| US Perspectives 2006 - The U.S. Economy |
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| By Workers International League - www.socialistappeal.org |
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| Tuesday, 20 June 2006 | |
Introduction
The background against which we must develop our perspectives for the
U.S. is one of increasing instability on a world scale. The capitalist
system has entered a deep crisis which is causing convulsions at all
levels: economically, politically, socially, and militarily. The
contradictions that have built up for decades beneath the surface of
society are now bursting to the surface. This affects every country on
earth; none more so than the world’s only super-power: the United
States of America. We provide as a short appendix to this introduction some excerpts from a piece by Leon Trotsky, The “Third Period” of the Comintern’s Errors, written in January, 1930. In it he explains the importance of perspectives in order for a revolutionary Marxist organization to work out a correct political orientation to the working class. “A Marxist sees the road as a whole, all of its conjunctural ups and downs, without for a moment losing sight of its main direction – the catastrophe of wars, the explosion of revolutions. “The political mood of the proletariat does not change automatically in one and the same direction. The upturns in the class struggle are followed by downturns, the floodtides by ebbs, depending upon complicated combinations of material and ideological conditions, national and international. An upsurge of the masses, if not utilized at the right moment or misused, reverses itself and ends in a period of decline, from which the masses recover, faster or slower, under the influence of new objective stimuli. Our epoch is characterized by exceptionally sharp periodic fluctuations, by extraordinarily abrupt turns in the situation, and this places on the leadership unusual obligations in the matter of a correct orientation. “The activity of the masses, properly understood, expresses itself in different ways, depending upon different conditions. The masses may, at certain periods, be completely absorbed in economic struggles and show very little interest in political questions. Or, suffering a series of defeats in economic struggles, the masses may abruptly turn their attention to politics. Then – depending on the concrete circumstances and the past experiences of the masses – their political activity may go in the direction of either purely parliamentary or extra-parliamentary struggle.” “We give only a very few variants, but they characterize the contradictions of the revolutionary development of the working class. Those who know how to read the facts and understand their meaning will readily admit that these variants are not some kind of theoretical construction but an expression of the living international experience of the last decade…” “…The art of revolutionary leadership is primarily the art of correct political orientation. Under all conditions, communism prepares the political vanguard and through it the working class as a whole for the revolutionary seizure of power. But it does it differently in different fields of the labor movement and in different periods. “One of the most important elements in orientation is the determination of the temper of the masses, their activity and readiness for struggle. The mood of the masses, however, is not predetermined. It changes under the influence of certain laws of mass psychology that are set into moion by objective social conditions. The political state of the class is subject, within certain limits, to a quantitative determination – press circulation, attendance at meetings, elections, demonstrations, strikes, etc., etc. In order to understand the dynamics of the process it is necessary to determine in what direction and why the mood of the working class is changing. Combining subjective and objective data, it is possible to establish a tentative perspective of the movement that is a scientifically based prediction, without which a serious revolutionary struggle is in general inconceivable. But a prediction in politics does not have the character of a perfect blueprint; it is a working hypothesis. While leading the struggle in one direction or another, it is necessary to attentively follow the changes in the objective and subjective elements of the movement, in order to opportunely introduce corresponding corrections in tactics. Even though the actual development of the struggle never fully corresponds to the prognosis, that does not absolve us from making political predictions. One must not, however, get intoxicated with the finished schemata, but continually refer to the course of the historic process and adjust to its indications.” US Economy
Economic perspectives for the
future are based on the economic performance of the past, and are therefore
provisional at best. Capitalism is a chaotic system, so it is particularly
difficult to predict the exact rhythm and timing of the economic cycle
with any real precision. Nevertheless, we can form a general idea of
what the economy holds in store by analyzing the best available data
and studying the history of the economic cycle and understanding the
nature of the capitalist system.
We have been following the
ups and downs of the U.S. economy for a number of years. But more important
than the relative highs or lows of the stock market, or the growth and
contraction of GDP, are the effects all of this has on workers’ consciousness.
It is the constant instability and precarious nature of life under capitalism
that will in time force the American working class to move on a massive
scale in order to change their conditions of life. Already, there are
symptoms of a changing mood among American workers, and this mood can
grow far more rapidly than even we might expect.
Although the economy is ostensibly
growing at the present time, it is growth based on the super-exploitation
of working people and the relentless extraction of both relative and
absolute surplus value. This is a “boom” that feels a lot more like
a slump. When a “technical” slump comes at a certain stage,
the effect will be even harsher. A recession is inevitable in
the coming period so long as the capitalist system with its inherent
cycle of booms and slumps continues to exist. While it is impossible
to say precisely when or to what degree the economy will contract, there
are many indications that it could be quite serious. What is clear
is that even a minor recession can radically affect workers’ consciousness.
From the standpoint of the
class struggle, the current weak boom is not at all a bad thing, as
some workers are taking measures to defend what they have; a serious
slump could dampen workers’ struggles for a period. There is
no direct, mechanical relationship between the economic cycle and workers’
consciousness. Non-economic factors such as wars, terrorist attacks,
natural disasters, and other seemingly unrelated phenomena can also
rapidly affect consciousness and the economy. With the world economy
balanced on a knife’s edge, even a minor shock can send it over the
precipice and have a major effect on workers’ consciousness.
True, the stock market is “rocketing
ahead” and major corporations recently posted their biggest profit
gains in 4 years. The official unemployment rate has been creeping downward
and is hailed as proof that the economy is improving (it currently hovers
around 4.6 percent). GDP grew steadily at 3.5 percent in 2005,
although it slowed sharply to an adjusted 1.7 percent in the fourth
quarter. But what do these figures really mean for working people?
Just 1.98 million jobs were
created in in 2005, an average of 165,000 per month. This is barely
more than the 150,000 positions that need to be created each month just
to keep up with the number of new workers entering the job market. These
are overwhelmingly service-industry jobs: low-wage and non-union with
few if any benefits or protections. They in no way make up for
the destruction of the industrial backbone of the economy and the loss
of quality unionized jobs fought for over decades of labor struggles.
Some 3 million manufacturing jobs have been lost since mid-2000. The
services sector now makes up roughly 80 percent of U.S. economic activity.
Those manufacturing jobs that have remained in the U.S. have been moved
to the largely un-unionized Southern states where lower wages and more
dangerous working conditions prevail (as is the case with some Japanese
automakers).
Mass layoffs continue as jobs
are off-shored and those still employed are compelled to do more work
for the same or less pay. 20,000 Volkswagon workers are being
laid off; 30,000 from Ford; 8,000 from Kraft; 1,500 from DuPont, etc.
In February 2006 alone, there were 1,073 mass layoffs reported, each
involving more than 50 workers.
Wages and benefits paid to
non-government workers rose by just 3.1 percent in 2005, the smallest
amount in nine years. This was not enough to keep up with inflation
which rose at roughly 3.4 percent, meaning that there was an actual
fall in compensation of -0.3 percent, the worst result since 1996.
Millions of U.S. workers
are no longer even counted as unemployed, skewing the official unemployment
figures which are most likely at least twice as high. Many people
feel lucky to find minimum wage jobs, which at just $5.15 an hour is
lower than it was 50 years ago when adjusted for inflation.
The gutting of the industrial
heartland of the country has led to the wholesale destruction of entire
swathes of formerly prosperous American cities. The process of gentrification
of major city centers has marginalized millions of the poorest members
of society, hitting Blacks and other minorities especially hard, Detroit,
the former forge of the U.S. auto industry and birthplace of the United
Auto Workers is in a virtual state of collapse. Factory closures,
off-shoring, and bankruptcies are being used to shatter the once powerful
Michigan labor movement.
The official unemployment rate
in Detroit stood at 14.1 percent in 2005, nearly three times the national
rate, and is probably far higher. More than one-third of its residents
live under the poverty line. Its population has declined drastically:
from over two million in the 1950s to just 900,000 today. Social
services, public sanitation, and bus service have been gutted as hundreds
of municipal jobs have been cut. Crime, violence, and burned-out
buildings make this once strong working class city eerily reminiscent
of the film “Robocop”. This is the face of capitalism in the
21st century. Even in the wealthiest country on earth,
extreme poverty and even elements of barbarism are increasingly common.
The massive trade deficit continues
to hang over the U.S. economy, especially the import-export gap with
China. The overall trade deficit in 2005 reached a record $725.8 billion,
fueled by record imports of oil, food, cars and other consumer goods.
The February 2006 trade gap was the third highest on record, suggesting
the annual trade deficit may surpass last year’s record, and the many
economists expect it may eventually grow as high as $1 trillion annually.
This means that Americans spend billions more on imported goods than
are sold abroad. Most of this shortfall is paid for by increased borrowing
– which will have to be paid back with interest.
The Federal government is in
now debt to the tune of $8.4 trillion. This means that each and every
family in the U.S. owes nearly $134,000 as part of the national debt.
Interest payments alone on this borrowed money are a colossal drain
on the economy. An astonishing 52 percent of all U.S. Treasury
debt is now held by overseas owners. It is only due to the United States’
position of predominance in the world economy that foreign bankers are
willing to finance this deficit. But how long can this last? Sooner
or later this contradiction will have to be resolved.
The United States imported
a record $175.6 billion of crude oil in 2005, paying a record average
price of $46.78 per barrel. Gasoline is expected to hit more than
$3.00 a gallon in the summer of 2006, which will have a knock-on effect
throughout the economy. High gasoline and heating oil prices contribute
to inflation and hit the working poor hardest as they have the least
disposable income to work with. For many, driving a car is no
longer a viable option. In cities where public transportation
is in a state of disrepair, millions of working people are in an intolerable
situation. With food and medical expenses also rising rapidly, many
Americans must now choose between food, gasoline, or medical care.
Health Care costs are another
massive drain on the economy. As reported by National Coalition on Health
Care, total national health expenditure rose 7.9 percent in 2004 -roughly
three times the rate of inflation Total spending was $1.9 trillion in
2004, or $6,280 per person. Total health care spending represented 16
percent of GDP. Spending on health care is expected to increase at a
similar rate for the next decade, reaching $4 trillion by 2015, or 20
percent of GDP. The US spends more on health care than any other industrialized
nation on earth, and yet over 45 million Americans are without health
insurance. Those that do have it must pay through the nose for increasingly
limited access to quality care.
In 2005, employer health insurance
premiums increased by 9.2 percent – again around three times the rate
of inflation. The annual premium for an employer health plan covering
a family of four averaged nearly $11,000. The annual premium for single
coverage averaged over $4,000. This crisis in health care is reaching
epidemic proportions. Untold numbers of working people die each
year because they have no access to basic, preventative health care,
let alone advanced care. This is the legacy of a trade union movement
that fought for health benefits for its members alone, instead of for
the whole of society. The only solution is the abolition of the
HMOs and a universal health care system providing quality care for all.
The labor movement must be at the forefront of this struggle.
Soaring health care costs,
stagnant wages, and the need to pay for day-to-day expenses with borrowed
money have contributed to a dramatic fall in the rate of personal savings,
which went into negative territory in 2005 for the first time since
the Great Depression. The Commerce Department reports that the savings
rate fell by 0.5 percent, meaning that Americans not only spent all
of their after-tax income last year but had to dip into previous savings
or increase borrowing. This at a time when 78 million Americans are
on the verge of retirement. The savings rate has been negative for an
entire year only twice before - in 1932 and 1933 - during the Great
Depression.
An inflated sense of wealth
due to rising house prices also contributed to this drop in the savings
rate, as millions of home-owners felt richer than they really are due
to double-digit price increases in many markets. After the burst of
the Information Technology stock market bubble in the late 1990s, another
bubble started inflating: the US property boom. Consistently and often
rapidly rising house prices allowed homeowners to take out multiple
mortgages on their homes, thus providing them with a seemingly ever-expanding
source credit with which to continue spending beyond their means.
But higher interest rates,
necessary to counter rapidly rising inflationary pressures elsewhere
in the economy, threaten to end this expansion. Already, the housing
market is leveling off in many areas. A fall in prices could lead
to a nightmare situation for many homeowners who could end up owing
more on their mortgage than their home is worth. Even a slowdown
in the rise of house prices – never mind a collapse – could set
off an economic chain reaction with serious effects throughout the U.S.
and world economies. Housing-related job growth has been twice as fast
as other sectors of the economy and has contributed nearly one-quarter
of all net new jobs in the last two years.
It is estimated that if the
annual rise in house prices slows to just half the current rate of 12
percent, housing’s contribution to private consumption growth will
disappear. The real growth rate of the U.S. economy would fall to recession
levels and could even cut 1 percent or more off of global output growth.
With falling returns on investment in U.S. assets, many foreign bankers
would likely have to reconsider the financing of the massive U.S. deficit
– one of the only things keeping the U.S. economy afloat.
With the industrial backbone
of the economy in steep decline, consumer spending now accounts for
roughly two-thirds of U.S. economic activity. Much of this is on credit
and has definite limits. According to the Federal Reserve Board, consumer
debt hit $1.98 trillion in October 2003, up from $1.5 trillion in 2000.
This figure includes credit card and car loan debt, but excludes mortgages,
and is equal to roughly $18,700 per U.S. household. When mortgage and
other debt is included, the debt was an astonishing $9.3 trillion in
April 2003, an increase of $2.3 trillion since January 2000. In 2003,
credit card debt alone stood at over $735 billion, with the average
household balance among those with credit card debt at around $12,000.
In the 10 years between 1993 and 2003, consumer debt more than doubled,
and has continued to expand steadily since then.
Credit allows for the artificial
expansion of the market; but this effect is temporary as it only puts
off until later the day when all this money must be paid back - with
interest. As credit is squeezed through rising interest rates,
consumption will drop, unleashing an ugly spiral of layoffs, price wars,
and bankruptcies. The vast expansion of credit over the last few years
only serves to put off the day of reckoning.
The war in Iraq and other military
operations around the world are a tremendous drain on resources that
could otherwise be used to build schools, hospitals, and rebuild the
crumbling infrastructure of the country. The Bush Administration
has truly put “guns before butter”. Total expenditure on the
Iraq war is estimated at $320 billion so far, and according to the Center
for Strategic and Budgetary Assessments, the costs are rising steadily:
from $48 billion in 2003 to $59 billion in 2004 to $81 billion in 2005
to an anticipated $94 billion in 2006. As reported by the Congressional
Research Service, the U.S. government is now spending nearly $10 billion
a month in Iraq and Afghanistan, up from $8.2 billion a year ago.
In today’s costs, spending on the Iraq War outpaces the $61 billion
a year that the United States spent in Vietnam between 1964 and 1972.
Some analysts believe the total
cost of these wars could easily top $1.2 trillion when taking into account
the continuing costs of health care for the nearly 20,000 American troops
that have been wounded so far. This would be more than the combined
costs of the Korean War ($455 billion) and the Vietnam War ($650 billion).
Some 2,500 US troops have been killed so far, and the cost in Iraqi
and Afghani lives and destruction is incalculable.
This from a company that has
been regularly investigated for over-pricing, corruption, and fraud.
According to the Boston Globe, the Army recently found that Halliburton
had $263 million of exaggerated or unexplainable costs on a $2.4 billion
no-bid contract in Iraq, yet still paid Halliburton $253 million of
the $263 million. The country’s treasury is being looted on an unprecedented
scale as the burden of maintaining the state is further shifted from
the wealthiest in society to the poorest.
Unprecedented spending on “defense”
and “Homeland Security” means that cuts need to be made elsewhere.
Bush’s “plan” to deal with the colossal debt his administration
has rung up is to make tax cuts for the rich permanent and to slash
social spending to the bone. He is cynically and purposely using the
debt as a battering ram against social programs while spending billions
on war. His proposed $2.77 trillion budget for 2007 includes a
record $439.3 billion for the military while cutting $36 billion from
Medicare, and slashing or abolishing 141 discretionary programs, including
programs to prevent violence against women and to provide vocational
education. This is separate from the billions that will be required
for continuing the wars in Iraq and Afghanistan. Despite the cuts, the
federal budgetary deficit is expected to rise from $318 billion in 2006
to $423 billion in 2007.
These policies have resulted
in an unprecedented polarization of society as the rich get ever richer,
and the poor sink further into misery, degradation, and marginalization.
There are now 7.5 million millionaire households in the U.S. - not including
the value of a main residence. The number of households worth more than
$5 million - the so-called “Ultra High Net Worth category” - surged
by 26 percent in 2005 to 930,000. On the other side of the spectrum, the official poverty rate in 2004 was 12.7 percent of the population, up from 12.5 percent in 2003. That represents 37 million people, 1.1 million more than in 2003, and 5.4 million more than in 2000. The poverty rate for Blacks and Hispanics is roughly double that for non-Hispanic Whites and Asians, although non-Hispanic Whites are joining the ranks of the impoverished more rapidly than any other group. The poverty rate is also higher among those under 18 years old at 17.8 percent, which represents 13 million children. (As reported in the Annual Social and Economic Supplement of the Current Population Survey)
These are the official
figures and do not fully take into account the true scale of under-
and unemployment, displacement, homelessness, undocumented workers,
and other marginalized sectors of society. And these figures do
not yet take into account the effects of Hurricane Katrina. Once again,
this reveals the true state of capitalism in the world’s most powerful
country at the beginning of the 21st Century.
There is much more that can
be said about the state of the U.S. economy, but it is sufficiently
clear from the above that GDP numbers and a rising stock market don’t
tell the full story. It is also clear that the decisions that most affect
our lives are taken in the corporate boardrooms and by the CEOs.
The government is controlled by the millionaires and billionaires of
both big business parties, and it is in the interests of the millionaires
and billionaires that they write and enforce the laws.
In the final analysis, the
right of any economic system to continue depends on its ability to develop
the means of production. On a world scale, capitalism is no longer
able to do this, and even in the richest country on earth it has long-ago
ceased to play a progressive role. The extreme polarization of
wealth and the “casino”-like economy, in which money is made not
through investment in productive capacity but by gambling on the stock
market are a reflection of this. However, there will be no automatic
collapse of the system. Capitalism must be overthrown by the organized
efforts of the working class, consciously moving to seize its destiny
into its own hands. It’s worth repeating that economic perspectives are not only about the absolute lows or highs of the economy. The “experts” may tell us that the economy is booming, but millions of “ordinary” workers sure don’t see it that way. It won’t require another 1929-style crash before workers start to mobilize to stop the bosses’ attacks - it is already happening. Millions of workers realize the relationship between the massive spending on the “war on terror” and the cuts here at home. More and more workers are coming to the realization that the attacks they are suffering are part of an all-out offensive by the bosses, intended to turn back the clock 70 years or more. This is already having an effect on the labor movement and on the political situation of the country. Beneath the surface of society, big explosions of the class struggle are being prepared. See also: |
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