The recovery is here! (for Wall Street, that is)
There's no shortage of voices claiming that the U.S. economy has turned a corner--and the dire predictions of a severe and protracted crisis were wrong. Butand argue that the Great Recession is still hitting working people hard.
HAPPY DAYS are here again for super-bank Goldman Sachs.
Less than a year after bankruptcies took down some of the biggest names on Wall Street, and only months since it received $10 billion in bailout money from the federal government, Goldman is looking like a winner again.
It reported record profits of $3.4 billion for the second quarter of the year, and its executives are looking forward to the return of their mega-bonuses to pre-crisis levels--though CEO Lloyd Blankfein did warn his colleagues to avoid the kind of conspicuous luxury purchases that might pose further public relations hassles.
Goldman isn't alone. JPMorgan Chase recorded $2.7 billion in profits, a 36 percent increase over the year before. Citigroup, which got around $45 billion in government bailout money, booked $4.3 billion in second-quarter earnings, and one of its top oil traders (translation: speculator who gambled on the direction of the oil market) is owed a cool $100 million in bonuses under his contract.
All this good news from corporate boardrooms is feeding the developing consensus in the mainstream media that the economy is on the rebound, and the Great Recession turned out not to be so bad after all.
Sure, there are a couple fewer big-name firms on Wall Street, a couple dozen fewer banks across the country (eight dozen fewer, to be exact), a couple million homes still in foreclosure. But the same commentators who a few months ago were trying to understand how their sacred free market had driven the world economy into a ditch are seeing economic "green shoots" everywhere.
The latest case in point in early August: The Labor Department's monthly report showing that the economy lost "only" 247,000 jobs in July, and that the unemployment rate dropped by 0.1 percent. Barack Obama and his administration took to the airwaves to declare that the economy was on the mend--thanks to their policies, of course.
It didn't take much digging into the statistics to discover that the news wasn't all that good. The overall unemployment rate fell even as jobs were lost because the number of people who've given up actively looking for work--and therefore dropped out of the statistics--was even greater than the decline in employment. But that information was buried beneath the headlines.
Nor does it require a lot of looking to find evidence of other aspects of the crisis that are still getting worse. For example, according to housing analysts, the percentage of U.S. homeowners who owe more on their mortgages than their homes are worth--and are therefore "underwater"--was 26 percent as of the end of March, and that number will nearly double to 48 percent by 2011.
The mainstream media have always had an infuriating tendency to judge the health of the U.S. economy on the basis of the Dow Jones stock market average and the latest corporate profit statements.
But the gap between how the economy looks to Wall Street and how it looks on Main Street has grown into a chasm. Corporate America may be celebrating better days, or at least the end of the economic freefall. But for workers and the poor in the U.S. today, there's a lot of pain out there, and the threat of more ahead.
IF EVER there was a reliable purveyor of conventional media "wisdom," it's Newsweek's Fareed Zakaria--as he proved again by leading the way for the happy-days chorus with an article in June with the incredible title "A Capitalist Manifesto: Greed is Good (to a point)."
According to Zakaria, the economy seems to be stabilizing, and this is a good thing, because even intelligent mainstream economists had been freaking out and straying from free-market doctrine with proposals to nationalize banks, spend a lot of money to stimulate the economy, develop a national industrial policy, etc.
Fortunately, says Zakaria, capitalism has righted itself, and therefore, "even though we've had an imperfect stimulus package, nationalized no banks and undergone no grand reinvention of capitalism, the sense of panic seems to be easing."
That's a remarkable statement after the financial cataclysm that has taken place over the past 18 months in the U.S. and around the world--and with the signs of a turnaround still so tenuous that a good month for jobs is when "only" 247,000 jobs are eliminated.
It's only possible to write such things because Zakaria keeps his focus firmly on the health of Corporate America, and ignores the wider situation in the economy for working people, and the long-term weaknesses still evident in the system.
Thus, the "good news" in the July employment statistics pales when set against the fact that long-term and overall unemployment remain at quarter-century highs.
Official unemployment may have dropped by a fraction to 9.4 percent, but if you add in those who have given up looking for work and "involuntary part-time workers," you get an unemployment rate closer to 16.5 percent. According to the Center for Labor Market Studies, if the government hadn't changed the way it counts joblessness, the current unemployment rate would be 18.2 percent.
Employers have been cutting hours as well as jobs. If the number of work hours lost in June had been translated into layoffs, there would have been an additional 900,000 jobs lost. The average workweek in the U.S. has fallen by nearly 7 percent--to just 33 hours.
With declining personal funds available, health care costs still on the rise, massive cuts in social spending due to state budget crises, and the shredding of the welfare system since the 1990s, U.S. workers are facing what one British newspaper, the Telegraph, called an "unemployment time bomb":
The reason why this [current crisis] does not "feel" like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another "Grapes of Wrath," but 20 [million] U.S. homeowners are already in negative equity... Evictions are running at a terrifying pace.
Even before the current recession, more than 10 percent of the U.S. population lived below the official (and absurdly low) poverty line of $21,203 for a family of four. Layoffs and spending cuts have pushed millions more into poverty (or closer to it). For these people, the crisis is still just beginning--and getting worse.
However, even judging the system on its own terms, reports of the rebirth of economic good times are exaggerated.
Start with the banks, whose return to profitability has gotten so much publicity. Accounting tricks have obscured the degree to which bad debts are still a problem. The banks may have staved off collapse with the help of their friends in the federal government, but according to the Obama administration's stress tests--which were far from overly pessimistic--large institutions are expected to lose nearly $600 billion in the next two years.
And no amount of less-bad-than-expected employment reports can change the frightening prediction of the International Monetary Fund that the world economy will experience its first global contraction in 60 years--an overall drop of 1.4 percent over the course of the year.
WHAT ABOUT Zakaria's claim that "with all its flaws, capitalism remains the most productive economic engine we have yet invented."
His evidence for this statement is that the U.S. economy seemed to weather several episodes of financial turmoil in recent decades and still experienced a period of prosperity--while "halfway across the world...countries like China and India...have been able to grow and pull hundreds of millions of people out of poverty by supporting markets and free trade."
It is true that great wealth was created over the past 30 years. But overall, this wealth has gone to a tiny minority at the expense of the majority. As Joel Geier wrote in the International Socialist Review as the recession was beginning:
The U.S. economy has tripled since 1973, but all the growth has gone to capital, to the employers, to the owners, none to labor. Real wages are lower today than they were in 1973, 35 years ago. The only way to keep up living standards was through working longer hours, and two-income families. Even that wasn't enough; real family income is lower today than what it was 10 years ago.
Thus, much of the wealth created during the neoliberal boom was extracted from the working-class majority (in the U.S. and internationally) through wage cuts, union-busting, cutting social spending, shifting the tax burden down the income ladder, and increasing the intensity of work.
To a lesser extent, workers in advanced industrial economies were also squeezed by the "offshoring" of unionized manufacturing jobs to lower-wage labor markets abroad. While corporate globalization did lead to new industry in some developing countries (especially China), the biggest benefits went to Western corporations and local elites. Workers in those countries were exploited at a fantastic rate.
As for the U.S., the chief character of the preceding era wasn't prosperity but the relentless increase in inequality. As the Economic Policy Institute describes the situation in the State of Working America 2008/2009:
Data on income concentration going back to 1913 show that the top 1 percent of wage earners now hold 23 percent of total income, the highest inequality level in any year on record, bar one: 1928. In the last few years alone, $400 billion of pretax income flowed from the bottom 95 percent of earners to the top 5 percent, a loss of $3,660 per household on average in the bottom 95 percent.
This is the truth of the matter: Workers in the U.S. and around the world were already facing tough times before the recession began in 2008--and now they're being asked to pay for the current crisis.
Zakaria doesn't suggest that the system is without flaws. He says, however, that the problem is "a crisis of finance, of democracy, of globalization and ultimately of ethics"--but not of capitalism itself. The disastrous consequences of the Great Recession are put down to these aberrations, while the capitalist system itself is revered as "the most productive economic engine we have yet invented."
This is hard to take seriously. How and when exactly did Wall Street part company with capitalism? The same financial wizards who Zakaria criticizes for "greed, miscalculation and eventually ruin" were once the toast of all corners of Corporate America, celebrated in the pages of the Wall Street Journal, Forbes and, yes, Newsweek.
When Zakaria complains about a "crisis of morals," he doesn't mean that society has failed to feed the hungry, house the homeless or provide medicine to the sick. He's referring to the alleged ethics of "self-regulation" in the business world--that business leaders need to keep their thirst for profit in check to avoid longer-term problems down the road.
But "self-regulation" in business has always been thrown out the window in favor of quick money. It was in the speculative bubbles of the late 1920s and the 2000s, and it will be again, so long as the system is allowed to continue.
Similarly, by a "crisis of democracy," Zakaria isn't referring to big business making wholly unaccountable decisions based on what's best for their bottom line, or to corporate interests dominating the U.S. political system by buying influence with both political parties.
Zakaria's problem is with the politicians' "failure" to make "hard decisions" in the interests of capitalism--by which he means the failure to raise taxes (across the board, not just on the rich) and make deeper cuts in government spending.
Zakaria is right about one thing. Capitalism will find a way out of its current crisis. But it will do so on the backs of workers, who will pay for restored profitability with reduced wages, worse jobs, fewer government services, higher tuition, a lower standard of living, and higher health care costs.
It doesn't have to be this way. Workers can organize for an alternative social and economic system where the wealth of society is democratically controlled by those who produce it. That system is called socialism.
As Karl Marx and Frederick Engels wrote--in an infinitely superior manifesto--more than 160 years ago, workers "have nothing to lose but their chains. They have a world to win."