For bourgeois economists, the last months of a year is a time for putting finishing touches on forecasts for the coming 12 months. In making predictions about a system that not only creates its own crises, but often thrives on the chaos, they must strike a delicate balance: tell the truth, but don’t “spook” investors and government policy makers.
Most of these economists work for institutions of global capital, such as the International Monetary Fund (IMF), or for the world’s major investment banks. They specialize in helping make already filthy-rich folks a lot more money or saving them from losing a bundle — and often both at the same time. Their 2021 forecasts also propose what to do to make the year as much of a bonanza for capitalism as is possible, or practical.
The IMF’s Forecast
Even before the coronavirus pandemic broke out, the IMF and most investment bankers were predicting a rocky 2020. The IMF had forecast a deep recession; by June, its tone grew more dire as the sharp economic downturn wrought by the coronavirus pandemic exacerbated everything: small businesses shuttering, skyrocketing unemployment rates, and the massive disruption of global supply chains. But by October, in its World Economic Outlook, the IMF was seeing the future in a better light.
Gita Gopinath, who directs the IMF’s Research Department, characterized the shift in a blog post on October 13. The IMF was continuing “to project a deep recession,” but she spoke of “a long, uneven, and uncertain ascent.” Except for China, “where [2020] output is expected to exceed 2019 levels … output in both advanced economies and emerging market and developing economies is projected to remain below 2019 levels” even in 2021. The more manufacturing-based economies will have slightly stronger recoveries, she wrote, than those that “rely more on contact-intensive services” or oil exports.
“This is the worst crisis since the Great Depression, and it will take significant innovation on the policy front, at both the national and international levels, to recover from this calamity,” Gopinath continued. She worried about the virus “resurging” and pinned all of the IMF’s hopes on “faster and more widespread availability of tests, treatments, vaccines, and additional policy stimulus [that] can significantly improve outcomes.” Those policies include “global easing of monetary policy … essential for the recovery,” but “complemented with measures to prevent build-up of financial risks over the medium term, and central bank independence should be safeguarded at all costs.” Sure, there’s mention that governments may need to “raise the progressivity of their taxes while ensuring that corporations pay their fair share of taxes, alongside eliminating wasteful spending.” And there’s a nod to “expanding the safety net where gaps exist” to “ensure the most vulnerable are protected while supporting near-term activity,” but this is capitalism, and those are secondary considerations. Everything is seen through the prism of policies that seek “lasting improvements in the global economy that create prosperous futures for all.”
That’s bourgeois economics-speak for maximizing profits, expanding the rate of exploitation, and finding new terrain for capitalism to extract value — because that’s the only way capitalism sees “prosperity.” It’s a trickle-down ideology that believes that what’s good for the billionaires is good for the masses. If the wealthiest continue to rake in the cash, goes the argument, they will “invest” in ways that will benefit everyone else. Of course, that’s bullshit. But it is why monetary policy and its tandem, fiscal policy, are at the center of the bourgeois economists’ thinking.
Monetary and Fiscal Policy
Monetary policy is all about what a country’s monetary authority — in the United States, it’s the Federal Reserve (the Fed) — does to control the quantity of money in the economy. That includes dealing with the money supply and interest rates, all in the interest of controlling inflation, consumption, growth, and liquidity. It has nothing to do with rationalizing the production of goods and services to meet human needs, and everything to do with preventing risk and keeping profits from production and investment flowing.
So, the IMF is calling on the Fed to continue to act — be it by modifying interest rates, regulating foreign exchange rates, perhaps changing how much money banks must keep as reserves, and especially by buying or selling government bonds — as it did throughout 2020. “It works like magic,” reported USA Today back in May. “With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually ‘printing’ money and injecting it into the commercial banking system, much like an electronic deposit.” It did so all year, to keep markets functioning — not by printing paper money, but through “large asset purchases on the open market by newly created electronic dollars to the reserves of banks such as Wells Fargo, Goldman Sachs and Morgan Stanley” — in exchange for which the Fed receives U.S. Treasury and agency securities that are backed by bundles of home mortgages. These purchases, known as “quantitative easing,” increase the money supply and help lower interest rates, keeping borrowing cheap for the big capitalists who — during the pandemic — have been using that money in a veritable frenzy of speculation while enticing the rest of us who might have some credit to put ourselves into further debt as a way to weather the Covid-19 economic storm.
Every action in monetary policy is about keeping the economy humming as much as possible, and mitigating risk. Then there’s fiscal policy — government taxation and spending to influence economic conditions that aren’t self-correcting because the private sector isn’t helping out. In an early December commentary in Barron’s, Larry Hatheway and Alex Friedman celebrated the fiscal interventions of governments in 2020. They are the former leading economists at UBS, the Swiss multinational investment bank and financial services company.
“In advanced economies, large-scale fiscal stimulus, including effective direct transfer payments and increased unemployment benefits, enabled households to stabilize consumption,” they wrote. “Loan guarantees, direct lending programs, ample liquidity and forbearance enabled companies to remain solvent. Wage subsidies supported employment.”
Fiscal policy, too, is about keeping the economy humming. Stimulus checks to working-class people and the poor are a part of this — another way to inject some money into the economy with the hope that it will return to capitalism’s coffers via consumer spending. Other fiscal policies aim to keep unemployment at “reasonable” levels, control social spending levels, and avoid “overheating” that could cause inflation.
For at least one loud voice among bourgeois economists, Larry Summers, “overheating” concerns prompted railing against even giving people a paltry $600 stimulus check. But the capitalists largely agreed on monetary policy in 2020, even if some economists have a different 2021 forecast than the IMF.
What Shape “Recovery”?
Consider Morgan Stanley, the world’s largest publicly traded investment services firm. Its economists take a different view than the IMF. Theirs is a self-described “macro outlook that diverges from the consensus,” predicated on a firm belief in a “V-shaped recovery.”
Economists use an alphabet soup of letter shapes to describe different types of recessions and recoveries. In brief, the V-shape is a quick, sustained recovery of economic performance that follows a sharp economic decline, and is considered the best-case scenario. A U-shaped recovery is like the V, but less clearly defined. The “double-dip” W is two Vs: the economy falls into recession, has a short period of growth, falls back, and emerges once again to a full recovery. The disastrous L-shape is a severe recession and then many years before new growth — if ever.
The coronavirus pandemic has added the K-shape to the mix. A combination of the V and L, it’s the most truthful about capitalism — the well-off get the V while the masses get the L. In fact, the K-shaped recovery we’ve experienced thus far in the United States has exacerbated wealth inequality, leading to levels not seen since the 1920s — right before the Great Depression. As CNBC reports, it “has created enormous inequality not just in the performance of economic segments, but in society more broadly. On one side, tech fortunes reached all-time highs, while lower income, blue collar workers and those that cannot work remotely suffered the most.”
Just look at the stock market’s meteoric growth since late March for a simple illustration of the K at work. This happened while GDP was plunging, unemployment was steeply rising, and tens of thousands of smaller businesses were failing. “That in itself,” CNBC says, “exacerbates inequality at a time when 52% of stocks and mutual funds are owned by the top 1% of earners.”
Nevertheless, Morgan Stanley calls its 2021 Global Economic Outlook “the next phase of the V.” The forecast is based on this claim: “Following a steep decline in early 2020, the world economy rode a rebound that began in May and remains on track to surpass prepandemic GDP levels by the end of this year — setting the stage for strong post-recovery growth in 2021” that economists say “is on track to deliver 6.4% GDP growth in the coming year.” That projection “stands in stark contrast to the consensus, which forecasts 5.4% global growth and worries that the pandemic will have a bigger impact on private-sector risk appetite and, hence, global growth,” according to Chetan Ahya, Morgan Stanley’s chief economist, who chalks it up to consumers and investment growth that reflects the “private corporate sector’s risk tolerance” (code for the increasingly speculative activity that is fueling wealth growth at the top).
More likely, though, is that Morgan Stanley’s confidence in a V-shaped recovery really just ignores the L part of the K. After all, the robber-barons of global capitalism it serves are all bought in on the most recent stimulus plan keeping the economy afloat for the time being, especially until vaccines are widespread. The legislation is a windfall for corporate interests; it’s not $600 that’s going to save working people. And no one at Morgan Stanley and its ilk really care about the world’s masses, except to the degree that those who are suffering can be further exploited to drive the V-shaped recovery for wealthy investment clients.
Recall that the Fed’s intervention to purchase T-bonds is backed by bundles of home mortgages. Every step the Fed takes in that direction puts regular people in potential jeopardy as it shifts risk away from the big banks that are getting these injections of money into their reserves. In the run-up to the Great Recession that began in 2008, took down investment giant Lehman Brothers, and then spread across the globe, and from which capitalism has still not recovered, it was a speculative crisis with subprime home mortgages that was the spark.
Class Struggle on the Agenda?
What the bourgeois economists are hoping for is just enough stability in 2021 to get to the other side of the pandemic and the uncertainty it creates that cannot be measured or described with mathematics. Even if they don’t say so directly, “Economists across the political spectrum agree that the economic recovery will be almost wholly dependent on public health,” reports The Hill.
That “public health” is not the alleviation of poverty, or an end to war, or solving the world’s refugee crisis, or addressing global climate change as we barrel headlong to the destruction of the planet. It is exclusively the “public health” that means no more virus so the great majority of the world’s population can stop using up resources to keep them alive — barely — until the pandemic is over, at which point they’re expected to get back to work producing the value from which their bosses extract profits. As for the rest of the population, they’re expected to return quietly to being ignored, to die off in their impoverished areas of the world where there’s no point — from the capitalists’ perspective — to making “productive investments.”
Capitalism is a system that is working perfectly when it concentrates wealth in the hands of the few by exploiting the work of the many. It rewards turning a profit regardless of the consequences.
This new year will test its limits. Charles Hughes Smith — a leading “alternative” financial blogger — advises that “a revolt against the unprecedented inequality that heavily favors the top 10% is not ‘impossible,’ it’s a certainty.” How that revolt will take shape is yet to be determined. There are going to be further economic attacks on vast sectors of the population throughout the world, in the form of austerity and greater deprivation — all in the interest of capital. But just because the IMF and Goldman Sachs made no mention of it, don’t be fooled into thinking they’re not concerned about an uptick in class struggle. In addition to monetary policy and fiscal policy, they’ll be calling for repression policy when that happens.
