Stagflation, rising oil prices and the questioned dollar: the 2020s or the 1970s?



It's not just the fog of war that prevents things from being seen clearly.

In the corridors of the college, they talk about nothing else: the world in stagflation and the meteoric rise of oil prices. To top it all off, frequent speculations surrounding the ability of the US dollar to continue to play the role of an international means of payment.

Such a scene could be expressing the state of the art of the world economy today, but it takes place almost fifty years ago. I witnessed it, in the corridors of FEA-USP, in the first years of my graduation in Economics. Given the cyclical character of the capitalist growth process, we might be tempted to think that this is in fact a return to a situation substantially similar to that experienced decades ago. There could be no greater mistake.

Behind the stagflation of the 1970s were almost three decades of stupendous economic growth, spread across virtually the entire globe. Behind the current stagflation, four decades of the low growth regime inaugurated by the spread of neoliberal practices in the early 1980s, in addition to a colossal financial crisis a decade and a half ago.

Behind the questioning of the dollar, we had the depletion of the Bretton Woods and the dollar-gold standard, an arrangement that was beginning to weigh heavily on the US economy. Behind the current doubts, several decades of the exorbitant privilege held by the US to issue an inconvertible currency demanded by the whole world, an attribute only put in check now by the skirmishes of geopolitics.

Behind the impressive rise in oil prices was the devaluation of the American currency, a consequence of Nixon's decoupling of the dollar from gold, which had abruptly reduced, in real terms, oil prices. commodity (Not to mention the conjectures that the formation of OPEC, which made the price shock possible, would have been stimulated by the Americans themselves to torment the lives of Germany and Japan, who then gave American industry a beating and were much more dependent than the USA of product imports).

Behind the current growth, an oil and energy industry that has been disrupted and disorganized by the pandemic, including logistically, a situation that has been greatly aggravated by the increase in tension in Europe and the beginning of the conflict between Russia and Ukraine (not to mention the growing problems environmental).

That said, it is worth asking what can be expected from this new chapter in the history of capitalism, which seems, but is not, a remake (unwanted and tasteless) from an old film. In the aftermath of those turbulent 1970s, we had what the French economist François Chesnais calls the “neoliberal uprising”, with the diffusion, around the world, of the precepts of the free market: the demonization of the State and public services, the austerity policies, the intense financial openness, the generalized prescription to privatize whatever the State still produced, etc.

But the end of the 1970s also brought what Conceição Tavares called, in a happy expression, “strong dollar diplomacy”, namely, the interest rate shock provoked by Paul Volcker, then president of the FED. The brutal rise in the US base rate sucked up the financial wealth of the world, making speculation around the “fragility” of the dollar and its status as world currency disappear overnight.

The developments that can be expected from the situation experienced today are very different and even opposite. Even though this is not explicitly said, it is clear that the coronavirus has once again placed the State at the center of the arena, as a pandemic is only fought collectively, with public policies, public health, preventive guidelines, vaccination campaigns. In addition, in many countries, the State was called to the aid of a substantial part of the population, so that quarantines could be respected. Finally, the outbreak of an open military conflict within the European continent seems to throw to the ground once and for all the old wives' tale that globalization and the free flow of capital would lead to development for all, uniting in the same interests, under the baton of capital , all nations. How can we expect the strengthening of neoliberal discourse and practice after this earthquake?

With regard to the dollar, even if the US government keeps the same weapons in its hands as before, the environment is not the most favorable for a new round of strong dollar diplomacy. In the midst of world stagnation aggravated by the uncertainty produced by the war, adopting such a practice would mean shooting yourself in the foot, as it would be the same as adopting a policy of planned weakening of the American real economy, already under great pressure, especially in the technological field, by the giant China .

Moreover, from the point of view of its hegemony, there does not seem to be a good result for the USA in this imbroglio European. If, by some miracle, a military defeat is managed to impose a military defeat on Vladimir Putin, it is evident that this will bring the great country of Europe closer to the Chinese colossus (which was already approaching, by the way, regardless of the outcome of the war), which does not look good for continued US dominance, including the power of the dollar. If, as it is more reasonable to assume, Putin holds his own and obtains some concessions from the NATO/US bloc, then the American defeat in his world leadership role will become explicit, with similar consequences regarding the economic and monetary arena.

Considering all these elements, there is no way to expect a big strengthening of the US currency in the next period. On the contrary, everything seems to play the opposite way. But can we then simply consider that this is a pure and simple inversion of what happened in the aftermath of the 1970s crisis, yesterday demonization of the State, today reinvigoration of the State, yesterday strengthening of the dollar, today weakening of the dollar?

The analysis would be much easier if that were the case, but the world is not so simple. Between one point in time and the other, an unresolved systemic overaccumulation crisis worsened greatly. Thus, even with the multiplication and proliferation around the world of spoliative expedients and cuts to workers' rights, it was not possible to prevent, at the end of the first decade of the new century, the outbreak of an international financial crisis of a dimension only comparable to the 1929 earthquake -30. The central states' way of reacting to the crisis only deepened the contradictions that are at the base of the system, as it implied the continuation of the profoundly unbalanced growth between real wealth and financial wealth that characterizes it at least since the 1980s.

The brutal rise of intra and inter country inequality and the financialization of everything are just the most visible expressions of these tectonic movements of accumulation. This is the background against which to analyze the consequences of today's events. Therefore, a series of other variables need to come into play if we want to talk about the future of the dollar and nation states. It is necessary to remember above all the uncontested dominance of capitalist social forms produced by four decades of unbridled neoliberal preaching, aided by the decisive push of the corporate media across the globe.

If Karl Marx was right in calling attention to the commodity fetish and in indicating financial capital as the finished form of this fetish, the world is perhaps currently experiencing the most adequate form of existence for these concepts that it has ever had the opportunity to experience. Never has the world been seen as much as it is today through the eyes of the commodity form, never has the transformation of capital into something that seems to self-generate its own growth been such a widespread process. So it's not just the fog of war that can keep things from being seen clearly. The mists produced by the supremacy of the capital commodity can be even more occlusive.

*Leda Maria Paulani is a full (and senior) professor at FEA-USP. Author, among other books, of Modernity and economic discourse (Boitempo).

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