"Capital" by Viktor Deni (1919)
(Source: Socialist Action)
Articles by Jason Koslowski (No Return to Normal for the Capitalist Economy, published in Left Voice) and Nick Baker (In the Worst of Times, the Billionaire Elite Plunder Working Class America, published in Socialist Action) are the subject of this post.
Both authors are very angry that the stock market is rising. Mr. Koslowski's lede:
The economy might be collapsing in the middle of a deadly pandemic, but the stock market is booming.
Likewise, Mr. Baker's opener:
In the midst of a global pandemic, unprecedented economic collapse, mass unemployment, hunger and desperation, the stock market is booming and the richest of the rich are richer than ever before.
Mr. Koslowski's otherwise excellent piece offers this claim:
While stocks keep climbing, the ruling class is raking in staggering amounts of money. Amazon, for instance, posted a profit of $5.4 billion for April, May, and June, and on July 20, Jeff Bezos made $13 billion in just a single day. (Links in original, here and in quotes below)
How Mr. Bezos could earn $13 billion when the company only made $5.4 billion is not explained. Of course the comparison is apples and oranges: the earnings are real money, while Mr. Bezos' increased horde is unrealized (and unrealizable) paper profits.
Mr. Baker makes the same claim, albeit without links to support his case. And that's the big difference between the two: Mr. Koslowski sources all his data with useful and relevant links. Mr. Baker cites nothing and permits himself much latitude for exaggeration. Otherwise the two articles say pretty much the same thing, which makes me wonder why they are in semi-competing organizations.
Contrary to what Misters Koslowski and Baker say, the stock market is much more than just a casino for the wealthy. The S&P 500 is probably the best long-term investment anybody can make--all Americans should own a bit of the S&P 500 through an index fund. Because even if you don't own it yourself, the S&P 500 is a direct reflection of the American economy. If it crashes, we all go down with it--not just the very rich.
Anybody with a 401K (e.g., me) depends directly on the S&P 500 for their retirement--that's tens of millions of people! Even those with defined benefit pensions (e.g., most public employees, but not me) rely on the index, because monies that governments are supposed to contribute toward their retirement will inevitably be invested in stocks. If the market doesn't rise fast enough, then not even public employees will get their pensions (see, e.g., Illinois). So a rising market is a bright spot for the economy--I think it's odd that our comrades find it to be a problem.
A well-capitalized company ("high" stock price) can borrow money to finance operating expenses, or sell more shares to raise money for new ventures. Such companies are creditworthy. Conversely, a poorly-capitalized company ("low" stock price) can't do any of those things and is one step away from bankruptcy.
Misters Koslowski and Baker think it's all a bubble. The former puts it this way:
In part, the stock market’s surge has been because capitalists were buying back their own stocks. Buy-backs are a method for driving up stock prices and making more money for investors — so much so that the central bank of the U.S., the Federal Reserve, had to restrict such moves. [The "restriction" applies only to banks, which are required to keep cash on hand.--ed]
Buybacks are a way of returning money to shareholders, and they're common because they're tax-advantaged over dividends. Apart from the tax implications, there is no difference between a buyback and an increased dividend. A company like Apple has a huge cash horde that it doesn't need--and buying back from shareholders is an indirect way of putting that money to work in other industries.
Apparently our two authors agree with conspiracy theorists on the right about the malevolent Fed--always scheming secretly to cheat the investor/working man. Mr. Koslowski writes,
The Federal Reserve has given away trillions of dollars by buying capitalist firms’ bonds and other financial instruments to “heat up” the economy. And Democrats and Republicans in Congress passed a $2.2 trillion “aid” bill of taxpayer money to support those in need — cash that was, overwhelmingly, a gift to the ruling class itself. [The link is informative--ed.]
The Fed is buying corporate bonds, which means it is lending money to companies. It is not "given away." While many argue that this exceeds the Feds mandate--which narrowly interpreted says that they should only lend money to banks--the counter-argument is that the Fed should lend to any temporarily illiquid organization (not just banks), but never to an insolvent company. The problem is that it's hard to tell the difference.
For example, are airlines illiquid or insolvent? The former supposes that post-pandemic air travel will go back to the way it was, and then it is an appropriate government responsibility to lend the airlines money to get them through the crisis. The latter suggests that air travel patterns are permanently altered, and therefore many existing airlines will go bankrupt anyway. The government should not lend them additional money because it will never get paid back.
One can ask the same question about renters who lost their job because of the pandemic: are they illiquid or insolvent? If they're going to get their old jobs back soon enough, then they're illiquid, and the government should definitely lend them money (or equivalently, mandate an eviction moratorium). On the other hand, they're insolvent if the old jobs are never coming back. At that point a loan will never do because insolvent people can never pay it back. Instead the government will likely have to issue some kind of welfare check.
Misters Baker and Koslowski misunderstand two things. First, they fail to realize that bailing out the airlines and bailing out renters is really the same problem. The point is to avoid bankruptcy, which in the case of renters will lead to the bankruptcy of the landlords, who in turn can't pay their mortgages causing the banks to go bankrupt. And likewise with the airlines, who won't be able to cover their existing debts and operating expenses.
Mass bankruptcy is very bad for any economy and could cause a deep and prolonged depression. Preventing that is the core function of the Federal Reserve.
The second error our authors make is they assume large firms, e.g., airlines, are neither illiquid nor insolvent. In their mind's eye the corporations are like the cartoon at the top of the page--they're just hording cash that they could easily use to finance everything if they only wanted to--but they're too greedy to even try. It's like Jeff Bezos keeps piles of gold coins in his basement, for which he has no other use than to swim in them after lunch. This picture does not match reality.
Mr. Koslowski asks an important question.
What does all this mean for the working class and oppressed?
First, it means more austerity. In other words, we’ll see intensified attacks on public, tax-funded services, like public education, and probably on social services like medicare, medicaid, and social security.
And this is true if there are mass bankruptcies. Companies will close, workers will lose their jobs, tax receipts will decline, the money supply will shrink catastrophically, and above all, the stock market will crash. The resources necessary to support the social safety net simply won't exist anymore.
To prevent this dire outcome, one has to hope that the Fed is successful. The assumption that, e.g., airlines and renters are illiquid rather than insolvent has to be correct. If it is, then the ship will right itself soon enough. And if not, then the Fed is just throwing good money after bad and making things worse.
A rising stock market indicates that investors believe it's a liquidity problem rather than a solvency problem. Which is a self-fulfilling prophecy since a good share price makes companies solvent. So we should all hope the market keeps on going up.
Is it just my imagination, but does the cartoon character above look like an African or a Jew?
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