WHICH WAY is the world economy going? The view seems quite different depending on which side of the Atlantic you are.
The governor of the Bank of England, Mark Carney, announced last week that the British interest rate may remain at the ultra-low level of 0.5 percent till 2017. The main reason he gave was the slowdown of the so-called “emerging market” economies—China, Brazil, and the like.
Andy Haldane, the Bank’s chief economist, went even further in September, when he proposed that interest rates be cut. He said, “Recent events form the latest leg of what might be called a three-part crisis trilogy. Part One of that trilogy was the ‘Anglo-Saxon’ crisis of 2008-9.
“Part Two was the ‘Euro-Area’ crisis of 2011/12. And we may now be entering the early stages of Part Three of the trilogy, the ‘Emerging Market’ crisis of 2015 onwards.”
But across the pond, the Federal Reserve Board, the Bank’s American counterpart, is preparing to raise interest rates, probably in December. On Friday last week the Bureau of Labor Statistics announced that employment in the United States had risen by 271,000 in October.
“America’s jobs market roared into top gear last month,” enthused the Financial Times breathlessly. Mainstream economists argue that the US economy is now nearing full employment and so the Fed must raise interest rates to prevent it overheating.
The hype seems overstated. On average, 187,000 jobs were created in each of the past three months in the US, still way below the 2014 monthly average of 260,000. The economy grew in the third quarter of 2015 by a miserly 1.5 percent, and the latest estimates for manufacturing are poor.
Moreover, participation in the labour force was 62.4 percent in October, the lowest level since the late 1970s. Many people have just stopped looking for jobs.
This may be related to a finding by the economists Anne Case and Angus Deaton. They found that the death rate among middle-aged white (non-Hispanic) Americans without college degrees rose sharply between 1999 and 2013. Both are evidence of a working class demoralised by low pay and harsh working conditions.
The tepid recovery from the Great Recession of 2008-9 has led many US economists—for example, Lawrence Summers and Paul Krugman—to argue, like Haldane, that interest rates are not too low.
The wild card in all this is China. China’s strong growth after 2008-9 boosted other “emerging market” economies that supply it with food and raw materials. But this growth depended on a huge increase in borrowing and investment that expanded productive capacity faster than markets could absorb the commodities it generated.
Now investment is being cut back, and China’s economic growth is slowing. In October imports and exports both fell. The volume of iron ore imports fell by 12.3 percent and of coal by 21.4 percent.
This then has a knock-on effect on economies like Brazil’s, which supplies China with iron ore. A couple of weeks ago I visited the Brazilian state of Minais Gerais, and saw for myself how it is riddled with iron mines. A tidal wave of mud and waste from one of them engulfed the little town of Bento Rodrigues last week, leaving dozens of people missing.
This tragedy is a reminder of the many ways in which the relentless global process of capital accumulation victimises people. But it will be merely a brief blip on the financial markets’ radar.
Their preoccupation is with how China’s slowdown has brought down the price of iron and other raw materials. This is squeezing the profits of transnational corporations such as BHP Billiton and Vale, the owners of the mine in question.
The real problem isn’t that interest rates are too high or too low. It is that capitalist economies are geared to the pursuit of profit. The Marxist blogger Michael Roberts argues that the crisis we are still experiencing reflects the fact that the rate of profit is too low and hence firms are unwilling to invest. But the disaster at Bento Rodrigues and the US mortality figures reminds us of the human price exacted by the search for profit.