In March, Federal Reserve Chair Ben Bernanke saw ‘green shoots’ in the economy. Since then, various economists and government officials have seen signs that the recession may be bottoming out, with hopes that economic growth may start later this year. And many journalists in the business media are joining in, acting like paid touts for the stockbrokers.
This chorus has been fueled by a series of reports. Some banks are showing profits again. The stock market is up. Job losses in May, while horrific by any previous standard, weren’t as bad as earlier this year. Housing starts in May were a little higher than in April.
There are more than a few skeptics. Much of the ‘good’ news is really ‘slightly less bad news’ or reflects temporary factors. And even in the most optimistic scenarios, unemployment will continue to rise well into next year.
I am more than skeptical. There are major economic obstacles to even a weak recovery. Without decisive government action, these will continue to depress the economy, pushing unemployment to a post-World-War-II record and devastating more families than 100 years’ worth of hurricanes. Four of the obstacles to recovery:
1) One-third of all home mortgages are under water — the homeowners owe more than the house is worth. We are in for another year of record foreclosures and many years of depressed purchasing power, as the banks try to squeeze every last penny out of working class homeowners. Federal and state initiatives are providing some relief, but the majority of homeowners who are in trouble are headed for eviction, and their communities are headed to further decline.
2) The collapse of the auto industry and its ripple effects are devastating the part of the economy — manufacturing — which actually produces things that people need. The layoffs, plant closings, and loss of tax revenue are just beginning. As suppliers and support services cut back, the effects will be felt far beyond the Midwest. Michigan’s unemployment rate of 12.9% (and rising) could be headed to your state, too.
3) State and local government fiscal crises are already causing layoffs and cutbacks, overwhelming the positive effects of February’s federal stimulus package. This will only worsen as local revenues continue to decline and governments run out of reserves and accounting tricks.
4) For nearly 30 years, there has been a growing gap between rising productivity and stagnant real wages. This has translated into extra corporate profits and extra income for the super-rich. Part of this wealth has been loaned back to the working class to finance homes, cars, education, medical care and daily expenses. Result: financial crisis for working families, instability for the financial system. Part of the wealth has been invested in the unproductive, speculative financial sector, or in real “development” projects (homes, shopping malls, resorts) that outstrip the demand from cash-strapped consumers. Result: more overcapacity, corporate bankruptcies, layoffs, and instability.
These problems — and others — could result in a new wave of financial and industrial crises, with the economy declining into a full-blown depression. It will require radical action to protect working families, and to reorient the economy, not only for growth, but for meeting the needs of people and the environment.
The stimulus package enacted by the Obama administration in February contains many positive features that are only beginning to kick in. But they are inadequate in the face of the developing global depression.
A people’s economic program would have two essential features. 1) Return to the working class a greater portion of the wealth it creates, wealth that now lines the pockets of the very rich. 2) Directly meet real needs of the nation and its working families, instead of relying exclusively on the magic of a broken corporate system.
This means higher taxes on the super-rich, on corporate profits and financial transactions, to ease the burden on the working class, especially at the state and local level. And it requires that government play an active role in developing energy, transportation, health, environment and infrastructure policies. It would take direct measures where necessary to put the millions of unemployed to work meeting these vital needs.
Winning even part of such a program requires challenging the entrenched corporate and financial interests that, until now, have been able to shape and plunder the U.S. and global economies as they will. This will not be an easy fight. The huge movements for a national single-payer health plan (or at least a strong public option) and the Employee Free Choice Act are only the start of what is needed to win the kind of change we really need.
econ4ppl @ cpusa.org