at real GDP (but as I argue above, even that is not great); it is another thing to argue that the majority of Americans are seeing better living standards. 

Take inflation. The official inflation rate has been coming down quite fast, but this measure leaves out important expenses for most Americans—particularly mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. and credit borrowing rates that have shot up and stayed up. Sure, the prices of food and energy may have dropped back somewhat and electrical goods, but the cost of utilities, transport, taxation and other services have not come down at all. A recent research paper from that other Keynesian guru, Larry Summers, argued that if these costs were included in the official inflation data, inflation rates would be double and would explain about 70 percent of the fall in Americans’ sentiment about the economy.

The financial markets, led by the tech and media sectors, may be booming, given Bidenomics and the prospect of falling interest rates, but there is no boom in the living standards of most American households.

The recovery from the recession triggered by the pandemic has been uneven globally. While the United States has recovered, other major centers of capital accumulation in the G7 countries are struggling to restore growth and have at best only achieved low growth rates. China continues to expand but has also experienced lower growth rates. What is the reason for the uneven character of the global recovery?

Yes, as I briefly argued above, most of the major advanced capitalist economies have made a very weak recovery from the scars of the COVID pandemic slump. It’s no better even in the “growth economies” of the other G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). economies like Korea, China, Brazil, or South Africa, where growth has also slowed. 

It’s even worse for the poor so-called Global South countries. Export revenues from their commodity exports have not been enough to turn things around, inflation remains high and above all many of these countries are suffering “debt distress”—that is, an increasing inability to meet the rising costs of debt owed to foreigners given high interest rates and a strong US dollar.

To control inflation during the recovery central banks jacked up interest rates. How will this impact the so-called “zombie” firms in the Global North? How has this impacted the indebted countries? How has the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and World Bank responded to new debt crisis?

The debt crisis has spread across many Global South countries from Egypt to Pakistan; from Argentina to Colombia; from Sri Lanka to Myanmar. In general, the IMF and World Bak have called for “debt relief”—that is, reducing the interest rate on debt or extending and rolling over the debt for a longer period. They have also sought to negotiate a “restructuring” of their debt with foreign investors, hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. and governments. But at no time have they called for the cancellation of these onerous debts and freed poor countries from these debt traps.

But there is also a debt crisis brewing in the advanced capitalist economies. The media talks about large government budget deficits and rising public debt levels in the G7 economies, but they say little about a bigger problem: rising private sector debt (for households and companies). And remember much of the currently high public sector debt is due to bailing out the banks in the global financial crash and making huge handouts to COVID relief during the pandemic. The public sector (that is, most citizens) is still paying for the private sector’s mess.

We read in the media that US companies are making huge profits and doing well. But this is true only for a handful of top companies in energy, tech and finance. The vast swathe of companies in North America and Europe has relatively low profitability on their investments. And there are up to 20 percent of companies that are “zombies”— that is, companies that do not make enough profit to meet even their debt servicing costs and so must borrow more to cover that. And there is another layer of companies called “fallen angels”—companies that were doing well but are now close to becoming zombies.

Bankruptcies are rising in the major economies, but not yet at levels seen in the Great Recession. That’s because these companies have been bailed out by the banks and government credits try to see them through. And these companies built in debt deals with relatively low interest rates before central banks hiked rates.

But this means the capitalist economy is not ‘cleansed’ of the weak and unproductive. That holds back the whole economy from boosting productivity and raising profitability for the rest.

What would overcome the persistent crisis of profitability amidst what you have called our epoch’s Long Depression?

The previous two depressions lasted on and off for about twenty years or more. The current depression has been going for about fifteen years. It looks as though it could continue for the rest of this decade. What could bring it to an end? Well, there must be a step change in the average level of profitability for the capitalist sector in the major economies. 

How could that happen? Well, first there would probably have to be yet another seriously deep slump in order to cleanse the unprofitable companies from the system. That has been avoided up to now because of the impact it would have on employment and incomes for hundreds of millions. The political consequences of that for the ruling orders are just too much to contemplate for now.

But if that were to happen in the next five to ten years and the ruling orders managed to impose severe austerity and reduction in living standards, then increased profitability for capital would encourage investment in new technologies like AI, robots, biotechnology—and perhaps that would set the scene for a new boom in capitalism. That’s what happened at the end of 19^th century depression in the 1890s and after the Second World War—technologies that had been invented during the depression were then exploited afterwards.

The hope of the optimists is that AI and LLMs will kick-start a “roaring 20s” similar to that experienced in the United States after the end of the Spanish flu epidemic from 1918 to 20 and the subsequent slump of 1920 and 1921. But some things are different now.In 1921, the United States was a fast-rising manufacturing power, sweeping past war-torn Europe and a declining Britain. Now the US economy is in relative decline, manufacturing is stagnating, and the United States faces the threat of the rise of China. 

The problem is that it is increasingly difficult for global capital to find new markets and more labor to exploit, facing as it does a working class globally that has never been larger. The vast majority of people are now workers, and the vast majority are urbanized. Moreover, capital now faces huge challenges in the 21^st century that did not exist before: climate change and global warming, huge inequalities, rising global displacement of populations, and so on.

Why and how has the long depression undermined the mainstream capitalist parties in nation states throughout the world? How has the new right tried to take advantage of it? Do they have any solutions?

The weakness of capitalist growth and investment and rising inequality has meant that the ruling orders have demanded austerity, privatization, the cutting of public services; the deregulation of markets, environment and health; the freeing of international capital movements; the crushing of trade unions; and so on. And the mainstream parties—not only of the “center-right,” but often even more so, the social democratic center left—have accepted and adopted these policies as “there is no alternative” (TINA). 

But with these measures imposed now for decades, capitalism is not meeting the needs of billions. The political result is the increasing collapse in support for the “mainstream,” particularly liberal, social democratic left. Everywhere these parties have slumped in support, while so-called “populist” parties of the hard right have gained in support and even entered governments in Europe. The American phenomena of Trumpism is emerging everywhere in Europe, Latin America, and even in parts of Asia. 

What does the new right offer? They claim the failure of capitalism is due to immigrants, “globalization,” big business, and “wokeism.” They want protectionist policies for trade and industry, getting out of international organizations, the removal of immigrants, (particularly those of different skin color or religion), the ending of welfare for the poor, and the privatization of public services. 

At the moment, these policies have some traction. They herald the first seeds of neofascism. And while the socialist left remains in disarray and unable to mount an effective movement, those seeds will grow.

What impact has the long depression and various states turn to industrial policy and protectionism done to globalization? How is this triggering new rivalries and conflicts within the state system? How will these impact global capitalism?

In the depression of the late 19^th century, geopolitical rivalry between old hegemonic powers (then Britain and France) and new rising powers (the United States and Germany) intensified. The world entered an arms race, adopted protectionist trade and other measures, and eventually went to war. The Great Depression of the 1930s saw a similar result.

In the post-1945 period, US capitalism was dominant and set the international rules for trade, investment and politics. But US hegemony began to decline relatively in the 1970s as Germany and Japan rose. The collapse of the Soviet Union at the end of the 1980s gave a new lease of life to the US “globalization” of capital, as the imperialist countries moved their manufacturing abroad and reduced barriers to the free movement of their capital.

However, the Great Recession changed that. Globalization stuttered, US hegemony declined, and a new economic colossus, China, emerged to threaten the imperialist bloc. Russia too gradually refused to play ball with US-European capital. 

We have entered an increasingly multipolar world. US imperialism is still dominant, but it is desperately trying to strangle, surround and crush China’s growing economic power. This is the great geopolitical struggle of the 2020s—with the real risk of military conflict down the road, as at the end of previous depressions.

Source : https://spectrejournal.com/the-persistence-of-global-capitalisms-long-depression/