The Guardian 9 April, 2008
Wall Street and
the crisis of US imperialism
Joe Sims & Joel Wendland
As the economic crisis deepens and Republican nominee Senator John McCain admits he doesn’t "know much about economics", voters, especially working-class voters, are looking for a change from Bush-style politics and leadership that will actually address economic issues.
In all of the primaries, voters placed economic concerns at the top of their priority list oftentimes higher than the war in Iraq. This in no small measure is due to a slowing in wage growth combined with a rise in inflation. In this regard, Jared Bernstein of the Economic Policy Institute points out:
"A year ago, annual hourly wage growth before inflation was 4.3 percent; this year (from January 2007 to January 2008), it was 3.7 percent. Inflation, conversely, driven by higher energy prices, is growing about twice as fast as a year ago. These trends have important implications. First, falling real wages will likely lead to diminished consumption, reinforcing slower macro-economic growth. Secondly, the reality of squeezed pay-cheques for most workers helps explain the primacy of economic concerns among voters in the presidential primaries."
In reality, current trends represent a worsening of already difficult circumstances: "For working people, the long-term trend in the US has been toward greater inequality in wages, less job security, fewer pensions, and fewer people with healthcare. All these long-term trends are being further aggravated by the economic crisis the country is currently going through", according to Art Perlo, Chair of the CPUSA Economics Commission.
Workers never fully recovered from the 2001 recession despite claims of the business media and government that the crisis ended that year. The return of higher profits for corporations was seen as the beginning of the recovery, "but for many workers there was no recovery. Jobs continued to be lost into 2003, and even when they started to rebound, it was at a relatively slow pace for a recovery", added Perlo.
Job growth has slowed considerably over the last several years. Christian E Weller of The Centre for American Progress writes that "Monthly job growth since March 2002 has averaged an annualised 0.6 percent. Over the past 12 months average monthly job growth was 82,000 jobs, compared to 166,100 in the previous 12 months, and 219,900 in the 12 months before that."
Pensions and health benefits
Pensions and health benefits have been particularly hard hit Weller notes: "The share of private sector workers with a pension dropped from 50.3 percent in 2000 to 43.2 percent in 2006, the last year for which data is available and the share of people with employer-provided health insurance dropped from 64.2 percent to 59.7 percent."
Looked at now from a distance, something deeper appears to have been at work. Indeed, the 2001 recession was part of a deep restructuring of the US economy that had been ongoing and continued apace after the 2001 recession. Perlo points to the loss of more than three million manufacturing jobs before the 2001 crisis, and about one million since massive wage cuts in auto, as key indications of how the US economy has and is being restructured:
"Manufacturing has lost jobs for 19 consecutive months. Since 1998, 1-in-5 manufacturing jobs, or almost 4 million, have been lost. The ‘recovery’ from the 2001 recession was the first recovery in US history during which the absolute number of manufacturing jobs actually declined."
The decline in manufacturing has had a particularly sharp impact on Black and Latino workers, as well as whites. In this regard, John Schmitt and Ben Zipperer of the Centre for Economic Policy and Research observe:
"The share of African Americans working in manufacturing declined from 23.9 percent in 1979 to 9.8 percent in 2007. Whites saw slightly smaller declines (from 23.5 percent to 11.7 percent), while Hispanics experienced a larger drop from 30.2 percent to 12.0 percent."
Jobs in the service industry have proved a poor replacement. Even in manufacturing new employment occurs at much lower wage rates. "There has also been a continued trend even during the recovery of the loss of good, higher wage jobs and their replacement with low-wage jobs," Perlo comments: "We have seen this most recently in the auto contracts, where jobs that were paying $30 an hour are being replaced with jobs paying $15 an hour — for doing the same work."
Recession
The signs of economic recession were pretty strong all of last year. Before a surprising loss of 17,000 in January 2008, job growth had already been very weak. "For the first half of 2007 there was an average gain of 107,000 jobs each month", Perlo noted, adding, "That might not sound bad, but you need 140-150,000 jobs a month to even keep up with the need for new jobs."
Spikes in the consumer price index, inflation, and a decline in wages for workers by about two percent for the year 2007 signalled hard times for most working families.
Housing crisis
The increasingly severe housing crisis was piled on top of this already bad news. One big indication that the housing crisis will continue to ripple through the economy for some time, if no outside intervention is brought to bear.
"Even though half as many homes are being built", Perlo pointed out, "they still have over 90 percent of the workforce they had the year before. That means there are huge numbers of layoffs still to come in construction", not to mention thousands of layoffs waiting to take place in the banking and mortgage sector.
For many families, without government intervention there are no solutions other than foreclosure (at a rate now of more than a million per year), bankruptcy and homelessness. The crisis is growing more severe.
Today, the severity of the crisis and the likelihood of it worsening very quickly have Wall Street in a panic. Business Week, in a special report on the economy, asks the question, "How did conditions get so turbulent so quickly? Economists, money managers, CEOs, and regulators are grasping for clues."
The German publication, Der Spiegel, reporting on the economic forum at Davos (a gathering of the world’s big business and financial honchos) had this to say, "Backstage at Davos the sense of helplessness among those attending is palpable. Few have any idea how to proceed from here."
Get worse
Many believe it will get worse. John Miller, writing in Dollars and Sense, asks, "How bad will it get? Pretty bad. A decade long stagnation, as Harvard economist Larry Summers suggests, or ‘the worst housing bust ever’, as NYU professor Noureil Roubini suggests, are not out of the question."
The reason is startling:
Sub-prime borrowers are not the only ones in trouble. The same types of loans that imposed inordinate risks on sub-prime borrowers have left many other homeowners vulnerable to foreclosure as well.
Defaults are now engulfing even better-off borrowers saddled with adjustable rate mortgages (ARMs), sub-prime or not, whose low introductory rates are reset upward as interest rates rise in the economy. About one quarter (24 percent) of ALL homes are ARMs."
Miller adds that Merrill Lynch suspects another $100 billion in losses are out there on top of the $400 billion in sub-primes.
"My recollection", Perlo remarked, "is that even in past recessions like 2001, you have not had this sense of gloom and panic. They don’t understand what they have created with this huge parasitic financial superstructure on Wall Street, and because they didn’t understand it they were caught by surprise by this huge credit crunch."
Warnings made over the last several years by progressive economists that the unemployment problem and the sub-prime lending issue had to be addressed went unheeded, and now, ironically, capitalists and the pro-business media are wondering what happened.
But there are immediate steps that can be taken to ease the pain. While no one will turn down a US$300?(AU$328) or $600?(AU$656) cheque, (the basis of the $160 billion?(AU$175 billion) economic stimulus package just signed into law by President Bush), Perlo said that the "package is a lousy idea".
"It is widely viewed that way by the labour movement, progressive economists, and social activists," he added, "because the immediate victims of this situation are the people who have been laid off, the people who never had jobs, the people who can’t even go out and look for jobs, because they can’t pay $3.25?(AU$3.55) a gallon to fill up their tanks with gas — if they have a car". Most people have already indicated they will use the money not for consumer spending, but to pay bills that are piling up.
Six important steps
Perlo listed six important steps that could be taken today to prevent the worst impact of the crisis and bring aid to working families. The federal government could extend unemployment benefits to cover the growing number of long-term unemployed workers, or people who have been out of work more than six months. Federal rules cut off long-term unemployed workers from receiving unemployment compensation benefits. Currently, according to the labour-backed Economic Policy Institute, 1.4 million workers have been listed as long-term unemployed, more than in the month immediately following the end of the 2001 recession.
Perlo also recommended expanding who is eligible for unemployment compensation. "Only about one-third of the people without jobs are eligible for unemployment compensation", he said. "Everybody who does not have a job and wants one should be eligible for unemployment compensation."
Food stamp benefits should be increased.
The federal government should provide immediate financial assistance to state and local governments to ease budget shortfalls.
One key measure being lobbied for by the labour movement is new infrastructure investment. This type of economic stimulus has the advantage of both creating jobs and improving the delivery of social services. While it might take time, for example, to get new projects like bridge and levee improvements underway, employing new people in schools and community centres, for example, could be done immediately and stem the flow of jobs out of the economy rather quickly.
The final, and perhaps most important step that could be taken, "is legislation for an indefinite moratorium on home foreclosures, and for other measures to make it possible for people to stay in their homes", Perlo concluded. "Each of the things I have mentioned has two benefits: First they would directly help the people who need help the most, secondly, they would stimulate the economy far more than a general tax rebate, because they would put money into the hands of those people who would spend it immediately."
Political Affairs, theoretical journal of the CPUSA.