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Posted: June 28, 2025
One of the fundamental components of GDP is government spending. A common rhetorical trope from right-wing/neoliberal economists is that all government spending is waste, and that governments can never spend more effectively than private companies in the ‘free market.’ Their claims are that government spending is inherently economically bad, but in practice, their assault on government spending through policy and the media almost always targets necessary social programs that support workers and our families. Pensions, food programs, education, and public transportation, are slashed, but military spending, subsidies for fossil fuel companies, or the costs of fighting Indigenous Peoples in court are never mentioned.
One of the points that we continually reiterate through this project is how capitalist economics always flattens out economic calculations and social outcomes. By having dollars compared to dollars, exchange values compared to exchange values, we lose sight of what those dollars are spent on. A $1B increase in imperialistic military spending has a negative impact on the material and cultural needs of the world’s working class, compared to spending $1B to house every unhoused person or rebuild dangerously decomposing public schools. Yet GDP flattens these two radically opposite social and political outcomes into the same $1B boost in GDP. The same idea applies to government debt. Going into debt to develop a state-run green energy program is not the same as going into debt for imperialist wars or bank bailouts. We will eventually get into why government debt (in their own currency) differs from consumer debt, but for now, just know that cutting social programs because of government deficits is also class warfare.
Another piece of capitalist ideology that permeates macroeconomics indicators is the so-called ‘natural rate of unemployment.’ According to neoliberal capitalist economics, based on the theories of notorious free market evangelist Milton Friedman, an economy can be at full employment while still also having unemployment. You’re reading that correctly: full employment does not equal zero unemployment. The idea here is basically that there is a certain ‘inevitable’ level of unemployment that an economy must maintain to avoid the inflation that Friedman asserted would come from zero unemployment. The main problem with Friedman’s theory is that there is no credible evidence for the existence of his ‘natural rate of unemployment.’
Additionally, as socialists, there is no acceptable level of unemployment. We should strive to create an economy that gives everyone a fulfilling, well-compensated job with good benefits, contributing to social material and cultural production. So why is the ‘natural rate of unemployment’ still used prominently, especially by politicians, when they can always benefit from any claim of job creation? Because, more important than any political point-scoring, capitalists need some workers to be unemployed as much as they need to employ the rest.
Marx wrote extensively about this ‘reserve army of labour.’ During the early days of capitalist industrialization, wherever it occured, self-sufficient peasants were kicked off their land, through enclosure or outright land theft. These peasants were deprived of their own means of production, now unable to feed themselves by growing crops, raising livestock, or selling goods. So they would stream, by the millions, to the factories of urban centres. Once there, each new member of the working class was given capitalism’s much-lauded free choice: exploitation or starvation. The worker chose the former, accepting whatever rotten wage the capitalist gave for their labour, to avoid the latter. However, the capitalists, with their full bellies, warm beds, and literacy, also better understood capitalism’s economics.
Profit, revenue minus costs, is the capitalist’s north star. Wages make up a good chunk of any business’ costs, along with raw materials and equipment. The social and historical process that turned peasants into proletarians was highly effective. It created a supply of millions of labourers whose labour could be had for minimal wages. The high demand for labour in these rapidly industrializing capitalist societies kept pace with this supply. The capitalists’ concerns ballooned as these economies neared full employment. They always needed more labourers for their expanding factories. Obviously they wouldn’t do the work themselves. So, a lower supply of now relatively scarce available labour, with the same high level of labour demand, pushed wages up, eating away profit margins. The reserve army of labour is capitalism’s solution to this problem. A floating mass of unemployed labourers, seeking whatever work they can find, is used as a buffer against upward pressure on wages. The ‘natural rate of unemployment’ is a pseudoscientific economic justification for maintaining the reserve army of labour. Millions of people around the world are denied dignified employment in order to maintain the profitability of capital.
What socialist economic lessons can we take from micro- and macroeconomics?
At our current level of social production, microeconomic scarcity is artificial. By distributing our social resources based on need rather than profit, everyone can be provided with an ever-expanding range of necessities. A socialist microeconomics would study consumer choices as material evidence to develop more detailed and effective economic plans, including price caps on necessary goods, and the expansion of social services. This would enable the removal of increasing numbers of goods and services from market distribution, a crucial step in the transition from capitalism to socialism.
We must base macroeconomic policy on indicators that capture the real standard of living of all people, not just raw dollar amounts and population figures. GDP can include many elements actively hostile to workers’ quality of life, like banking fees, inflated rent, and easily accessible but suffocating debt. And per capita statistics don’t account for unequal distribution. Socialist macroeconomic indicators must be linked to socially positive outcomes like higher life expectancy, or increased working class leisure time.
Government spending must drive the economic base, rather than simply maintaining the necessary conditions for the market to operate without restraint. Planning is the backbone of socialist economics, even when market mechanisms are incorporated to augment these plans. The state, while obviously flawed and ever liable to corruption, is the only economic actor able to fulfill economic plans at a society-wide level. This hints at a topic we will definitely discuss further in the future: the nationalization of banking.
In our next post, we will return to our Economic History of the USSR series, with Part V of this series looking at how the USSR economy survived World War II. If you're interested in these ideas, don't hesitate to reach out. This project is a conversation, not a lecture, so all good faith feedback is encouraged, especially from trained economists.