It is conventional wisdom pontificated ad nauseam on business channels like CNBC and Bloomberg that employment figures are “lagging indicators” of the state of a country’s economy. Their argument is that as recessions begin businesses start to contract the labor force in order to “hedge” against expected declines in revenues and profits, even if they are not at that time losing money. This “streamlining” and “cost-effective” measure is designed to keep businesses profitable even as the economy as a whole slides into crisis. The result is that those employers who take proactive measures by dismissing their workers in advance of a deepening economic crisis will be the healthiest coming out of it. They will have surplus capital available to capture market share and swallow their competition. Such activity is a sign of economic health, so the argument runs, an indication that the “natural functioning” of the business cycle is working and the markets are “correcting themselves.” The result is that healthy businesses that continue to lay off workers as the economy bottoms will invest in new technology, improve efficiency in production, and prepare the ground for the next stage in the economic recovery. That means unemployment is likely to continue increasing even as businesses’ balance sheets get healthy, the stock market rises in value, and productivity rates improve. Those workers still employed are likely to receive better wages through working longer hours (not necessarily wage increases), which improves their purchasing power, thus contributing to the overall expansion of the economy – even as millions continue to languish on unemployment lines and more join them month after month.
The argument outlined above is flawed and reflects the perverted standards used by capitalist economists to measure economic vitality. As is obvious, the perspective outlined above to determine whether an economy is expanding or contracting is taken entirely from the standpoint of corporate balance sheets. A business is deemed “healthy,” i.e. profitable, even as those workers it lays off have seen their lives disrupted if not destroyed through loss of income along with health care and pensions attached to their place of employment. The balance sheet of the unemployed worker is far from healthy, though. Since the current economic crisis began over 5.1 million jobs in the
Many leading economists have also pointed to the jobs picture as particularly worrisome in the current crisis. Roger Altman, former Deputy Treasury Secretary in the Clinton Administration, warned in an essay published by the Financial Times on 5 April 2009 that this economic contraction should not be measured against previous post-World War II downturns. The difference this time is the extent to which
Karl Marx long ago recognized the fundamental importance of employment levels and wages as a measure of the relative strength or weakness of an economy. Writing in The Theories of Surplus Value, Marx notes that “[The] relative diminution in the reproduction of variable capital, however, is not the reason for the relative decrease in the demand for labor, but on the contrary, its effect.” In other words, falling profits does not cause rising unemployment, rather declining employment causes a reduction in socially available capital since it is labor power that generates capital. As fewer people are working shorter hours, the amount of “wealth” generated in society declines forcing a contraction in consumption, availability of goods, and shrinking balance sheets. To save themselves, businesses throw more people out of work, compounding the problem, leading to another cycle of economic retrenchment. This is the process identified by Altman in the piece discussed above and by Sam Webb, National Chair of the Communist Party USA, in an address to the Party’s National Committee on 21 March 2009. The dimensions of the current crisis, though, are far beyond those of earlier periods in capitalism’s history because real wages for working people have declined steadily and sharply for better than 35 years. This gap between purchasing capacity and real wages was compensated for by an explosive expansion of credit to all sectors of society (by some accounts even to family pets!). Marx warned of this process as early as 1849 when he described the escalating crises of capitalism. Noting the insatiable appetite of capitalists to expand their capacity to accumulate wealth, Marx recognized that eventually they “set in motion all the mainsprings of credit to this end, [as a result] there is a corresponding increase in industrial earthquakes, in which the trading world can only maintain itself by sacrificing a part of wealth, of products, and even of productive forces to the gods of the nether world.” That is the process outlined above and cheered by capitalist ideologues on
Those propagandists for capital assert that “money makes money,” or that businesses with access to credit and surplus capital invest those resources in the economy creating jobs. This is the basis for their claims that the key to economic salvation is massive tax cuts for the rich and for businesses in general. It is an assertion that wealth in society is generated by “putting money to work.” Yet, as Marx noted, this fetishizes money and obscures the production process that created that money in the first place. In the Grundrisse Marx outlined the source of wealth in society and the processes whereby labor power (workers making things) becomes transformed into exchange value (money) that is then circulated back to the worker in the form of alienated labor (commodities). “Production,” he writes, “thus appears as the starting-point; consumption as the final end; and distribution and exchange as the middle; the latter has a double aspect, distribution being defined as a process carried on by society, exchange as one proceeding from the individual.” Without workers making things – transforming raw materials into finished goods by adding their labor power to the product – there is no wealth generated in society. The fact that under capitalist relations of production surplus labor value is seized by the private corporate owner and sold for individual profit on the open market does not negate the fundamentally social nature of production or the source of society’s wealth.
The fact that Western capitalist economies embraced the global and massive expansion of credit as the mechanism to compensate for their seizing ever larger shares of the surplus value generated by workers around the world only delayed the day of reckoning for the contradictions inherent in capitalism while exacerbating them at the same time. Thus, when credit could no longer be absorbed by the productive classes of the world and their debt burden forced a retrenchment in spending – or default on their mortgages, credit cards, auto loans, student loans, etc. – this caused a decline in consumption. It was the beginning of an accounting of the decline of real purchasing power by workers that had been accumulating for more than three decades. As consumption slowed, businesses began to lay off workers outright, accelerating the decline in consumption, which led to further layoffs as capitalists sought to protect their profit margins. Simultaneously, we began to witness immense pressure on workers to work shorter hours, take pay cuts, work for free, eliminate benefits, take early retirement (even as their retirement accounts evaporated in the stock market crash), and their credit lines were cut from underneath them as their income dried up.
The result has been mounting unemployment and a corresponding massive contraction in the wealth-generating capacity of the