economics

Damned If You Do and Damned If You Don’t

by John Reimann

An article in today’s Wall St. Journal confirms the theory of the tendency towards overproduction. Entitled “Stagnant Wages Are Crimping Economic Growth”, the article explains that at the “end” of the recession, in June 2009, the average hourly wage for non-government, non-supervisorty employee was $8.85 and last month it was $8.77. “Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth…. Consumers remain the biggest driver of the US economy, but without more money coming in, it will be difficult for them to spur robust growth,” they wrote.

The natural response would be to call for higher wages in order to get the economy moving again. In fact, that’s what many liberals do. They range from commentators like Paul Krugman to the AFL-CIO leaders. All in one way or another say that “middle class jobs” are needed for the benefit of the system as a whole.

There are a couple of problems with this.

The first is that no employer will raise wages for the good of the economy as a whole. If he or she did so, they would lose out to their competitors – whether those competitors be domestic or foreign. The fact is that raising pay requires a bitter struggle on the job, one that requires stronger unions.

The low pay also reflects high unemployment.

In any case, even if wages did increase, they would never increase enough for workers to be able to buy back everything they produced. If they did, then there wouldn’t be anything left for the profits of the employers; the more they do increase, the more those profits are squeezed. That is the inherent tendency towards overproduction which Marx explained.

Tendency towards a falling rate of profit

Then there’s another contradiction: As employers increasingly invest in machinery, they require fewer and fewer workers. But it is only the workers who produce profits. The machinery simply pays for itself until its useful life is finished; it merely transfers a portion of its value to the product. Thus, under capitalism there is a long term tendency for the rate of profit to decline. And if the profits are squeezed, then why should a capitalist invest?

Marxist economist Michael Roberts has produced a graph showing this long term trend:

rate-of-profit

 Some Marxists, Roberts included, reject the theory of the tendency towards overproduction. They say that this theory simply leads to the view that capitalist crises can be prevented by keeping wages high enough. But Roberts, himself, has produced the evidence to refute that view. Higher pay will only cut even further into the rate of profit. On the other hand, boosting the rate of profit by cutting the wage bill – either through pay cuts or by layoffs – will cut into demand, thus crimping the economy in exactly the way that the Wall St. Journal explains.

Damned if you do and damned if you don’t.

Categories: economics, Marxist theory

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