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16 min read


During the early years of the Thatcher regime, Conservative MP, Sir Ian Gilmour, served as a member of the new Conservative government elected to power in 1979.

Politically and socially he had little in common with the neo-Poujadist Mrs T and her band of neoliberal counter-revolutionaries, a rampaging mob of enragés led in the main by neo-liberal head-banger, Sir Keith Joseph.

Gilmour himself came from an aristocratic, high-Tory background, and viewed the new order led by a provincial grocer’s daughter (the archetypal petit-bourgeois) together with her crackpot policies, with barely hidden contempt. A break had to come and did so in short order.

This parting of the ways was precipitated by concern at the all too visible adverse trends in the economy; the rising figures for unemployment in particular, was a damaging side-effect to the new government’s economic credibility. Something had to be done.

Thus, the formulation of such damaging statistics was to be overcome by simply changing the definition. Mirabile dictu, it worked, and, hey presto, unemployment fell.

This prompted Gilmour to sarcastically remark: ‘Now that the government has reduced the unemployment figures perhaps a start can be made to reduce unemployment.’ That was the end of Gilmour’s stint in government.

I recalled this particular piece of historical revisionism in order to illustrate a more general point: namely that we can take it as read that official statistics are very carefully compiled and rigged for political reasons in order to produce political outcomes. They are designed to show what a good job our rulers are doing; making us richer, happier and contended. And this was never just about western capitalism. It has been commonly practised by all state bureaucracies.

The statist-bureaucratic economic model in the USSR and its satellites also wrestled with internal structural problems which became eventually intractable. It was not just a problem of corrupt party officials and/or megalomaniacs like Stalin and Ceaucescu which led to the final demise of the system, although they certainly played a part.

No, the problem with communism, and in time with capitalism for that matter, is that ultimately the structural anomalies internal to the system gave rise to a gradual economic stagnation and inertia: the paradigm was to become unsustainable and unable to carry on any further. The crisis was, in short, systemic.

In this respect, capitalism follows the lead of communism as is evidenced through the current ongoing crisis, a crisis which began in 2008. How and when this will play out is a matter of conjecture, but we can be sure that it will play out.

Many within the Eastern bloc had come to this conclusion as early as 1960. A confidential report in 1965 from a senior Soviet economist highlighted slowing rates of growth, particularly in agriculture, and in manufacturing, poor quality goods and the most backward industry in the developed world. In addition, there was also mass wastage in production ranging from timber to steel.

The report was ignored, and the problems continued to worsen until the Brezhnev years which added a wage levelling process which tended to undermine individual incentive, resulting in absenteeism and alienation in the workplace. By 1980 the situation had become critical. Gorbachov’s Perestroika and Glasnost reforms were too little too late since the system was arguably beyond reform.

The Soviet Union and the other command economies stagnated and collapsed due to the absence of any reliable method of resource allocation and quality control. The absence of the market mechanism in this respect left production and allocation decisions dependent on the subjective judgements of the planners.

This resulted in a misallocation of resources on a gigantic scale as well as the production of inferior quality goods.

I remember at the time (1981) being in Moscow and visiting the famous department store – Gum. It occurred to me as I walked around that in England at Bentall’s, a large super-store in Kingston-upon-Thames, where I was working at the time, had a much wider range of goods of much higher quality.

In the state-bureaucratic regimes in Eastern Europe there was overproduction of some goods and scarcity of others. There was waste, poor investment decisions, ecological damage as well as corruption, time-serving and mediocre management.

However, the collapse of the command economies in Eastern Europe did not herald the beginning of any capitalist nirvana – quite the contrary. If anything, the post-communist societies all experienced a catastrophic fall in production and living standards.

Some have now recovered – including most importantly Russia – but many are still worse off than before the fall of communism, and grappling with a serious problem of falling fertility rates, rising death rates and depopulation as a mass migration is taking effect from East to West – many are nostalgic for the old days of communist rule.

The move from the command economy to the most extreme form of capitalism was, in fact, a jump out of the frying pan into the fire.

Now comes the turn of the West and its neo-liberal system. We can posit the view with some confidence that the western neoliberal system is headed for a fundamental structural breakdown. Not just a recession, or even a depression but a complete breakdown.

Increasingly frenzied attempts to cope with this deteriorating situation and keep the truth from everyday folk is becoming increasingly difficult, though actually imperative. Ergo the mass propaganda machine working day and night in an effort to distract and reassure the populations that everything is fine.

In this respect economic statistics have undergone a revolution in recent years (see above). In many ways this is very similar to the experience of the Soviet bloc in its final years.

Taking the United States as the leading neo-liberal economy as an example, let’s start with unemployment


There are no less than six definitions of unemployment in the US (See US Bureau of Labor Statistics: U1-U6.) The headline and widely used figure is usually based upon U3. This calculates the present levels of unemployment as being 3.8% or thereabouts. However, if the U6 measure is used the level of unemployment rises to 7%.

Trump himself used to complain about just this issue. Bashing the official unemployment statistics was one of his bigger campaign trail themes. Back in June 2015, he made this remark about the official unemployment rate (which was then 5.5%): “Our labor participation rate was the worst since 1978…. Our real unemployment is anywhere from 18 to 20%. Don’t believe the 5.6% Don’t believe it.

That’s right. A lot of people out there can’t get jobs.” And in May 2016: ”You hear a 5% unemployment rate. It’s such a phony number. That number was put in for presidents and for politicians so that they look good to the people.” (Don’t you just love that side swipe at Obama!) A month after his victory in the US presidential elections, he was still sticking to his guns: “The unemployment number, as you know, is totally fiction.”

Given this history Trump should have known better than to tout the latest unemployment numbers. To understand the problem, it helps to explain how the US government measures the health of its workforce.

The official labor force is made up of two types of people—those with jobs, obviously, but also the “unemployed,” defined as those ready to work who have actively looked for a job in the last four weeks. The unemployment rate captures the number of unemployed people as a share of the labor force. But it doesn’t tell you anything about people who stopped looking for work a month ago or more. This group has effectively exited the labor force.

So, when the unemployment rate is falling, it could be for two reasons (or, more likely a combination of both). More people could be getting hired. Or more people might be giving up on trying to find work.

When politicians, pundits, and the press hail a low, steadily declining unemployment rate, they’re assuming that the first phenomenon—formerly unemployed people finding jobs—is driving that decline. But it has been pointed out that if employers were actually on a hiring spree, we might expect a steady, sharp rise in the ranks of people working or actively looking for work, relative to the numbers of those who have left the labor force altogether.

“If the jobs market was truly a strong one currently, there would be a clear rush of those not in the labor force to join it,” he says. “Those millions right now outside the official numbers would be moving back into them if they were given a legitimate shot at fruitful employment.”

That’s clearly not happening. Despite the rumoured labour shortage that the media’s been hyping, the share of working-age Americans who have jobs or are trying to get them continues to slip.

The labor force participation rate — the share of the civilian population ages 16 and older that is working or looking for work has continued to decline. Now only 62.7% of people in that group have jobs or are actively trying to find one. (That’s about the same as in the late 1970s, before women joined the workforce en masse.)

That’s not just because America’s workforce is getting older. Despite this being the longest US economic expansion on record, a smaller share of workers aged 20 to 54 are currently in the workforce than when the last recession began, in Dec. 2007.

Another sign of slack in labor market comes from wages. If hiring is getting harder, as the ultra-low unemployment rate implies, then employers should have to pay higher wages to attract candidates. But since late 2016, the pace of wage growth has flattened, as Dean Baker, head economist at the Centre for Economic and Policy Research, flags.

If these (pace Nikolai Gogol) ‘dead souls’ are included, then the actual unemployment rate in the US is a lot higher than the official figures would suggest. In this way vast swathes of the unemployed have been simply disappeared off the official statistics by definitional fiat. It is a fact that US unemployment is falling not because of the creation of new jobs, but due to workers dropping out of the labour market.

It’s not clear why American adults are dropping out of the workforce, but it suggests social and economic ruptures of an alarming scale. Even more alarming still is the fact that those with power and influence still deny the problem, exalting 3.8% unemployment as proof that regular Americans are doing just.

In addition, there comes the curious conundrum of falling unemployment concurrent with falling employment. Below is the (downward) trajectory of US unemployment. How is it possible to reconcile static employment growth with declining unemployment? If unemployment is falling, then it follows that employment is rising. But employment growth has been static for the last 10 years. And has bumped along the floor of that figure ever since.

Unemployment as % of Labor Force

Surely if unemployment is falling employment must be rising and vice-versa; a bit like a see-saw, when one end goes up the other goes down – right!?

Employment as % of Labor Force

An exercise in squaring the circle perhaps.[2]


The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. Prior to this the Consumer Price Index (CPI) on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980.

In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.”

As of 10 October 2019 – the official inflation rate is 2-1/2% but according to Williams’ figures it is nearer to 10% – this time using the 1990 based criteria. [3]

The US authorities are always on the lookout for some latest wheeze to massage down the inflation figures. These would include:

The substitution effect: Expensive items in the ‘typical’ [4] basket of goods purchased by households by cheaper goods should these become available. Thus, expensive white meat such as chicken would be replaced by pork which is less expensive. Result: a downward deflationary effect.

Omission: Certain everyday items are simply not included in the CPI. Both fuel and food costs – both big items in American household expenditure are apparently not regarded as being relevant.

Shrinkflation: the price of many goods may remain the same, but the quantity may well decline. A packet of peanuts may cost $1 for 300 grams one week only to drop to 275 grams the next. It is assumed, with some certainty, that the consumers won’t check the price on the back of the packet.

Hedonic pricing: Let us suppose that a car cost $10000.00 in one year. Next year the same model with some additional features costs the same $10000.00. Since the good has undergone some upgrading this should mean – according to the orthodox theory – that the cost of this year’s car has fallen and therefore has had a deflationary impact. Now the cost has according to government figures fallen to $8000.00. This somewhat Jesuitical reasoning fails to convince since the actual price remains at $10000.00

Cost of Living Index: Inflation is a macro measure of a general level of national price rises in any given time period. However, at the micro-level inflation will be different in terms of the income level variables in wage levels in different parts of the country. Inflation levels are high or low given variation in income levels.

Asset price Inflation: Low/negative interest rates has involved the transfer of savers monies to speculators. This cash has been used by banks and corporations for leveraged stock buy-backs, bonds, property and M&A, all of which have been highly inflationary. Asset price inflation is not growth.

But one characteristic at least seems fixed – every time a new definition is used the inflation figures go down. As with unemployment, inflation is whisked away by changes in definition. It is not beyond the wit of these people to change the definition to exclude all items which rise in price.

We move on.


Gross Domestic Product (GDP) also known as National Income (Y) is usually calculated by either the output, expenditure or income method. The output method is generally preferred. This is designated as Output and Real Output.

Output is adjusted to become ‘Real output’ by what is called the GDP deflator. This deflator is used to purge inflation out of the statistical calculations and bring about Real Output from Raw Output. But here is where it gets a little bit tricky. As we have seen above if the inflation figures are understated – which they are – then it follows that Real Output or GDP will be overstated.

Moreover, the notion of ‘growth’ as measured annually or quarterly is a little problematic on the downward side. The production of wealth as value depends on the creation of value embodied in goods and services.

Economic rent, as captured in rent from land, monopolistic pricing, share buy-backs and various objects of speculation, property for example, do not produce value, yet they are factored into GDP as growth. Only the real value-creating economic activities should be counted as growth.

It is interesting to note that during an inflationary property boom when house prices are surging ahead buyers think that they have become richer overnight. But when the cyclical downturn arrives – as the inevitable market correction – they cannot understand where all their previously acquired wealth went.

It never dawns on them that this ‘wealth’ was never there in the first place.

As Marx correctly pointed out, their earnings from the property bubble were merely notional – fictitious capital which arrives and then departs in a pure will’o’the wisp paper exercise. (See below. Smart money usually wins, dumb money usually loses).

Such is the timeless nature of bubble dramas. It’s always has been like this, always will be, talk of ‘new paradigms’ notwithstanding.

However, this fattening up of ‘real’ GDP by pumping up asset-price inflation and counting it as ‘growth’ still isn’t enough to prevent the emergence of diminishing marginal returns where every input produces a smaller output.

The US debt-to-GDP ratio at 106% is now headed into areas which have only been experienced in the past by war. But of course, we should be grateful for Paul Krugman house economist of the New York Times who assures us that ‘debt is only money that we owe to ourselves’.

I must confess to a slight problem about the identity of who the ‘we’ and who the ‘ourselves’ might be. “We” are of course the indebted, and “ourselves” the creditors.

A better description would be debt is the money that ‘we’ owe to ‘them.’

Of course, unpayable debt should be written down, or at least restructured, but no way would the creditors stand for this. So, the Minsky moment arrives: more debt is taken out to pay already existing debt. If this sounds like a Ponzi scheme, that’s because it is one.


We are now seeing some very strange phenomena in the Bond markets. The yield curve on long-term US Treasurys is inverted; that is to say the long-term yield rates are paying less than short-term.

Normally the longer the life of the Bond the higher the coupon or interest rates. This is no longer the case. It seems to be demonstrating the nervousness of investors.

See below where 2-year short-term and long-term bonds are converging. This indicator looks solely at the relationship between the 3-month and 10-year Treasury yields; when the former rises above the latter, it has been a reliable recession predictor over the past 50 years.

If it is any consolation the 10-year Treasurys are leading the pack of international markets with a paltry 1.78% nominal yield. Unfortunately, inflation in the US – which as we have seen is massively understated – is running at 1.7% so that the real yield is 0.08%.

The situation in Europe is even worse with yields at miniscule positive levels, actually zero, or more often nominally negative. Yields below (not adjusted for inflation).

UK = 0.74%
Germany = -0.36%
France = -0.06%
Japan = -0.13%
Spain = 0.27%
Italy = 1.06% [5]

Well, if you feel lucky you can always try Ukrainian Bonds at a 16% yield. Mr Kolomoisky will no doubt be grateful for the largesse. Of course, you might not get your money back, but,

What you gotta ask yourself is do I feel lucky today …. Well do ya -punk!”[6]

One is reminded of Gramsci’s observation: viz., ‘’The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear.’’ [7]

Yep, these morbid symptoms seem to be here in abundance. None more so than spare capacity in the US economy, long-run and short-run. Figures below.

Peak capacity utilization – Long-run average:

  • 1970-1980 = 87%
  • 1980-1990 = 85%
  • 1990-2000 = 85%
  • 2000-2010 = 80%
  • 2010-2019 = 78%

Below October 2018-2019 – Short-run

Allowing for short term troughs and peaks, there is a clearly discernible long-term decline in capacity utilization which is a function of declining profitability and investment in the value-creating sector, and which gives rise to economic financialization whereby the rent-seeking, monied class maintain their wealth.

This is a period of increasing economic stagnation and a long-run cyclical period of sub-par growth. Moreover, the figures would suggest cycles within cycles. These may range from relatively short-run inventory cycles, to full-blown Kondratiev long waves.[8] But this is quite normal.

The general economic crisis which was unleashed across the world in 2008 is a Great Depression. It was triggered by a financial crisis in the US but that was not its cause. The crisis is an absolute phase of a long-standing recurrent pattern of capitalist accumulation in which long booms eventually give way to long downturns.” [9]


The political overspill of these economic developments has been increasingly visible. This is clearly instanced in the widening gulf between on the one hand the subaltern classes and on the other by the ruling elite together with its underpinning coalition of political, media and ideological sub-strata situated in the command posts throughout the dominant institutions of the New World Order.

How far this cleavage between rulers and ruled can continue without serious social and political tensions is moot. But given the present momentum and direction of the neo-liberal system, in tow with its political twin, neo-conservatism, such tensions are bound to be exacerbated to the point of economic and political breakdown.

Which brings us back to the opening point of this article: the manipulation of statistics, the development of mass propaganda, and, with due respect to Herman and Chomsky, the manufacturing of consent. Modern propaganda methods and ideology are extremely powerful and sophisticated; however, they are not all-powerful; resistance is possible and increasingly making itself heard.

More and more men/women in the street are able to see that the King has no clothes. Political and social upheaval whatever the form it takes, seems unavoidable.

I will leave the final words with Wolfgang Streeck, and bear in mind that this was written in 2011. If anything, the crisis has deepened since he wrote this:

The political expectations that democratic states are now facing from their new principles may be impossible to meet. International markets and institutions require that not just governments but also citizens credibly commit themselves to fiscal consolidation (austerity).

Political parties that oppose this must be resoundingly defeated in national elections, and both government and opposition must be publicly pledged to ‘sound finance’, or else the cost of debt service will rise.

Elections in which voters have no effective choice, however, may be perceived by them as inauthentic, which may cause all sorts of political disorder, from declining turnout to a rise of populist parties to riots in the streets.” [10]

La Lotta Continua


[1] Gosplan. The State Planning Committee was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of the Soviet Union in 1991, Gosplan had as its main task the creation and administration of a series of five-year plans governing the economy of the USSR.

[2]The US Bureau of Labor Statistics. Labor Force Participation Rates.

[3]John Williams – Shadow Economic Statistics.

[4]Of course, a ‘typical’ anything is impossible to define outside of being a purely theoretical concept. What for example does a typical triangle look like?

[5]countryeconomy.com – Government 10-year Bonds.

[6]Film – Dirty Harry – starring Clint Eastwood.

[7]Antonio Gramsci – The Prison Notebooks.

[8]Kondratiev waves also called Supercycles, surges, long waves or K-waves are described as regular, sinusoidal-like cycles in the modern (capitalist) world economy. Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth.

Nikolai Kondratieff (Kondratiev), a Russian economist was the first to suggest that industrial economies followed a cycle of change in prices and production. Actually, this cycle is a cycle of liquidity and not price. But rising and declining trends for money, labor and products are an effect of the cycle.

Kondratieff Cycle averaged 54 years in duration, however cyclic periods can expand and contract and are therefore inherently unreliable for precise timing. But the sequence of events in the Kondratieff Wave may be an immutable social process regardless of how many decades it takes it to play out. The presence of a credit inflating mechanism causes extreme booms and busts during the cycle.

As liquidity expands in the initial phase of the cycle, commodity prices rise reflecting the increasing business activity and inflation. As business activity and inflation accelerate, speculators bid up commodity prices due to their fear that inflation will continue to accelerate. After the rate of inflation peaks and starts to fall, the acceleration premium is removed from prices. Thus, commodity prices start to fall despite continued but slowing inflation, a trend called disinflation.

At the same time, a change in psychology away from fear and toward feelings of relief and hope induces people to channel the excess purchasing media created during disinflation into bidding up the prices of investment assets such as stocks. Because inflation continues, the wholesale prices that manufacturers charge for finished products, the retail prices that stores charge for goods and the levels of wages that employers pay for labor all continue to rise but at a continuously lesser rate, following the rising but slowing trend of business activity and inflation.

Near the end of the cycle, the rates of change in business activity and inflation flip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again

Fn. Kondratiev along with another outstanding Soviet economist Isaac Ilyich Rubin were both ‘liquidated’ – in Stalinist terminology – in the late 1930s.

[9]Anwar Shaikh – New Findings in Long-Wave Research 1992

[10] Wolfgang Streeck – New Left Review 71, September-October 2011

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