From the belly of the beast: Is the US recession ending?
By Barry Sheppard, in San Francisco
The stock market has rebounded from its March lows, back up to where it was in January. Goldman Sachs reports big profits, as do a few other big banks. “Leading indicators” are up. The danger of a financial collapse appears to be behind us. Some pundits are predicting the end of the recession in the next few months, or early next year.
By “end of the recession” what they mean is that the Gross Domestic Product (GDP) will show an upturn. Let’s assume there will be an upturn in GDP. What will this mean for working people? The more sober of the mainstream economists are saying that any upturn will be weak, and that unemployment will continue to rise to over 10% this year. Most policy makers at the Federal Reserve Board say that it will take five or six years for the labour market to recover.
The official figures for June were that 467,000 jobs were cut, and the unemployment rate inched up to 9.5%. It is estimated by mainstream economists that something like 300,000 new jobs have to be added each month just to keep up with population growth. If workers who have been forced into part-time jobs and those who have “given up” trying to find a job are counted, the unemployment rate is over 16%. Those with part-time jobs are working three days a week on average, and barely scraping by or gradually falling into poverty.
There are already 15 states with official unemployment rates of over 10%, and under the broader measure much higher, some quite high. If there is an upturn in GDP, wrote David Leonhardt in the July 15 New York Times, “this would make for an odd contrast, in which the economy is getting better but feeling worse. These broad measures of unemployment and underemployment could approach a hard-to-fathom 25 percent in California, up from 12 percent a year ago.” As of June, the broader and more real unemployment rate is 20.3% in California. It is 23.5% in Oregon, 21.5% in Rhode Island and Michigan, and 20.5% in South Carolina. Other states will soon have similar jobless rates.
Bob Herbert wrote in the June 27 NYT: “Three quarters of the workers let go over the past year were permanently displaced, as opposed to temporarily laid off. They won’t be going back to their jobs when economic conditions improve. And many of those who were permanently displaced were in fields like construction and manufacturing in which the odds of finding work, even after a recovery takes hold, are not good.”
Associated Press economics writer Jeannine Aversa observed on July 2 that “companies have turned to layoffs and other cost-cutting measures to survive. Those include holding down workers’ hours and freezing or cutting pay. The average work week in June fell to 33 hours, the lowest on records dating to 1964.”
“As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures,” wrote Peter Goodman and Jack Healy in the May 25 NYT. “With many economists anticipating that the unemployment rate will rise into the double digits … foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.” While the big banks were brought back from the precipice by the infusion of trillions of dollars of government loans and other guarantees, the financial system remains shaky. Some economists estimate that around 500 regional banks face possible closure.
The US housing market has shown the first signs of recovery with June’s new home sales increasing by 11% according to the Commerce Department. This was the best result since November 2008. The increase in sales was partly encouraged by dropping house prices. The calculated median sale price for the period was $206,200 — 12% lower than a year ago and 5.8% lower than it was in May. The increase has been encouraged by historically low interest rates and a federal tax credit for first-home buyers.
However, reporting the June increase, AP noted that “the improvement in sales is modest. The pace of sales for new homes in June was still 72 percent below the peak of four summers ago, and there is still an enormous inventory of homes lingering on the market … At the current sales pace, there are enough new homes for sale to last nearly nine months.” As a result of this continuing glut, construction of new homes is weak.
Lenders won’t give mortgages to any but the most qualified home buyers in terms of hefty down payments and proof of stable employment and income. And as businesses close, commercial real estate foreclosures are in the offing. The July 27 Wall Street Journal reported: “Losses from loans tied to strip malls, office buildings, housing complexes, and the like are hurtling toward record levels not seen since the infamous savings-and-loan crisis [of the 1980s and early ‘90s]. But at some banks, according to the latest round of earnings reports, the commercial real estate crisis has already arrived. Those companies’ worsening conditions could well foreshadow the heavy losses at regional lenders in quarters to come — and failures or takeovers for some.” Bad credit card debts are also expected to be a coming problem for financial institutions.
It’s no wonder that ordinary workers are “feeling worse” about the economy. In this situation, workers have become increasingly anxious about the future, even if their jobs and homes are safe for now. Lawrence Mishel, president of the Economic Policy Institute, asks, “What does it mean when kids are under stress because there is no money in the household, or people have to move more, or are combining households, or lose their health insurance? I believe this is going to leave a permanent scar on a generation of kids.”
Cutting the social wage
Fourteen thousand people are losing their health insurance every day. Even the timid and inadequate health care reforms Obama has put forward are being gutted by Congress. Other aspects of the “social wage” are being drastically cut, adding further misery in the crisis.
What is the “social wage”? Like regular wages, the social wage comes out of the profits previously accumulated by the capitalists, although this portion of their profits they put into their government. This is obscured by the taxes workers pay. When Franklin Roosevelt set up Social Security under pressure from the labour upsurge in the 1930s, he deliberately also set up a tax on wages, in order, he said, to make workers feel like they have “invested” in Social Security. He knew this was a slight of hand.
The truth is all taxes on workers are part of capitalist profit, taken out of wages. The capitalists use this portion of profit to help pay for their government. When, as a result of social movements, the capitalists are forced to kick in to pay for things like education for workers, Social Security retirement stipends (however low), unemployment pay, and so forth, they do so out of their collective government funds. Such payments out of capitalist profits are the “social wage”.
Most workers look at their “take home pay” as their real wages, not their nominal wages before taxes (more gets robbed by sales taxes, etc.). They don’t count as their income unemployment pay until they receive it. So it is no wonder that the ruling capitalist class seeks to cut back on the social wage as well as regular wages in the crisis. They use the “bad economy” as an argument for doing so. It’s one more way to make the workers pay for the crisis, and ease the burden on themselves.
They “just don’t have the money” the capitalist politicians claim, seeking acquiescence in their schemes to further fleece the workers. No more is this evidenced than in the state I live in, California. Governor Arnold Schwarzenegger and the state legislature have come up with a new state budget slashing the social wage. This is necessary, the politicians of both major parties say, because tax income has fallen way down as a result of the economic crisis. The argument is phony. A rise in taxes of 1-2% on the richest 1% would wipe out the supposed deficit. (At present, the richest one percent in California actually pay taxes at a lower rate than the lowest 50%.)
We now have a song and dance routine where the Republican governor and the Republican state legislators want to cut taxes on the rich more and cut the social wage more than the Democrats. So they have come up with a “compromise” — no new taxes on the rich; support for the elderly and disabled to be cut by $226 million; services for people with developmental disabilities to be cut by $334 million; welfare payments to the poorest families to be cut by $529 million; medical aid for the elderly, to be cut by another $1.3 billion; state government workers’ pay to be cut by $1.3 billion; funding for local redevelopment agencies to be cut by $1.3 billion, and funding for the University of California and California State University to be cut by $6.1 billion.
And to top it off, education for children for the first to the 12th grade is to be cut by $15.6 billion. This is the capitalist politicians’ answer to the budget crisis: Kick the kids in the face. To hell with the blind and elderly. Who cares about the poor on welfare? Let the sick eat cake. We don’t need no education anywho. But don’t tax the filthy rich!
Even this budget is phony. It counts expenditures to be made in the coming fiscal year as being made in the following year. It borrows from the counties. It assumes tax revenues will “pick up” soon with the rest of the economy. The trickle down is that services at the county and city level will be cut too.
The capitalists and their politicians don’t just want to make these cuts this year (while not paying a penny themselves). They want working people to become used to these new levels of the social wage, to keep them down when the economy does finally recover. California is a microcosm of the nation. The saying is that “so goes California, so goes the country”.
[The title of this regular column, “From the belly of the beast”, was how the great Cuban fighter against US imperialism, Jose Marti, signed his letters to friends back in Cuba when he was in the US.]