In an interview with CNBC—the main business press television outlet in the U.S.—an economist with one of the world’s top banks said Monday morning that governments have to act now to cut jobs and slash wages.
Kokou Agbo-Bloua, an economic analyst with France’s Societe Generale bank, told the hosts of the network’s Squawk Box program: “The central banks need to trigger a recession to force unemployment to pick up and create enough demand destruction, but we’re not there yet.”
It’s not hard to see through the jargon. Creating “demand destruction” simply means less money in workers’ pockets. And the tool to do that: Higher and higher interest rates.
Agbo-Bloua’s comments represent the general wisdom of the elites among finance capital. Nathan Thooft, a money manager at Manulife Asset Management, also cheered for raising interest rates, saying a recession has only been “postponed rather than canceled.”
Bankers and capitalist policymakers remain obsessed with taming inflation. Working people, of course, don’t need anyone to tell them that there is inflation—they see it every month when their paychecks don’t stretch as far as they used to when the price of meat, eggs, milk, gas, and rent continues to soar.
But what are the causes of inflation, and how are interest rates connected?
Blaming the public for rising prices
Basic economics textbooks give a simple explanation for inflation: Too much money chasing after too few goods. But that leaves a lot of unanswered questions. Why is there too much money, and who says how much money there should be? Why are there too few goods, if that is the case? Who’s setting the prices that are charged, and do those prices truly reflect “supply and demand”?
Neoliberal economists usually point the finger for inflation at two things: government spending and workers being paid too much. In his comments to CNBC, Agbo-Bloua repeated both of these tropes.
“The number one ‘original sin,’” he said, “is that governments have spent a huge amount of money to maintain the economy that was put in hibernation to save human lives, so we’re talking roughly 10-15% of GDP.” Read that again. Governments spending money to save human lives when the economy was “in hibernation,” i.e. during the COVID-19 shutdowns, was a “sin.”
Only a philosophy that prioritizes money over people could possibly see public spending to save human lives as a “sin.” Without realizing it, Agbo-Bloua revealed what passes for common sense among the ruling class and indicted the capitalist system as anti-human at its core.
He then returned to the matter of workers and the need for jobs and pay cuts. “The labor market is super tight and you have lower labor productivity growth which now is pushing unit labor costs and you get this negative spiral of wage prices,” he said.
Dissecting his statements shows what’s behind all the jargon:
- “The labor market is super tight…” = There are not enough unemployed people.
- “You have lower labor productivity growth…” = People are not working hard enough.
- “…pushing unit labor costs…” = Workers’ share of revenue is cutting into profit margins.
- “…you get this negative spiral of wage prices.” = Bosses are raising prices on products in order to maintain their profits above and beyond what they pay out in higher wages.
Discipline labor
To solve the impasse, workers’ power has to be broken. The formula is simple: slash public spending and create joblessness.
The first one is easy to do. There are plenty of hired guns in Congress (every single Republican and many Democratic renegades, like Sens. Joe Manchin and Kyrsten Sinema) who can be counted on to scuttle attempts to use the people’s money for the people’s needs whenever they have the chance.
For the second task—cutting jobs and wages—that’s where the Federal Reserve and interest rates come into play.
At a press conference last September, Federal Reserve chair Jerome Powell accepted his assignment: “We have to get supply and demand back into alignment and the way we do that is by slowing the economy…and soften labor market conditions.”
Translation: The central bank will trigger a recession on purpose in order to weaken the bargaining power of workers vis-à-vis employers. Powell’s task is to calibrate his interest rate hikes to drag the economy down just enough to discipline workers, but not so far down that he hurts employers too much.
That might sound absurd, but it’s exactly what capitalist economic orthodoxy calls for, and it’s what the Fed has been doing with its constant march of interest rate hikes.
By exploding the costs of borrowing, the Fed wants to force companies to forgo loans, halt their hiring plans, and embark on major cost-cutting to pay the debt they owe the big banks. Firms unable to make payments on loans they already owed will shrink, be bought out, or go belly up, taking their workers down with them—sacrifices for the greater good of capital.
Capitalism’s #1 critic, Karl Marx, called these workers who are put out on the street the “reserve army of labor.” By having a pool of people desperate to take any job or wage, employers have a weapon to discipline employees who ask for too much.
Economists like Agbo-Bloua applaud what central banks like the Fed have done so far, but for them, things haven’t gone far enough or fast enough.
“We think that the recession or slowdown should occur in the U.S. in Q1 of next year.” So, the target is early 2024—just in time to shape public opinion ahead of the U.S. elections. Coincidence or not, a weaker economy will certainly make Republican propaganda about “Bidenomics” more effective.
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Soaring profits cause soaring prices
Generally, Agbo-Bloua stuck to the usual script when it comes to neoliberal economic prescriptions. Excessive public spending and uppity workers are mostly to blame for our problems, with the Ukraine war and pandemic supply chain disruptions playing supporting roles.
But other remarks of his were more surprising—mostly because they admitted things that bankers usually don’t say in such direct terms. The French economist ended up pulling back the curtain on one of capitalism’s worst-kept secrets.
“You also had…‘greedflation,’ companies’ ability to raise prices by more than is warranted, and this is why we see profit margins at record levels over the past 10 years.”
There it is, out in the open: Corporate greed is behind the galloping inflation we see across the country. But just how much are corporations to blame?
An analysis from the Kansas City Federal Reserve found that in the year 2021, a whopping 60% of price increases in the U.S. economy were due solely to bloated corporate profits—in other words, deliberate price-gouging. Last year saw the trend continue, with profits hitting record highs. The story was much the same in Canada and Europe.
Only in 2023 has there been some incremental slowing in the upward race of corporate profit margins—a sign that interest rate hikes are starting to have their desired effect.
Like Agbo-Bloua, other analysts for the financial elite sometimes let slip such bits of truth. Last winter, UBS chief economist for global wealth management Paul Donovan wrote in the Financial Times:
“Companies have passed higher costs on to customers. But they have also taken advantage of circumstances to expand profit margins. The broadening of inflation beyond commodity prices is more profit margin expansion than wage cost pressures…. resilience in demand has given companies the confidence to raise prices faster than costs.”
Progressive economist Rakeen Mabud with the Groundwork Collaborative, no friend of Wall Street, was much blunter:
“Today’s record corporate profits mirror what we have been hearing on earnings call after earnings call: Corporations are gleefully reporting that their strategy to burden families with unnecessary price hikes is working.”
The worst is yet to come
There are other alternatives to damaging interest rate hikes and an intentional economic recession.
- If corporate price mark-ups—and not higher wages—are the primary source of inflation, then the right policy response should be an excess profits tax. Take away the incentive for corporations to gouge consumers.
- Price controls could be placed on utilities, food, and housing. Rep. Jamaal Bowman proposed the Emergency Price Stabilization Act in Congress to do just that.
- Energy inflation could be combatted by supporting immediate negotiations to end the war in Ukraine. Energy shortages would be alleviated in Europe and the bulging profits of both the oil and gas giants—along with those of weapons producers—would start to shrink.
Of course, the capitalist class can be expected to oppose every one of these measures. Instead, they will opt for the tried-and-true methods of offloading the crisis they’ve created onto the working class.
The irrationality of capitalism and the undemocratic political-financial superstructure that manages it are incompatible with the principle that the economy should serve people, instead of the other way around. So, for now, workers will be expected to make the sacrifices needed to bring down prices.
Talk about “cooling off the economy” or “taming inflation” will continue to mean targeting jobs and paychecks—and workers’ bank accounts. According to Agbo-Bloua, the “excess savings” of consumers and households constitute too much of a “buffer” for higher prices, so in addition to creating unemployment, any savings that working families have managed to scrape together must also be drained.
It can’t be any clearer: They want us all to suffer as much as possible.
Turning again to Marx, we realize that none of this should come as a surprise. As he wrote in Capital way back in 1867:
“In proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse. […] Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery…at the opposite pole.”
Marx called it “the immiseration of labor,” and we’re about to feel a lot more of it. In the estimate of Manulife wealth manager Nathan Thooft: “If forecasts are correct…global GDP growth [for early 2024] will come in 15.2% below trend, a scenario last seen during the pandemic in 2020 and, before that, in the 1940s.”
The price we will all have to pay to sustain this inhumane system is going to be high indeed.
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