Art Perlo: The U.S. Economic Situation at the end of the first quarter of 2011

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Apr 15, 2011, 7:17:29 AM4/15/11
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The U.S. Economic Situation at the end of the first quarter of 2011

by Art Perlo


Based on a report to the National Board of the Communist Party, March 17, 2011.

Claims of recovery are not entirely empty. Let's look at them, before we examine, what kind of recovery and for whom?

GDP rose at a modest 3.1% rate in the fourth quarter of 2010.1 Many other indicators of economic activity -- freight tonnage, hotel occupancy, industrial production -- have rebounded significantly from their low in 20092. Like GDP, they are increasing moderately, but hardly at the rate of vigorous expansion.

Employment is growing faster than necessary to absorb new workers, but not by much. The rate of layoffs has declined more than 1/3 from its peak3 , and job openings are above the low point in 2009, though still too few to make a significant dent in the numbers looking for work.4 The official unemployment rate has declined modestly over the past year, but only because so many of the unemployed gave up looking for work and are no longer counted.

Despite some positive signs, in many ways the US economy is still in the depression phase of a capitalist cycle. This is seen in continued high levels of unemployment, large inventory of unsold goods (especially housing and commercial real estate) and excess capacity, though all of these have improved from their worst. And a large surplus of idle capital.

Recovery for who?

As far as the capitalist system is concerned, the crisis is over at least for now. For capitalists, the most important things are profits and stability.

Profits have been restored -- by speeding up workers, cutting wages, and getting rid of or swallowing up competitors. You can hear that from the horse's mouth: "Corporations are taking huge advantage of the slack in the labor market [unemployment] - they are in a very strong position and workers are in a very weak position. They are using that bargaining power to cut benefits and wages, and to shorten hours." That from Desmond Lachman, a former managing director at Salomon Smith Barney.5 The "slack in the labor market" is unlikely to end any time soon. At the rate jobs have been created for the last six months, the unemployment rate will continue above 6% for the next seven years!

Stability is restored, or at least the illusion of stability. The corporate class believe they have contained any gains made by the working class in the first two years of the Obama administration, and have launched a broad counter-offensive, aimed at smashing unions, further institutionalizing corporate domination, and substantially lowering the working class standard of living. The breadth of the right-wing corporate attack is stunning. Even with Republicans controlling only one house of Congress, the offensive is more sweeping than at the height of Bush administration power.

For the rest of us, the recovery means a new normal. Older workers forced out of work, but can't afford to retire, competing with grandchildren for minimum-wage jobs. Workers who formerly had stable jobs, along with growing numbers of young people, are forced into the always-present contingent workforce on the margins of the economy, moving from one to another part-time insecure, low-wage, no-benefit jobs. The jobs lost in 2008-2009 were weighted toward the better paying jobs; the few jobs gained in the past year were weighted toward the lowest-paying.6 College students are graduating with huge outstanding loans and Starbucks-level jobs. Crises of youth, especially African Americans, and immigrants, and rural, consign whole communities to economic and social wastelands.

We can't separate economic prospects from the political situation. This is seen in the two biggest obstacles to recovery: home mortgage crisis and fiscal policy, which threaten to tip even this partial recovery into a new crisis.

Home Mortgage Crisis

A few words about the mortgage policy. A ruthless gang of 3-piece-suit thugs have driven 3-5 million families from their homes, with another million in the pipeline for this year. They used massive fraud, and have not only escaped jail, but been rewarded with bonuses and golden parachutes. One quarter of homeowners with mortgages owe more than the houses is worth, and every week thousands more fall behind on their unsupportable payments. The most effective though modest measure proposed by the Obama administration -- giving bankruptcy judges the right to lower mortgage principal -- was defeated in 2009 by Senate Republicans with help from 12 Democrats. The administration's HAMP program to adjust mortgages has been largely ineffective, relying as it does on the cooperation of the same banksters who profit from the crisis. Yet even this is being threatened with repeal by House Republicans, who also are attacking other administration efforts that slightly mitigate effects of the crisis. The financial industry policy is to squeeze every possible last penny out of homeowners, plundering any savings they and their families might have, before evicting them from their homes. The economic effects of this crisis has been to depress consumer demand by about $700 billion per year, and keep housing construction (and employment) at record-low levels -- a drag on the economy that will continue for several years. The human effects are incalculable.

Fiscal Policy

The more immediate obstacle to recovery is fiscal policy. That's a fancy word for government spending. The money from the stimulus bill (ARRA), passed in February 2009, has mostly dried up. The debate in Congress is whether to enact a small or a large anti-stimulus program -- that is, whether to cut essential services by $40 billion/year or $100 billion/year or $250 billion/per year. The recent agreement to keep the government running is a cut of $77 billion per year from the 2010 budget level. Republicans are demanding far deeper cuts in the coming year.

The Congressional Progressive Caucus has released an alternative Peoples Budget7 which maintains vital services, invests in green energy, infrastructure and education, and taxes the rich. It is an practical and reasonable alternative. Not surprisingly, the mass media have almost completely refused to cover this proposal.

The just-enacted cuts will cost about 450,000 jobs this year alone. State and local governments, which have shed 400,000 jobs over the past 2 years, will likely double that number this year. Job loss from government cuts are almost entirely negating the modest gains in private-sector employment.

This goes beyond the loss of government jobs. And beyond the loss of jobs providing goods and services to the now-laid-off government workers. The effect of Republican policies is to convince private capital not to invest in productive or green industries. We have the example of Wisconsin, where a train-manufacturing facility will be shut down because of Gov. Walker's decision to kill high-speed rail in the state.8 With the tremendous investments needed, why would a company invest in rail, mass transit, advanced wind and solar power, or any of the other technologies and infrastructure we so urgently need, when funding or tax benefits can be withdrawn at a moment's notice.

The anti-stimulus fiscal policies being enacted at the national state and local levels, combined with the failure to take meaningful action on the home mortgage crisis, threaten to derail the fragile stability the capitalist economy has achieved.

There are some establishment individuals and institutions that recognize the danger. For example, a recent editorial, the New York Times summarized the economic impact of anti-stimulus budget cuts:

"On the federal level, the fixation on the deficit above all else is particularly dangerous. An economy with significant labor slack requires more — not less — government spending. Unfortunately, Republicans have successfully framed the debate so that spending cuts are inevitable, and the best one can hope for is that the White House and Congressional Democrats will hold down the size of the cuts.
"Clearly, it is not uncertainty about government that is impeding hiring; it is lack of work. And lack of work is due to the fallout from the financial crisis and recession. It stands to reason that government spending, job-creation programs and regulations to ensure that there isn’t another crash would help the economy and lead to more jobs. Reason, however, is in short supply.9 "

Destructive, anti-stimulus policies are not unique to the United States. In almost every European country, the powerful banks and financial institutions are insisting, successfully, that governments institute sharp austerity measures. These include, as in the the U.S., sharp attacks on public services and public sector workers, dismantling of many hard-fought pension, job security and other benefits, and soaring unemployment. The same destructive "medicine" that global capital, still dominated by U.S. financial interests, forced on developing countries and former socialist countries in the last two decades is now being applied to the developed capitalist countries. Resistance and solidarity are also growing on a world scale.

Class Interest

Reason, as the Times suggested, may be in short supply. But it is not because all the Tea Partiers and Republicans in Congress, the establishment think tank economists and media pundits, and the deficit hawks within the Obama administration are unreasonable, stupid, or can't count. It is not a question of reason. It is a question of class interest. As the early 20th century author and socialist Sinclair Lewis said, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"10

Profits are rising, wealth and power are even more concentrated in a few dozen corporate empires and a few thousand ultra-rich families. The ruling class is profiting financially in this broken economy. They also hope to profit politically. By blocking effective recovery, they hope the Obama administration will get the blame. Further, after forcing the administration to accept harmful cuts as the price of keeping the government running, they can blame Obama for the bad effects of those cuts.

The potential game-changer is the class struggle. Six months ago, who would have thought that hundreds of thousands of U.S. workers would be marching, rallying, occupying state capitols, sitting in, in explicit defense of working class rights against corporate greed; that not only the leadership, but rank and file workers would be talking about class struggle and class unity; that the emerging slogan would be "we are one" explicitly calling for unity of employed, unemployed and retirees, youth and seniors, private sector and public sector, unions and community.

The attacks, launched by a right wing emboldened by electoral victories last November, have made clear to millions of workers that the crises they face are political as well as economic. The deficit is used as an excuse to accomplish political goals of destroying any concept that government exists to promote the general welfare. Health, education, safety, environment are all on the chopping block. The deficit is also used as an excuse to attack any government function that gets in the way of the capitalist class. (One minor example is Republican attempts to defund IRS enforcement, giving a green light to tax evasion that will cost many times in lost revenue.)

Political struggles ahead

Political and economic struggles are now focused on budget battles in Washington and state capitols. The newly-energized working class and broad mass movements will at best be able to limit the damage done by the rightward political shift this year. Defeating the right in the 2012 elections will be an essential part of reversing the destructive, anti-working class policies.

As long as the "deficit reduction" is the context for policy discussion, the best that can be hoped for is to limit the damage (See The Deficit Trap, Peoples World, Nov. 16 2010).11 The economic and social security of our country, now and for future generations, cannot be met without focusing on real needs: useful and productive jobs providing health and education, safe and environmentally friendly infrastructure, renewable energy and clean, efficient transportation, with major research, development and production in the U.S. Such a program is achievable, along with a sustainable budget and rising living standards for the vast majority. It requires only that the unprecedented inequality in our nation's wealth be reversed, and that surplus wealth be applied to the public good instead of financial speculation and the export of jobs.

2Calculated Risk gives a good overview of economic indicators at http://cr4re.com/charts/charts.html
3Initial unemployment claims peaked in early '09 above 600,000/wk. They are now (3/10/11) just under 400,000. Historically, the number has to drop below 350,000 for significant job growth, and near or below 300,000 for robust recovery. http://cr4re.com/charts/charts.html?Employment#category=Employment&chart=WeeklyClaimsMar102011.jpg


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