1. Wasn't it just yesterday that bankers, finance ministers, international monetary funders, bric-ers, emerging and established marketeers were complaining about the weak dollar; about the irresponsibility of quantitative easing; about all that "hot" money sloshing and flushing through the world markets threatening all of those bankers, ministers, funders, bric-ers, marketeers with the specter of.... not communism, certainly not anything quite so quaint and obsolete as that...but that walking nightmare for capitalists called inflation?
Actually, no it wasn't just yesterday. It was a couple of years ago, but what's a couple of years in the past to somebody just now approaching the peak of his or her theoretical, analytic, literary, sexual and, I hasten to add, comic powers?
Putting aside my existing and anticipated personal triumphs for just a moment, now the complaint is about the strengthening dollar and its adverse impact on the emerging and established marketeers, on the funders and finders, the bankers and wankers; about the veritable tax the appreciated dollar levies on those forced to settle their international positions, their trade, in the currency underpinning trade.
Putting aside my personal triumphs for just another moment, now the complaint is about deflation; declining commodity prices; devaluation, depreciation, de-just-about-everything, which in truth has gripped the markets, consistently but more or less thoroughly since 2008, but now made so visibly acute in the collapse of oil prices brought about by the dramatic increase in US production from "tight oil" sources.
The "strong dollar" has reversed the cash flows that buoyed the emerging market countries; the flood of oil from US (and Canadian) sources has glutted the markets, eroding the earning base of commodity exporters. Where and when once upon a time the mainest of main enemies, the greatest and most satanical of Great Satans exported inflation thereby buttressing its privileged position atop the capitalist heap through unequal exchange, now and here the mainest enemy greatest Satan maintains its unfair ranking by exporting deflation. On the one hand...
At the same time, there's no shortage of analysts, advisers, political economists, political economist columnists, etc. etc. eager to point out the "windfall," the "benefits," the uptick the decline in oil prices will mean... will mean for almost everybody... for you, for me, for airlines, bus companies, city governments, auto and their parts manufacturers. Why, it's a veritable wage increase. It increases disposable income. It increases consumer spending. It's good for you and good for me and good for....
Almost everyone. Sure it is.
2. It's not really the case that the strengthening dollar has dictated the course of deflation to the world economy. Deflation in Japan has been around for 20 years more or less; and deflation in Europe is entering a seventh year, during most of which the dollar has been relatively "weak" in relation to the euro.
And it's not just that US daily production of crude has just about doubled in six years. It is the case that US production has doubled while the rate of growth for both global oil production and consumption has slowed dramatically. For the period 2000-2007, global production increased by 10 percent while consumption grew by 12 percent. For 2007-2014, world production expanded by 6.5 percent, while global consumption grew 4.2 percent.
This marked deceleration in consumption has been driven by the collapse, pretty much, in rates of consumption in North America, which flipped, on the one hand, from a 5.8 percent increase for 2000-2007 to a decrease of 7 percent in the 2007-2014. This configuration of increased, but slowing, production with declining consumption is overproduction. More precisely, it is the overproduction of capital that determines the declining real consumption.
Now the development of social production is, in a very real sense, the development of overproduction. After all, the critical category for such development is surplus, socially accessible surplus. Surplus is the "movement from necessity to freedom," which is to say, surplus is the material representation of the productivity of social labor.
As capital, the means of production exist as commodities, as value-extracting; realizing, and only realizing, their accumulated value in the expansion of new values. Capital is always a mode of persistent overproduction, and overproduction is established as an expression of the determinant negation-- value production producing devaluation-- of capitalist reproduction. Overproduction of capital, of value, is the sweet spot and the hard place, the hammer and the anvil of the rate of profit.
So much for theory. In the concrete, overproduction of capital, and overproduction of commodities are not immediately the same. In the concrete, overproduction of capital and overproduction of commodities converge.
In practice, the collapse in the oil prices is the moment when the value of oil, the socially necessary time for reproduction, has eaten away at the price of production, the price through which the total profit is apportioned among the sectors of capital according to mass and efficiency. This is the moment when the insufficient profit has been generated in capital as a whole to support the mechanisms for distributing that profit. This is the moment when the production of value undermines the property relation underpinning value production.
If the accumulation of capital, the profit of capital, were exclusively dependent upon cost, then the decline in the price of the inputs into any one or all sectors would always and forever amplify that profit and that accumulation. Of course, profit and accumulation are not exclusively dependent upon cost, but upon the proportions, the relations, the social ratio of the living and "dead" or "congealed" components of production. So the reduction in input costs will be overwhelmed in all sectors of capitalist production by the general devaluation, the general decline of profits; by the inability to generate the profit in production required for both the preservation of current values, and the realization of expanded values.
Overproduction is driven by the tendency of the rate of profit to decline. Consequently, the "increase in real wages" predicted as a consequence of oil price declines will be more than offset by reductions in the total wage as a proportion of production through unemployment, austerity, low-wage jobs, temporary work; the "boost" to consumer spending will be more than offset by the curtailment of capital spending; the "stimulus" to production will disappear in the contraction in business activity; the prospect of recovery will be smothered by sharp declines in the circulation of commodities manifesting first in continued slow down in the rate of growth of world trade, and then in the absolute volumes and values in world trade.
Anybody arguing that declining oil prices, abstracted from the general conditions determining those price movements, foreshadow a general upturn for capitalism doesn't know up from down, ass from elbow, one hand from the other.
December 17, 2014