Today, the US met this fact: The economy is not in a recession. Two months of negative GDP growth does not make a recession. And, as the New York Times admitted, Joe Biden was right about the economy, which in July added 528,000 jobs. Numbers like that are usually placed in the boom rather than recession category. And we should expect this economy to continue booming well past the midterms. Why? Because the US has actually been adding an average of 400,000 jobs over the past three months. Also, wages enjoyed a considerable bump. Also, unemployment is at its lowest level “in 50 years.” Also, gas prices are still falling. All of this adds up to an economy that will not be there for the GOP, which put all of its midterm eggs in the inflation-and-recession basket.
Kudos, @nytimes pic.twitter.com/UH1PYuuGpO— Ronald Klain (@WHCOS) August 5, 2022
How did the GOP and political mainstream not seen this coming?
I did. I knew that negative GDP growth was a fuzzy indicator, particularly in a novel situation (the post-lockdown world). I also knew that a recession that does not follow a market crash or a catastrophic war tends to be mild or of little importance (think of the ’60s). I also knew that job and wage growth made stagflation (high unemployment combined with inflation) impossible. I also knew that one should only worry about a crash and consequent recession if Wall Street claims a market boom is going to last forever. When you hear that, run for the hills.
And so we are looking at a week that will remove certainty from the midterms. On Tuesday, Kansas made it clear that the Supreme Court’s destruction of Roe v. Wade is deeply unpopular with American voters. Today’s jobs report means abortion rights will not be effectively drowned out by an economic downturn. If the GOP does not reclaim the House in 2022, people will only have to look back to the first week of August to see why. And it gets worse. Trump sent a bunch of election-deniers into important races. Nothing will sound more irrelevant to suburban and independent voters than all of this fanatical “Stop the Steal” talk, particularly after another round of the Jan. 6 committee hearings.
But one must be impressed with how loud the recession drum was banged. It wasn’t just Fox News. It was on every major network, including CNN. It was all of the major papers. Every day. Two months in a row. GOP recession talking points on all sides. Louder and louder until it crashed today.
If I am not for myself, who will be for me? So: this newsletter, which generated more hate mail than I've seen since the Iraq War, is looking pretty good this morning https://t.co/48qpo9uoQL— Paul Krugman (@paulkrugman) August 5, 2022
But the right will win at the end of the day. Why? Because it has locked the Democrats in an economic structure determined by two questionable factors: interest rates and full employment. What this means is that the Democrats have to over-perform in conditions determined by the business class, by the GOP, by the rich. If the Dems fuck up even a little, they are still in hot soup. For example, if today’s job report was a solid 250,000 jobs, Wall Street’s estimate, then the recession talk would have exploded into a storm that raged until November. It took a “blockbuster report” to silence the GOP.
As for interest rates, the Feds will likely raise them to cool inflation, which will rise, they argue, because so many Americans have jobs. Rate hikes will only make life harder for workers, and better for lenders. Their impact on inflation is dubious, because the driving force behind high gas prices is greed rather than scarcity or war or what have you.
While you were feeling pain at the pump, Shell, Exxon, and Chevron raked in $46 BILLION in profits over the last three months and said they would spend up to $47 billion on stock buybacks after spending $18.8 billion so far this year. Yes, it’s time for a windfall profits tax.— Bernie Sanders (@SenSanders) July 29, 2022
Democratically speaking, what’s needed here is not higher interest rates but an income policy that redistributes the exceptional profits gained from inflated prices in a given sector of the economy. This thinking, which makes sense in a capitalist context, is offered by the post-Keynesians (PDF). As for a future recession, I would pay more attention to mainstream Democrats’ obsession with reducing deficits. Taking money out of an economy does nothing positive for the working classes. The lower the deficits, the greater chance of a crash, because job-creation is driven by business investments. This is the structure of American capitalism. This is a point made by the adherents of Modern Monetary Theory, but was first expressed by post-Keynesians associated with and inspired by Hyman Minsky.
A recession can also be caused by Biden doing too well because economic stability, as Minsky famously pointed out, is inherently destabilizing. This is one of the many paradoxes of a capitalist economy that only become visible when macro results are linked with micro actors. (Orthodox economists don’t do this—they stick with the behavior of individuals with the assumption they are rational and have access to all market information.)
Marxists have contradictions, an unfortunate consequence of Hegel’s influence. I’m a Marxist until we reach talk about contradictions, which are contaminated by a teleology that defined 19th-century German idealism. Post-Keynesian paradoxes don’t have any metaphysical baggage; as such, they better explain the worldly processes of capitalism. But at the end of the day, Marxism is the higher economic reasoning because it recognizes that we need to go beyond capitalism, a system that’s not resolved by the improved distribution of wealth. As Moishe Postone, a heterodox Marxist, explained again and again until his death in 2017, capitalism is not about wealth but value—culturally constructed value. And as Marx pointed out in the first volume of Capital, value is social/cultural, not material. Mainstream Democrats are nowhere near this kind of thinking. It’s an alien planet to them. Their world is entirely shaped by the right and their news channels and websites.
I will end with another paradox, which has to do with wealth rather than value. The left, from mainstream Democrats down to social democrats, are better at capitalism:
Huge jobs report. W/revisions more than 550,000. It's a boom not a recession.— Simon Rosenberg (@SimonWDC) August 5, 2022
Here's our monthly economic thread:
16 yrs Clinton Obama = 33.8m jobs
18 months Biden = 9.6m jobs
16 yrs Bushes Trump = 1.9m jobs
5 times as many Biden jobs as last 3 GOPers COMBINED. 5x. 1/ pic.twitter.com/jdO4TBh0So