The US has been in the most severe recession since the Great Depression from late 2007 till now. Ben Bernake and a host of other economists have declared that the economy has entered the process of recovery. This is a remarkable statement considering the actual conditions of working people in the U.S. Michigan has an unemployment rate above 15% and California, the eighth largest economy in the world is at around 12%. Meanwhile, the national average is at 9.8%, clearly on track to break the psychologically devastating double-digit marker. Radical economists argue national unemployment is closer to the 17-20% range and that in places like Detroit it is hovering somewhere in the 30% percent area.
I have thrown a lot of numbers at people in one paragraph and at times these numbers can hide the human dimensions of how devastating unemployment can be for a person and their family. This takes on psychological, emotional, racial, and gendered aspects which alter peoples lives. Marriages are broken; people lose faith in themselves and throw their life away to drugs and crime, neighborhoods are destroyed, and dreams are vanquished. This is made worse by the pronouncements of Bernake that a recovery is here. What does it mean for a person who cannot get a job during a recovery?
While the media has discussed extensively the toxic assets, sub-prime loans, collaterized debt obligations and other financial gimmicks which have given the capitalists nice profits for the past 4 to 6 years, there is also an immense shallowness underlying the narrow focus of this crisis as presented by them. This crisis is rooted in the continued falling rate of profit in the United States reflecting a deeper crisis in the success or viability of capitalism. To look at it another way, if capitalism was successful, why would capitalists need to embark on such risky financial speculation? Why not play it safe and make tons of money? The reality is that profit rates have a tendency to fall and the neo-liberal offensive has been the capitalist response to that.
Neo-liberalism has been the axe which with the American and world’s working class have been put under for over three decades. Since the start of the economic crisis, the capitalists have launched a spectacular offensive against working people in the United States. This graph puts it in perspective: productivity is another way of saying how much workers produce in a fixed amount of time and we can see that productivity has gone up drastically while wages have stagnated. This means people’s lives at work are under pressure from the bosses, every working moment they are expected to produce, which means less breaks, increased work speeds, and longer hours. People come home more tired, less able to engage with their kids, less able to engage in serious reading or conversations, etc.
This trend has continued in since the breakout of the crisis as seen in this WSWS article. Working people are literally saving the capitalist system from collapse by working harder while their wages are stuck and at the same time corporations are returning to profitability! This reality coupled with the giveaways to banks and to AIG; the attack on the workers at GM and Chrysler; and the collapse of state budgets fostering severe cuts at the local/ regional level begin to complete some of the most fundamental dimensions of the capitalist offensive. The attempt to re-haul healthcare can only be understood in such a light as well. Obama and sections of the capitalist class realize that the healthcare industry as it is will bankrupt the country. The fact that they have demonstrated a lack of political will shows how sectional and powerful interests of the healthcare industry have shaped the policy in the interests of giant insurance and pharmaceutical companies.
This has been not only a crisis in the financial sector of the economy, but States across the country are facing all sorts of problems. They are experiencing massive unemployment with Michigan, California, Nevada, and Rhode Island in horrible shape. Then you have state deficits which prompted massive cuts in lower and higher education, public programs for the elderly, healthcare, and in the state’s workforce. Here is a taste: tuition for all public universities in Florida are increasing by 15%; Rhode Island cut healthcare coverage for 1,000 low-income parents; and Massachusetts is slashing funding for early care programs. These programs might not have been cut if the Republicans had not opposed more state aid when the stimulus bill was written. These deficits are not going away in many states, which means more cuts are on the way.
Regardless of the problems of the stimulus, it was key in stopping the free falling economy at the beginning of the year. The major input of government dollars helped create a floor from which the economy would not go beneath—they were successful in doing that. However the question remains, what will happen once the stimulus money runs out and the safety net or floor is taken away? The private sector remains weak and its surge was based on the government stimulus. Also, a major question is what will keep the economy growing at a fast enough pace to keep up with the growing labor market?
Then we have the stock market. It is probably one of the most confusing aspects of capitalist economics. How the stock market could be going up when the rest of the economy and particularly working peole are feeling the pinch. Perhaps this excerpt from the Wall Street Journal gets at it, “”Investors have moved from a flight to safety to a flight to risk,” said Rick Lake, portfolio manager of the Aston/Lake Partners LASSO Alternatives Fund. “The investing crowd feels compelled to participate in up moves and buy anything with a higher yield than cash, setting up a climate where investors will react to any positive news and leave a prudent consideration of economic realities to another time.” Ignoring “prudent considerations of economic realities” is probably the most amazing statement one would expect to hear considering it was that same attitude which brought the world to such a crisis. Most importantly, it shows that to a large extent the stock market is going up based on expectations that a recovery is around the corner. This appears to be a case of delusional thinking and behavior. It is not that a recovery is not possible, but the rise of the stock market does not relate to the economic activity and recovery in the country.
There are a litany of problems which remain. It is not clear which one of them will cause the next panic, the next shockwave, or crisis. These are the growing small bank defaults, credit card defaults, commercial real estate defaults, defaults in mortgages of homeowners who have good credit, toxic assets which remain on the books, trade imbalances, consumer spending, credit markets, state deficits, the decline of the dollar to name some of the most critical.
Here are some more specific examples: unemployment is beginning to affect homeowners who had solid credit but since they do not have a job, they cannot make payments on their mortgates so the default rates of these are starting to rise. Unlike the subprime loans which were predatory loans, these defaults are form the “outstanding” good citizen/ consumer types.
Commercial real-estate is showing real signs of problems. Small business are having trouble paying their montly rent and loan payments. Apartments and office buildings are vacant which means owners have no source of income. This should not be a surprise as real-estate speculation has become a major feature of investment in the United States. It is not clear which banks hold large chunks of this type of loans and if they are concentrated the way sub-prime loans and securities related to them were.
The FDIC has had to bail out almost a hundred banks this year. While these banks hold a minuscule amount of assests compared to giants like Citi, JP Morgan, or Bank of America their failure will be the hallmark of continued mergers and consolidation of the banking industry.
Consumer spending is more than 2/3 of the US economy. The economy in the last decade was fueled by consumers who borrowed money even while their wages declined. How will the economy jump start if easy money is gone and wages are not rising? The capitalists are trapped. There are real signs that Americans are saving more which naturally puts a break on spending. If consumers have shut their wallets, then what will start the economy?
This recession alone has wiped out 2 million manufacturing jobs. Coinciding with this is the reality that the length of unemployment for many workers is breaking the 27 weeks which many economists take as an indicator that there are structural changes in the economy happening. This means that people will not be able to get the same job they had before, because it has disappeared or moved to another country. What Americans do for work is changing once again. The loss of so many manufacturing jobs should be shocking to Obama, but it does not appear that it has taken on a parituclar importance for the President. This is a deeper reflection of how the current configuration of U.S. rulers see where value and profit come from. They do not understand the importance of working-class jobs and the importance of producing goods for society. This is certainly one of the explanations for how the auto-workers got the iron fist from Obama while the financial sector get the padded gloves.
Probably the scariest part of the economic crisis is that the toxic assests are still held by the big banks. The government dumped hundreds of billions of dollars of cash into the banks and guaranteed the value of bank holdings, but this was a temporary feature. What is supposed to happen to these toxic assets? Furthermore, the basic mechanism which banks securitized loans and sold them to investors, therefore keeping loans off their books, which allowed them to make more loans is not functioning.
One of the big questions is what if this uptick in economic activity is real or are we facing another plunge into a deeper recession. It is hard to say what will happen in the upcoming months or years. We can only look at the current facts, study history, and make educated guesses, and most importantly take action in a time where people are beginning to fight the capitalist offensive.