On Thursday, the Commerce Department reported that the US economy shrank for the second quarter in a row, bringing it into a “technical recession.”
The economic contraction is being accompanied by a series of layoffs that threatens to become a torrent as the economy slows further. This month, more than 30,000 layoffs occurred in the technology sector alone. Last week, Ford announced 8,000 layoffs, heralding a further bloodbath in the auto industry.
Amid the swirl of economic data, it is always necessary to understand that these numbers are the abstract expression of underlying social and class forces, that “the economy” is not some kind of machine but is based on definite social relations and operates through them. This is particularly necessary when considering the latest economic data.
A debate has now broken out in the media and financial commentary circles as to whether this “technical recession”—defined as two consecutive quarters of economic contraction—is a real one or not.
The key issue here is not one of definitions but what are the essential class interests at work, particularly with regard to the policies of the U.S. Federal Reserve, the key financial institution of the capitalist state.
Fed policies are always couched in various forms of jargon that cover up the real agenda through a series of mystifications aimed at making it appear the central bank somehow stands above class interests, regulating economic life in the interests of the population.
Amid the flurry of words, the essence of the present situation is this: The central bank, the guardian of the interests of the corporations and finance capital, has set out to engineer a marked slowdown and, if necessary, a major economic contraction. The aim is to suppress the wage demands of the working class under conditions where inflation has risen to the highest level in four decades.
This assault is being waged through the mechanism of higher interest rates, which are being lifted at the fastest rate in decades under the banner of the fight against inflation. But interest hikes will not bring down gas prices or untangle supply chains. The objective is to bring about an economic contraction so that pay demands are suppressed.
The present policy agenda reprises that of Fed Chair Paul Volcker in the 1980s when interest rates were lifted to record heights inducing the deepest recession to that point since the Great Depression. Today’s Fed Chair Jerome Powell has expressed his admiration for Volcker on numerous occasions, making clear he is more than prepared to follow the same path.
Former US Treasury Secretary Lawrence Summers has insisted that containing inflation means inducing higher jobless levels for five years or a 10 percent unemployment rate for at least a year.
As with every other economic issue and statistic, inflation is embedded in the class structure of society, a historical examination of which reveals the origins of the present US and global spiral.
The global financial crisis of 2008, set off by the more than two decades of increasing financial speculation preceding it, led to the largest corporate and financial bailout in history. The government handed out hundreds of billions of dollars in rescue packages, and the Fed began the policy of “quantitative easing”—injecting money into the financial system so that the speculation on Wall Street that had precipitated the crisis could continue.
And continue it did. After reaching a nadir in March 2009, the stock market went on a spectacular bull run. But it was based on a continuous supply of cheap money by the Fed.
In March 2020, as the COVID-19 pandemic struck, Wall Street and financial markets went into a meltdown fearing that the imposition of necessary public health safety measures would impinge on the flow of profits extracted from the working class, and the stock market bubble would collapse.
Two key policies resulted. Under the banner of the “cure cannot be worse than…
Read More: The class dynamics of the Fed’s recession program