What's Good for Tech Stocks is Bad for the Economy

By Contention News

Tech stocks deepened their recent skid this week, and the fear among market watchers right now is the bubble may have already burst. Investments that could do no wrong just last month now look somewhat suspicious.

What these observers don’t know is that things are actually much worse than they think. There is a deep and important connection between these high-flying tech investments and the crappy economy their shareholders hope to escape.

Drawing this out requires a big picture outlook, and connecting some dots in ways that Wall Street can’t.  

How society works

Let’s start as big as we can: all human societies have to constantly reproduce themselves to survive. Our society reproduces itself through a system of market exchanges. Each completed purchase validates the good or service exchanged as necessary for the reproduction of our society.

Investors use their capital to command some portion of society’s existing resources to produce something new they think society also demands. If they’re right, then the product will sell and they’ll get a return on their investment. If the new product isn’t socially necessary — i.e. valuable — it won’t sell, and they lose their investment.

Where investors gain value, and where they don’t

These investors don’t gain any additional value from the inputs they buy for their products. Buying these inputs just validates their necessity. To create new value the investors need to combine the inputs together to create new, value-added products, and this requires human input — labor.

Labor power is an exceptional input because the workers selling it can’t realize its value without the machinery, facilities, and other inputs owned by private businesses. This means those businesses get to buy labor power at a discount, and investors pocket the difference. 

This has an important implication: each enterprise is some combination of produced inputs and labor power. If the enterprise sinks a larger share of its investment dollars into inputs rather than labor, then over time they should return less investment. This is why labor-intensive “emerging markets” can have such extraordinary rates of growth as compared to capital-intensive advanced economies.

Why investors love “operating leverage”

This is the level where this impact emerges — in the aggregate, over time. At the level where equity markets operate — individual firms and sectors over short terms — a different perspective emerges.

There, “valuation” has everything to do with expected future cash flows. Operating income — the money left over after paying out all the costs of production and overhead costs of the business — is the name of the game. The more operating income a company expects, the more valuable its stock should be.

Every company delivers this cash flow differently. Companies with low variable costs (the labor and input costs of each unit produced) and high fixed costs (the administrative expenses necessary to keep the lights on) are said to have a high degree of “operating leverage.” These businesses are efficient at turning their revenue into operating income.

Why tech stocks look so hot

Tech companies tend to have high operating leverage. Each additional unit sold adds very little to their variable costs — Facebook can sell thousands of ads before they have to add any hardware or staff, for example — which means that for every percentage point of revenue growth, they get more than a point of cash flow growth.

So when the economy is growing — the norm for capitalist economies — rising sales mean growing revenue, which means even faster cash flow growth and equity value. Investment gets disproportionately drawn into high fixed-cost, low variable-cost firms.

But produced inputs don’t add value, remember, and yet these high fixed costs — attractive to investors — include only those inputs. Labor power does add value, but that’s covered in the variable costs they seek to minimize.

Bottom line: investments at the firm level favor a capital allocation that produces less value throughout the economy overall.

Where the zombies come from

And it gets worse: when sales drop, these companies’ high overhead costs put them at increased risk of default. Since they are also the ones with disproportionate levels of investment, leaders seek to bail them out, mainly in the form of interest rate suppression by central banks. The companies can borrow and issue bonds more easily, but this debt only adds to their fixed costs.

Soon you have an economy full of companies that make just enough to cover their debt service — so-called “zombie” firms.

So now we can connect the dots: high levels of operating leverage made tech stocks sexy investments for years, but this contributed to a capital-intensive economy with lower aggregate returns on investment. When downturns came, central bank rescues only created more long-term deadweight, hence the slow, sleepy growth of the last “recovery.”

Now that the recent speculative boom has paused, we’re left with a terrifying question: what do we do with an economy founded on a basis that can’t perform for the future, especially in light of all the debt — i.e. future earnings — that we’ve accumulated to build it?

One thing is certain: the leaders that can’t deliver a relief package everybody wants definitely can’t figure this one out either. Watch out for your own bottom line while they try nonetheless. 

Contention News produces original anti-imperialist business news every week. Read more and subscribe here.

Against Zombie Intellectualism: On the Chronic Impotency of Public Intellectuals

By Derek R. Ford

I've just read yet another think piece decrying the sad state of affairs in the U.S. and ascribing it to a depoliticized, docile, stupid populous that is "easily seduced." It came out on June 24, and I read it on June 25, as people took to the streets across the country for Pride (to celebrate it and to push back against pinkwashing). This is just a few days after people across the country took to the streets to protest the acquittal of the cop who murdered Philando Castile. What to explain this disconnect?

The piece I'm referring to is " Manufactured illiteracy and miseducation: A long process of decline led to President Donald Trump ," by cultural critic and public intellectual Henry Giroux. It's one of many articles of its kind, and is exemplary in its general representation of a certain brand of politics. In it, the distinguished professor Giroux mourns for a long-lost "civic culture," "public life," for the "foundations of democracy," and a time before "the corruption of both the truth and politics." The Trump administration, he admonishes, has "turned its back on education as a public good." Even more so than formal institutions of school however, we have a wider cultural pedagogy that manufactures ignorance and illiteracy-our inability to see or read the truth:

"Cultural apparatuses that extend from the mainstream media and the diverse platforms of screen culture now function as neoliberal modes of public pedagogy parading as entertainment or truthful news reporting."

This isn't just a bias against intellectuals and academics. It's more: "It is a willful practice and goal used to actively depoliticize people and make them complicit with the political and economic forces that impose misery and suffering upon their lives."

What we - progressives and the left - need to do is to understand that education can empower people, it can give the people tools to critically understand their lives so that they can overcome their ignorance and complicity, hold power accountable, and transform the world. With the election of Trump, we can't wait. We need to foster the "ideological and subjective conditions that make individual and collective agency possible." Once, apparently, this was just "an option," but now it is "a necessity."

The people, not intellectuals, make history

What this piece ultimately does is whitewash the long history that has led to this climate. It rests on a triumphalist account of American democracy that is only now under attack. It denies any historical and existing agency that the people have. And it offers no real solutions. I call it "zombie intellectualism" because it feeds off of existing political struggles but serves only to demotivate and demoralize them. We're all guilty of it from time to time, but the fact that it has become a niche in its own right should be alarming to those of us on the left.

Giroux is right that Trump has been a long time coming. But the decline didn't begin with Fox News or Facebook. It began in 1492. It began with the genocide of the Indigenous peoples. It accelerated with the Slave trade and the formal institutionalization of white supremacy and slavery. It intensified during each war of colonial and imperial conquest-from the war against the Philippines in the late 19th century to the ongoing war against Syria. The conditions that allowed for the rise of Trump didn't originate with the neoliberal attack on the public sector in the early 1980s. They are inscribed in the foundations of American democracy .

And yet this history of oppression has equally been a history of resistance. The legacies and fruits of this resistance are what we should be remembering, celebrating, and fighting to strengthen. And resistance is what we have seen since the election of Trump.

I don't exactly know why radical academics often fail to bring this into the narrative. It may be because of their general disconnection from political struggles and protest movements. But it may also be because academics have had little to do with this narrative. Distinguished professors have never made history strictly through their work as public intellectuals. History has been made by the masses: by organizers, by activists, by everyday people. Sometimes, these people have held professorships, but that has always been incidental.

This is not to brush off the ways that academics with radical politics have been attacked by the right wing, as some bloggers have done . They must be defended. (But it is interesting to note that the ones who are attacked are not propagating liberal myths of American democracy).

This is also not to say that spontaneous resistance is enough, or that there is no role for theory. On the contrary, theory is absolutely crucial. But theory doesn't come from the universities; it comes from the social movements themselves. Anyone who has helped organize in any way even the smallest of protests or political actions knows that there is no lack of theoretical debate that take place in our movements.

There has never been a time when the truth or politics have been uncorrupted, or pure. And truth has never corresponded with politics in any straightforward manner. If anything, politics is the struggle to produce new truths, new realities, and this is ultimately a struggle over and for power. That's what we need to focus on building right now: power.

Giroux comes close to admitting this, writing that truth and politics are now corrupted because "much of the American public has become habituated to overstimulation and lives in an ever-accelerating overflow of information and images." Jodi Dean has dubbed our current era that of "communicative capitalism ," a merging of capitalism, networked technologies, and democracy that traps us in a reflexive circuit of information and critique. The answer, then, is not more information and more critique. The answer is to organize, to build, to multiply, and to intensify.

Don't mourn or just write, organize!

I share Giroux's wish that there was more resistance. But I can't erase the incredibly hard work of the grassroots organizers and resisters in the U.S. I know the discipline they have and the incredible sacrifices they make. Their labor should be honored, supported, and highlighted.

One current example of this is an initiative called " The People's Congress of Resistance ." It's a campaign uniting radical activists and organizers from a range of struggles, and it will convene at Howard University in Washington, D.C. on September 16-17. The initial conveners are from organizations like the American Indian Movement, the Full Rights for Immigrants Coalition, the Muslim American Alliance, and the Party for Socialism and Liberation. There are people organizing for all 50 states.

Exposing the U.S. congress as the congress of millionaires and billionaires, it is building an alternative congress of the people, a true form of counter-power. If radical academics want to see the organic intellectuals they have read about in theory books, then they should be there. And if anyone wants to not just witness the beauty of the people in motion, but be a part of it, then you should be there.

It will be yet another manifestation of the collective agency of the people.

Zombie Apocalypse and the Politics of Artificial Scarcity

By Colin Jenkins

Dystopian narratives have long been an alluring and thought-provoking form of entertainment, especially for those who take an interest in studying social and political structures. From classics like Nineteen Eighty-Four and Brave New World to the current hit, The Hunger Games, these stories play on our fears while simultaneously serving as warning signs for the future.

Their attractiveness within American society is not surprising. Our lives are driven by fear. Fear leads us to spend and consume; fear leads us to withdraw from our communities; and fear leads us to apathy regarding our own social and political processes. This fear is conditioned as much as it is natural. The ruling-class handbook, Machiavelli's The Prince, made it clear: "Since love and fear can hardly exist together, if we must choose between them, it is far safer to be feared than loved."

The idea of apocalypse is a central tenet of human society. We've been taught about Armageddon, Kali Yuga, Judgement Day, Yawm ad-Dīn, nuclear holocaust, the end times, the four horsemen, and the Sermon of the Seven Suns. Hierarchical societal arrangements leave us feeling powerless. Exploitative systems like capitalism leave us feeling hopeless. And the widespread deployment of fear ultimately keeps us in our place, and out of the business of those who own our worlds.

The last half-century has brought us the zombie apocalypse - a fictional world where the human race has largely been transformed into a brainless, subhuman horde of flesh-eaters, with only a few random survivors left to carve out any semblance of life they can find in a barren landscape. The emergence and immense popularity of the TV show The Walking Dead is the latest, and perhaps most influential, piece in a long line of narratives centered within themes of survival, human interaction, and scarcity.

Human Nature and Interaction

Behind all political battles, social critiques, and theoretical inquiries lies the most fundamental question: when left to our own accord, how will we interact with one another? How one answers this question usually goes a long way to how one perceives the world, and how issues are viewed and opinions are formed. To our dismay, potential answers are typically presented in dualities. Are we good or evil? Competitive or cooperative? Generous or greedy? Violent or peaceful?

A common theme among religion has been that human beings are "born into sin" and heavily influenced by "evil forces" to do harmful things. One who embraces this theme will tend to have less faith in humanity than one who does not. For, if we really are engaging in a daily struggle to resist the powers of evil, it is reasonable to assume that evil will take hold of many. How can we trust anyone who, at a moment's notice, could potentially lose the ability to act on their own conscience? The common theme of our dominant economic system - capitalism - is that human beings are inherently competitive and self-centered. When combined, it is easy to see how such ideologies may create intensely authoritative and hierarchical systems. After all, people who are influenced by strong and evil metaphysical forces while also being drawn toward callous, self-interest certainly cannot be trusted with free will.

This lesson is drilled deep into our psyches with each episode of The Walking Dead, where the potential threat of flesh-eating zombie hordes become an afterthought to the clear and present danger of "evil" humans who are out to get one another. Whether it's a sadistic governor charming an entire town with violent gladiator events, an outlaw gang with the obligatory pedophile, or a pack of hipster cannibals salivating at the thought of eating their next visitor, the intended theme is clear - human beings are not capable of co-existing, even in a world where they rarely interact.

But is this idea accurate? Are we really drawn toward conflict? Must we compete with one another to survive? Is it appropriate to apply Darwin's evolutionary theories in a social sense where the "fit" are meant to gain wealth and power over the "weak"? Or are we, as Peter Kropotkin theorized in his classic Mutual Aid, more inclined to mimic most other species on Earth, which have been observed over the course of centuries to exhibit "Mutual Aid and Mutual Support carried on to an extent which made me suspect in it a feature of the greatest importance for the maintenance of life, the preservation of each species, and its further evolution?"

There is ample evidence that we are drawn to cooperation. "Caring about others is part of our mammalian heritage, and humans take this ability to a high level," explains neuroscientist Sandra Aamodt. "Helping other people seems to be our default approach, in the sense that we're more likely to do it when we don't have time to think a situation through before acting. After a conflict, we and other primates-including our famously aggressive relatives, the chimpanzees-have many ways to reconcile and repair relationships." Studies have shown that in the first year of life, infants exhibit empathy toward others in distress. Evolutionary Anthropologist Michael Tomasello has put "the concept of cooperation as an evolutionary imperative to the test with very young children, to see if it holds for our nature and not just our nurture. Drop something in front of a two-year-old, he finds, and she is likely to pick it up for you. This is not just learned behavior, he argues. Young children are naturally cooperative."

So, if we are truly inclined to cooperate with one another, why is there so much division and turmoil in the world? The answer to this question may be found by assessing not only the mechanisms of capitalism, but more importantly in the creation of artificial scarcity as a means to maintain hierarchies.

Capitalism and Artificial Scarcity

It is no secret that capitalism thrives off exploitation. It needs a large majority of people to be completely reliant on their labor power. It needs private property to be accessible to only a few, so that they may utilize it as a social relationship where the rented majority can labor and create value. It needs capital to be accessible to only a few, so that they may regenerate and reinvest said capital in a perpetual manner. And it needs a considerable population of the impoverished and unemployed - "a reserve army of labor," as Marx put it - in order to create a "demand" for labor and thus make such exploitative positions "competitive" to those who need to partake in them to merely survive. It needs these things in order to stay intact - something that is desirable to the 85 richest people in the world who own more than half of the world's entire population (3.6 billion people).

But wealth accumulation through alienation and exploitation is not enough in itself. The system also needs to create scarcity where it does not already exist. Even Marx admitted that capitalism has given us the productive capacity to provide all that is needed for the global population. In other words, capitalism has proven that scarcity does not exist. And, over the years, technology has confirmed this. But, in order for capitalism to survive, scarcity must exist, even if through artificial means. This is a necessary component on multiple fronts, including the pricing of commodities, the enhancement of wealth, and the need to inject a high degree of competition among people (who are naturally inclined to cooperation).

Since capitalism is based in the buying and selling of commodities, its lifeblood is production. And since production in a capitalist system is not based on need, but rather on demand, it has the tendency to produce more than it can sell. This is called overproduction. Michael Roberts explains:

Overproduction is when capitalists produce too much compared to the demand for things or services. Suddenly capitalists build up stocks of things they cannot sell, they have factories with too much capacity compared to demand and they have too many workers than they need. So they close down plant, slash the workforce and even just liquidate the whole business. That is a capitalist crisis.

When overproduction occurs, it must be addressed. There are multiple ways to do this. Marx addressed three options: "On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones." Another is through the destruction of excess capital and commodities. Whichever measure is taken, it is paramount that the economy must emerge from a starting point that is different from the ending point where the crisis began. This is accomplished through creating scarcity, whether in regards to labor, production capacity, or commodities and basic needs.

Maintaining scarcity is also necessary for wealth enhancement. It is not enough that accumulation flows to a very small section of the population, but more so that a considerable portion of the population is faced with the inherent struggles related to inaccessibility. For example, if millions of people are unable to access basic needs such as food, clothing, shelter, and healthcare, the commodification of those needs becomes all the more effective. On the flip side, the mere presence of accessibility - or wealth - which is enjoyed by the elite becomes all the more valuable because it is highly sought after.

In this sense, it is not the accumulation of personal wealth that creates advantageous positions on the socioeconomic ladder; it's the impoverishment of the majority. Allowing human beings access to basic necessities would essentially destroy the allure (and thus, power) of wealth and the coercive nature of forced participation. This effect is maintained through artificial scarcity - the coordinated withholding of basic needs from the majority. These measures also seek to create a predatory landscape - something akin to a post-apocalyptic, zombie-filled world where manufactured scarcity pits poor against poor and worker against worker, all the while pulling attention away from the zombie threat.

Control through Commodification

A crucial part of this process is commodification - the "transformation of goods and services, as well as ideas or other entities that normally may not be considered goods, into commodities" that can be bought, sold, used and discarded. The most important transformation is that of the working-class majority who, without the means to sustain on their own, are left with a choice between (1) laboring to create wealth for a small minority and accepting whatever "wages" are provided, or (2) starving.

In The Socioeconomic Guardians of Scarcity, Philip Richlin tells us that:

"When society deprives any community or individual of the necessities of life, there is a form of violence happening. When society commodifies the bare necessities of life, they are commodifying human beings, whose labor can be bought and sold. Underneath the pseudo-philosophical rationalizations for capitalism is a defense of wage slavery. For, if your labor is for sale, then you are for sale."

We are for sale, and we sell ourselves everyday - in the hopes of acquiring a wage that allows us to eat, sleep, and feed our families. In the United States, the 46 million people living in poverty haven't been so lucky. The 2.5 million who have defaulted on their student loans have been discarded. The 49 million who suffer from food insecurity have lost hope. The 3.5 million homeless are mocked by 18.6 million vacant homes. And the 22 million who are unemployed or underemployed have been deemed "unfit commodities" and relegated to the reserve army of labor.

The control aspect of the commodification of labor comes in its dehumanizing effect - an effect that was commonly recognized among 18th and 19th century thinkers. One of those thinkers, Wilhelm Von Humboldt, when referring to the role of a wage laborer, explained "as whatever does not spring from a man's free choice, or is only the result of instruction and guidance, does not enter into his very nature; he does not perform it with truly human energies, but merely with mechanical exactness, suggesting that "we may admire what he (the laborer) does, but we despise what he is," because he is essentially not human.

The worker, in her or his role in the capital-labor relationship, exists in a position of constant degeneration. This is especially true with the onset of mass production lines and the division of labor - both of which are inevitable elements within this system. "As the division of labor increases, labor is simplified," Marx tells us. "The special skill of the worker becomes worthless. He becomes transformed into a simple, monotonous productive force that does not have to use intense bodily or intellectual faculties. His labor becomes a labor that anyone can perform." As automation and technology progress, such specialized task-mastering even seeps into what was once considered "skilled" labor, thus broadening its reach.

In this role, workers are firmly placed into positions of control within a highly authoritative and hierarchical system.

A World beyond Profit

Dystopian narratives are no longer fiction. From birth, we are corralled into a system that scoffs at free will, stymies our creative and productive capacities, and leaves us little room to carve our own paths. The constructs directed from above are designed to strip us of our inclination to care and cooperate, and make us accept the need to step over one another to get ahead. This is not our nature. Whether we're talking about Kropotkin's studies in "the wild" or Tomasello's experience with children, observable evidence tells us we've been duped.

Another world is not just possible; it is inevitable if we are to exist in the long-term. In Post-Scarcity Anarchism, Murray Bookchin offers a glimpse into this world not constructed on labor, profit, and artificial scarcity:

"It is easy to foresee a time, by no means remote, when a rationally organized economy could automatically manufacture small "packaged" factories without human labor; parts could be produced with so little effort that most maintenance tasks would be reduced to the simple act of removing a defective unit from a machine and replacing it by another-a job no more difficult than pulling out and putting in a tray. Machines would make and repair most of the machines required to maintain such a highly industrialized economy. Such a technology, oriented entirely toward human needs and freed from all consideration of profit and loss, would eliminate the pain of want and toil-the penalty, inflicted in the form of denial, suffering and inhumanity, exacted by a society based on scarcity and labor."

The barren landscape for which we've been placed has a future beyond Hershel's overrun farm, the confines of a prison, the Governor's creepy town of Woodbury, and the trap known as Terminus. It has a future beyond the artificial constructs of capitalism and hierarchy. Human nature is talking to us… and we're starting to listen.