by Michael Roberts
The world’s stock markets continue to make new all-time high
index levels as central banks continue to pronounce that they will not
push up interest rates for investing any time soon. The ECB has cut
interest rates and is planning further credit easing measures. So is the
Bank of Japan. And last week, the US Federal Reserve policy committee
unanimously voted to hold off raising interest rates until late 2015 at
the earliest. Only the Bank of England has hinted at raising its rate
some time in 2015.
But while the world’s stock and bond markets are booming, the ‘real’
economy of output and incomes shows little sign of getting a proper head
of steam. Last week, the International Monetary Fund (IMF) slashed its
US growth forecast for 2014 from 2.8% it predicted at the beginning of
this year to just 2% after a “harsh winter” led to a weak first quarter.
It continued to forecast 3% real GDP growth in 2015, but given that it
has now lowered its annual forecast for six times in row, that 3% may
not survive. And also last week, the US Fed reduced its forecasts for
real GDP growth this year from 2.8-3.0% to 2.1-2.3%. Again, like the
IMF, it kept its forecast for 2015 intact at about 3.1-3.2%.
World stock investors may be doing well, but the majority of people
are not. The IMF agreed that the US recovery from the Great Recession
had been better than in many other developed economies. But it noted
that the productivity growth was poor and reckoned that the labour
market was weaker than suggested by the headline numbers for people out
of work. Long-term unemployment was still high and many people are not
even seeking work, which means they don’t register in the official
jobless numbers. Real wages are stagnant (see graph below) and poverty
is stuck at more than 15%. It even called for a hike in the US minimum
wage to help boost spending!
In the UK, real wages are still falling. And a new report from the
High Pay Centre found that the UK’s lowest average disposable income is
amongst the worst in the whole EU even though Britain’s richest people
enjoy some of the highest salaries. The top 20% of UK households have an
average disposable income of £31,670 (€39,662, $53,785) a year, which
puts them behind only Germany and France. However, the lowest 20% in
this country have an average disposable income of just £5,506 – the
poorest in western Europe!
“Simply, for the millions of people comprising the poorest fifth of
our population, life is much worse here than it is for the poorest fifth
in virtually every other north-west European country – countries we
would like to think of as our equals,” stated the study. And this
Piketty-style level of inequality is not going to be reduced. The UK’s
Institute for Fiscal Studies predicts that, as the economy recovers,
inequality will be ‘about the same’ as pre-recession levels by 2015-16.
Also, the Poverty and Social Exclusion project has found that the
number of British households falling below minimum living standards has
more than doubled in the past 30 years, despite the size of the economy
increasing two-fold. Now 33% of households endure below-par living
standards – defined as going without three or more “basic necessities of
life”, such as being able to adequately feed and clothe themselves and
their children, and to heat and insure their homes. In the early 1980s,
the comparable figure was 14%.
Almost 18 million Britons live in inadequate housing conditions and
that 12 million are too poor to take part in all the basic social
activities – such as entertaining friends or attending all the family
occasions they would wish to. It suggests that one in three people
cannot afford to heat their homes properly, while 4 million adults and
children are not able to eat healthily. 5.5 million adults go without
essential clothing; 2.5 million children live in damp homes; that 1.5
million children live in households that cannot afford to heat them;
that one in four adults have incomes below what they themselves consider
is needed to avoid poverty and that more than one in five adults have
to borrow to pay for day-to-day needs. 21% of households are behind with
household bills against 14% in the late 1990s. More than one in four
adults (28%) have skimped on their own food so that others in the
household might eat.
Behind the failure to restore reasonable levels of economic growth
since the Great Recession is a failure to invest by the capitalist
sector, while public sector investment has been slashed in austerity
measures (see my post, http://thenextrecession.wordpress.com/2013/09/17/nobodys-investing/).
Capitalists are investing in the stock market but not in building homes
for people. In the UK, housing starts have failed to keep up with
population growth for the most part of two decades and is currently
falling further behind.
Many smaller companies are not making a profit or are heavily in
debt. The Bank of England has found that the percentage of companies
that don’t make a profit reached 35% in 2011, the last year for which
figures were available. This figure of loss-making firms has been
steadily rising since 1998 when it was 23%. These are ‘zombie’
companies, just making enough to service their debts but having nothing
to pay workers more or invest in new technology. No wonder UK
productivity levels continue to slip (see my post, http://thenextrecession.wordpress.com/2013/12/04/cash-hoarding-profitability-and-debt/).
And in a great new paper to be delivered to the upcoming Rethink Economics conference in London next weekend
Michael Burke shows that this failure to invest is endemic to the major capitalist economies (The Great Stagnation as the Crisis of Investment).
Burke shows that gross investment (both business and government and
before depreciation) experienced the sharpest decline of all main
components of GDP during the Great Recession. Such gross investment is
down 5.2% in the OECD since 2008 and as a proportion of GDP it is down
from 22% to 20%, reaching a new low since 1960.
Burke finds that real GDP growth in the OECD has been in a secular
slowdown over a very prolonged period. Every successive decade has seen
slower growth than the preceding one. But the slowdown in investment has
been even more pronounced. While OECD GDP growth in the most recent
decade to 2010 was little more than a quarter of the rate in the 1960s,
gross investment growth is little more than one-twentieth of the 1960s.
Indeed, in the top seven capitalist economies (G7), gross investment
fell in absolute terms in the final decade to 2010.
Yet since 1960, consumption has risen as a proportion of GDP. So it
has not been a Keynesian ‘lack of demand’ from consumers that has caused
the slowdown in economic growth for the major economies, but capitalist
sector investment. 21st century capitalists are good at speculating in
financial assets and the stock market with cheap money, but are failing
to accumulate in productive sectors where profitability just ain’t good
enough for them.
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