Wednesday, May 27, 2009

Lies, damned lies and statistics

Apparently the number of people imagining that there will be more jobs available in the next six months in the United States has increased. This measure of “confidence” sent markets soaring yesterday. But these are the kinds of reports that sustain the now-fading springtime images of economic green shoots. Those who believe them should be warned about too much optimism.

The real story can be found in a variety of statistics and stark lines charting the continuing relentless descent of every part of the global economy. The latest chapter in the slow, drawn-out death of the US car industry sees Chrysler already officially bankrupt, and GM in its last days. The Union of Auto Workers is busy signing cost-cutting deals they hope will save some jobs. Canadian GM employees have accepted pay cuts of 30% in an attempt to keep plants open in Ontario.

With falling incomes for those in work and increasing unemployment there won’t be much spare cash around to sustain spending in North America. Japanese parts and machine tool suppliers are getting worried. According to Ikuo Mori, CEO of Fuji Heavy Industries. “Whatever happens to GM, the impact on the overall (U.S.) economy is going to be huge and it's going to hurt demand."

Standard and Poor’s Case-Shiller index of US home prices since the peak in 2006 – when the effects of the crisis first began to be felt – shows that the deterioration is accelerating. US home prices fell a record 19.1% in the first three months of this year. From the peak, they are down 32.2%. "We see no evidence that that a recovery in home prices has begun," said David Blitzer, chairman of the committee which compiles the index.

No green shoots there, then.

How about Japan and Germany? These two countries hosting major manufacturing corporations became heavily dependent on exports to the rest of the world as a consequence of globalisation. This chart shows Japan’s production, domestic consumption and exports since 2004. It’s been pretty much downhill all the way, and catastrophically so since the end of 2007.

The next one zooms in on Japan’s exports and capital investment over the last year, quarter by quarter.

Note the steady decline in capital investment approaching -40% as exports shrink by more than 70%. Measured by the market value of all final goods and services, Japan was the world’s second biggest producer in 2008 after the US and China, so it’s very important as an indicator of the health of the global economy.

Green shoots? Where? Germany, perhaps? The rest of Europe?

Germany was in fourth position in 2008. In the first quarter of this year, German exports and investment were in free fall, dropping by 9.7 per cent and 7.9 per cent compared with the previous three months. Industrial orders in the Eurozone in March were almost 27 per cent lower than a year before.

These are all quantitative indicators of a deepening crisis with no bottom in sight. At a certain point, quantitative limits are reached and qualitative changes must occur. This is a universal law of nature.

There are two possibilities contained within the contradictory, fast approaching historical moment. In its strange, insane way, retaining capitalist production as the organising principle of society requires the destruction of productive capacity on a scale to match the surplus built up by decades of ballooning credit-led investment.

The other choice is for social ownership and democratic control of the world’s productive resources, creating the things we need to survive in a sustainable way that protects the environment. When you think about it, the choice is obvious.

Gerry Gold
Economics editor

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