Electricity Prices Are Dropping, Productivity Is Up, Unemployment Is Up---And The Economy Is Recovering?

Demand for electricity is dropping quickly in the US, causing wholesale electricity prices and energy prices on the spot (daily) markets to drop. Consumers like you and I won't see smaller electric bills soon, if ever, but the falling electricity prices may cause other prices to not increase as rapidly as they might otherwise do. The power we pay for as consumers is purchased and sold on long-term contracts and the utilities aren't going to cut us a break.

Electricity prices have not fallen so quickly for so long since at least 1950. The total US falloff is not especially remarkable as a one-time drop in prices, but this has been happening in bumps and slides since last year and some regional markets are seeing drops much higher than the national averages. I believe that the main reason for the decreases are the continuing loss of basic industry. The mention of 1950 raises worries that we may see rapid deflation ahead.

If money exists chiefly to hold value as a means of regulating exchange, and if inflation is the steady and more-or-less uniform increases in prices over time, then some kinds of controlled inflation in a capitalist economy should work for the relative common good for at least short periods of time. Inflation is generally associated with capitalist economic growth, but there have been recent exceptions. In the mid-1970s, just after I entered the "for real" job market, we had continuously growing unemployment, a stagnant economy and inflation--everything workers didn't want.

It may be possible to have controlled deflation, but I can't imagine what that would look like. The value of money is generally determined in the day-to-day world through supply and demand and by politicized government policies. The value of money is affected by changing interest rates, currency trading, tax rates, financialization and other political and fiscal means. This rests on the ability and willingness of governments and other institutions to honor the face value of their currency--honor among thieves in crisis, mind you. Deflation could mean that all that determines the value of money, or money as a means of holding real value, has been thrown to the winds by these thieves.

Meanwhile, US productivity just made its biggest gains in six years. We're now looking at something like a 6.4% annual rate of increase in productivity in the nonfarm business sector. The so-called "unit labor costs" are dropping at rates comparable to 2001 while productivity is increasing. In other words, more work is getting done by fewer workers in less time. Hours worked declined by almost eight per cent last quarter alone while real compensation fell by something just over one per cent. Remember that this happened as the minimum wage increased. The people who railed against the increase in the minimum wage had nothing to worry about. The employers and their economists think that this increase in productivity and this decrease in "unit labor costs" means an end to inflation.

This may not come as good news if you have lost your job or your home, or if you're about to, or if you're doing the work of two people for less money. We're stuck asking what comes next. We are also asking who is going to buy all of the stuff being produced as unemployment continues to climb, even slightly. Maintaining employment and unemployment at current levels will create real problems in capitalist economies. Wages and prices could freefall for some time before finding new levels and correllations.