As this document was drafted in April of 2004, many of the specific
facts and figures have changed. However, the fundamental processes and trends remain
accurate to this day, and many of the predictions are already coming to pass. The economic
recovery has still not conclusively taken off or slipped back into recession, but the
factors that allowed some breathing room for the economy are rapidly disappearing. The
effects of Alan Greenspan’s recent interest rate rise - in an effort to counter
inflation - cannot yet be predicted. With energy prices cutting into consumer spending,
the industrial sector is once again shedding jobs, and the economy is producing less than
the bare 150,000 jobs required just to keep up with the growing workforce. The world is as
unstable as ever, with the farce of Iraq’s “freedom” a tragic joke on
millions of Iraqis and the over-stretched US troops sent there to die in the heat and
sand. The presidential election is polarizing America like never before, with Michael
Moore’s Fahrenheit 9/11 waking up millions to further political awareness.
Kerry’s choice of John Edwards as his running mate is a surprise to no one, and
millions of voters are once again faced with no real choice in the election.
This material is intended as a discussion document for those interested in working with and joining the Workers International League, the Marxist tendency in the United States, grouped around the ideas of the In Defence of Marxism website (www.marxist.com). It outlines our general perspectives for the US for the coming period, and is updated yearly. We invite our readers to read our previous discussion documents here. If you agree with the general outline of this document, and with our program, please contact us.
- April 2004 Introduction
- The US Economy - Introduction
- Jobless Recovery
- Productivity Boom
- Accelerated Polarization
- White Collar “Off-Shoring”
- Low-Wage Jobs
- Health Care Epidemic
- Tax Cuts for the Rich, Deficit Crisis for the Working Class
- Inflation, Deflation, Trade, and Credit
- Consumer Confidence, Spending, and the Housing Bubble
April 2004 Introduction
Three years ago we explained that the world had entered a period of wars, revolutions, and counter-revolutions. In the pre-September 11 world, this seemed to many people to be a more than slight exaggeration. However, events since that fateful day have overwhelmingly confirmed our analysis, and it is only the beginning. Most people do not learn about the class struggle from books, but from the bitter experience of life itself – the school of hard knocks. It is events, events, events that will shake the consciousness of the working class from top to bottom. Already, in the year since our last US Perspectives document was written, we have seen numerous open clashes between the nations and above all between the classes.
Since the collapse of the USSR and its Eastern satellites, US imperialism has marched around the world with impunity, imposing its conditions on the majority of humanity. This has resulted in seething resentment against imperialism across the globe, and has also led to the rapid growth of discontent here at home. The pre-emptive invasion of Iraq has destabilized the entire Middle East and indeed the world. The situation in Afghanistan is spiraling out of control, and it would appear that Pakistan will be a center for US military operations in the not-too-distant future. In Venezuela and Bolivia, the class struggle has reached a fever pitch, and the dramatic revolutionary process in those countries is far from over. Again and again, the masses have mobilized to defeat reaction and change their destines. In Haiti the absolute rottenness of the capitalist system led to yet another US imperialist occupation of a third world country in order to prevent a collapse into chaos. In Spain we saw the dramatic political earthquake that followed the terrorist attacks in Madrid. In France we witnessed a similar process, as the seemingly apathetic masses turned out in droves and threw the right wing out. In one country after another, events are transforming the consciousness of all classes in society. This process of polarization and radicalization will continue to intensify in the coming months and years.
Tremendous volatility is on the order of the day, with sharp, sudden changes in the situation emerging like a thunderbolt - or a Boeing 767 - from a clear blue sky. But it would be incorrect to say that these convulsions have truly emerged from nowhere. They are a reflection of the enormous contradictions that have built up in society over the last 20 or 30 years. The epoch of global capitalism brings with it global crisis and most importantly from our point of view, global revolution. The fundamental cause of this instability is the deep crisis of the capitalist economic system itself. Economically, politically, socially, and militarily, capitalism finds itself unable to re-establish any semblance of equilibrium. The capitalists are caught between a rock and a hard place. Anything they do to correct the situation will lead only to further volatility. In order to restore profitability they must attack the wages, conditions, and even dignity of the working class. These attacks have already begun, and will be stepped up in the future – the capitalists have no other choice. This is a finished recipe for explosions of the class struggle in every single country on earth including the United States.
2004 promises to be a highly politicized year, and the Marxists must make the most of the heightened awareness about politics, the state of the economy, and the international situation in order to spread our ideas and build our forces.
The root of the social, political, and military instability is the crisis of the global
capitalist economy. The global economic recovery is still far from consolidated, with some
countries still in deep crisis. And although there has been modest growth in some advanced
countries, and emerging markets reported a jump of more than 50 percent in net private
capital inflows in 2003 to a six-year high of 194 billion dollars, any shock could send
the whole system into a tailspin. The unprecedented economic collapse of Argentina is an
example of what can happen practically overnight in almost any country – even the US.
The US economy, the motor force for the world, has been struggling to fully emerge from recession for over two and a half years. The economy grew an impressive 8.2 percent in the third quarter of 2003, but it has slowed somewhat since then, and the overall recovery has been uneven. Leading indicators for the strength of the economy remain mixed. One week there is euphoria over the prospects for a robust recovery; the next week there is despair over an imminent slump. Although the stock market has somewhat recovered from its previous lows, the recovery is far from guaranteed in the long term. According to Charles Dallara of the Institute of International Finance, “Although the strong growth outlook for the United States is encouraging in the short term, its sustainability remains at risk."
In last years’ US Perspectives document we explained that a “double dip” – a rapid return to recession – was still a possibility. Technically speaking, this has not occurred. However after 2.5 years of the so-called recovery, the health of the economy remains spotty and lackluster. Most importantly from the perspective of the working class, it has benefited only the bosses. For millions of working people the “recovery” has been nothing of the sort; if the economy does formally slip back into a recession the effects will be even more devastating. It is certainly possible that the economy can continue to limp along in a “joyless” recovery for quite some time, but eventually it will have to either go up or down – the laws of boom and slump are still in effect. Making precise economic predictions is very difficult, since economic data is a reflection of the immediate past, not of the future. However, it is clear that even a full-fledged recovery would not be able to make up for the losses of the previous period. Boom or slump, capitalism remains a parasitic system that benefits a tiny minority at the expense of the vast majority.
Faced with a Great Depression-style collapse, the capitalists and their “laissez faire” government have made a colossal effort to revive the economy, with huge tax cuts, unprecedented deficit spending, a massive armaments program, and the defacto devaluation of the dollar. Based as it is on enormous government contracts, this massive intervention into markets has been termed “military Keynesianism” by some economists. As a result of this, the federal deficit is set to top an astonishing $520 billion this year. This is having an effect on the global economy. IMF chief economist Raghuram Rajan made the following comments during a recent conference call: “The rest of the world is affected seriously by the U.S. fiscal deficit. When the U.S. borrows money, it's going to withdraw from world savings, leaving less for the rest of the world. And to that extent, it's going to raise interest rates not just in the United States but in the rest of the world, and that's going to affect output throughout.”
Everything has its limits. Sooner or later, the debt must be paid back – with interest. This can only mean further attacks on already gutted social programs such as health care and education. Having played most of their cards in an effort to revitalize the economy, the capitalists will have very little room to maneuver in the event of another downturn. And in spite of this massive influx of cash into the economy, the government has still not been able to address the most fundamental issue facing American workers: job creation.
In his State of the Union Address, Bush unveiled his new tax cut with the following promise: “When America works, America prospers, so my economic security plan can be summed up in one word: ‘jobs’.” It’s clear that this pledge has not even remotely been met. The “jobless” recovery was transformed into the “job loss” recovery and back again. In fact, GW Bush will be the first president in 7 decades to preside over a net loss of jobs. Although GDP growth and productivity boomed after the brief recession, job creation not only didn’t keep pace, but hemorrhaged badly. Even with the robust payroll gain of 308,000 in March 2003, the economy has still lost a net 1.84 million jobs since Bush took office in January 2001. 3 million manufacturing jobs have been lost in that period. In order to make up these numbers, the US economy would have to add some 400,000 jobs each month until the end of 2004 (as a point of reference, even during the 1990s boom, such phenomenal job growth occurred in only eight of 102 months). The volatility of the system was graphically underlined when only a week after the 308,000 jobs were added in March, new jobless claims, expected to come in around 7,000, rocketed up 30,000 – the biggest jump in a year - to 360,000. For working people, there is no guarantee of stable employment so long as they are seen as mere factors of production, not human beings.
Just to keep pace with the growing labor force, the economy must come up with 150,000 jobs each month. Far from that, the “recovering” economy lost jobs or added just a few thousand each month until March. Even with this modest turn-around, the damage has been done. There has been no net increase in employment since the end of the recession in November 2001. There are fewer jobs for more workers than there were 2.5 years ago. The all-important manufacturing sector shed jobs for 44 months before stopping the layoffs in March – but they still aren’t hiring. Those jobs that are being created are low-paid with few benefits and no job security, while hundreds of thousands of the jobs that have been destroyed were more highly paid and unionized. One in six US manufacturing jobs was lost over the past four years, and the generally lower-paid and less secure services industry now accounts for roughly 80 percent of the U.S. economy.
A few months ago, the Bush administration stopped reporting the number of mass layoffs due to a “lack of funding”. But Congress recently restored that funding, and the resulting figures are astonishing. According to the Bureau of Labor Statistics, more than 2,400 employers reported laying off 50 or more workers in January 2004, the third-highest number of mass layoffs since the government began tracking them a decade ago. The news headlines are filled with reports of these large-scale layoffs, for example: “Sun Microsystems cuts 3,300”; “VW to Cut 5,000 Jobs”; “Bank of America Corp. to cut 12,500 jobs”; “Gateway to Cut Another 1,000 Jobs”; “Warner Music to Cut 1,000 Jobs”; “DuPont to Cut 3,500 Jobs”, etc. No wonder the number of workers saying jobs were hard to get rose in March to 30.0 percent from February's 28.9 percent.
Long-term joblessness is at a 20-year high. As a percentage of all the unemployed, the long-term jobless - those out of work for 27 weeks or more - made up 22.1 percent in 2003, the highest annual percentage since 23.9 percent in 1983. The average spell of joblessness was more than five months in February 2004, the highest in two decades. A report from the Labor Department showed that the average length of joblessness rose to 20.3 weeks, the longest since January 1984. The number of workers out of a job for more than 27 weeks stood at 1.871 million in February 2004. 1,121,900 unemployed workers have exhausted their unemployment benefits. But these numbers don’t fully explain just how volatile the job market is. It is estimated that 1,000,000 people leave their jobs every day. Most of them find employment elsewhere, but hundreds of thousands do not, and are eventually no longer counted among the unemployed since they are not actively seeking work. The official unemployment rate of 5.7 percent / 8.35 million does not take into account those millions of able workers who are no longer considered part of the working population.
“Employed” has a very different meaning in 2004 than it did in say, 1954. 50 years ago, one wage earner was able to provide for the needs of an entire family. Of course, America in the 1950s was no utopia – it was still exploitative capitalism - but on the basis of the post-war boom and the struggles of the working class in the 1930s and 40s, conditions were much better than they had been before the war. Today, things are worse. Wages and benefits are far lower in real terms, and the 4.7 million Americans who are forced to take on part-time work out of economic necessity are also counted as employed, although one part-time job is hardly enough to keep afloat. By keeping workers on as part-timers, employers are able to cut down on the costs of providing benefits and salaried wages.
According to Chip Hanlon, chief operating officer for Euro Pacific Capital, earnings are still dominated by cost-cutting measures: “I don't think we're experiencing a sustainable recovery.” So far profitability has been maintained by job cuts, the weak dollar, lower effective tax rates and reduced debt servicing costs. The weakened dollar means overseas sales are worth more when converted back into dollars. International Business Machines Corp. recently said that without the weak dollar, its first-quarter revenue would have risen only 3 percent. And Johnson Controls Inc., the No. 4 US auto parts maker, also said revenue was helped by the weak dollar. Job cuts increase profits by allowing companies to pay higher stock dividends to investors instead of wages and benefits to employees. Lower corporate taxes means more money for profits. Lower interest expenses helped Southwest Airlines Inc. reduce its interest bill by $7 million, or 27 percent, in the first quarter. But these factors will not last forever.
The key to as sustained recovery remains capital investment and the jobs this would presumably produce. Although businesses boosted spending on equipment and software at a 14.9 percent rate in the fourth quarter of 2003, businesses continued to cut spending on new plants and buildings in both the third and fourth quarters. After all, what’s the point of investing in industrial capacity when it is already running at just 76.5 percent of available capacity, leaving plenty of room for expansion? And no business wants to be the first to take on new workers - thus cutting into profit margins - when they can invest in ever-cheaper technology and squeeze more out of existing workers.
So how is it that the economy is growing, but the number of jobs is far lower than it was just 3 years ago? How is it that factory output continues to increase, while the number of factory workers shrinks? Simple: the capitalists have been able to recover a certain level of profitability only by squeezing more surplus labor from the working class through speed-ups and layoffs. Productivity gains through the use of computers and telecommunications allows one office employee in 2003 to do the work of three employees in the 1980s. Employee productivity rose 4.2 percent in 2003, a jump Federal Reserve Chairman Alan Greenspan characterized as "stunning." That was on top of a 4.9 percent gain in 2002. Together they marked the best back-to-back growth in worker output in five decades. In short, they are forcing fewer workers to do more work for less pay. This is great for corporate profits, but according to Bruce Nussbaum of Business Week, one percentage point of productivity growth can eliminate up to 1.3 million jobs a year.
The tremendous wealth created by increased productivity has primarily gone to increase corporate profits, which rose 10.3 percent in the second quarter of 2003 and 9.9 percent in the third. Since the recession officially ended in late 2001, the working class’ share of the national income is the lowest on record. New jobs being created are paying 13 percent less than those lost during the recession - $14.65 per hour versus $16.92 per hour. By contrast, new jobs created during the later years of the last expansion (1998 to 2000), paid 12 percent more. According to the Economic Policy Institute, previous recoveries provided an average of 61 percent of total income growth - and never less than 55 percent - to workers. In this recovery, however, only 29 percent of the total income growth has gone towards workers’ wages and benefits. Meanwhile, corporate profits have claimed an average share of 46 percent of total income growth in this recovery, compared to the historic average of 26 percent.
A separate study by the Center for Labor Market Studies at Northeastern University came to similar conclusions: “This is the first time we've ever had a case where two years into a recovery, corporate profits got a larger share of the growth of national income than labor did. Normally labor gets about 65 percent and corporate profits about 15 to 18 percent. This time profits got 41 percent and labor [meaning all forms of employee compensation, including wages, benefits, salaries and the percentage of payroll taxes paid by employers] got 38 percent … [The increased wealth was used to] boost profits, lower prices, or increase C.E.O. compensation … In no other recovery from a post-World War II recession did corporate profits ever account for as much as 20 percent of the growth in national income. And at no time did corporate profits ever increase by a greater amount than labor compensation.”
So despite impressive productivity gains, job creation has been poor, and wages have been frozen or have risen only slightly. Many workers are putting in long hours of overtime, often without overtime compensation. It’s becoming increasingly common to give rank-and-file workers fancy titles to lull them into thinking they are executives, and thus not entitled to overtime. In a lawsuit against “forced overtime” at one company, the following email memos from management to employees were submitted as evidence: “If you want to make it here ... put in lots of extra hours.” Another said: “Work your tails off. That means 10-hour-plus days.”
The effect this has on the nerves of the working class cannot be fully appreciated. More workdays are now lost to stress than to any other occupational health-related problem. It is estimated that work-related depression accounts for close to $12 billion in lost workdays each year. Another $11 billion in other costs accrue from decreased productivity due to symptoms that sap energy, affect work habits and cause problems with concentration, memory and decision-making. This is already having an effect on the working class’ outlook. As Trotsky explained, it is the accumulation of constant little attacks, pinpricks, insults and degradation that eventually leads to a revolutionary leap in class-consciousness.
Over the last few years the gap between rich and poor has widened considerably, and
there has been a phenomenal increase in impoverishment in the US. According to the US
Census Bureau, since 2000, the number of poor Americans has grown by 3 million.
Interestingly, this is the precise number of manufacturing jobs that have been lost. The
official poverty rate in 2002 (the most current year for which figures are available) was
12.1 percent, up from 11.7 percent in 2001. 34.6 million Americans were living below the
official poverty threshold, a figure 1.7 million higher than the 32.9 million in poverty
in 2001. The number of Americans living in severe poverty - with incomes below half of the
poverty line - increased by 600,000 in 2002, to 14.1 million.
Since 1999, the number of poor Americans suffering from “food insecurity” and hunger has increased by 3.9 million - 2.8 million adults and more than one million children. In 2002, 34.9 million people lived in households experiencing food insecurity - that is, not enough food for basic nourishment - compared to 33.6 million in 2001 and 31 million in 1999. The total number of children in poverty increased to 12.1 million in 2002, up from 11.7 million in 2001. In an incredible condemnation of the capitalist system, one out of every three Americans living in poverty held a job during 2002 - 37.9 percent or 9 million - yet, despite working, could not earn enough to afford the basic necessities such as food, housing and healthcare. Of all Americans living and working in poverty, 2.6 million, or 11.2 percent, held full-time jobs that did not pay enough to raise them above the official poverty threshold.
As reported by the Center on Budget and Policy Priorities, the working poor in America grew poorer during 2002, with incomes dipping farther below the poverty line than in any other year since 1979, the first year for which such data is available. The average amount by which people living in poverty fell below the federal threshold was $2,813 in 2002. While the Census figures reveal a significant number of Americans living in poverty, many experts (including those at the Economic Policy Institute) feel that the measures used by the federal government drastically underestimate the real scale of poverty in America - primarily because the official poverty thresholds are considered by many to be too low. Many experts believe a more realistic poverty threshold for a family of four would be in the area of $30,000 a year - and that a more accurate estimate of the poverty rate in America would be 30 percent of the total population.
By contrast, the CEO / worker pay gap was 281 to 1 in 2002, nearly seven times greater than the 1982 ratio of 42-to-1. The rebound in US corporate profits and the return of the stock market bull last year paved the way for a 16 percent raise in 2003 cash pay for America’s top executives, most of the gain coming from a 20 percent rise in CEO bonuses. Median cash pay for chief executives - base salary and bonus - grew to $2,029,500 from $1,750,000 in 2002, up 16 percent. Bonuses overall leaped 20.4 percent to $1,064,099 from $883,944, and six out of 10 CEOs enjoyed lump sums last year. The median base salary increased to $950,000, up 3.1 percent from 2002. These averages conceal the extraordinarily high salaries and compensation packages of the very top executives.
For those who argue that these captains of industry “earned” their wealth, we have to agree: they “earned” it the old-fashioned way – they stole it. While millions of workers (those who produce the wealth) were thrown out of work, the heads of those companies made a killing. At the 50 companies with the most announced layoffs, median CEO pay skyrocketed 44 percent from 2001 to 2002, while overall CEO pay rose only 6 percent. These layoff leaders had median compensation of $5.1 million in 2002, compared with $3.7 million at the 365 large corporations surveyed by Business Week. At the 30 companies with the greatest shortfall in their employees’ pension funds, CEOs made 59 percent more than the median CEO.
According to the Institute for Policy Studies and United for a Fair Economy, the top layoff leader in terms of layoff numbers is Carly S. Fiorina at Hewlett-Packard. She fired 25,700 workers in 2001, and saw her pay jump 231 percent, from $1.2 million in 2001 to $4.1 million in 2002. The top layoff leader by percentage pay increase is AOL Time Warner's Gerald M. Levin, who presided over 4,380 layoffs in 2001. Levin's pay increased a staggering 1,612 percent, from $1.2 million in 2001 to $21.2 million in 2002. The highest paid layoff leader was Tyco's Dennis Kozlowski, who took home over $71 million in 2002, a $34.7 million raise, even though he was forced out in disgrace mid-year. In 2001, Tyco laid off 11,300 workers. The top 50 layoff-leaders cut a total of 465,252 jobs in 2001.
Since then the polarization has most likely accelerated even further. This is the state of things in the world’s richest country - the “land of milk and honey”. The true face of Bush’s economic “recovery” is clear for all to see: the rich get richer and the poor get poorer in both relative and absolute terms.
And it’s not just blue-collar jobs that are under the axe. Increasingly, formerly secure white-collar jobs are being “out-sourced” to other countries where wages are much lower. Beginning in the 1980s US corporations began the process of closing manufacturing and other industrial facilities, and then reopening them in countries in the ex-colonial world in search of cheaper wages and looser labor and environmental regulations. The containerization of ocean-going freight in the 1970s paved the way for these factory relocations, allowing vast quantities of goods to be moved quickly and cheaply across the globe. Throughout this process it was almost entirely the industrial workers who were left holding the bag, or rather an unemployment check and a bleak future. The capitalist elite and the banks, on the other hand, enjoyed unheard of profits. But in the first decade of the 21st century, due to the possibilities opened up by the Internet and communications technology, it is now possible for these same corporations to relocate work that was once considered immune from being sent overseas: professional and technical work.
For example, because of the availability and dropping prices for high-speed internet access, if one were to have a CT scan performed at a local hospital, there is as good a chance that the scan will be analyzed in Bangalore, India as in the same hospital or across town. The hospital simply emails the CT scan to Bangalore, where it is quickly analyzed according to order of urgency, and the results are then returned to your local hospital. Although this example is an interesting example of the tremendous possibilities of modern technology, that is hardly the reason why many US health care corporations have opened up CT labs in places like Bangalore. The reason for these relocations is the same as in the case of factory relocations – the search for cheaper labor costs and higher profits. A radiologist working in the United States earns on average over $300,000 a year, while his or her Asian equivalent is paid less than half that sum.
As could be expected in a profit-driven system, the comparative salaries and the possible profits are the motivating factor; an American accountant earns between $40,000 and $50,000 a year, while his or her Indian counterpart is paid less than half of that. For every American call-center employee whose job is shipped to India, a company can save as much as $35,000. According to Fortune Magazine, “Plunging bandwidth prices make talking and sharing data over the internet easier and cheaper for companies. At first the work was mostly limited to call centers – phone American Express with a query about a corporate card bill, and there’s a good chance you’ll be talking to Delhi. But in the past two or three years companies have turned to India and the Philippines for much more sophisticated tasks: financial analysis, software design, tax preparation, even PowerPoint presentations.”
Microsoft, IBM, and AT&T Wireless are aiming for their programmers, software engineers, and applications designers, and other professional workers to be low-paid Asian workers. In fact, analysts predict that as many as two million of these types of jobs will be shifted to these low-cost centers by 2014. According to I.B.M. executive Harry Newman: “I think probably the biggest impact to employee relations and to the Human Resources field is this concept of globalization. It is rapidly accelerating, and it means shifting a lot of jobs, opening a lot of locations in places we had never dreamt of before, going where there’s low-cost labor, low-cost competition, shifting jobs offshore.” An executive at Microsoft told his department heads last year to “Think India - pick something to move off-shore today.”
In addition to the “off-shoring” of professional and technical jobs, new advances in office productivity have provided the financial and service conglomerates with an opportunity to trim their operations - once again at the expense of the workers. Companies have slashed positions and simply fired employees they deem superfluous (and of course there are many more ‘superfluous’ workers during a downturn!) The effects of corporate ‘restructuring’ are already making themselves felt everywhere from the unemployment centers to the universities. With an overall unemployment rate of 5.7 percent, the rate for workers categorized as white collar stands at just around 3 percent. This may not seem like much, but when it is taken into account that in 2000 the unemployment rate for white-collar workers was only 1.5 percent, it can be seen that in the space of three years the number of professionals and technical workers out of work has doubled.
An analysis of Labor Department data by the Economic Policy Institute (EPI) found that of those classified as long-term unemployed (more than six months), over 18 percent came from white-collar jobs. In the recession of the early 1980s the percentage of joblessness for white-collar workers compared to that of the total work force was only 8 percent. In 1990 and 1991, the percentage was 10 percent of the overall number. But in 2003 the portion of unemployed white-collars to the total jobless rate is nearly double what it was in previous recessions. This is a much higher ratio of joblessness than their actual composition of the total work force.
Not only this, many US workers are asked by their companies to train in the very workers who will be taking their jobs. According to a new survey by the Washington Alliance of Technology Workers, almost one in five information technology workers has lost a job or knows someone who lost a job after training a foreign worker. In some cases, US workers getting pink slips are told they can get another paycheck or beefed-up severance if they're willing to teach workers from India, China and other countries how to do their jobs. The foreign workers typically arrive for a few weeks or months of training. When they leave, they take U.S. jobs with them. The U.S. employees who trained them are then laid off.
Of course it is not the fault of the other workers – many people in the US are quick to blame “foreigners” for taking “our” jobs. The fact of the matter is it’s the bosses who are at fault. The world capitalist class as a whole exploits the world working class as a whole. In the pursuit of profits, national boundaries, race, religion, gender, ethnicity, etc. mean nothing to them. They will send their investment capital anywhere they can get a good return on it. So who is really to blame? The “patriotic” billionaire capitalists who uproot entire towns by shutting down factories, or those making a few bucks a day just trying to crawl out of grinding poverty half way around the world? Marx’s famous aphorisms, “the workers have no country” and “workers of the world unite” gives us the answer.
The growing practice of moving office and professional functions to countries where workers are paid drastically less does not help new university graduates in their job search. Forrester Research, a financial consulting firm, predicts that within the next 15 years 3.3 million service jobs will be moved to places like Russia, China, India and the Philippines, mostly IT as well as financial services jobs. Another financial consulting firm, A.T. Kearney, has stated that it and other firms can transfer over 500,000 financial service jobs overseas by 2008, which is around 8 percent of the US work force in that sector.
In comparing the rates of unemployment today to those of past recessions it can be seen that corporate “restructuring” is making the situation for office and professional workers much harder than in the past. The situation for recent college graduates is not much better. At the Graduate School of Business of the University of Chicago in the year 2000, 96 percent of students had immediate job offers after receiving their diplomas. In 2002 only 72 percent had companies knocking at their door. At the Harvard School of Business 13 percent of students did not get offers of employment in 2002, after nearly all of them receiving offers in 2000. At lower level colleges and universities as many as half of graduating students don’t get job offers.
Every year universities around the world turn out millions of young people who have prepared themselves to go out into the world and apply all that they have learned – be it medicine, engineering, science or any other profession. These are people who have dedicated the best years of their lives to the study of some of the most necessary arts upon which the modern world depends. But, instead of finding jobs where they can apply their training and education, they instead find unemployment and low-wage jobs. As anyone can attest to, it is not unheard of to find that the person taking your order at McDonald’s has a Bachelors degree, or for an art student to be selling coffee or gas instead of developing their creativity.
The idea that low wage work is just a temporary stage towards an ever-brighter and more prosperous future has become deeply ingrained in the American psyche. The ruling class uses various success stories to justify the fact that millions of working people live under the poverty line. We are told that if we work hard and “play by the rules”, we will be able to earn a decent living - if you fail to move up, you must be lazy or incompetent. 30 million Americans – more than a quarter of the working class - earn $8.70 an hour or less, a rate that works out to $18,100 a year, which is the current official poverty level in the United States for a family of four. For most young workers, the situation is even worse. These are often the most repetitious, dangerous, grueling, humiliating, and monotonous jobs – yet many of these workers feel “lucky” to have a job at all. Many Americans take these jobs in hope that something better will open up in the future. All too often, they find themselves doing the same type of work many years or even decades later.
The situation is far worse in the US than in other advanced industrialized countries that provide social safety nets for the working class, including universal health care (although the ruling classes there are in the process of dismantling these programs in the face of stiff resistance from the working class). According to a 1997 study by Timothy Smeeding of Syracuse University, Americans in the lowest income brackets have living standards that are 13 percent below those of low-income Germans and 24 percent below the bottom 20 percent of Swedes. The slashing of social programs over the past decade has left the millions of un- and under-employed Americans in a desperate situation.
Still, we are told that if we are “re-trained” and learn new job skills, things will get better – it is our own fault that we lack the necessary skills for finding a better job. But the truth is that the number of low-wage jobs is increasing, not shrinking, despite “re-training”. Between 1979 and 1999, 3 million manufacturing jobs vanished as global trade brought in textiles, shoes, cars and steel produced by cheaper overseas labor. Since 2001, 3 million more have disappeared. In June 2003 alone, 56,000 manufacturing jobs were lost. The two lowest-paid work categories, retail and service, increased their share of the job market from 30 percent to 48 percent between 1965 and 1998. By the end of the decade, the lowest end of the job market will account for more than 30 percent of the American work force. According to the U.S. Bureau of Labor Statistics, half of all new jobs by 2010 will require relatively brief on-the-job training. Only three of every 10 positions currently require more than a high school diploma. As explained above, these jobs are not only among the worst paid, they are also among the most tedious and difficult. To say these workers need “retraining” to earn more lets the bosses off the hook for failing to compensate them adequately for their existing skills and duties.
The fact is, low-wage job mobility is almost non-existent. A recent study by the University of Michigan found that about half of those whose earnings ranked in the bottom 20 percent in 1968 were still in the same group in 1991. Of those who had moved up, nearly two-thirds remained below the median income. At the same time, the purchasing power of the federal minimum wage fell 30 percent during the 1980s. According to the Economic Policy Institute, despite minimal increases in the 1990s, the real value of the current minimum wage of $5.15 per hour is still 21 percent less than it was in 1979.
Health Care Epidemic
One issue that hits working Americans harder every year is the cost of health care. There are an astonishing 44 million Americans without health care. Those who do have health care have to pay outlandish amounts of money for it, and even then, they have to worry about co-payments, deductibles, etc. A recent Census Bureau report states: “the ranks of those without health insurance grew from 41.2 million in 2001 to 43.6 million in 2002. The percentage who lack insurance rose from 14.6 percent in 2001 to 15.2 percent in 2002. The percentage of non-elderly adults (those aged 18 to 64) with private health insurance slipped from 70.9 percent in 2001 to 69.6 percent in 2001. There is no reason to believe this trend has improved over the last year.
And yet, according to a study by researchers at the Johns Hopkins Bloomberg School of Public Health, Americans spend considerably more money on health care services than any other industrialized nation - but the increased expenditure does not buy more care. According to the study, U.S. per capita health spending rose to $4,631 in 2000, which was an increase of 6.3 percent over the previous year. The U.S. level was 83 percent higher than Canada and 134 percent higher than the median of $1,983 in the other OECD member nations. The study found that in 2000, the United States spent 44 percent more on health care than Switzerland, the nation with the next highest per capita health care costs.
The study also found that the United States spent 13 percent of its gross national product on health care in 2000, which was considerably higher than other nations. In contrast, Switzerland spent 10.7 percent of its GNP on health care, while Canada spent 9.1 percent. The median spending level for the OECD nations was 8 percent. American private spending per capita on health care was $2,580, which was more than five times the OECD median of $451. In addition, the United States financed 56 percent of its health care from private sources, which was the greatest amount of the OECD countries.
According to the study, public financing of health care from sources like Medicare and Medicaid accounted for 5.8 percent of U.S. GDP in 2000, which is similar to the OECD median of 5.9 percent. However, the United States spent $2,051 of public funds per person, which was much more than the OECD median of $1,502. In most of the other OECD countries the public health care expenditures cover everyone, unlike the United States. At the same time, Americans had fewer physician visits, and hospital stays were shorter compared with most other industrialized nations. The study suggests that the difference in spending is caused mostly by higher prices for health care goods and services in the United States. The results are published in the May / June 2003 edition of Health Affairs.
According to the New England Journal of Medicine, in 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada (which does have a form of socialized medicine, albeit imperfect). After exclusions, administration accounted for 31 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada.
So where does all the extra money spent on health care go? Why isn’t it being put to use to provide universal coverage for all Americans? The US Chamber of Commerce explains: “despite the recession, the HMO industry posted $503 million in profits during the first half of 2001, a 16 percent increase over its profits for the first six months of 2000.” In other words, much of that money disappears in the form of profits and does nothing to improve our physical health, with 44 million not covered at all. These super-profits are gained at the expense of the health of all working class Americans. In a rational society, one that values the health and well being of its citizens, that money could be put to use improving everyone’s quality of life. Americans spend more on health care than any other country in the world, and yet we do not have coverage for all. In the wealthiest nation on earth, this is simply absurd. In its epoch of decline, the capitalist system is not able to provide even the most basic social services to the millions of working people it leeches its profits off of.
As always, it all comes down to profitability. But as socialists, we think that all health is important – not just avoiding the flu. The media and most politicians say that universal health care is simply not possible. But they’re wrong – the above figures show that the money is there, and that Americans already pay more than enough to cover it. It is a matter of how the money is being spent – billions of those dollars go to line the pockets of the rich, not to mention the countless millions spent on marketing, advertising, etc., which do nothing to improve our health. Universal health care is impossible only under capitalism. The benefits of universal health care to the whole of society would be tremendous. Preventative health care alone including regular checkups would improve the overall health of millions and rapidly reduce the need for more expensive procedures. But this is not going to happen under the capitalist system. Certain politicians may make this a part of their platform, and we would support the implementation of a universal health care system, but the fact is that this is pure demagogy and will not come about so long as the billionaire corporations run the show. The fight for universal health care involves a lot more than just more frequent doctor’s visits and cheaper prescription drugs. When we get right down to it, the fight for universal health care is a fundamental part of the fight for an end to the diseased capitalist system.
Bush’s much-touted tax cuts are really just a return to the discredited “trickle down” theory. The idea is that by freeing up more money for investment, the big corporations would invest in more capacity, and hence lead to increased job creation. As explained above, the result has been the complete opposite. Instead of that money being available to create jobs and improve the lives of millions of people, it is going into the offshore bank accounts of the ultra-wealthy. Add the billions spent on the Iraq and Afghan wars and occupations, and the amount of social wealth flushed down the toilet is mind-boggling. The US ruling class is the most shortsighted, greedy, and obtuse group of exploiters in history. They have deliberately bankrupted the national treasury as an excuse to viciously attack the working class. Although tax refunds for families does give a short-term boost to consumer spending, what happens once these are exhausted? For most working class Americans, it’s back to the daily grind of living from paycheck to paycheck, trying to dig out from under a mountain of debt. Once again, the rich get richer and the poor get the shaft.
Fully 60 percent of large corporations did not pay a penny in taxes in 2002. Between 1997 and 2002, 350 leading firms received an estimated $3.6 billion in tax deductions based on their CEOs filling their pockets with $9 billion in option gains. This lost federal revenue is about the same amount as the combined 2003 budget deficits of seven of the top ten largest states (Florida, Illinois, Pennsylvania, Ohio, Michigan, New Jersey, and Georgia). It also approximates the amount by which spending on Medicaid in all 50 states exceeded budgeted amounts in 2003. Corporate taxes’ share of federal taxes dropped from 12 percent in 1996 to 8.7 percent in 2001. At the 24 Fortune 500 companies with the most subsidiaries in offshore tax havens, median CEO pay over the 2000 to 2002 period was $26.5 million - 87 percent more than the $14.2 million median three-year pay at other Fortune 500 firms surveyed by Business Week.
This means that the working class has been forced to shoulder even more of the tax burden than in the past. Chuck Collins, co-founder of United for a Fair Economy outlined the situation in a recent interview: “Unless you are super-rich, it’s a tax shift, not a cut. Non-wealthy taxpayers will pay for these tax cuts with increased state and local taxes or cuts in public services.” Between 2002 and 2004, the Bush tax cuts to the top 1 percent of US income earners redirected billions of dollars in revenue that could have eliminated virtually all of the budget shortfalls in the states. Chris Hartman of United for a Fair Economy explains: “Congress had the option to send aid to the states to prevent $200 billion worth of service cuts and regressive tax increases. Instead, they gave tax breaks totaling roughly the same amount to multi-millionaires and the rest of the top 1 percent.”
A recent UFE report found the following: Between 2000 and 2003, there was a 15 percent shift in tax burden from the federal to the state governments; since 1980, there was a tax cut on unearned income - such as inheritance or investment - of between 31 percent and 79 percent, but a tax hike on work income of 25 percent; since 1962 at the federal level, a 17 percent decline in the share of revenue from progressive taxes and a 135 percent increase in the share of revenue from regressive taxes; a 67 percent drop in the share of federal Most corporations pay nowhere near the standard federal tax rate of 35 percent. This has led to such a blatant bias towards big business that even mega billionaire Warren Buffet exhorted Bush to raise his taxes, and added, “If class warfare is being waged in America, my class is clearly winning.”
Here is how one parent interpreted the shifted tax burden: “I got a rebate check
last summer for $400,” said Collins. “Then my eight-year-old’s public
school asked me to contribute money to replace worn-out chairs for the students. At the
same time, I found out they laid off the librarian because of budget cuts. What good is a
$400 tax cut when parents have to cough up additional money for chairs and books or else
see their children go without?”
Another result of these tax cuts has been an unprecedented budget crisis in states and cities across the country. The Federal government and almost all 50 states face their worst budget deficits in decades, with several large states near bankruptcy. Last year, California alone, with a population of 34 million, had a deficit covering more than 32 percent of its total budget! Texas and New York were not very far behind. The Federal government, which only three years ago was actually turning a profit, is once again running at a massive deficit.
Every state of the union except New Mexico and Wyoming faced a fiscal crisis last year.
Democratic and Republican governors and legislatures alike have slated welfare and
educational programs for elimination. Many states have warned of layoffs, while others are
either already laying workers off or forcing furloughs on others. Public transportation,
education, local government and state employees’ pensions are being forced to absorb
the largest reductions. In addition to cuts, the state governments are shifting a large
part of the debt onto local governments. Despite the fact that tens of thousands of
working poor were already eliminated from the welfare rolls under the Clinton
Administration, the budget crisis will mean even wider cuts for the millions who depend on
public assistance to survive.
This is the real fruit of Bush’s tax cuts for the wealthy and corporations and can only have dire consequences for the millions of the poor and elderly who depend upon welfare and Medicare / Medicaid. Already, Alan Greenspan has declared that Social Security and Medicaid benefits are potential targets in order to make up the deficit. Tuition at state colleges is rising quickly, and several states have already warned that entire education programs and grants will be eliminated. Federal and state workers will once again face layoffs, destabilizing one of the few stable sectors of the economy.
The effects on education have also been devastating. For over eight years school districts and some state colleges in every region of the country have continually suffered budget shortfalls with the resulting elimination of classes and lower salaries for teachers. This has been especially acute in urban areas, where the combination of a declining local tax base and a lack of adequate funding from the states and the federal government has led to a bleak situation. The recent state fiscal crisis and the Bush administration’s war budget have compounded the problem. Many school superintendents, teachers and students are being driven to near desperation. The superintendent of schools for Buffalo, NY, was quoted in the New York Times saying, “It’s the worst thing I’ve ever seen, and I’ve been in the district 35 years. I mean we’re looking at crazy things, like a four-day week, no kindergarten, no pre-kindergarten, no sports. I’ve done everything I could think of, I’ve closed schools. I’ve suspended service at schools. It’s been horrible.”
One of the worst parts of the educational budget crisis has been the suspension and cutbacks in programs teaching non-English speaking immigrant children the English language, in practice the only official language in the United States. This means that a large number of the children of immigrants go to school not to learn, but simply to be stored away for eight hours. This also means that many non-English speaking students will have to wait more than the standard four years to graduate high school due to the fact that they will be unable to pass the English Regents test. This also means extra time before these students can go on to a university or get a job.
Karen Kraut, United for a Fair Economy’s State Tax Partnership director sums it up: “The Bush administration has followed a strategy of starving public services by pulling tax money away from education and housing and giving it away to multi-millionaires. States are suffering as a result, and people are going without essential services in order to fund the lifestyles of the rich.”
The state and federal budget crisis is not purely the result of which capitalist political party sits in office. Nor is the fact that the US spends more than half of its massive budget on arms the result of a Republican administration and Congress. This practice has continued for the last fifty years through Democratic administrations as well, even under the ‘pacifist’ Carter. The reason that the educational system in this country is in crisis is due to the fact that the politicians of both parties, and their corporate sponsors, have chosen to pursue a policy of “guns before butter”. In defending its interests around the world, the American capitalists are more than ready to put tanks, warships and bombers before the education of a whole generation of future workers.
Although interest rates are their lowest levels since 1958, the economic recovery remains unbalanced. In last year’s US Perspectives document we explained that there was a danger of deflation – a downward spiral of falling prices – a nightmare scenario for the capitalists and Federal Reserve Chairman Alan Greenspan. Since then, it would appear they have dodged the deflation bullet, with higher energy prices in particular exerting inflationary pressure on the economy. Greenspan recently concluded: "It's fairly apparent that pricing power is gradually being restored … threats of deflation, which were a significant concern last year, by all indications, are no longer an issue for us." Recent data indicates inflation may well be the real threat in the immediate future. The Consumer Price Index rose 0.5 percent in March after a 0.3 percent rise in February. The core CPI, which strips out often-volatile food and energy costs, surged 0.4 percent, the biggest increase in nearly 2.5 years. Over the past 12 months, core prices have risen 1.6 percent, the biggest 12-month gain since the period ending last May and a sharp pick-up from the tame 1.2 percent increase posted through February. According to John Lonski, chief economist at Moody’s Investors Service, “It looks as though core inflation is back. We have the core CPI now growing at an average monthly rate of roughly 0.3 percent thus far in 2004. That adds up to a rate hike happening sooner rather than later.”
Low interests rates cannot be taken for granted. If inflation starts to get out of hand, or if the economy grows “too fast”, the Federal Reserve will be forced to raise rates, which will come as a shock to those who have become accustomed to the near-zero rates of the past two years. The stock market generally reacts badly to interest rate increases. Although the market is not a direct reflection of the real health of the economy, many companies measure their worth by the value of their stocks. A rise in rates could send the market downward, even further discouraging companies from hiring new workers. But Greenspan and co. may have no choice if they are to reign in inflation.
If inflation starts to take off, the effects on working people who are just squeezing by as it is could be overwhelming. Real wages are not keeping up with rising prices, which means that working people cannot afford to buy as many good as they could previously with the same amount of money. For example, a loaf of bread that cost $1 yesterday may cost $2 next week in a situation of out of control inflation. If wages do not also double, then that $2 loaf of bread is eating up a much larger proportion of the worker’s wages than before. The Labor Department said real average weekly earnings fell 0.7 percent in March and were essentially unchanged over the past 12 months. The CPI report cited above showed that energy prices rose 1.9 percent last month. Record-high gasoline prices take an ever-larger bite out of workers’ paychecks.
One factor that contributes to inflation is the massive trade deficit, which hit an all-time high of $489.4 billion last year, including a gap of $124 billion with China and $94.3 billion with the European Union - up 17 percent from 2002. US imports increased 8.3 percent to a record $1.51 trillion in 2003, aided by a record volume and value of crude oil imports and the highest average oil prices since 1984. Even with the dollar at historic lows, which should help moderate the discrepancy, exports inched lower and imports were sucked into the country at a record pace in 2003 – much of it bought on credit. In the first quarter of 2004, both imports and exports have risen astronomically. The weaker dollar has finally had a positive effect on increasing exports, but the trade gap in February still stood at a hefty $42.1 billion. In the long-term, this is an untenable situation for the world’s only superpower. Those who imagine that an Argentina-style meltdown is impossible here in the US shouldn’t cross their fingers.
Contributing to the unbalanced situation are the bloated levels of consumer credit, which grew at a $2.2 trillion annual rate in the first quarter of 2003, and then rocketed at a $3.3 trillion rate in the second quarter. By the end of 2003 debt reached $33 trillion, with annual interest of nearly $2 trillion, a colossal amount even at today's historically low rates. More and more, workers are charging things such as groceries that they could formerly afford. Debt is now growing seven times as fast as the economy itself. This trend has continued in the first months of 2004. Outstanding consumer debt rose $15.8 billion in January, and a further $4.1 billion in February to a seasonally adjusted $2.019 trillion. So while it is still increasing, there is a marked slowdown as Americans’ confidence in the health of the economy is constantly shaken – not to mention the creeping realization that all of that must be paid back with interest.
Not only consumer debt, but also national debt has skyrocketed to astronomical heights. The national debt of the United States swelled to an all-time high of more than $4 trillion at the end of 2003, with the projected 2004 budget deficit of $520 billion to be added to that by the end of the year. This represents an incredible 40 percent of GDP, with a projected growth to 52 percent over the next decade. This would mean, in effect, that the country would have to gather revenue for more than half of the year just to meet its debt obligations. Any other country with this level of debt would have had a formal intervention by the IMF and World Bank, and would have been downgraded by ratings agencies. But the US is no ordinary country. However, being the biggest and the baddest cannot last forever.
And just who will pay this debt incurred by millionaire politicians to the billionaire bankers? The US working class, through further cuts in services, a shifted tax burden, and lower wages. To illustrate just how out of balance the situation is, the National Bureau of Economic Research asked this question: If the United States collected all of the future revenue it anticipates receiving and matched that to its future obligations, in an extended time period Social Security actuaries refer to as "the infinite horizon," would it be able to meet them? The answer was no — to the tune of $45 trillion. These projections are based on today’s historically low interest rates. The effect of higher interest rates in the future on the government’s debt service burden can only be imagined.
Bush’s handouts to the rich – the tax cuts and his prescription drug benefit
package - alone will add trillions to the national debt over the next decade. With some 77
million Americans eligible to retire over the next 20 years, the pressure on the already
shaky Social Security and Medicaid system will be intolerable. The situation is so bad,
Moody's Investors Service recently raised the possibility they would be forced to
downgrade their rating on the sovereign debt of the US government. This is yet another
graphic illustration of the complete inefficiency and irrationality of the capitalist
The trade and current account deficit have put downward pressure on the already weakened dollar, which could lead to inflation as the price of imported goods, in particular oil, continues to rise. The US dollar, which has lost some 20 percent of its value against other major currencies over the past two years, has recently stabilized against the Yen and Euro, due largely to weakness in Japan and Germany. However, according to Gary Thayer, chief economist at AG Edwards & Sons in St. Louis, the data suggests “the decline we've seen in the dollar over the last couple of years is not having an impact. It suggests the dollar may still need to fall to help narrow the trade deficit. But there's a risk to higher inflation if it does.”
Lack of confidence in the US economy over the past year has resulted in the stunning
collapse in foreign-capital flows over the past year. From a peak of $110.4 billion in May
of 2003, net foreign flows fell to $90.6 billion in June, to $73.4 billion in July, to
$49.9 billion in August, and to $4.2 billion in September. September's net inflow was only
10 percent of the monthly minimum required to fund the $542 billion current account gap.
Private interests overseas have forsaken the dollar in favor of other assets.
International central banks hold nearly one-third of the outstanding debt in the form of
US Treasury bills and regularly lend the United States the difference between what it
brings in and what it spends. So far, only the buying of dollars or US dollar assets, such
as Treasury bonds by foreign banks - thus lending money to the Bush administration - has
kept the dollar from destruction. In September, for example, while the rest of the world
was dumping dollar assets, the Bank of Japan spent $40 billion to support the dollar,
fearful of the consequences if the US economy were to melt down.
Having abandoned its “strong dollar” policy, the Bush administration hoped a weaker currency would help make up the trade deficit and increase exports. But this has not happened to any significant degree, and a weak dollar puts a greater burden on the economies of the rest of the advanced industrialized countries. As Alan Greenspan recently stated, "The dollar's depreciation over the past two years is now adding to the challenges Japan and Europe are facing." In an effort to avoid the inevitable backlash at home, the capitalists of each country are working desperately to export the crisis of unemployment to one other. But the global nature of the economy means that weakness in any one country can spread to the world economy as a whole. In the pre-atomic age, these rivalries would likely have led to open war a long time ago, but this is no longer possible. Instead, there is an intense economic war going on behind the scenes.
Despite all the talk of free trade and open markets, the specter of protectionism looms ever larger, threatening to undermine the entire network of global trade so painfully built up in the post-war period. On the basis of the recovering US economy and increased imports, world trade has begun to recover since 2001 when it declined by 1 percent, with growth of 2.5 percent in 2002, and 4.5 percent in 2003. But this is still far from the average growth of 6.7 percent each year during the boom of the 1990s. Continued jitters about the international situation, and the life or death scramble over even the tiniest market could again throw this process into reverse. The conflicts of interest between the main imperialist powers that blew into the open before the invasion of Iraq were a direct reflection of this.
Consumer Confidence, Spending, and the Housing Bubble
At the heart of the health of the economy is consumer spending, which accounts for two-thirds of economic activity in the US. Consumer spending rose at a 3.2 percent pace in the fourth quarter of 2003, following a 6.9 percent growth rate in the third quarter. Retail sales, which account for 36 percent of overall consumer spending rose an unexpectedly sharp 1.8 percent in March to a seasonally adjusted $333.01 billion, the biggest gain since March 2003. This is great news for retailers, but as explained above, may force the Federal Reserve to raise interest rates. But there is no guarantee this pace will continue. Since the outbreak of the Shiia uprising in Iraq, consumer confidence has been dampened, and other factors that have encouraged increased spending may have exhausted themselves. High oil prices affect every sector of the economy, from transportation to food, and hit the working poor the hardest. But according to Lynn Reaser, chief economist at Bank of America Capital Management, “The situation in Iraq is probably the biggest threat to consumer confidence.”
A survey of consumers’ feelings about current economic conditions dropped to 94.3 in early April, down from March’s reading of 96.8. The “jobs” sub-index of the gauge dropped to 100.3 in early April, compared to 109.3 in March. The sub-index measuring consumers’ feelings about economic expectations, including conditions in the local areas where they live or work, over the next six months, fell to 90.5 in early April, from a reading of 95.2 in March.
Despite this, most analysts expect consumer spending to continue healthily for the first half of the year, as tax refunds filter in and borrowing rates remain low. But prospects for the second half of the year are much less certain. Carl Steidtmann, Deloitte Research's chief economist explains his outlook: "Consumers will continue to spend sizeable tax refunds over the next few months on high-priced goods and services, such as consumer electronics and home improvements. However, we've reached an inflection point in the index. In four to six months, the stimulating effects created by the tax cuts will reach a peak, resulting in a smaller amount of disposable cash and causing consumer spending to grow at a slower rate." Add to this uncertainty over interest rates and the instability of the international situation in an election year, and a solid recovery is not at all certain. These constant mood changes are a direct reflection of the world crisis of capitalism.
Another weak point in the economy is the housing market. Leaving aside the fact that affordable housing is increasingly difficult for many working people to find, the overall prospects for this recently booming sector are hazy at best. With housing prices growing steadily, and mortgage prices at their lowest level since the Eisenhower administration, millions of Americans have bought new homes or re-mortgaged their existing homes. This extra cash helped keep consumer spending going strong despite the gloomy job outlook. It also drove up home prices as millions of people searched for a place to call home (some 70 percent of Americans how own their own homes). But everything has its limit, and despite the low rates, the money has to be paid back with interest. As Marx explained, credit is a way for the capitalists to artificially extend the constraints of the market – but sooner or later, all good things must come to an end. In an ominous indicator on the health of the housing sector, the Mortgage Bankers Association said new mortgage applications fell in first week of April for the fourth straight week as demand for loan refinancings dropped sharply. With interest rates possibly set to rise, demand for new homes will likely continue to fall, affecting everything from construction to consumer confidence as home-owners lose equity they thought they had due to inflated home prices.
Not only that, but with rates so low, many Americans have taken out adjustable-rate mortgages instead of 30-year fixed loans. With this type of loan, the buyers get a lower rate now, but lenders have the option of raising rates in the future. The danger of this is clear: many owners who are currently just squeezing by on their monthly payments may not be able to afford them if interest rates and hence monthly payments rise substantially in the future. If inflation continues in the broader economy as well as in home prices, the Federal Reserve may be forced to do just that. In an economy where net jobs are being lost, the possibility of millions of people losing their homes looms large. As explained by BankRate.com: “Here's a worst case scenario: Today's buyer of a $500,000 home finds that in three years she owes that same amount, but has to pay twice as much to finance it, while she can sell the house for only $300,000. It doesn't take much imagination to see what such a trend would do to the banking industry, consumer confidence, and the broader economy.”
As is clear from the above material, the health of the economy is mixed. This is normal in a transitional economy, moving between recession and recovery. But the capitalists have not seen the light at the end of the tunnel yet. Even during a so-called recovery, the situation for millions of workers has deteriorated further. In such an unstable period of history, international events can have a disproportionate effect on the US economy. Any shock from outside or within the US, even if not directly related to the economy, could send it into a tailspin. The effects of another major terrorist attack inside the US – which is almost inevitable – are incalculable. A healthy economy could survive such a blow, but one that is already unbalanced could be pushed over the edge. The real key to the situation is investment and job creation.
However, even if the recovery does take off, creating the now-elusive jobs, the damage has already been done. The ruling class has used the crisis to slash the living standards of the working class, rolling back the gains fought for in struggle by working people over the last 70 years. It will require colossal effort and heroism to regain this lost ground. But the working class is relatively fresh and undefeated – it has more than enough potential power and dynamism to take back what has been robbed from them and then some. The only lasting solution is the socialist transformation of society. The capitalist system of booms and slumps will continue until the rotten system is ended once and for all. There can be no “final crisis” of capitalism. It will inevitably recover so long as the system continues – but at what cost in human lives, waste, and misery?
As Marxists we are not for worsening conditions for working people, and a recovery would not be a bad thing from our point of view. We fight everyday to improve wages, conditions and benefits, and to increase working class unity. But we realize that so long as the profit system continues to dominate our lives we will not be able to fully realize the full potential of humanity. An improved job market would lead to workers feeling more secure in their jobs, and hence would be more apt to unionize, strike for improved wages and conditions, etc. And even in the event of a full recovery, another slump would not be far behind. As the capitalists found when the IT boom of the 1990s burst, there is no “new economic paradigm” – what goes up still must come down. For working people it is not the absolute lows that bring about a revolutionary consciousness, but the constant insecurity, sharp, sudden changes, and lack of any guarantee that they will have a roof over their head and food on the table in a year or even a month’s time.
A recovery in the jobs market would lead to greater confidence of the working class who at present are rightfully concerned about their economic future and security. Despite their militancy, most strikes in the recent period have been of a defensive nature designed to hang on to the gains of the past, especially health benefits. But without a leadership that truly defends the interests of working people, even the most self-sacrificing trade union struggles will come to naught. The workers are forced to fight not only their immediate employers, but also the capitalist class and its supporters as a whole: the government and the trade union bureaucracy included.
What is most important for us to understand is that the overall trend of the capitalist economy is downward. The recessions destroy more wealth than the booms produce. This decline imprints itself on the psychology of all classes in society, and it is this consistent deterioration, combined with the constant insecurity about jobs, health care, education, housing, security, etc. that is slowly but surely preparing the conditions for a massive upturn in the class struggle here in the US. Despite the powerful propaganda of the ruling class and its media against social welfare and collective solutions to social problems, nine out of ten Americans believe the federal government has a responsibility to alleviate poverty. In a report by Lake, Snell, Perry & Associates, January 2002, a strong majority believes that government should do more, not less, to help people move from welfare to work by providing skills needed to be self-sufficient. After decades of searching for individual solutions to collective problems, working people and especially the youth are increasingly looking toward working class unity and militancy to resolve the problems confronting them.
Many people like to blame GW Bush for the current state of affairs, and it is true that he and his administration has made its mark on the situation. But the real root of the problem is to be found in the capitalist system itself. In the search for profits, the capitalists will go to any lengths to improve their bottom line. Workers are merely factors of production, and if they can pay engineers in India a third of what they are currently paying their American counterparts, they will do it. The weak global economy is forcing the capitalists to scrounge for every market, cut every corner, and squeeze every ounce of productivity out of the world working class. Recovery or no recovery, it is still capitalism.
As they are based on an incomplete snapshot of the past, precise long-range economic perspectives are extremely difficult - we do not have a crystal ball. Our task, therefore, is to draw out the general trends and movement of the world economy, and above all its effects on the working class. The only really consistent feature of the current economic situation is extreme volatility. One day the markets are up, the next they drop to multi-month lows. Consumer confidence plummets one month only to make modest gains the next. Payrolls surge one month, but are followed by gains so low they do not even keep pace with the growing workforce. The movement of the economy, like society as a whole, does not follow a straight line, but rather, has ebbs and flows like the ocean’s tide. This constant uncertainty of living from paycheck to paycheck is waking millions of workers up to the realities of life under capitalism.
The new generation is the first since the Great Depression that has a lower standard of living than the generation before it. We work harder than ever, and yet there is no guarantee that we will have a secure job, health care, education, or even housing. This is the present and future of capitalism and the anarchy of the free market. No lasting solution to these problems can be found as long as the vast expanse of the world economy is held in private hands for private profit. Only a nationalized, democratically planned economy, linked to a worldwide economic network, can solve the crisis of wasted human and material resources. Only an economic system based upon the needs and prosperity of all can best utilize the labor and talents of the whole of humanity. Working people are able to make great sacrifices and endure terrible privation if they feel that their efforts will result in a better life for their children and grandchildren; in other words, if things are consistently getting better. Slowly but surely, Americans are realizing that things are not going to get any better. The accumulating mood of frustration and discontent will explode at a certain point. Last year’s massive anti-war protests were just a hint of what’s to come.