I get the impression that a lot of people in the west fundamentally fail to understand what the purpose of an economy actually is.
An economy is a model for allocating labour and resources in a way that meets the needs of the people in the country.
The original argument for capitalism was that market economy with private ownership is the most effective way to allocate labour and resources in a way that benefits everyone.
Measures such as the stock market and GDP were meant to act as proxies for measuring how well the economy was accomplishing its stated purpose, which is to improve the standard of living for everyone.
Understanding that these metrics are simply proxies has been lost today, and they’ve been turned into goals of themselves. People have started treating the stock market and GDP as the economy.
This is why we’re seeing an increasing disconnect between the economy that people are experiencing in their daily lives and news reporting on how the economy is doing.
And that’s why we see absurd articles like this one arguing that the recession people are experiencing isn’t real.
https://www.wsj.com/economy/it-wont-be-a-recession-it-will-just-feel-like-one-1919267a
We get a market crash / recovery cycle every 10 years. COVID just happened to be the thing that happened in this cycle. Trace the trajectory out over a 50 year window and you’re getting escalating rate of return decade-to-decade. The booms are bigger and the bust windows are tighter, now that we’ve figured out how to flood the asset markets with cheap lending after every downturn.
You can trace it back to the Volcker Shock from the mid-70s and the decoupling of labor income growth from overall economic growth. The fall of the USSR was not causal nearly so much as it was consequential. The mass export of American culture in the 70s/80s, combined with the boom in western-aligned consumer manufacturing and service industries, produced social backlash in the old Soviet Bloc states. That, combined with a bunch of CIA-based ratfuckery that involved splitting the hard-right social reactionaries and religious ideologues from the base of left-wing East European governments gave us a series of counter-revolutions that tore out the foundation of the Soviet movement.
Also, maybe Communism In One Country wasn’t a great long term strategy. But I’ll take that one up with Stalin when I next see him.
Or you can take a look at the link I posted.
Nothing in there about the USSR
As I said, look at the trend. There’s only one major inflection point throughout the entirety of the data, and that’s in 1990, corresponding with the collapse of the USSR.
The inflection is in 1983. '90 is just the first recession of the post-inflection era.
And the full collapse of the eastern block economies doesn’t hit until 1998. The '91 referendum is only the start of the balkinization process.
Again, this is a consequence of the Volcker shock and the boom in export markets from the prior decades.
If the inflection had happened in 1983, then the profit margin wouldn’t have fallen to all time lows in Jan 1992.
If the Soviet Union did not dissolve, then there would still be a bipolar world order, and profit margins would have stagnated due to a lack of opportunity for exploitation.
The profit margin of the early 90s was the after-effect of the Volcker Shock of the 80s. It reoriented the economy towards low inflation at the expense of higher unemployment. The decline in profit was temporary and quickly reversed as domestic spending surged in subsequent years.
That wouldn’t have changed the US domestic shift towards low-inflation / high-unemployment as national economic policy. US policy of exploitation has never been unpopular domestically, even as the imperialism returns to the core.
What Volcker did wasn’t special. Interest rates must be raised or lowered in proportion to inflation caused by supply or demand disruptions. That’s it.
It’s one of the many maintenance mechanisms needed to maintain capitalism. If handled incorrectly, without centralized control, the economy will crash every time there’s a disruption. That’s why we say there’s no such thing as the free market.
In this case, interests rates were raised in response to the 1979 oil crisis causing massive inflation. It’s not a conscious choice or a change in policy, but rather a response to material conditions.
As a result, this is why you need to look at trends on a longer scale in order to even out these disruptions to find the macro trend. And these macro trends usually have to have something huge as a root cause, like the fall of a rival superpower. Not a temporary increase in interests rates.
Jacking the Federal Reserve Rate from 4% to 21%, when it was the primary means by which new money entered the economy, was enormously transformative on the state of the domestic economy and the Western nations that had pegged themselves to the USD.
I honestly don’t know what you think has been happening every ten years or so. But these market cycles continue to occur regardless of the explicit monetary policy. The result of this regulation is to divert the accumulated gains from cycle to cycle away from labor and into the hands of private equity markets. It does not prevent disruptions or protect the market from downturns, it just buffers private profit while exposing labor to the bulk of the financial pain.
The rate hikes began in '74 under Nixon and were renewed in '78 under Carter. And while the oil crisis was routinely blamed for the implementation of these drastic Fed policies, they continued well into the mid-80s when oil prices had dropped to historic lows.
Fed Funds rates are explicitly a consequence of domestic policy. The response to material conditions is the aftermath of the fallout that these sudden and drastic spikes in federal interest rates create.