Michael Roberts: A Marxist Theory of Crisis in the Contemporary World

As a worker and long time union activist, I want to encourage working class people who are seeking answers to the many issues we are facing in our daily lives, to read Michael Roberts' answers to important questions in this interview. I think that workers often retreat from a subject when we feel we don't fully understand it or it appear's too complex; a result of class oppression in my view. I know I did. But one doesn't have to understand every detail, every aspect of a subject to recognise that its main premise is fundamentally sound. One doesn't have to be an "angler" to catch fish. If we understood everything about a subject the moment we opened the page there'd be no need to read on. It's like taking up hiking; we don't start with a trek up Kilimanjaro. 

Michael Roberts, a Marxist economist I have know for a long time, touches on some important subjects that are important to all workers. The issue of China for example and economic questions like finance capital, investment, crypto currency or what causes recessions or slumps. I think it is important to develop some understanding of China's incredible rise and how this has occurred.

I am not an expert in economic theory, Marxist or otherwise,  and there is a need for "experts" in any subject if we want to fully understand them. We never stop learning in a way. But I do grasp the general process that is at the heart of Marx's explanation of the capitalist system of production that Michael touches on here and, and that enables me to see things more clearly. It's an explanation that corresponds with objective reality, my life as a worker, a seller of labor power not a buyer of it. There is powerful propaganda in society that denies class oppression or that workers are exploited at all. Roberts says of the tech worker, "knowledge workers are just as much part of the proletariat as manual workers doing physical tasks." They are learning that truth at a rapid pace. The workplace is the best teacher. Read on, and if you hit an obstacle, put it aside, you can return to it later. Learning is a process. Richard Mellor

A Marxist Theory of Crisis in the Contemporary World

This is an English translation of an interview published in Chinese by the Chinese Academy of Social Sciences in 2025 in World Socialist Research.

1. Michael Roberts, thank you for your time! Could you briefly tell us when you got to know and accept Marxism and what impact did your previous job in the City of London have?

If you have a Marxist insight into the workings of finance capital, you are much less likely to assume that all will be well with financial investment. One lesson for workers that I learnt and this applies to China too: stay out of financial markets. Even better, workers’ pension funds should not rely on stock market investing as these funds continually lose workers’ contributions by doing so. But it works the other way too. A close understanding of the workings of the financial beast can help us explain better the fragilities and speculations of the system.   

2. What do you think is the core idea of Marxism? What’s the relationship between historical materialism and the critique of political economy? 

The core ideas of Marxism can be reduced to two key concepts. 

First, the history of human organisation since primitive times is the history of class struggle. The materialist conception of history is that change for better or worse is driven by the material interests of classes and, in particular, by the ruling class (feudal lords, capitalist companies) and the working class. While individuals can play key roles at moments in history (decisions and actions by kings or by revolutionary leaders), in the final analysis, change depends on economics and classes. As Marx said: “men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.” 

The second core idea is the law of value under capitalism. Capitalism is a system of production for the profit of the owners of the means of production, who exploit those who own nothing but their ability to work for the owners. Labour creates all the things and services that we use and need, but the value of that labour is appropriated by the owners of the means of production as ‘surplus value’ over and above what labour receives for its work. That surplus value is accumulated as capital. Our social needs then depend on the decisions of capitalists on whether it is profitable or not. This explanation of the workings of the modern economy is denied by the apologists for capitalism – but it is compellingly clear. 

3. The theory of crisis is an important part of Marx’s critique of political economy. There have been many debates among Marxists on how to understand Marx’s theory of crisis. What do you think of Marx’s theory of crisis, and the relationship between overproduction, underconsumption, and the tendency of the rate of profit to fall? 

Yes, a theory of crises under capitalism is very important. The apologists for capitalism deny that there are any endemic crises in capitalist production – ie regular and recurring slumps in production, investment and employment. For them, such crises are either random events, one-offs or the result of bad decisions, speculations or negligence. The apologists deny that crises are inherent in the capitalist system of production for profit. But Marx’s law of value reveals why regular crises are endemic. Capitalist production only takes place if profits are made and Marx shows that a contradiction arises between the drive for more production and profitability of that production (ie profits relative to capital invested). Capitalists compete against each other to gain market share and a bigger cut in the profits appropriated from workers. In order to gain an advantage, they resort to using labour-saving technology to reduce costs and increase the productivity of labour. But Marx argued that profit only comes from labour going to work, so if investment is increasingly in machines etc relative to labour, productivity may rise but at the expense of a tendency for profitability to fall. Eventually, profitability may fall so much that it causes a fall in total profits. Then capitalists stop investing, close down production and lay off workers. Unemployment rises alongside unsold goods and services. This is a slump. It can only be rectified by getting profitability rising again and that requires removing unnecessary workers, weak companies and keeping wages down. Then the whole process can start again. Slumps are a necessary ‘cleansing’ process for capital to recover. Marx outlines his theory of crises most clearly in Capital Volume 3, Chapters 13-15. 

However, many Marxists do not accept that the law of tendency of the rate of profit to fall as explained in these chapters is relevant to crises in capitalism. Instead they consider two other main theories. The first is that there is ‘underconsumption’. This is when workers cannot buy back all the goods and services produced by the capitalists because they do not have enough money. Both Marx and Engels disputed this underconsumption theory, pointing out that workers will never have enough money to buy back all the output being sold, precisely because wages do not contain all the value created and realised as the capitalists have appropriated any surplus value (the difference between the value of commodities sold and wages going to the workers; in other words, profits). The point is that capitalists do not need to sell all their commodities to workers; much of sales is to other capitalists (eg steel is sold to auto manufacturers to make cars etc). 

The other alternative theory is that of ‘overproduction’. Capitalists just keep producing to accumulate more profits without considering whether they can sell their production on the market. They overproduce relative to demand. The problem with this explanation of crises is that it does not explain when production becomes ‘too much production’. It may never happen, or it could happen at any moment. There is no logic to this theory. Put it this way, if supply is in line with demand, can there still be a crisis of investment and production in capitalism? Marx would say yes, because the profitability of what is being produced is what decides whether capitalists invest or not. Indeed, this is how crises unfold. Profitability falls, then total profits and then capitalists try to sell more to cover falling profits. But that means ‘overproduction’, forcing capitalists to lower prices and/or cut production. Overproduction is the result of the overaccumulation of capital ie falling profitablity of capital invested, not the other way round.

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4. In 2020, you published the book Engels 200 – His Contribution to Political Economy, in which you systematically introduced Engels’ research on political economy and his contribution to Marxist political economy. However, there is a view that the crisis caused by the rate of profit to fall is actually Engels’ viewpoint, and he exaggerated or even tampered with Marx’s discussion on the tendency of the rate of profit to fall when editing volume 3 of Capital. What do you think of this viewpoint?

This view has been expressed by several Marxists (in particular, the German Marxist scholar, Michael Heinrich) who claim that they have read unpublished papers by Marx that apparently show Engels changing Marx’s words to make the law of the tendency of the rate of profit to fall appear more important. These Marxists also claim that Marx actually abandoned the law in the 1870s and so it should not be considered relevant to Marxist economics and crisis theory.

But other scholars have shown clearly that Engels did not engage in any significant distortion of Marx’s text as in Chapters 13-15 of Volume 3 where the law of profitability is spelt out. And there is no evidence that Marx dropped the law in the 1870s – on the contrary, he conducts further work on it. For example, in the 1870s, Marx spent considerable time looking at the rate of profit with various mathematical formulas. When Engels came to edit Capital Volume 3, he excluded Marx’s mathematical work on the rate of profit, even though it would have confirmed that Marx still held to his law. All this is explained in my book, Marx 200 and in my book Engels 200, with all the references.

The Marxists who push this have also bent Marx’s law of value into a theory of money ie. value is not created by labour in production, but instead is only realised in selling commodities produced on the market. So no sale, then no value. This was not Marx’s view. Value is the result of the effort of human labour in production; how much of that value is eventually realised depends on sale in the market. But there is no value at all without human labour production. Behind this revised theory is an attempt to replace profitability as the ultimate cause of crises with a theory of monetary or credit instability, similar to the view of mainstream economists like Keynes.

5. From your point of view, what are the main differences between Marxist political economy and other schools of economics (like neoclassical economics, Keynesianism, etc.)? Can we regard the theory of crisis as an important difference or even essential difference between Marxist political economy and mainstream Western economics?

The key difference above all is that other schools of economics, even the most radical ‘heterodox’ schools that do not accept that markets are perfect, do not agree with Marx’s law of value. They do not accept that the key contradiction of capitalist production is production for profit, not social need and that increased production eventually comes into conflct with increased profitability and that is what leads to booms and slumps, ie crises. The mainstream neoclassical school deny crises can happen in properly run markets or in markets that are not interfered with by governments, monopolies or trade unions. Heterodox economists deny the role of profit in crises and look to either a ‘lack of demand’ (Keynes); or financial instability (Minsky) or monopolies (Sweezy, Stiglitz) or bad regulation.

And this is a crucial difference, because all these schools are suggesting that capitalist production can be modified or corrected to make capitalism work better. Keynes said more government spending or monetary injections will do the trick; heterodox Minsky said: regulate the banks and finaancial institutions, then capitalism will be stable. These reformist approaches are theoretally and empirically wrong. Marx’s theory of crisis shows that capitalism cannot be reformed in that way. Crises are endemic to capitalism because ultimately they are caused by falling profitability. The only way to end crises is to replace capitalism with a planned economy under common ownership ie no capitalists. 

6. In your research, what impacts does the financialization of capitalism have on the real economy and the working class? 

One of the features of the last 50 years in modern economies in the Global North has been the rise of the financial sectors, not just banks but hedge funds, investment funds, insurance funds, private equity, cryptocurrencies etc. Increasingly, capitalists have switched their investment of accrued profits into financial assets and speculation rather than into investment into new technology and productive sectors. This is the phenomenon of ‘financialisation’. 

However, some Marxists and others have been so enamoured by this development that they have started to claim that capitalism has changed its spots. It is no longer a system of production for profit through the exploitation of labour in factories, offices etc, but now it is just a financial monetary system where money makes more money. This means that workers have lost their role as producers of value in capitalism. Now capitalists can get value just from monetary tricks. Capitalism has become finance capital, which rules over producer capital.

This is nonsense. Although financial profits in some economies like the US and the UK are large, say up to 25% of total profits, the vast majority of profits are still made by selling goods and services produced by workers. And that is especially the case in the so-called Global South where manufacturing has become predominant, not finance. Globally, the working class has never been larger and still most capitalist accumulation comes from the labour of working people in production. The leopard of capitalism has not changed its spots.

7. What do you think of the current crisis of capitalism in the global economic system, especially the financial crisis in recent years? What insights can Marxist political economy provide for us to understand the crisis of capitalism? 

This is a big subject. In the 21st century we have had the two biggest slumps in the history of capitalism, 2008-9 and 2020. There is every reason to expect that another slump will take place before the end of this decade. That may be triggered by a new financial crash as in 2008. This time that crash may not start in the banks as such but be engendered by rising corporate debt and the cost of servicing that debt. Already, there are around 20% of companies in Europe, Japan and the US that are called ‘zombies’ ie they are like the living dead because they do not make enough profits to cover even the cost of servicing their existing debt and so must keep borrowing.These companies are in serious risk of going bust and bringing down even profitable companies in a ricochet effect. 

8. You think that since the end of the Great Recession in 2009, the major capitalist economies have been in a Long Depression. Is there any difference between the Long Depression and previous long depressions in the history of capitalism? What strategies should China adopt in response to the global impact of the Long Depression?

I define a depression as opposed to a recession or slump as a period where after a slump, the previous trend of growth in output, investment and above all profitability, is much lower than before the slump. And this lower trend can last for decades. In that sense, the Long Depression of the 2010s onwards that I have identified is similar to the depression of the late 19th century (1873-97) and the Great Depression of 1929-42. As of 2025, the current depression is continuing as the pandemic slump of 2020 did not lead to a significant rise in profitability and so investment growth and real GDP growth remain even weaker than in the 2010s. 

China has avoided all these crises in capitalism. That’s because China has an economy dominated by a large state sector and planning by the government, so that any instability in its capitalist sector can be overcome and investment and production can carry on relatively uninterrupted. If the capitalist economies of the West head into another slump, then trade and investment into China will be hit, but China now has a massive domestic base and it has invested heavily into new technologies and continues to direct and plan that investment mainly through the state sector. China needs to expand the state sector and planning to reduce the instability in its capitalist sector, particularly exposed by its plunging real estate sector (mostly capitalist based).

9. Digital currency and blockchain technology have been hot topics in the field of financial technology in recent years, and they have had a profound impact on the global economy and financial system. What is your opinion of these financial innovations and digital finance？Will they lead to a more serious global economic crisis？ 

Cryptocurrencies, as they are called, like bitcoin, are just another form of speculative financial asset like gold or paintings. They are not alternative forms of money that could replace state issued currencies (fiat money) like the dollar or yuan. Digital currencies in general already exist in one form ie you pay your bills by card, phone or bank transfer without any paper money involved. The possible new development would be a central bank digital currency that bypasses commercial banks. So far, that development has made limited progress. In the meantime, cryptocurrencies are yet another form of what Marx called ‘fictitious capital’ that adds yet more risk of a financial crash down the road. 

10. Given the increasing popularity of artificial intelligence and automation, how to apply Marxism to analyze the impact of technological progress on production modes and social relations?In your research, what is the correlation between technological progress and economic growth?

This is complicated. Artificial intelligence (AI) is just a new form of technology aimed at replacing human labour and increasing the productivity of labour and so raising the rate of exploitation on labour by capital. New technology can lead to huge job losses, especially for those in industries and occupations it replaces, but it can also, over time, create new industries and employment. Consider the industrial revolution, the electricity revolution, the auto industry, computer revolution. Technology has always been key to economic growth by raising the productivity of labour, especially when the size of the labour force stops rising – as in China today. 

It is argued that AI is a completely new development that will replace human labour altogether because it can supersede human intelligence. The evidence for this is doubtful. Much of AI is just a fast processing of existing human knowledge and cannot replace the imaginative nature of human intelligence. Also, AI will take some time, even decades, to diffuse its productivity-enhancing effects through economies. In my view, it is not a ‘game changer’ that can save capitalism. 

11. Technofeudalism is a view that has emerged in recent years to describe the changes of society caused by cloud technology, that is, tech giants and large platform enterprises possess the data and power like feudal lords, while ordinary users serve these digital overlords as unpaid data producers like serfs, and the new form of rent replaces profit as the main form of accumulation. Do you agree with using technofeudalism to define the current stage of western society? 

Technofeudalism as a concept suggests that capitalist production, ie production for a profit through the exploitation of labour, has been replaced by a feudalism where digital monopolies just extract rents. But where do these rents come from? Marx pointed out that rent, interest and profits all come from the same source: the surplus value appropriated from the value created by human labour power. It is just wrong to argue that companies selling cloud technology are not producing commodities for sale and profit just like any capitalist process. The bulk of Amazon’s profits come from distribution and transport of things; the bulk of Facebook’s profits come from advertising; the bulk of Google’s too. The bulk of Microsoft and Apple profits are from selling computer hardware and software. This is not feudalism but straightforward capitalism. Capitalism is not dead and to suggest that it is a dangerous idea for workers because it means labour may not see its enemy as capital as a whole, but just a small part of capital, so that there is no need to replace capitalism but just ‘feudal monopoly’ capitalism.

12. The labor theory of value is the core idea of Marxist economics. In time of automation and the digital economy, how to apply the labor theory of value to analyze modern economy? What do you think of data as a new factor of production? 

Data or knowledge comes from human activity. So knowledge has value in the same way that physical things have value for society and for capital. Knowledge is material: it requires the energy of human labour; ie. mental labour, in the same way as physical labour. Both are material and create value. So capital can appropriate surplus value from knowledge workers that it employs and does so increasingly across industries and the world. Such surplus value is embodied in patents, intellectual property rights etc. Knowledge or mental labour is just as ‘material’ as physical labour. Mental activity takes place in the synapses of the human brain and is combined with physical labour using a computer etc. So mental labour creates value just as much as physical labour. And knowledge workers are just as much part of the proletariat as manual workers doing physical tasks.

Indeed, mental labourers are being exploited increasingly by capital to appropriate surplus value (profit) .So there is no need to invent a new term for the working class such as a ‘multitude’. This implies that the working class, those who only make a living by selling their labour power and own no means of production, no longer exist. This term hides the class struggle between labour and capital, thus confusing the need to replace capitalism. 

13. Has the development of the digital capitalism widened the North-South divide? 

Yes, it is widening that divide. But that divide is widening anyway. The Global South (with the exception of China) is not catching up with the Global North however you measure it: by GDP per person; by productivity per worker; by income per person; by reducing inequality. The North-South divide is expressed in the control of an imperialist bloc of economies with relatively low population dominating the rest of the world which has the bulk of humanity.

14. What economic policies do you think president Donald Trump will adopt, and what impacts will these policies have on the global economy? 

We cannot be sure what Trump will do. But he says he is going to apply huge tariffs on US imports, particularly those coming from China. He claims his aim is to get US industry back to where it was at the expense of the rest of the world. Above all, he wants to continue the policy of previous US administrations to strangle, choke and reverse the economic progress of China, which is seen as the main threat to US hegemony. Indeed, Trump will also back further military provocations to restrict China. Domestically, he aims to cut corporate taxation so the rich and big business pay even less than now and do away with regulations on industry and global warming abatement. His Cabinet is composed completely of billionaire hedge fund and private equity managers who will seek to benefit the rich at the expense of most Americans. 

Worldwide, if Trump does follow through with these policies, then world trade will fall back and tensions between the US-led Western alliance and China will rise dangerously. Inequality of wealth and income between countries and within countries will increase and the wars in Ukraine and the Middle East will continue, with the risk of war in Asia too.

15. Will Trump’s promised economic policies, such as massive tax cuts and increased military spending, pose a threat to global economic stability by leading to higher global debt levels?

Yes, global debt is already at record highs and relative to global output. In particular, the US government is running sizeable budget deficits in order to finance the war in Ukraine and for Israel and it plans massive increases in military spending to fund further action globally. Trump wants Europe to pay more for this, but in the meantime, US public debt is hitting all-time highs and the cost of servicing that debt in interest is now surpassing government spending on education and health and other public services. 

16. Will Trump’s economic policies worsen the contradictions of the global capitalist system, leading to overproduction and the tendency of crisis?

All this is against a global background of low growth and trade, poor investment and productivity growth. The major capitalist economies, with the possible exception of the US, are stagnating or even in outright recession, especially in Europe. There is every possibility that these economies will face a serious slump by the end of this decade, which will spill over to the rest of the world, as happened in 2008 and 2020. Only China can hope to ride through that. 

17. Do Trump’s economic policies reflect the rise of economic nationalism and protectionism in the context of globalization? Will these policies worsen global economic inequality? How can developing countries respond to the inequality in the global economic system? 

Protectionism and nationalism by others is no alternative solution to Trump. Developing countries need to come together to cooperate on trade, investment and reducing inequality. But to do that, the people in these countries must get governments that stand for labour and for common ownership of resources and assets to plan each economy and in cooperation globally. Unfortunately, nearly all Global South governments do not stand for these policies. They are either controlled by despots or support big business at home and US imperialism abroad. Until these governments are changed, I do not expect much progress in higher growth, reduced inequalities, full employment and better public services.

18. You persist in writing blogs for a long time. What influence has this style of writing made on your thinking and exchange of ideas? Could you share your recent research or research plan in the future？

The aim of the blog and my books is to increase our understanding of how capitalism works, its contradictions and faultlines, with a view to replace it. I consider that Marx’s analysis of capitalism is the most compelling and so I seek to defend Marx’s views, as I see them, against alternatives, all of which come down to trying to make capitalism work (better). I aim my blog not at academics but at activists seeking to change the world for the better. That does not mean I ignore difficult or complex issues of theory or statistical evidence. On the contrary, I try to explain them more clearly. Currently, I am preparing a new book on what is happening in capitalism and in the world economy in the 2020s. It is really a follow up to my Long Depression book published in 2016. Many things have happened since and there is more to come in this decade.

‘Time is Running Out’ will be published in December 2026 by Haymarket Books. 

Michael Roberts. Global profits: an upward turn?

by Michael Roberts

At the end of 2025, corporate profits in the major economies accelerated after stagnating in 2024. The global figure below is calculated from a weighted (by GDP) average of profits in the US, UK, Japan, Germany and China (taken from national accounts and in national currencies).   

Average annual growth in global corporate profits during the 2010s – the decade of what I have called the Long Depression since the Great Recession of 2008-9 – was 3.9%.  But in the first half of the 2020s, the average growth rate has doubled to 7.7%, although that’s still way less than the 16.1%  average growth rate in the credit-fuelled decade of the 2000s. There were only two periods of a fall in global profits: the mini-‘profits recession at the end of 2015 and in the pandemic slump of 2020.

In the ten years before 2007, China’s corporate sector led the way with an average annual rise of 26.7% in profits, more than three times higher than in Japan and the US.  But the picture changed in the 2010s, as China’s profits growth rate dropped away sharply.  Profits growth also slowed in the other economies, with the exception of Japan.  In the 2020s, so far, average profits growth in Japan and the US has increased, with the US rate more than doubling compared to the 2010s.  Both German and British corporate profits growth has been dismal in the first quarter of the 21st century.  So in terms of profits, Japanese capital has done very well, the US corporates too, while European capital has performed poorly.

What are we to make of this?  Well, the 2020s figures suggest that capital in the major economies is not heading for a slump, with the exception of Germany, where profits growth confirms the current recessionary environment.

If we zone in on the US, using the Basu-Wasner calculation of profits from official data, we find that in the 2020s, annual profits growth has been higher than even in the neo-liberal period of the 1980s. The higher figure in the 1970s is due to higher inflation.

Source: https://dbasu.shinyapps.io/Profitability/

The rate of profit on corporate capital is defined in Marxian terms as total profit (surplus value) divided by the stock of capital (fixed and circulating assets) held by companies plus the cost of employing labour in production. The overall rate of profit in the US economy has been modestly declining since the end of neo-liberal recovery period in the late 1990s.  But if you isolate the productive sector of the US economy (ie exclude real estate, finance, insurance and government), then the rate of profit on productive assets fell sharply through the 2010s to the end of the pandemic slump in 2020.  This explains the Great Recession of 2008-9 and the pandemic slump of 2020. But since then, the profitability of productive assets has risen.

What is the reason for the recovery in overall profits and the profitability of capital in the US – and for that matter in Japan?  This is disputed.  In a recent article, Ruchir Sharma, chair of the Rockefeller Foundation, reckons that US profits growth has only accelerated because of rising government budget deficits.  Falling taxation on corporate profits and rising government subsidies have boosted profits. “Overall corporate earnings have risen from 7 per cent of GDP in the late 1990s to 11 per cent today. The dynamism of American business has played a role, but so have tax cuts and government spending. Lately the US deficit has risen to more than 6 per cent of GDP and a deficit that high reflects a large transfer of income to households and corporations.” Sharma concludes that “deficits have accounted for more than half of corporate profits, twice the level of the dotcom era. Strip away government support, and US profits look less extraordinary.”  

Here, Sharma relies on the so-called Kalecki equation, which boils down to the proposition that investment drives profits, not vice versa.  If a government runs up a big budget deficit, in other words, ‘dissaves’, it can boost investment and thus profits. “So, under a well-established accounting formula, the Kalecki-Levy Equation, corporate profits are in part a mirror image of the government’s deficit. Based on this framework, deficits were the single largest contributor to the increase in earnings as a share of GDP since the late 1990s.”

But as I have argued on many occasions and posts, the Kalecki identity (profits=investment) is just that, an identity.  It does not show the causal direction. Does investment drive profits and does government ‘dissaving’ (deficits) drive up profits?  In my view, that causal direction is back to front.  In capitalism, profits drive investment.  And if we start from that direction, then the rise in profits is not due to government spending, but can only be due to a rise in the rate of exploitation of workers, as expressed in a rise in the share of profits in the US economy relative to wages. Corporate profits as a share of US GDP are at record highs.

Profits are not rising because of excessive government spending, but because there has been a sharp fall in labour’s share of national income – to an historic low.

If this rise in profit share can be sustained and accelerated, then the US rate of profit may well rise further from here.  Much will depend on whether the huge investment being made by the AI companies and their potential clients in data centres will deliver a step change in profits (by shedding labour and thus reducing the relative wage bill).  As Sharma said in a previous article of his: the US economy is now ‘one big bet on AI’.  

I’ll return to that story in my next post.

Capitalist Production: Intangibles: does it change things?

Intangibles: does it change things?

by Michael Roberts

A recent article in the UK’s Financial Times got very excited about the rise of intangibles. The author Tek Parikh said that “50 years go, the assets held by top 500 US companies were predominantly ‘tangible’ — factories, equipment, inventory et cetera. But today, it is estimated that most of their assets are ‘intangible’ ie. intellectual property (knowledge and software), branding value and marketing networks.” In the US, spending on intangible assets surpassed tangible investments as a share of GDP in the late 1990s and the gap has widened ever since.

Actually this news is not new.  Way back in 2017, Jonathan Haskel of Imperial College and Stian Westlake of Nesta, wrote a book entitled Capitalism without Capital, the rise of intangible economy. They showed then that investment in intangibles had started to exceed tangible investment by the mid-1990s, at least in the US.

Haskel and Westlake argued that the main impact of intangible investment like intellectual property rights (IPR) had led to increased inequality between capitalists.Through IPR, the leading companies were monopolisng the development of ideas, research and design and blocking any ‘spillover’ to others. This explained the rise of the Magnificent Seven and Big Pharma which gain super profits and protected those profits by monopoly (intellectual property) rights at the expense of the profitability of others.

Parikh presents the latest evidence for this.  The World Intellectual Property Organisation (WIPO) finds that intangible assets make up 90 per cent of the total enterprise value of the 15 largest American companies, considerably higher than that of the broader US corporate sector.

In his FT piece,Parikh excitedly argues: “this transformation helps to explain four prevailing themes in the US stock market: high concentration, exceptionalism, volatility and bubble like valuations.”  He suggests that the US stock market may not be overvalued compared to productive investment if intangibles were properly accounted for. Wu of Sparkline estimates that accounting for intangible assets would cut any perceived overvaluation by about 25-50 per cent. “While the market is by no means cheap, once firms are given credit for their intangible assets, valuations look far less frothy than the headlines imply,” he says.

Also, most important, not accounting for intangibles means that US productvity growth is probably underestimated. The WIPO calculates that “unmeasured intangibles”amounted to around $2.7tn in current terms last year in the US, and would have added over 0.2 percentage points to America’s average labour productivity growth rate between 2010 and 2024 if included in GDP.

But the conclusion that intangible investment will alter the mode of accumulation in capitalist production (Haskell and Westlake), reduce stock market overvaluation (Parikh) and raise productivity (WIPO) seems highly exaggerated to me.

The key point is that investment in intangibles requires investment in tangibles to deliver more profit. As Ed Conway put it in his recent book, Material World:  “For all that we are told we live in an increasingly dematerialised world where ever more value lies in intangible items – apps and networks and online services – the physical world continues to underpin everything else…Pretty much everything from social networks to retail to financial services is wholly reliant upon the physical infrastructure that facilitates it and the energy that powers it. Without concrete, copper and fibre optics there would be no data centres, no electricity, no internet. The world, dare I say, would not end if Twitter or Instagram suddenly ceased to exist; if we suddenly ran out of steel or natural gas, however, that would be a very different story.”

The vast bulk of the world economy is still built on the production of things, ‘stuff’ that can be commodified from the labour of billions. 

Conway goes on: “It is a rather lovely place, a world of ideas. In the ethereal world we sell services and management and administration; we build apps and websites; we transfer money from one column to another; we trade mostly in thoughts and advice, in haircuts and food delivery. If mountains are being torn down on the other side of the planet, it hardly seems especially relevant here in the ethereal world.” 

Conway points out that in 2019, the world mined, dug and blasted more materials from the earth’s surface than the sum total of everything we extracted from the dawn of humanity all the way through to 1950. “Consider that for a moment. In a single year we extracted more resources than humankind did in the vast majority of its history – from the earliest days of mining to the industrial revolution, world wars and all.”  While materials consumption is certainly falling in post-industrial nations like the US and UK, on the other side of the world, in the countries from whence Americans and Britons import most of their goods, it is rising at a breakneck rate.

Moreover, much of the value of intangibles is not productive at all. Branding and marketing are merely means of shifting profits from the small to the large, not creating new value.  So the claim that intangible investment will replace tangible investment, reduce costs and raise profit margins to justify stock market valuations and boost productivity growth is not proven. Indeed, if it is true that intangible investment has overtaken tangible investment in the major economies, then the data show that it is not altering the nature of capital accumulation and profitability.  The rate of profit in the major economies is generally lower now than in the late 1990s.

Source: Basu-Wasner, EWPT 7.0 series, author’s calculations

US net investment (after depreciation) is lower.

Source: FRED, MR

and productivity growth is also lower.

Source: FRED, MR 

Intangible investments may have increased the concentration and centralisation of capital towards the mega companies, but the overall decline in profitability, investment and productivity growth has continued. 

Michael Roberts: Tariffs and the US economy

by Michael Roberts

Last week, the mega tech companies – the so-called Magnificent Seven – presented their latest earnings results.  They appeared to be ‘blockbuster’. They painted a picture of a booming economy, supporting President Trump’s assertion that America “is the hottest country anywhere in the world”. (He was not referring to global warming).  At the same time, Trump announced his latest round of tariff measures on goods exports from other countries into the US.  The US stock market continued to stay near a record high.

The financial media lauded the tech results and even went along with the Trump administration’s claims that all the fears about the hit to US economic growth and inflation from Trump’s tariff measures had been proved wrong.  

But the more you look at the data below the stock market hype and Trump’s claims, the reality is much less rosy. Below the surface, large parts of corporate America are grappling with slowing profits and the uncertainty generated by Trump’s aggressive trade war. With almost two-thirds of S&P 500 companies having reported second-quarter results, earnings for consumer staples and materials companies are down 0.1 per cent and 5 per cent year on year, according to FactSet data. Indeed, 52 per cent of those S&P 500 companies to have posted results, have reported declining profit margins, according to Société Générale.

The 10 biggest stocks on the S&P 500 account for one-third of overall profits across the index, with tech and financials reporting year-on-year quarterly earnings growth of 41 per cent and 12.8 per cent, respectively.

And when we delve into the earnings results of the Magnificent Seven, we find, contrary to the views of the financial media, that their earnings rises are not due to revenues and profits accrued from the huge investments in AI made by these companies, but from existing services created from the previous tech boom in the internet and social media. Meta’s (Facebook) shares jumped more than 11 per cent on their results adding more than $150bn to its market value. But the rise in earnings came from increased advertising revenues in existing services, not AI.

Meta’s Zuckerberg  proclaimed that he is investing ever more in AI data centers and energy sources. “We are making all these investments because we have conviction that superintelligence is going to improve every aspect of what we do from a business perspective,” Zuckerberg said on a call with investors. However, Meta’s finance officer Susan Li said Meta was not anticipating “meaningful” revenue from its generative AI push this year or in 2026. And the company cautioned that the costs of building the infrastructure needed to underpin its AI ambitions were growing. Meta raised the lower end of its 2025 capital expenditures forecast to between $66bn and $72bn. It said that it expected its 2026 year-over-year expense growth to be higher than its 2025 growth rate, citing higher infrastructure costs and growth in employee compensation due to its AI efforts.

Over at Microsoft, quarterly profits soared from record revenues in its cloud computing division. But it too is looking to make future money from its massive investment in artificial intelligence. Finance officer Amy Hood said Microsoft spending on data centres would rise to $120bn in 2026 up from $88.2bn in 2025 and almost quadruple the $32bn in 2023. “We are going through a generational tech shift with AI . . . We lead the AI infrastructure wave and took share every quarter this year, we continue to scale our own data centre capacity faster than any other competitor.”  But little or no revenue comes from AI so far. Copilot AI apps now had 100mn monthly users, Google’s Gemini with 450mn users and market leader ChatGPT, with more than 600mn. But only 3% actually pay for AI.

Already Microsoft and Meta capital expenditure is more than a third of their total sales. Indeed, capex spending for AI contributed more to growth in the US economy in the past two quarters than all of consumer spending.

And there is no end yet to the AI investment boom. US data center construction hit another record high in June, exceeding $40bn annualized for the first time. That’s up 28% from this time last year and up 190% since the launch of ChatGPT nearly three years ago.

But this boom in the stock market, driven by AI hype, is increasingly out of line with the rest of the US economy. 

Take the latest US real GDP figures.  After the data showed that the Eurozone grew only 0.1% in Q2 2025, the US data showed a rise in real GDP of 0.7%, which translated into an annualised rate of 3.0%, more than forecast. Trump hailed the result. But the headline growth rate was mainly due to a sharp fall in imports of goods into the US (-30%) as the tariff rises began to bite. The fall in imports meant that net trade (that’s exports minus imports) rose sharply, adding to GDP. Excluding trade and the impact of the tariffs, real final sales to private domestic purchasers, the sum of domestic consumer spending and gross private fixed investment, slowed to a rise of just 1.2% compared to 1.9% in Q1.

Indeed, investment growth dropped back in Q2, up only 0.4% vs 7.6% in Q1. Investment in equipment grew only 4.8% compared to the huge 23.7% rise in Q1, while investment in new structures (factories, data centres and offices) fell 10.3% in Q2, having also fallen 2.4% in Q1.  Looking through all these volatile changes, the overall picture is that the US economy rose 2.0% in real terms in Q2 2025 over the same period in 2024, at the same rate as in Q1. The US economy is still doing better than the Eurozone and Japan, but at less than half the rate of China.

Source: BEA

Mainstream economist Jason Furman points out that US real GDP growth for the first half of 2025 averaged just a 1.2% annual rate, well below the pace in 2024. So the current 2% a year rate as above is likely to slip further.

Source: Jason Furman

And then there is employment.  The latest release on jobs growth in the US was ugly.  The US Bureau of Labor Statistics said there was only a tiny 73k increase in July and previous May and June data were revised down sharply, while the unemployment rate rose.  Indeed, only 106,000 jobs have been added from May to July, down sharply from the 380,000 added in the previous three months.

This is now the worst job market in the US since the end of pandemic slump. Layoffs are at their highest level with nearly 750k job cuts in H1 2025.  Even the high flying tech sector has seen a loss of jobs. Across all subsectors, jobs growth remains well below the peak tech era of 2022 or even the pre-COVID era.

Blame the messenger. On the news of July jobs figures, Trump claimed the US economy had never been stronger; the figures had been rigged and so he sacked the longstanding head of Bureau of Labor stats.  It’s true that the jobs statistics are volatile and the Bureau finds it difficult to reconcile different measures of employment growth, but the irony in Trump’s move is that the Bureau’s estimates of payroll employment have got more, not less, accurate over time.

The reality is that the US economy has been slowing down for some time and with it, employment growth. Indeed, America has lost 116k manufacturing jobs over the last year—that’s the fastest pace of job loss since the early COVID era and worse than any period from 2011-2019. Big drops in the transportation (-49k) & electronics (-32k) industries have driven most of the decline.

And then there is inflation.  Far from inflation rates heading down as the economy slows, the official rates are staying stubbornly closer to 3% a year, instead of the target rate set by the US Federal Reserve of 2% a year. 

Source: Furman

You might say, what difference does one percentage point make? But remember American consumers have suffered an average 20% rise in prices since the end of the pandemic slump and with average wage growth now slowing towards 3% a year, any real gains in living standards have disappeared. 

Source: Atlanta Fed

Average real weekly earnings for full-time employees are now at the same level as just before pandemic, some five years ago.

All this is well before Trump’s tariffs begin to hit the US economy and consumers. As Fed chair Jay Powell put it: “American businesses have been absorbing Trump’s tariffs so far, but eventually the burden will be shifted on to American consumers.” Trump’s latest tariff measures are a mess with no rhyme or reason. He has raised high tariffs on some countries and in some sectors, but not in others. Since Trump took office, the average effective US tariff rate on all goods from overseas has now soared to its highest level in almost a century: 18.2%, according to the Budget Lab at Yale.

Source: The Budget Lab

Trump says increased import tariffs are bringing in billions in extra revenue for a government that is running a huge budget deficit of about 6% of GDP a year.  But the extra billions are tiny compared to the deficit and revenue is being lost from Trump’s cuts to corporate profits taxes and above all from the slowdown in the economy.  Meanwhile, the  US trade deficit is running about 50 per cent above last year and will end up higher for 2025 as a whole, while GDP growth will be weaker.

Tariffs are typically paid by the importer of the product affected. If the tariff on that product suddenly goes from 0% to 15%, the importer will try to pass it on.  So far, many have resisted and tried to absorb the extra cost.  Some 50% say they are “absorbing cost increases internally.” But eventually, the tariff rises will feed into consumer prices. The Budget Lab at Yale estimates the short-term impact of Trump’s tariffs will be a 1.8% rise in US prices, equivalent to an average income loss of $2,400 per US household.

But the tariffs will also lead to less investment at home as US manufacturers find the costs of importing components from abroad rising significantly, and domestic substitutes (if they exist) will be pricier.  Profit margins will be squeezed even if prices are raised to compensate.  That will add to downward pressure on US economic growth.  The Yale Budget Lab reckons if they stay as they are now, Trump’s tariffs will reduce GDP growth by 0.6% pts through the rest of this year and next year (that means the current growth rate of under 2% could fall below 1% by end 2026). As I have argued before, the US economy would then enter a period of stagflation, where economic growth stutters to a near halt, while unemployment rises along with inflation. 

This puts the US Federal Reserve in a serious dilemma.  Last week, the Fed’s monetary policy committee decided not to lower its policy interest rate. The Fed’s policy rate, which sets the floor for all borrowing rates in the US and often globally, was held at 4.25% for the fifth straight meeting. This was despite threatening noises from President Donald Trump who wants a huge cut and says he will remove Fed Chair Powell if he does not get it.  But if the Fed cuts rates, that will weaken its ability (such as it is) to control inflation and meet the 2% target.  On the other hand, if it continues to hold rates up, then it will add to the borrowing costs of companies and households and so force further cuts in investment and employment. 

Now I have argued in the past that Fed monetary policy has little effect on the economy: what matters are profits and their effect on investment.  But the Fed’s dilemma between rising inflation and rising unemployment sums up the growing stagflationary environment in the US. And the impact of Trump’s trade tariffs has yet to be fully felt. So the Fed faces the prospect of a stagflationary economy.

Meanwhile the AI capacity spending boom accelerates.  The  Magnificent Seven of mega tech companies are paying for this by running down their cash reserves and borrowing more.  Of the planned investment in AI data centers of near $3trn by 2028, half will have come from using up cash flows and increasingly nearly another third from what is called ‘private credit’. 

The tech companies are borrowing less in the traditional form of corporate bond issuance or bank loans and instead opting for getting credit from private credit companies that raise money from hedge funds, pension funds and other institutions and then lend it on.  These credit vehicles are not regulated like the bond markets or the banks.  So if things go wrong in the AI bubble, there could a rapid reaction in credit markets.

The US has a record high stock market, unlimited spending on AI capacity by the tech giants, along with sharply increased borrowing to pay for it; but no sign yet of any significant revenues or profits from AI – and alongside that: a slowing rest of the economy, a widening trade deficit in goods and increasing unemployment and prices.  All this as we go into the second half of 2025.