What does the economic future hold? The commentators in business media are like fortune tellers, reading the future in a bunch of soggy tea leaves. Fewer jobs lost than expected in February? The economy must be on the mend. Rail traffic down 1.7% from a year ago? Trouble ahead.
Even the optimists see little recovery for workers. Federal Reserve Chair Ben Bernanke, after saying the recession was “very likely over,” admitted “it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was.”
That’s putting it mildly. By my calculations, if the economy started adding jobs at a rate of 3.2% per year (about 350,000 jobs per month), it would take 5 years to return to the not-so-great employment picture before the crisis broke out. The last time job gains were that strong was 45 years ago-from 1965 thru 1969.
The case for pessimism
Each week, economic reports provide new data to support almost any view of the economy. Looking beneath the flood of often-contradictory data, there are fundamental reasons to fear the economic crisis will erupt again, with major additional job losses, business failures, and financial crisis.
- Over 11 million homeowners are underwater-they owe more mortgage debt than their homes are worth. Many are faced with monthly payments that are sustainable only by working multiple jobs and cutting all other spending to the bone. One result is the prospect of millions of foreclosed homes coming onto the market for years to come. This means that new home construction, as well as building supply, furnishing and appliance industries, will stay at depressed levels.
- The commercial real estate market may be in even worse shape. Big office and retail projects begun in the boom years are reaching completion with no tenants to fill them. The result-big layoffs are continuing in commercial construction.
- State and local governments are up against a financial wall. They are planning massive cuts in spending and services in the next year. The result will be the probable loss of almost a million jobs, with a negative impact on local businesses that provide supplies and services.
- The stimulus bill (ARRA), passed in February 2009, is reaching its peak effectiveness. Between one and two million people have jobs today because of its provisions. But ARRA spending is probably at its peak. By summer or fall, ARRA jobs will start to decline.
- The U.S. financial system, temporarily stabilized in October 2008 with the massive TARP bailout program, is still based in large part on smoke and mirrors. European finances are undermined by crises in Greece, Portugal, Iceland, Ireland and Spain. Financial instability can spill over into the real economy, triggering a new downward spiral.
In short, a double-dip recession is a real danger. It would mean a renewed wave of layoffs, corporate bankruptcies, government budget gaps, and human misery. One such warning has come from Nouriel Roubini, the NYU professor who is often dismissed as “Doctor Doom,” but whose warnings of the dangers of the tech bubble in the 1990s and the housing bubble that triggered this recession showed much greater insight than his many detrractors. Roubini’s warning is echoed by Robert Reich, secretary of Labor in the first Clinton administration. Reich uses the example of Caterpillar, whose profits shot up in the third quarter of 2009. “How did Caterpillar do it? Not by selling more bulldozers. It did it by cutting over 37,000 jobs.” And in December, Nobel Prize winning economist Paul Krugman warned of the double-dip danger from the ramping-down of ARRA stimulus spending.
What to do?
It is almost impossible to predict the economic future. But one thing is certain-public policy plays an important role. Bills are currently in Congress to extend portions of the ARRA to the tune of about $125 billion, including extending unemployment compensation, COBRA, and some forms of aid to states. These are important, but they are totally inadequate. The AFL-CIO, along with many other national organizations, is proposing a 5-point program for jobs that will spend $400 billion, paid for by taxes on the financial industry. Even this is too modest. Spending a trillion dollars a year for several years would be the most effective response to overcoming the economic crisis, putting people to work at useful jobs, and meeting the county’s social, physical and environmental needs.
None of this will happen because of what economists say-whether they have Nobel prizes or work for unions or write for the People’s World. It will only happen in response to a much larger, more organized, more militant mass movement, demanding that the biggest crisis since the Great Depression be met with the biggest response since the New Deal.