Too little, too late
explains why George Bush's stimulus package caused a stock market plunge.
FINANCIAL MARKETS plunged in the U.S. and around the world at the beginning of the week in an abject rejection of Bush's plan for an economic stimulus package, announced January 18.
U.S. stock markets have been falling steadily in recent weeks as the realization sets in that the economy is headed for a severe recession--and may turn out to be in one already, when the government releases statistics on economic growth for the last three months of 2007.
But the sharper drop this week--first felt on international markets, and expected to hit Wall Street when U.S. stock exchanges reopened after the Martin Luther King Day holiday--was a unanimous verdict on Bush's plan, announced after his return from being wined and dined by royalty and heads of state in the Middle East.
Bush carefully avoided the R word, explaining that that he wanted "to keep a fundamentally strong economy healthy." Wall Street's reaction? The Dow Jones stock market index fell 250 points following Bush's speech on Friday.
"It's another horrible day," Francis Lun, general manager at Fulbright Securities in Hong Kong, said after the Asian markets dropped sharply the following Monday. "Today, it's because of disappointment that the U.S. stimulus is too little, too late, and investors feel it won't help the economy recover."
For more background on the worsening state of the economy, see Joel Geier's "The coming economic meltdown" in the new issue of the International Socialist Review. The Center for Budget and Policy Priorties has an analysis of the Bush stimulus plan and who will benefit available on its Web site. New York Times columnist Paul Krugman's article "Don't Cry for Me, America" underlines the scale of the crisis. The biannual State of Working America is an excellent source of facts, figures and tables about living conditions for U.S. workers. Many parts of the current edition are available on the State of Working America Web site.
What else to read
For more background on the worsening state of the economy, see Joel Geier's "The coming economic meltdown" in the new issue of the International Socialist Review.
The Center for Budget and Policy Priorties has an analysis of the Bush stimulus plan and who will benefit available on its Web site. New York Times columnist Paul Krugman's article "Don't Cry for Me, America" underlines the scale of the crisis.
The biannual State of Working America is an excellent source of facts, figures and tables about living conditions for U.S. workers. Many parts of the current edition are available on the State of Working America Web site.
The Bush plan centers on $145 billion in tax breaks for businesses and a one-time rebate for individual taxpayers.
The Bush administration asked for--and got--almost twice that much just in supplemental funding for its "war on terror" last year alone. Bush has no trouble demanding more money for war at every turn--but when it comes to helping out the victims of the sub-prime mortgage meltdown and the worsening jobs picture, he's a cheapskate.
BUSH LIKELY won't reveal the details of the stimulus package until his State of the Union address at the end of the month, but he and his advisers want people to focus on the planned tax rebate of $800 for individuals and $1,600 for married couples.
But this is less help than it might appear. As Robert Greenstein, executive director of the Center for Budget and Policy Priorities (CBPP), points out, "This plan would bypass altogether, or provide only partial help to, the 45 percent of households--at least 65 million households--with the most modest incomes. Families of four below $40,950 would get partial help, or nothing at all."
Households that earn too little to be in the 10 percent tax bracket would get nothing--even though they pay out a lot in payroll taxes.
To reach those people who need the money the most, the government would have to increase the earned income tax credit or hike spending on social programs--which Bush and his economic advisors are highly unlikely to support.
Treasury Secretary Henry Paulson said Bush "is focused on broad-based tax relief for those who are paying taxes...This is something that has worked well before. It's worked in 2001, worked in 2003. Get to consumers; put money in the hands of people, letting them spend it rather than the government."
But last time around, in 2001, the "rebate" amounted to an advance on that year's income taxes--which had to be paid back the following year.
In contrast to Bush's dreams of workers going out and buying flat screen TVs and other high-ticket "Made in America" items, most people say they would use a rebate to try to get their heads back above water.
"I would probably take that money and breathe a sigh of relief for one month," said Jennifer Simon, who works at a small communications firm in Long Valley, N.J., and spends $1,500 a month on child care. "It's not a permanent fix," she said, "but I wouldn't send it back."
Rich Cichowski of Tallahassee, Fla., who had back surgery and isn't working, told the Associated Press that said if he got a rebate, he probably would pay off some medical bills.
Considering the impact of the crisis as it is already being felt by working-class families, the rebates look like too little, too late.
One part of the problem is rising inflation. According to the Bureau of Labor Statistics (BLS), consumer prices rose by 4.1 percent last year, the highest rate in almost 20 years.
The most drastic price increases came in the cost of essentials--food, gas and health care. Last year, the price of eggs rose 29.2 percent, and the price of fresh milk was up 13.1 percent. The cost of medical care rose by 5.8 percent. The price of fuel oil used for winter home heating only increased 7.4 percent for all of 2007, but it jumped by more than 27 percent in the last three months of the year.
At the same time, weekly earnings failed to keep pace, rising a meager 0.9 percent for the year after adjusting for inflation, according to the BLS.
Add to this more bad news about declining retail sales, the housing downturn, increased unemployment and increasing delinquency rates on credit card, mortgage and auto loan debt, and you have millions of workers' lives hanging by a thread.
Economists say the situation will only get worse. "The U.S. has suffered recessions only twice in the past quarter century, and both were short and mild," wrote the Wall Street Journal. "There are good reasons to fear that the looming recession, if it arrives, could be worse."
Robert Barbera, an economist at New York trading-services firm Investment Technology Group Inc., told the Journal, "Even if the country is in for just a mild recession, the pressure on spending, coupled with what has happened in the housing and mortgage markets, may make it feel a lot worse for most Americans than the last two downturns did."
FOR THEIR part, Democrats are offering little in the way of an alternative.
Congressional Democrats say their stimulus proposal might add more money for food stamps, freeze mortgage rates and extend unemployment benefits. But party leaders are emphasizing their willingness to work with the White House. "There's a real spirit of compromise in Washington right now," Sen. Charles Schumer told Fox News, "a spirit of let's get together, put away the bipartisan differences, because the economy is in poor shape."
The congressional stimulus package so far is smaller than Bush's--around $100 billion--and the catchwords are "timely, targeted and temporary," meaning that Democrats want to be sure to contain the relief to small amounts and narrow time frames. In fact, Bush was willing to commit more money than the leading Democratic candidates, Hillary Clinton and Barack Obama, proposed ($110 billion and $120 billion, respectively).
And like Bush, the Democrats have different rules for Corporate America.
"When it comes to reining in Wall Street," wrote Washington Post columnist Harold Myerson, "the Democrats have been AWOL almost as much as the Republicans have been--not least because their presidential candidates get so much money from Wall Street. By refusing to take on the Street, however, they forfeit what could be a potent issue this fall and lay the groundwork for yet another recession."
The Democrats aren't going to propose anything too drastic because they can't afford to offend their corporate backers. "At the far more expensive level of presidential politics, most Democratic candidates are heavily dependent on Wall Street," wrote American Prospect co-editor Robert Kuttner. "In the 1990s, many Democrats were complicit in the financial deregulation that invited Enron and later the sub-prime mess...
"The financial meltdown ought to be the perfect issue to distinguish Democrats from Republicans. But just enough Democrats have their fingerprints on it that the issue isn't producing much partisan traction.
"The sub-prime meltdown is the pure result of conservative ideology--the idea that financial markets don't need government regulation...you don't see Democrats as a party connecting the ideological dots, lest they offend their donors."
If the Democrats inherit this disastrous economy after November, they will respond with their favorite slogans of "fiscal responsibility" and "balanced budgets." And once again, workers and the poor will be expected to pay the price.