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The Intercept

KARL MARX USED to say that unemployed people were capitalism’s reserve army. Though he didn’t invent the term, he meant that capitalism drew its strength from this army, standing at the ready to take a worker’s job if the current one didn’t like it. If unemployment levels are high enough, bosses can pay lower wages and treat workers poorly. If one of them quits, there are plenty more in reserve. But if the reserve army is depleted — if the economy is at full employment, and everybody who wants a job has one — then bosses can’t treat workers as disposable, and they can’t indulge their racism and sexism in the same way.

A boss who treats women or people of color poorly, or refuses to hire them, is at a supreme disadvantage if there’s no reserve army.

Think back to World War II, when unemployment evaporated in order to meet the demands of the war effort. Rosie the Riveter didn’t get her job as the result of a social movement on behalf of gender equity on the factory floor. She got it because factories needed bodies and had less ability to indulge their sexism. Full employment takes power out of the hands of bosses who use it to discriminate and gives power to workers to make demands — and if those demands aren’t met, they have the freedom to work elsewhere.

That theory about unemployment in a capitalist economy is relevant to how analysts are pulling apart the two-day collapse of the stock market that began Friday, and its subsequent wild swings. Market watchers have said flat-out that the crash was triggered by a new jobs report released Friday that showed that wages, nearly a decade into the recovery, might finally be starting to rise.

Now, when analysts say that the Dow Jones industrial average went up or down for this or that reason, they are often just guessing. What specifically moves a body as complex as the stock market is in some ways unknowable, but it is useful to explore the cause being ascribed to last week’s crash — rising wages — apart from its implications for the market. What it says about the way our economy is structured is much more profound.

Start with the suggestion, which seems odd on its face, that the market crashed because wages were seen to be rising. Anybody outside the financial system would immediately see wages going up as a good thing. After all, it’s what every politician in every party says they want to see happen. But for market analysts, it’s a bad thing, because it is said to be a signal that inflation is around the corner.

“Concern about inflation was most glaring on Friday, when stocks tanked after the January jobs report revealed the strongest wage gains since 2009,” reported CNN Money. “The immediate catalyst was the jobs report, which showed the strong United States economy might finally be translating into rising wages for American workers — a sign that higher inflation could be around the corner,” offered The New York Times.

Anybody outside the financial system would immediately see wages going up as a good thing.

And if inflation is coming, then the Federal Reserve is likely to raise interest rates to slow down the economy and cool off the inflation. When the Fed raises interest rates, bonds become more attractive, so people move money from stocks to bonds — and the stock market dives. It becomes harder to borrow, so businesses and homeowners have less capital to throw around. Profits get squeezed by high-interest payments. And as interest rates rise, the value of older bonds, which pay out a lower interest rate, goes down. So people are losing money all over the place. All because wages started to go up.

Everything in the structure of the economy, then, is geared toward making sure that wages never rise. And for nearly half a century, this task has been accomplished. Wages haven’t budged since the 1970s.

Capitalism’s reserve army has its ranks bolstered by a mechanism known as the “inflation target” or the “inflation objective.” The Fed currently sets the target at 2 percent, meaning that it doesn’t want to see inflation higher or lower than that. What it really means is that it doesn’t want to see inflation higher than that, as the economy hasn’t hit the 2 percent target in years…Read More at

The Intercept

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