Permanent Revolution

Graham B on Fri 11, July 2008 @ 17:27

Graham B — 2008-07-11 17:27:20

Though it is not clear whether he is referring to China or India, Harman states that "employment growth is only a little over 1 percent a year". A claim he has made previously in relation to China "... with employed workforce only growing at about 1 percent a year, despite the vast pools of rural labour" (ISJ 115 'The Rate of Profit and the World Today').

But this is the growth in the *total* workforce and hence includes rural employment. This 1% figure has much to do with population growth (and the one child policy) buts tells you nothing about the tremendous growth in the urban workforce that has occurred over the last quarter of a century.

From the IMF 2004 paper that Harman cites in his article; "Over 60 percent of the population was classified as rural by the 2000 census, compared with 80 percent two decades ago."

(www.imf.org/external/pubs/ft/op/232/op232.pdf)

An urban population growing from 20 to 40% of the total is pretty significant, particularly in the world's most populous country, however you do the counting of the number of workers!

Harman's article presents a distorted picture of the scale of development of capitalism and the working class in China, presumably to defend his position that global capitalism continues it's stagnation that dates back to the early 1970s. It would be better to start with the facts and take it from there.

Arthur Bough on Fri 11, July 2008 @ 17:55

Arthur Bough — 2008-07-11 17:55:43

For further contradiction of the doom and gloom scenario see these short blogs.

http://boffyblog.blogspot.com/2008/07/inflation-food-and-economy.html

http://boffyblog.blogspot.com/2008/07/tory-voodoo-economics.html

http://boffyblog.blogspot.com/2008/07/why-so-many-merchants-of-doom.html

http://boffyblog.blogspot.com/2008/07/bums-on-pews-indicator.html

http://boffyblog.blogspot.com/2008/07/more-news-contradicts-doom-and-gloom.html

http://boffyblog.blogspot.com/2008/07/more-economic-news.html

Arthur Bough on Fri 11, July 2008 @ 18:01

Arthur Bough — 2008-07-11 18:01:32

On Harman's employment growth figure it has to be borne in mind that this 1% growth is against a background of devastation in employment in the SOE's. A couple of years or so ago I was doing some research on China. At the time the figures I pulled up from an EIU report showed that 70% of Capital and Labour was employed in the SOE's. Given that these enterprises accounted for a minority of total output this indicated the extent to which the deformed Workers State had been forced to accommodate to the class it rested upon by maintaining a huge level of overemployment.

Now only around 30% of labour is employed in the SOE's reversing the situation, I have not seen recent figures for the employment of Capital. But, this shows the huge lay off of labour that took place. If actual employment levels have increased by 1% then that shows a huge increase in real employment growth.

Graham B on Fri 11, July 2008 @ 20:51

Graham B — 2008-07-11 20:51:03

From the same IMF paper on China published in 2004 (data only to 2001-02);

"Job growth since 1990 has taken place mainly in the urban areas. Overall job growth averaged just 1 percent since 1990, while jobs in urban areas increased at an average rate of 3 percent a year (or 6.5 million a year) over the same period. Job growth in urban areas was achieved despite layoffs at SOEs equivalent to more than 10 percent of the urban labor force."

Bill J on Fri 11, July 2008 @ 21:54

Bill J — 2008-07-11 21:54:13

The Asian Development Banks figures go up to 2006;

http://www.adb.org/Documents/Books/Key_Indicators/2007/default.asp

They are slightly out of date, but do give the general picture of very rapid urbanisation. The manufacturing figures exclude all migrant workers - around 100 million hence aren't a reliable indicator of actual manufacturing employment.

UBS who are sceptical of the scale of urbanisation, nonetheless estimate that the working class is growing by around 10 million a year.

And this leaves out the growth of capitalist relations in the countryside and separation of farmers from the land.

Harman may be surprised to find that there remains one group who deny the recent growth of the world economy - Workers Power. In fact they claim that not only does that growth not exist - but the world economy has actually been declining;

“We begin with empirical evidence that the rate of growth of production has been falling.” (p86) Workers Power Credit Crunch Pamphlet

Hey it takes all sorts.

Arthur Bough on Wed 16, July 2008 @ 09:52

Arthur Bough — 2008-07-16 09:52:28

I think that the dramatic fall in the price of Oil for August Future delivery yesterday could actually signal a severe Financial Crisis as it appeared to be caused by a firesale of assets by distressed banks. See my blog here:http://boffyblog.blogspot.com/2008/07/severe-financial-warning.html

bill j on Wed 16, July 2008 @ 12:32

bill j — 2008-07-16 12:32:21

I don't think you can make too much of the move of the oil price. It has fluctuated by similar amounts before. Its clear that the banks will continue to be hit while house prices fall, thus far by around 20%, but with probably a similar amount to go down again at least.

Pardoxically while all this is going on US growth estimates for the second quarter are looking pretty strong - around 3% - based on the strength of US exports and falling imports particularly of oil products, alongside the strength of US fixed capital investment.

The slowing of the pace of decline of the US residential sector, which has fallen by 64% from its peak already, limits its ongoing impact on US growth rates.

As we have pointed out repeatedly here, the strength of the world economy continues to very significantly offset the scale of the US slow down. Ironically after its very strong growth at the beginning of the year, European growth could actually fall below that of the US in the next period.

Dimitris on Wed 16, July 2008 @ 18:03

Dimitris — 2008-07-16 18:03:41

'Pardoxically while all this is going on US growth estimates for the second quarter are looking pretty strong - around 3%'

Can you give a source about this. Bernanke, in his speech to the congress, speaks about sluggish development in the first half of 2008. If it is 3% in the second quarter the we talk about a hike, considering the 0.6% of the first.

Bill J on Wed 16, July 2008 @ 18:25

Bill J — 2008-07-16 18:25:08

See here amongst others;

"Mostly as a result of a much better-than-expected trade report but also with support from significantly stronger-than-expected chain store sales, we boosted our 2Q GDP forecast to +2.4% from +1.7%, an increase of more than three points in the past month."

http://www.morganstanley.com/views/gef/index.html

Morgan Stanley are on the conservative wing of forecasters, who originally predicted a contraction in the first half.

As did JP Morgan but they now say that;

"It now appears that US GDP expanded at a 2.5-3.0% pace, whereas output contracted in the Euro area and Japan."

http://www.jpmorgan.com/pages/jpmorgan/investbk/research/global_economic_research

Bill J on Wed 16, July 2008 @ 18:38

Bill J — 2008-07-16 18:38:25

Just to add the consensus seems to be the chances of a hike are very unlikely, due the scale of future write offs by US banks, which are expected to at least double. Basically the banks have only written off a proportion of their dodgy debt, based on very unrealistic and overoptimistic assesment of likely house price falls.The scale of the house prices falls in turn depends on the ability of US workers to repay the mortgages, something which depends on low interest rates.

Just to add on the estimates, most of the finance houses were predicting growth of around 1-1.5% for the second quarter, based on the impact of the fiscal stimulous and ongoing strength of investment and growing albeit weak consumption spending.

But then the balance of payments came in much better than they were anticipating adding between 1.5-2% to these estimates. (Which are, it should be said, notoriously inaccurate.)

Arthur Bough on Thu 17, July 2008 @ 11:51

Arthur Bough — 2008-07-17 11:51:16

Bernanke in his Humphrey Hawkins presentation the other day said that second quarter growth had been stronger than nticipated, but he expected second half growth to slow as a result of the removal of the effect from the Bush stimulus package. Bernanke said it was too early to say whether a further such package would be beneficial. Further, interest rate cuts seem unlikely, but rate hikes are possible given the huge rise in Producer Price inflation that showed up in yesterday's figures. There is clear indication now of pass through of cost increases both in the US and UK, I haven't seen EU figures yet. Such cost pressures have for months already been pushed through in Asian prices leading to soaring inflation. Its likely that China and other Asian producers will respond by strengthening their currency thereby reducing the cost of their imports, but the other effect will be to bring about another large rise in US, UK, and EU inflation as imports of Chinese and Asian consumer goods prices rise.

Given the increase in the ECB's rtaes, a rise in the UK and US seems possible, particularly if workers push for higher wages - the capitalists make no boines about the fact that they see interest rate policy in this respect as a weapon of class war. In the US their are many who now argue that no great benefit can be obtained from even lower interest rates - at 2% real interest rates with rising inflation are now strongly negative - rather the other methods adoptedby the Fed appear to be favoured i.e. putting icnreasing liquidity into circulation by other methods, opening the discount window to other financial organisations etc. IN fact, this is the strong argument for them nationalising Fannie and Freddie, they could directly inject 500 billion dollars of liquidity directly into the market, and as Jim Cramer on CNBC said the other day, the US State is spending that much on Iraq, so why not at home?

Another analyst I saw on CNBC yesterday said as Bill points out that most of the Banks have not fully reduced the value of mortgages on their books to what real market prices are now indicating is an appropriate level. If I recall correctly what she said on her calculation they have only accounted for around a third of the reduction that needs to be made. She argued that this meant that Banks share prices would have to fall considerably from here, and that would mean that they would not considerable new Capital injecting in order to reinforce their Balance Sheets in order to remain within reserve asset requirements. That backs up my fears in the blog posted yesterday. There certainly is sufficient Capital available in all of the Sovereign Wealth Funds etc. to recapitalise these banks, the question is whether and at what point those Funds would feel that it was worth them investing. On the one hand they could benefit from a severe crisis which collapsed share values, because they could buy up financial assets even more cheaply, on the other hand a complete collapse would mean nothing left worth buying, and a further consequence for their existing investments.

Arthur Bough on Fri 18, July 2008 @ 17:28

Arthur Bough — 2008-07-18 17:28:59

On the oil price. Its not that there have not been movements in the oil price of this size - though it was significant - but that there should be such a move in the absence of any market news on fundamentals which could explain such a dramatic move. US inventories were certainly up, and there has in this last couple of days been a sell off in other commodities on the basis of a fear of a big global slowdown, and consequent lessening of demand - there is also a suggestion that supplies of some commodities are now rising in response to the big increases in prices - but not enough to justify the sudden change in the oil price. The suggestion was that this was a result of panic selling by banks trying to liquidate assets and take profits in order to bolster badly damaged Balance Sheets. Certainly banks Balance Sheets have been seriously hit, and look certain to take further hits.

In the short term, the Fed's action to effectively bank roll Fannie and Freddie seems to have done the trick. The world's largest Bond Fund PIMCO has been buying Fannie and Freddie's debt - htough not equity - because as Bill Gross put it they are now able effectively to buy Government backed paper, but with a higher coupon than actually buying Government debt. The result has been a large rise in Fannie and Freddie's share price - though still way below its price of just a few weeks ago - and a consequent boost for other banks and financial institutions.

The IMF has also now said that it is raising its estimate of both world growth for this year, and for UK growth, which is yet further evidence against those on both the Left and Right that have been talking as though we were already in a recession. At the same time I still think the situation with the banks and financial system remains fragile. The current rally in stocks looks like a Bear Market rally or Bear trap. The news about the massive increase in the budget deficit, the decision effectively to scrap the Golden rule in order to engage in further Keynesian demand management, and the rapidly rising rate of Producer price inflation - on one calculation in the US this was over 20% p.a. - not to mention the announcement that Gas prices are set to rise by 70%, which will almost certainly encourage workres to follow the example of workers in Germany, the tanker drivers, and the action of Local Government workers, to seek protection against these price rises, means that there will be consequent pressure on interest rates, and therefore on Banks, whose profits tend to fall as interest rates rise.