Workers asked to pay the price for...
October 12, 2001 | Page 10
LEE SUSTAR looks at the factors behind the U.S. economy's worsening slump.
THE MAIN stock market in the U.S. lost $1.4 trillion in the week following the September 11 attacks--the worst totals since the Great Depression of the 1930s.
And since then, the media has spread the notion that cuts in spending by fearful consumers could push the slowing U.S. economy into a full-blown recession. "Shopping has become a patriotic duty," USA Today declared. "And an economic necessity."
So George W. Bush is teaming up with Congressional Republicans to push for a $60 billion tax cut to stimulate spending.
Of course, this tax cut--like the last one--would benefit the wealthy most. And there's no guarantee that people will spend a tax rebate--particularly if they're worried about losing their jobs.
More than 100,000 airline workers got pink slips in the weeks following the attacks, and as many as 1 million workers in the hotel and restaurant business were told they were getting the ax, too.
The number of workers filing for unemployment benefits reached a 9-year high in the final week of September.
But the U.S. was already in recession before September 11. And Bush's policies won't stop the economy from getting worse.
According to the Labor Department, some 199,000 workers lost their jobs in August--the highest total since the last recession in 1991. More than 1.1 million manufacturing jobs have been eliminated over the last 14 months alone.
Widespread concern over mounting job losses forced Bush to promise an extra 13 weeks of unemployment benefits in his economic stimulus plan.
But that wouldn't begin to compensate for the lost income of jobs. Nor will the Federal Reserve Bank's steep cuts in interest rates to their lowest levels in 40 years get working people spending again.
By the end of last year, overall private spending exceeded disposable income by an amount equal to 6.7 percent of total U.S. economic output. Credit card delinquencies have hit record levels.
Meanwhile, companies in many debt-plagued industries--particularly telecommunications and information technology--are reluctant to make new investments.
Corporate America went deeply into debt to finance massive expansions during the boom as they scrambled to top each other. But once demand collapsed, even top companies found themselves struggling with excess capacity and were forced to slash jobs--or close.
"The overhang could take years to work off," the Washington Post reported. "Analysts now expect that the profits of the top 500 corporations will fall 25 percent to 30 percent this year and continue to decline at least through the first quarter of 2002."
Banks worried about the possibility of bad loans aren't eager to lend more to money-losing companies. As a recent New York Times headline put it: "Cheap credit, except for those who need it most."
What's more, the lower interest rates will lead to a fall of the value of the dollar on the world market. This could prompt foreign investors to dump much of their record $7.8 trillion in holdings in the U.S.--which risks an international financial panic.
Some liberal economists critical of Bush's tax cuts have called for a different kind of economic stimulus--one based on increased government spending on schools, health care, mass transit, the infrastructure and more. If Bush and Congress are willing to spend the government budget surplus on war and tax cuts, the argument goes, deficit spending could be used for social programs, too.
Meeting human need is, of course, vastly preferable to building war machines. And government spending has a much more immediate economic impact than tax cuts.
But the corporations and their political allies have spent decades trying to eliminate the welfare state--and they won't reverse themselves without a massive struggle from below.
Nor will increased military spending provide much of a boost. Unlike the Second World War, the U.S. "war on terrorism" won't require a huge expansion of industry to replace large numbers of planes, tanks and ships destroyed in battle.
Furthermore, the U.S. recession has developed alongside an economic slowdown in Western Europe and another sharp downturn in the crisis-ridden Japanese economy.
These countries too are awash in goods that can't be sold at a profit. Attempts by one country to reduce the value of its currency to make its exports cheaper can spark retaliation. Even the boom years of the late 1990s saw trade wars and financial panics in East Asia and Russia.
With all three powerhouses of the world economy now in trouble, further instability is likely.
The September 11 attacks provided Bush and his economic policymakers with a convenient explanation for the recession. But this economic crisis is rooted in the nature of the system itself.
Profiting off the U.S. war machine
AS THE New York Stock Exchange was due to reopen a week after the attack on the World Trade Center in New York, financial experts insisted the market would hold steady. Cashing in on a disaster by selling off stocks would be "blood money," one trader told a reporter--and that kind of thing isn't done.
Yeah right. The Dow Jones stock market index lost about 20 percent of its value over the coming weeks--meaning that trillions of dollars in value were wiped away on the stock market.
But not every company tanked on Wall Street. Corporations in the defense and security industries saw their share prices take off.
Pentagon gravy-train mainstays like Northrop Grumman, Raytheon and Alliant Techsystems led the way with double- and even triple-digit gains. InVision Techologies, which makes machines that x-ray baggage at airports, and Visage Technologies, which produces face recognition and fingerprint imaging systems, nearly tripled their share prices.
In other words, Wall Street recognized immediately that some companies will make a killing--literally--as a result of the September 11 attacks and Bush's drive to war.
Democrats and Republicans were already agreed on pouring extra money into the Pentagon. But now the floodgates are open.
Already, the military is getting about half of the $40 billion in emergency spending approved immediately after the attacks--and another $20 billion in extra spending beyond the administration's earlier proposals.
And that doesn't count money that the Defense Department plans to ask for to fund its "anti-terrorist efforts"--something in the neighborhood of $38 billion, according to one memo leaked to the media.
Everything on the military's wish list--even absurd boondoggles like the F-22 fighter plane and the Star Wars missile defense system--are on the table.
"Tragically, some are using the terrible tragedy to justify their existing programs, slapping an 'anti-terrorism' label on missile defense and military budget increases," said Joseph Cirincione of the Carnegie Endowment for International Peace.
"We need to lower expectations"
By Petrino DiLeo
THE SEPTEMBER 11 attacks have had a direct impact on the economy in New York. A report sponsored by state Democrats estimates that 7 percent of private-sector jobs statewide have been threatened or eliminated as a result of the destruction of the World Trade Center. Estimates of layoffs in the first month since the attack top 100,000.
And New York was already facing financial problems before the attacks--problems that will become worse because the state legislature failed to agree on a new budget by an October 1 deadline. The budget deadlock meant, for example, that $1.5 billion in federal Temporary Assistance to Needy Families funds wasn't allocated on time.
The money would normally go to welfare, job training, day care, housing and other programs, according Ron Deutsch, executive director of the Statewide Emergency Network for Social and Economic Security, a coalition of nonprofits.
These programs could soon close, cut services or lay off workers, Deutsch said--even as demand for social services shoots up in the wake of September 11.
And that's just fine with state Senate Majority Leader Joseph Bruno. "Everyone out there has to lower their expectations on what the government of New York state is going to be able to provide," the Republican honcho of the legislature declared.