The menace behind falling prices

Any worker wants to know what the future will bring. Will jobs be plentiful and reliable? Can I make ends meet and buy the things I need for myself and maybe for a family?

Or should I be hunkering down, saving every penny against a dangerous and uncertain future?

For many, trapped in the gig economy and barely surviving from day to day, the answer is already there. Others may feel more stable, but worry if their current job will last. Official unemployment rates are low now, but that could change quickly.

This article alerts our readers to some facts about the U.S. economy that don’t usually make it into the headlines, but are very, very serious.

Most economic news reported in the capitalist media revolves around how the stock markets are doing. Share prices of all kinds have generally been declining over the last year, but they have also gyrated wildly up and down. That means people who have money to invest can rake in even more if they buy stocks that are rising and then sell them before they fall again.

It’s a big gamble, with winners and losers, but mostly losers in recent months. This affects not just capitalists but many workers, mainly through their pension funds.

The stock markets can be influenced in the short run by political pronouncements, government changes in interest rates and trade policies, and other factors. Over the long run, however, they reflect bigger trends in the economy.

An even more telling look at where the economy is headed can be found in the commodities markets. These markets reflect the anticipated prices of various commodities in the coming months or year.

What’s a commodity? It’s something that has both a use value and an exchange value.

For example, a snow plow has use value in Minneapolis. But who would buy a snow plow in Miami? There, it has no use value and is not a commodity you’ll find in any store.

Exchange value, on the other hand, reflects the amount of human labor it took to produce a commodity. Even though we can’t live without it, air is not a commodity. Why? Because it has no exchange value. It’s free because there’s no labor involved in getting it (except when air comes pressurized in a can or at a gas station).

Even tiny things, like diamonds, can have a huge exchange value because of the amount of skilled human labor required to find, extract, cut and polish them.

Commodity prices are falling

Right now, the prices of the vast majority of commodities are falling, and that is expected to continue throughout the coming year.

Whether it’s sugar, milk products or orange juice, lumber, steel, zinc or petroleum/gasoline, wholesale prices are projected to keep going down. The future prices of a wide array of commodities can be seen at tradingeconomics.com/forecast/commodity.

If this were not a capitalist economy, we could all be rejoicing. Lower prices for food and other essentials! What’s wrong with that?

The problem is that to enjoy lower prices, you need to have an income to buy things. But these across-the-board declines in prices of so many commodities point to one thing: overproduction. And capitalist overproduction is extremely dangerous for workers and farmers.

What is overproduction?

Overproduction comes from the constant need of capitalists to outdistance their competitors and expand the market for their products. How? Mainly by plowing some of their profits back into labor-saving, more productive technology. It’s expand or die. That’s the driving force behind capitalist expansion.

The ones who do it first have a competitive edge — for a while. But eventually others catch up with the new level of technology and can also produce more goods with fewer workers.

Pretty soon there are not enough customers able to pay for the expanded number of commodities. It means businesses laying off workers, maybe collapsing altogether. It means farmers having to destroy their crops and livestock when prices drop.

Who is going to buy all this stuff if workers are losing their jobs to machines and robots?

It’s a vicious cycle that can end only in great destruction.

Depression of the 1930s

The collapse of the markets that started in 1929 and continued right up to the outbreak of World War II in Europe was a classic example of overproduction. In the twenties, everything seemed great. New technology — like the Ford assembly line — led at first to enormous fortunes for a few but also a rising living standard for millions of workers and farmers.

Then came the infamous stock market crash of October 1929. Businesses and banks failed, millions were laid off, and hunger and misery spread even as farmers were plowing under their crops and dumping their milk. They destroyed commodities because prices had dropped so low they would lose money just bringing their products to market.

“In summer 1933, the Agricultural Adjustment Administration tried to boost the wholesale price of agricultural produce through an artificial scarcity initiative, in which crops were plowed up or left to rot and six million pigs were killed and discarded.” (R.L. Heinemann, “Depression and New Deal in Virginia: The Enduring Dominion”)

Can this happen again? It has already started.

Take milk and cheese.

“Farmers in the U.S. are pouring out tens of millions of gallons of excess milk, amid a massive glut that has slashed prices and has filled warehouses with cheese. More than 43 million gallons’ worth of milk were dumped in fields, manure lagoons or animal feed, or have been lost on truck routes or discarded at plants in the first eight months of 2016, according to data from the U.S. Department of Agriculture,” wrote the Wall St. Journal on Oct. 12, 2016.

That was more than two years ago. And it is just getting worse. Today, a reported 1.6 BILLION pounds of cheese sit in refrigerated warehouses across the U.S.

Two years ago, the U.S. Department of Agriculture was predicting higher prices to come: “Food and feed grains prices are expected to have bottomed out by marketing year 2017/2018,” it said. “Marketing year 2018/2019 marks the beginning of gradual price increases that are expected to continue through the decade.”

The USDA’s rosy predictions (rosy for farmers, not for consumers) of higher prices were repeated last year.

It hasn’t happened. Global production of agricultural products and other commodities continues to rise — and along with it, the fierce competition that accompanies overproduction and drives down prices.

Tariffs haven’t reversed declining prices

This explains the main reason for the Trump administration’s tariffs on commodities, and not just those from China. Last May, by decree, Trump also imposed tariffs on the European Union, Canada and Mexico. He later imposed an additional $50 billion in tariffs on goods from China.

Of course, these countries all objected to the tariffs, but criticism inside the U.S. was muted, even as Trump started a new round of trade wars. The expectation was that, by eliminating some of the competition, prices would rise on U.S. agricultural and industrial products.

Nope, it hasn’t happened. And because of lower prices, farmers have been trying to make up for the loss of income by planting more acreage, which leads to a bigger glut on the market and even lower prices.

Less than a year ago, 40 percent of adults in the U.S. didn’t have enough savings to cover a $400 emergency expense, such as an unexpected medical bill, car problem or home repair. Forty-three percent of households couldn’t afford the basics to live, meaning they weren’t earning enough to cover the combined costs of housing, food, child care, health care, transportation and a cellphone. Some 22 percent of adults weren’t able to pay all their bills every month. And more than a quarter of adults skipped necessary medical care in 2017 because they couldn’t afford it. (Washington Post, May 25)

Yet in this same period, increased efficiency, automation and a whole raft of labor-saving devices and technologies raised the possibility of a better life for everyone, with abundance of everything we need to lead comfortable lives.

In earlier societies, our ancestors all over the world celebrated a bountiful harvest with festivals, singing and dancing. It was a joyful time. Today, under a decaying capitalist system, every new invention or technique that increases production may turn millionaires into billionaires, but at the same time it pushes more workers and farmers over the edge.

There’s no legislative or electoral way to get rid of capitalist overproduction. It is built into the system. It will only be eradicated when the working class seizes the means of production it has built and uses them to meet human need, not capitalist greed.

Such a revolutionary transformation of society must be the goal of progressive humanity.