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Title: The “science” of class warfare
Author: Anarcho
Date: October 16, 2009
Language: en
Topics: science, class war
Source: Retrieved on 1st February 2021 from https://anarchism.pageabode.com/?p=371

Anarcho

The “science” of class warfare

Since the 1970s, capitalist economic policy has been rooted in “fighting

inflation,” an euphemism for “crushing the workers.” This policy is

rooted in the notion of the “Non-Accelerating Inflation Rate of

Unemployment” (or NAIRU) and, like most of the silly and/or nasty ideas

in modern economics, has its roots in the works of the late and

unlamented Milton Friedman.

The NAIRU is based on the idea that there is some rate of unemployment

below which inflation starts to rise. The problem is, it is invisible.

There is no way of determining what that rate is beyond looking at what

actually happens to the inflation rate. So the economic policy across

much of the world is based on a group of technocrats trying to guess

where an invisible value is and, to make matters worse, the rate changes

over time.

This is because the rate is dependent on many factors, the key ones

relate to working class power – i.e. our ability to demand and gain

better pay and conditions. The logic is simple. As unemployment falls,

workers feel more able to demand better pay and conditions, form unions

and so on. This raises the wage bill, which companies off-set by raising

prices. This, in turn, gets workers to demand higher wages and inflation

starts to accelerate. This was the process at work in the 1970s and was

broken by Thatcher’s and Reagan’s deep economic crises brought upon by

the application of Friedman’s Monetarism nonsense (this silly dogma was

very fashionable with the right back then but did not survive impact

with reality, as predicted by such post-Keynesians as Nicholas Kaldor).

With the staggering levels of unemployment this theory produced, workers

could no longer offset price increases and so costs required for

“recovery” were passed onto the working class.

Needless to say, Edmund Phelps (the economist who formulated the modern

version of this theory) was given the (non-)Nobel prize for economics in

October of 2006. Unsurprisingly, the Economist was cock-a-hoop over this

(“A natural choice: Edmund Phelps earns the economics profession’s

highest accolade”, Oct 12^(th) 2006). The reasons why become clear.

According to the magazine, “Phelps won his laurels in part for kicking

the feet from under his intellectual forerunners” by presenting a

neo-classical explanation for the breakdown of the so-called “Phillips

curve” which presented a statistical trade-off between inflation and

unemployment (“unemployment was low in Britain when wage inflation was

high, and high when inflation was low”). The problem was that economists

“were quick — too quick — to conclude that policymakers therefore faced

a grand, macroeconomic trade-off.” The magazine presents it as follows:

“In such a tight labour market, companies appease workers by offering

higher wages. They then pass on the cost in the form of dearer prices,

cheating workers of a higher real wage. Thus policymakers can engineer

lower unemployment only through deception.”

Phelps innovation was to argue that “[e]ventually workers will cotton

on, demanding still higher wages to offset the rising cost of living.

They can be duped for as long as inflation stays one step ahead of their

rising expectations of what it will be.” This meant that the “stable

trade-off depicted by the Phillips curve is thus a dangerous mirage”

which broke down in the 1970s with the rise of stagflation (high

unemployment and high inflation). Phelps, reports the Economist, argued

that there was a “natural” rate of unemployment, where “workers’

expectations are fulfilled, prices turn out as anticipated, and they no

longer sell their labour under false pretences.” This “equilibrium does

not, sadly, imply full employment” and so capitalism required “leaving

some workers mouldering on the shelf. Given economists’ almost

theological commitment to the notion that markets clear, the presence of

unemployment in the world requires a theodicy to explain it.” The

religious metaphor does seem appropriate as most economists (and the

Economist) do treat the market like a god (a theodicy is a specific

branch of theology and philosophy that attempts to reconcile the

existence of evil in the world with the assumption of a benevolent

God)..

And, as with all gods, sacrifices are required and Phelps’ theory is the

means by which this is achieved. As the Economist notes: “in much of his

work he contends that unemployment is necessary to cow workers, ensuring

their loyalty to the company and their diligence on the job, at a wage

the company can afford to pay” (i.e., one which would ensure a profit).

Unsurprisingly, attempts to lower the “natural rate” have all involved

using the state to break the economic power of working class people

(attacking unions, increasing interest rates to raise unemployment in

order to temporarily “cow” workers and so on). All so that profits can

be kept high in the face of the rising wages caused by the natural

actions of the market!

Yet Phelps’ conclusions are hardly new. Anarchists and other socialists

have been arguing that capitalism has no tendency to full employment

since the 1840s either in theory or in practice. They have also noted

how periods of full employment bolstered workers’ power and harmed

profits. It is the fundamental disciplinary mechanism of the system (“a

whip in [the bosses’] hands, constantly held over you, so you will slave

hard for him and ‘behave’ yourself,” to use Berkman’s memorable phrase).

It is, in other words, “inherent in the wage system” and “the

fundamental condition of successful capitalist production.” While it is

“dangerous and degrading” to the worker, it is “very advantageous to the

boss” and so capitalism “can’t exist without it.” (Alexander Berkman,

What is Anarchism?, p. 26) As such, it is ironic Phelps has got a

(non-)Nobel prize for restating, in neo-classical jargon, the model of

the labour market long dismissed as nonsense by neo-classical economists

(the main branch of the religion).

Interestingly, the business section of the Washington Post reported

Phelps reward under the surreal headline “You Might Have to Thank Him

for Your Job.” He, like Friedman, argued that the state has to keep the

unemployment rate at or above the (unknown and unknowable) “natural

rate” in order to keep inflation from accelerating. In other words, you

have to make people unemployed or fear being made unemployed (by raising

interest rates and slowing the economy) for capitalism to survive. Given

Phelps’ theory, it would make far more sense for the Washington Post to

produce headlines like “You Might Have to Thank Him for Not Having a

Job”; “You Might Have to Thank Him for Your Job Insecurity”; “You Might

Have to Thank Him for Exploding Inequality caused by Stagnating Pay in

spite of Rising Productivity”; or “You Might Have to Thank Him for the

annual transfer of $235 billion from labour to capital since 1979”

(figure from “The State of Working America 2006/7”). But, as with

economics, why let reality get in the way of a snappy sound-bite?

That this state manipulation is considered consistent with the “free

market” says a lot about the bankruptcy of the capitalist system and its

defenders. But, then, for defenders of the system state intervention on

behalf of capital is part of the natural order, unlike state

intervention (at least in rhetoric) on behalf of the working class. Thus

neo-liberal capitalism is based on monetary policy that explicitly tries

to weaken working class resistance by means of unemployment. If

“inflation” (i.e. labour income) starts to increase, interest rates are

raised so causing unemployment and, it is hoped, putting the plebs back

in their place.

This was the message of Mervyn King, the governor of the Bank of

England, a few days before Pelphs was given his prize. King warned

Britain’s pay bargainers to accept wage restraints or interest rates

would increase. This is despite dearer energy bills. King stated that

the current small increases in earnings were not “sufficiently

restrained” to compensate for the inflationary effects of higher energy

prices and unfavourable changes in the prices of imports and exports.

“Ultimately, both developments must result in lower real incomes,” he

said (the silence on bosses exploding pay remains, as always,

deafening). In other words, the working class must pay the price for

capitalism’s problems. Hence the need to “to keep our eye on the ball

and monitor closely the evolution of wage and cost pressures.” As a

statement of class war, it is hard to find a more succinct one.

Of course, according to the eternal and sacred law of “supply and

demand,” wage rises are to be expected when unemployment falls. The laws

of the market are the justification for bosses’ massive rises, after

all. Equally, according to the “science” of neo-classical economics,

firms are price takers and so cannot influence market price of their

goods. But the reality of capitalism is far removed from neo-classical

ideology and the state is always at hand to give capital a helping hand.

Yet even in the unreal world of capitalist economics, wage rises need

not cause price increases. This is because wage increases can be offset

by reductions in profits.

However, this is not an option in reality. As King notes, while “wage

pressures have so far been subdued, it is still not clear that earnings

have been sufficiently restrained to accommodate the past rises in

energy prices and the fall over the past year in the prices of our

exports relative to our imports without a squeeze on profits.

Ultimately, both developments must result in lower real incomes.” Sorry,

but no. Why should there not be a “squeeze on profits”? Are profits

sacred? Why should the majority accept “lower real incomes” so that the

few can get see their incomes rise? And Blair declared that the class

war was over. Someone should tell King…