Hi folks, I’m excited to share that I’ll have an article published in Capital & Class within the next few weeks. When that happens, I’ll be sure to share an open-access link! In the meantime, I want to share an essay of mine that I have no plans to publish elsewhere. It builds on much of the work I’ve written in these Substack pages. Thanks!
Crisis or not?
What is the present state of American capitalism? Over the past two years, the Biden administration has been on a public campaign to raise awareness about their economic agenda,[1] [2] tying it to ongoing, seismic shifts in the global economic order that they seek to grasp and lead. As Biden declared in 2022:
We are at an inflection point I believe, in the world economy. Not just in the economy, but the world. It occurs every 3 or 4 generations...Since 1946 we've established a liberal world order…Now is the time when things are shifting and there’s going to be a new world order out there, and we’ve got to lead it.
In response to the perceived conjunctural shift, the Biden administration seems to have put forth a plan. They’ve branded it as “Bidenomics,”[3] and are insistent that it has already produced favorable results for American businesses, workers, and consumers alike.[4] They’ve proclaimed that the chances of recession are slim with a probable ‘soft-landing’ underway,[5] and that a new era of productive growth is upon us, distinct from the previous era’s financial market-driven growth.[6]
A number of economists, economic journalists, and even social media influencers have been leading the charge in providing additional support to the administration’s public awareness campaign. I will provide three such examples. First, there is the Stony Brook economics professor-turned-blogger Noah Smith, who has written a now-viral Substack post titled, “Vibes vs. Data,” with the concluding statement that, “Basically, the Biden supporters are right; the U.S. economy is truly excellent right now.”[7] Second, the Financial Times has published at least two “studies” arguing that people are ignorant for feeling like the economy is bad.[8] Here’s one of the popular lines from the most recent article: “It seems US consumer sentiment is becoming the latest victim of expressive responding, where people give incorrect answers to questions to signal wider tribal political or social affiliations."[9] Finally, there is the Biden administration’s collaboration with social media. Since November 2023, they’ve been working with social media companies, via influencers, to spread positive messaging about the economy, as well as diminish - or label as ‘misinformation’ - certain messages that are critical of it. As the Washington Post notes, “The Biden administration is working with TikTok creators to tell positive stories of Biden’s economic stewardship, while also working with social media platforms to counter misinformation."[10]
The messaging campaigns have argued that the population is dealing with a ‘negativity bias,’ where people are saturated with frightening narratives about the economy that lead to a distortion of economic reality; they’ve argued that peoples’ “vibes” are off relative to the data.[11] The “hard economic facts,” we are told, show a booming economy.[12] Among other indicators, they may point to the stock market at an all-time high, increased productive output,[13] and corporate profit rates finally rising after having fallen for three straight quarters.[14]
Yet, in what follows, I offer some data to counter their claims and overall narrative of a stable, healthy American capitalist economy. In doing so, I seek to convince the reader that the American capitalist economy, while escaping a technical recession in 2023 and 2024, has been in a state of crisis marked by various financial-economic conditions and regulatory decisions, pre- and post-covid. I will address the current state of the economy from the perspective of both capital and labor, describing conditions in terms of statistical trends in financial and economic activity of banks, businesses, and population. I will start more abstract and historical, highlighting a number of indicators of crisis at the level of gaps between productive and fictitious capital, or between profit capital and interest-bearing or credit capital, and then I will explore some every-day, material conditions faced by individuals as economic actors. Ultimately, the picture I paint will be one of capitalist crisis at the level of banking, business, and population (workers/consumers), in a way that may threaten the relative stability of the capitalist economic system.[15]
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Manifestations of crisis
One way to study the health of the economy is to map its various, interdependent forms of capital output and circulation. This is part of a tradition of Marxist analysis taken up today by those such as David Harvey, Fabio Vighi, Stavros Tombazos, Andrew Kliman, Yanis Varoufakis, Ted Reese, and William Robinson.[39] I attempt to understand a matrix of capital circuitry that includes money capital, commodity capital, and productive (means of production, including labor) capital.[40] Paired with grasping this matrix requires an analysis of the differences and relations between the economy of commodity production and profit accumulation (productive economy) and the economy of money capital accumulation (financial economy).[41] Finally, following Marx, Marxist crisis theorists argue that a capitalist crisis exists when there are major gaps or disproportionalities in the complex circuitry of capital. For example, too little money capital may exist relative to commodity capital, or vice versa. Similarly, too little profit capital may exist relative to credit capital. In such instances, financial-economic crisis may arise in the form of inflationary or deflationary spirals, or liquidity or illiquidity spirals, with disastrous affects to the population, largely felt in terms of higher unemployment or underemployment, greater debt burdens, lower purchasing power, and more bankruptcies.
Following this analytical framework, Marxist researchers like Stavros Tombazos have found that, “In 1980, the assets of money capital were roughly equal to world GDP [total money value of commodities], while in 2010 they were four times as high.”[42] This trend of the 1980-2010 period, one of an increasing gap between money capital and commodity capital, is followed by the fact that, “Never before in post-war history… has there been such a long-term and at the same time general stagnation of labour productivity in the developed world as in the period 2008–2018.”[43] As just one representation of this gap between finance capital and commodity- profit capital, the British Marxist Ted Reese notes that: Official stock market capitalization (the value of publicly-traded stocks) as a percentage of nominal GDP in the US peaked at 199% in November 2021…the previous highs having been 140.5% in March 2000; 101% in November 2007; and 90% in August 1929.[44]
As Reese further breaks down, short and long-term government bonds have a central role in fueling financial market growth.[45] The critical macrofinance scholars Carolyn Sissoko and Daniela Gabor, in their respective works, have further showed the centrality of government bonds in the smooth functioning of the overall financial system. As Sissoko notes, there is an “excess demand for these safe assets,” so much so that they have become “an exogenous characteristic of the modern economy.”[46] For Gabor, what she calls the market-based shadow banking of American finance “organizes credit creation around (collateral) market liquidity [ability to render collateral-assets into liquid money/cash]” and thereby demands “(some) states to issue debt in order to meet demand for collateral.” With this in mind, it’s worth noting the current trends in bond markets that have historically indicated capitalism in a state of crisis.
In July 2022, the bond yield curve inverted (an inverted yield curve means that U.S. bonds with an earlier maturity date now have a higher return on investment than longer-term bonds; for example, a 2-year bond having a higher fixed return rate than a 10-year bond).[47] On January 31, 2024, it became the first time since 1957 that a recession has not begun within at least 18 months of an inverted yield curve; prior to this, it happened 13 consecutive times.[48] While we escaped this historical benchmark, knowledge doesn’t exist to answer whether we have escaped the recession threat entirely. In any case, a recession does not need to occur for there to be a crisis in the capitalist system (For example, it is generally understood that throughout the 1970s, capitalism faced a period of structural crisis related to a combination of stagnation, inflation, and low profit rates, and yet, the country was only technically in recession in 1970 and again from 1973-75;[49] Furthermore, we only had technical recessions for half a year in 1980 and again from August 1981 to November 1982),[50] but financial historians understood the whole decade as the “1980s Savings and Loans Crisis.”)[51]
Beyond the bond markets, and in what seems like a positive development that represents an overcoming of the inverted yield curve as a major threat to the financial system, it is true that the stock market continues to rise and hover around its all-time high. There is at least one concerning aspect here, though, tied back to the bond markets. Every time there has been a post-inverted yield curve rally in the stock market,there has never been a time in history where it hasn’t been more thanfully reversedby a subsequent downturn.[52]
In addition to financial conditions, GDI and GDP development (related to businesses and wage earners) also indicate concerns with the economy. As of October 2023, GDI (gross domestic income) moved into negative territory (for year-over-year growth). GDP (gross domestic product) is doing the opposite, but as USA Today reports, the only other time in history that GDP has gone up while GDI has gone negative was right before the Great Recession.[53]
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Beyond the GDI and the GDP relationship, more concrete economic health indicators can help to reveal everyday impacts on consumers and workers. Perhaps most importantly, inflation is slowing, but prices are still significantly up. General consumer prices went up 4.7% in 2021, then 8% in 2022, and another 3.5% in 2023. Here are the metrics on four essential consumer goods, in particular: Groceries are up 25% from pre-pandemic levels.[54] New car prices are up 21%.[55] Home rent prices are up 18% (and still increasing).[56][57] Home purchase prices are up 18.74%.[58] Mortgage payments are up 78% from 2021. Medium mortgage payment is at a record high of $2,894/month, an increase OF 14% from 2023, 23% from 2022, and 78% from 2021.[59]
If inflation hasn’t gotten significantly under control, what about labor markets (employment and job growth)? Are there signs of crisis here, too? Beyond inflation, the mainstream press argue that job growth is “looking good.” However, it’s difficult to tell the quality of these new jobs (full-time or part-time, benefits included, competitive and livable wages, etc.). There is some helpful data, though. For instance, here are some concerning labor trends reported at the end of 2023[60]:
(1) The number of Americans working at least two jobs is at its highest rate since before the pandemic.
(2) The number of Americans working one full-time job and one part-time job is at an all-time high.
(3) The number of Americans with two full-time jobs is at an all-time high.
(4) Illegal child labor has nearly quadrupled since 2015; relatedly, state de-regulation (axing of) child labor laws is increasing, arguably in order to allow for more low-wage workers (the minimum wage for children is significantly lower than the adult minimum wage).[61]
Finally, with regard to labor and income, 62% of Americans are still living paycheck-to-paycheck as of October 2023.[62]
Yet, jobs and income aren’t the only indicators of an economy’s health. We can also look at the ever-expanding debt crisis. As the St. Louis Fed reports, credit card debt has surpassed $1 trillion for the first time, and the average APR for all credit card accounts is 21.19% (a 43% increase from pre-pandemic levels).[63] In part because of the higher interest rates, the rate of credit card delinquencies (60+ days past due debt) is the highest it’s been since 2010.[64]
This debt crisis isn’t just faced by households, though, as highlighted by the everything bubble. The banking system and corporations face debt risk on an even larger scale. Recently, Moody’s – one of the “Big Three” credit rating agencies – increased the amount of debt in the system that they consider “junk-rated” by over 27%.[65] According to them, there is now $1.87 trillion in debt due between 2024 and 2028 that they consider at risk of default because of the poor financial situation of the borrower. The ratings change comes after a year (2023) of the highest number of yearly corporate bankruptcies and yearly bank failures since the Great Recession.[66][67]
On real estate side of this debt crisis, about half of the $3 trillion of debt in the commercial real estate (office space) market is due before the end of 2025, at the same time that office space values have dropped simply because of less demand (a result of the work-from-home revolution).[68] Delinquencies in this sector have already been rising and regional, midsized banks overwhelmingly hold this debt as they’re the most common source for office space loans.[69] This, of course, puts these banks –about 570 of them, in particular – at major risk (over-exposure).
Still, this is not to suggest that the larger banks are safe from commercial real estate issues, as three of the ‘Big Four’ banks (JP Morgan, Wells Fargo, Citigroup) are also the three largest holders of collateralized loan obligations (CLOs), with their holdings representing between 14-20% of their total equity. Commercial real estate (CRE) loans are one of the most common loans collateralized for CLOs (which are put together by banks to obtain even more loan capital), and Bloomberg reports that, as of January 2024, 8.6% of the CRE loans collateralized by U.S. banks as part of their CLOs were 30-plus days delinquent.[70]
As a final point regarding the ongoing financial-economic health of the U.S., it’s worth noting that the health indicators for 2024 post-covid economy and the 2019 pre-pandemic economy are about the same (“back on track”), or even slightly better.[71] However, this comparison is part of a narration issue. A struggling capitalist economy has been the standard for at least a decade and a half, as highlighted most concisely by Tombazos’ research explored at the very beginning of the data portion of this prospectus (p. 5). In my view, a slightly better economy than 2019 – from the standpoint of both capital and labor – is far from revitalized, booming, or “truly excellent right now,” as Noah Smith suggests.[72]
To summarize, the cost of living at the point of groceries, transportation, and housing - perhaps the three most essential commodities for ordinary consumers – continues rising faster than the Federal Reserve’s preferred pace,[73] and credit itself (the cost of borrowing money, whether a government, bank, business, or individual) is still the most expensive it’s been since 2001.[74] Paradoxically, mainstream press hailed 2023’s third-quarter numbers as proof that we’ve escape from recession, a miraculous recovery,[75] all while the Board of Governors of the Federal Reserve has publicly admitted that “Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter.”[76] Furthermore, in a research paper released in the Federal Reserve’s Discussion Series, one of their lead economists titularly argues that we’re approaching an “End of an era: The coming long-run slowdown in corporate profit growth and stock returns.”[77] This appears to fit neatly with the World Bank’s expectation of an incoming slowest half-decade of growth in 30 years. [78] Both the Reserve and the World Bank point to a necessary period of high interest rates as the main culprit for the stagnant growth that we should expect to come. With this in mind, what explains the discrepancy between the White House’s perception of strong national economic health and the Federal Reserve’s view that we should expect financial and non-financial rates of profit to stagnate in the coming years? Is it simply that the Biden administration, as campaign strategy, wants to convince Americans that they’ve been strengthening the economy, thus leading to a biased presentation that the economy is indeed better under the administration? Or, conversely, are the White House and Federal Reserve operating under different frameworks, or different sets of indicators, for making sense of economic health?
This last question is of particular interest, as an answer in the affirmative may also suggest different reasons and strategies for intervention, whether broadly in macroeconomic management or more specifically in crisis management. For instance, a difference in economic rationality and corresponding regulatory frameworks might help to explain why the White House is actively fighting monopolistic mergers in the same period that the Federal Reserve is expected to use its regulatory power to allow a Capital One + Discover “mega-merger,” creating another “Too Big to Fail” bank.[79] [80] Given the Federal Reserve’s perception of ongoing and incoming economic slowdown, it’s possible that the Reserve is in favor of the bank merger because of its history of "believ[ing] that American strength comes from our capital markets, not the industrial and commercial sectors underwritten by local banks,” as the economic journalist Matt Stoller puts it.[81]
Works cited:
[1] The White House, 2023a.
[2] The White House, 2023b.
[3] CNN, 2023a.
[4] White House, 2023a; 2023b.
[5] CNN, 2023b.
[6] White House, 2023b.
[7] Smith, 2023.
[8] Financial Times, 2023a; 2023b.
[9] Ibid., 2023b.
[10] Washington Post, 2023; The administration’s operations aren’t fully clear and there has yet to be any published scholarly attention on it.
[11] Smith, 2023.
[12] Ibid.
[13] White House, 2023a; 2023b.
[14] AP News, 2023a; Axios, 2023.
[15] The World Bank, 2016.
[16] Harvey, D. The Limits to Capital. Verso, 2006; Harvey, D. “Capitalism’s Ponzi scheme investments.” YouTube, 2023.
[17] Hudson, M. The Bubble and Beyond. Islet, 2014.
[18] Feldner, H., Fabio Vighi and Slavoj Žižek. States of Crisis and Post-Capitalist Scenarios. Routledge, 2017.
[19] Harvey, “Capitalism’s Ponzi scheme investments.”
[20] The following paragraph features a number of updated data-points that were featured in my essay for Sublation. See: “Fabio Vighi’s Senile Capitalism Theory and the Ongoing Banking Crisis of March 2023.” Sublation Media, 2023.
[21] Robinson, W.I. “Global capitalist crisis and twenty-first century fascism: Beyond the Trump hype.” Science & Society 83(2), 2019, p. 159.
[22] Robinson, “Global capitalist crisis.”; Neufeld, D. “The largest bond markets in the world.” World Economic Forum, 2023.
[23] West, E. Buy Now: How Amazon branded convenience and normalized monopoly. MIT Press, 2022; Varoufakis, Y. Technofeudalism: What killed capitalism. Penguin Books, 2023.
[24] Zuboff, S. The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power. New PublicAffairs, 2019.
[25] Fuchs, C. “Web 2.0, prosumption, and surveillance.” Surveillance & Society 8(3), 2011, p. 288-309; Mosco, V. The Political Economy of Communication. SAGE, 2009; Andrejevic, M. “The Work of being watched: Interactive media and the exploitation of self-disclosure. Critical Studies in Media Communication 19(2), 2022, p. 230-248.
[26] Debord, G. The society of the spectacle. Zone Books, 1995.
[27] Steinberg, M. The Platform Economy: How Japan Transformed the Consumer Internet. Minnesota University Press, 2019.
[28] Schiller, D. “The Neoliberal networking drive originates in the United States,” Digital Capitalism: Networking the Global Market System. MIT Press, 2000, p. 1-36.
[29] West, S.M. “Data Capitalism: Redefining the logics of surveillance and privacy.” Business & Society 58(1), 2019, p. 20–41; Andrew, J., M. Baker, and C. Huang. “Data breaches in the age of surveillance capitalism: Do disclosures have a new role to play?” Critical Perspectives on Accounting 90, 2023.
[30] Tombazos, 2019.
[31] Marx, K. Capital: Volume II. Penguin Books, 1992, p. 132.
[32] Ibid.
[33] Marx, K. Capital: Volume III. Penguin Books, 1991, p. 7.
[34] Ibid., p. 599.
[35] Sissoko, C. “Repurchase agreements and the (de)construction of financial markets.” Economy and Society 48(3), 2019, p. 315-341.
[36] Marx, Capital: Volume 3, p. 641.
[37] Three moments of popular institutions/press coming to the realization that Marx may be useful for understanding and getting beyond ‘our contemporary situation’: Santucci, M. “Pope Francis Calls for Greater Dialogue and Cooperation Between Christians, Marxists.” National Catholic Register. EWTN News, 2024. https://www.ncregister.com/cna/pope-francis-calls-for-greater-dialogue-and-cooperation-between-christians-marxists; Mcelwee, S. “Marx Was Right: Five Surprising Ways Karl Marx Predicted 2014.” The Rolling Stones. Penske Media Corporation, 2014. “https://www.rollingstone.com/music/music-news/marx-was-right-five-surprising-ways-karl-marx-predicted-2014-237285/; Was Karl Marx Right?” The Economist. YouTube, 2018.
[38] Feldner, et al. States of crisis.
[39] Harvey, 2011; Vighi, 2023; Tombazos, 2019; Kliman, 2015; Varoufakis, 20233; Reese, 2022; Robinson, 2019.
[40] Marx, 1992.
[41] Ibid., 1991.
[42] Tombazos, 2019, p. 65; See also, Robinson, 2019.
[43] Tombazos, p. 84.
[44] Reese, 2022.
[45] U.S. bonds are considered ‘safe assets’ or ‘risk-free assets’ because of “the fact that they are unlikely to fall in value during a liquidity crisis” (Sissoko 2019: 319), though, their safeness or risk-freeness is starting to get questioned more frequently (Gabor, 2016).
[46] Sissoko, 2019, p. 319.
[47] Longtermtrends, 2024a.
[48] Ibid. 2024b.
[49] Ibid., 2024b.
[50] Ibid., 2024a.
[51] Brown, J., 2024.
[52] Brown, J., 2023.
[53] USA Today, 2023.
[54] AP News, 2023b.
[55] Official Data Foundation, 2024a.
[56] Ibid., 2024b.
[57] Yahoo Finance, 2023.
[58]Official Data Foundation, 2024c.
[59]
[60] USA Today, 2023b.
[61] Conover, 2023.
[62] CNBC, 2023.
[63] Federal Reserve Bank of St. Louis, 2023a.
[64] Ibid., 2023b.
[65] Business Insider, 2023.
[66] Reuters, 2024.
[67] American Banker, 2023.
[68] Bloomberg, 2023.
[69] The Daily Hodl, 2023.
[70] Seeking Alpha, 2024.
[71] World Economic Forum, 2023.
[72] Smith, 2023.
[73] Yahoo Finance, 2024a; 2024b.
[74] Russo, 2023.
[75] CNN, 2023c.
[76] Board of Governors of the Federal Reserve System, 2023.
[77] Smolyansky, 2023.
[78] France24, 2024.
[79] Recently, the Biden administration’s Department of Justice sued Apple, “alleging it monopolized smartphone markets” (Reuters, 2024b). As of March 2024, the administration has filed lawsuits against Google, Facebook, Microsoft, Amazon, Ticketmaster, and now Apple. Critics have argued that some of the lawsuits aren’t aggressive enough, in the sense that not enough of the monopolistic practices of these companies are being targeted, and the legal team could draft better arguments against the ones that are being targeted (Stoller, 2024).
[80] Stoller, 2024.
[81] Morning Star, 2024.
