San Francisco – In last month’s article, I wrote about how the Congressional stand-off about raising the US government’s debt ceiling obscured the drive by both Democrats and Republicans to cut drastically the social wage, especially Social Security and Medicare, as well as education and other social programs.
Now the stand-off has been settled with a deal that was characterised by African American TV personality Tavis Smiley as “a declaration of war on the poor”. The deal raised the debt ceiling (it was never in doubt) and set up a bipartisan Congressional commission to come up with a proposal to cut the national debt.
This commission must present its proposal to both houses of Congress by late November, and a vote would be taken on it immediately, without discussion or amendments. If the commission can’t come up with a common proposal, there would be a mandatory across-the-board cut in government spending of trillions of dollars, and no rise in taxes on the rich.
There was an immediate outcry from the military brass against any cuts in war spending, and we can be certain that such spending will be largely exempt in any event.
“The political disarray and increasingly bizarre factionalism … [and] theatrics put on by the Democrats and Republicans partly consisted of demagogic posturing directed at their respective bases, but also reflected counterposed views of how best to overcome the economic crisis and restore ‘capitalist prosperity.’
“Both sides base their arguments on false theories – aimed at either justifying capitalist inequality and injustice [the Republicans], or feeding the illusion that these evils can be overcome within the framework of capitalism [the Democrats] … One thing on which both sides agreed, however – and this was the real significance of the deal – is that poor and working class people have to sacrifice even more than we have already, despite the fact that it was the capitalists who were responsible for the crisis in the first place. Only if we give up gains in wages, pensions and social benefits won in past struggles can the crisis be overcome, they argue”, wrote Jon Britton in Liberation News.
Obama’s idea for a “balanced” proposal is for some of the tax give-aways to the super-rich to be pared back, while the cuts on workers are savage. The Republicans object and want more tax breaks for the wealthy while also supporting savage attacks on working people. This is where the “debate” in bourgeois politics has come to.
On the heels of Obama signing the deal on August 2, a new financial panic broke out in the US and global markets, the most severe since the one of 2008. As of this writing (August 20), the US stock market has had wild swings both up and down, largely down. Similar gyrations are happening in Europe. Bourgeois commentators have begun to talk of a possible new recession.
The US economy this year is already teetering on another recession, according to official statistics. The government says that the US gross domestic product rose 0.4% at an annual rate in the period January through March, and only a bit higher in the second quarter. It wouldn’t take much to tip this anaemic growth in GDP into the negative (which is how the government defines recession).
These numbers themselves are suspect, according to a recent front-page article in the New York Times. They should be taken with “a grain of salt” according to the article, which hints the numbers are too high.
“There is a serious concern that you are going to get recession sooner or later. It is a phenomenal period in history”, Jim Reid, credit strategist at Deutsche Bank, was quoted in the August 19 Financial Times.
I think this quote by the German banker deserves closer scrutiny. He is correct, in my opinion, to point not just to a new recession, but to the broader “phenomenal period” we are in. Perhaps we should not use the word “crisis” for this whole period in history we are in at present. “Crisis” brings to mind sharp turning points, such as stock market crashes and recessions. Are we living in a period like the Great Depression of the 1930s, which had its ups and downs of GDP and stocks within a long period of malaise in which downturns were deeper and upturns shallower? Should we talk about recurrent crises occurring within this longer period we have at present?
The Great Depression ended in the US only with the second world war. Such a new war seems inconceivable, given the overwhelming military superiority of the US. If it should occur, it would be an atomic war and civilisation would be destroyed. No way out there.
Looking at things this way, a new recession will indeed wreak deeper havoc. When the last one began in late 2007, unemployment was officially at 5 or so percent. Now it is at 9%, with long-term unemployment vastly greater than in 2007. The percentage of adults in the workforce in the US has shrunk during the feeble recovery. Many new jobs created in the recovery pay low wages. Wages in general have shrunk during the recession, but also in the recovery.
Unlike before 2007, housing prices continue to fall, and foreclosures continue apace. Millions now owe more on their mortgages than the selling price of their homes. As other millions have been forced out of their homes already, rents have gone up.
The better off workers, unionised workers with higher wages, health insurance and pensions, are under severe attack. An all-out campaign to crush the unions, already greatly reduced, has been under way for some time. A new norm for higher wages is being established, indicated by the fact that new hires in the car industry now are paid $14 per hour (before taxes) compared to the norm in auto of $28 just a few years ago. This new ceiling will mean a drop in wages for workers below it, too.
The median wealth owned by households has dropped by 16%. The median refers to the point where half the population is above and half is below. The modal point (a more accurate measure under the huge spread in wealth and income inherent in capitalism), around which most households centre, has dropped even further, since the better off have maintained more of their wealth, and the rich have actually increased their wealth.
The Pew Research Institute recently issued statistics showing that the gap in household wealth between white families on one side and Black and Latino families on the other has doubled in the aftermath of the recession. It was 10 times before the recession and is 20 times now. Wealth is measured by assets such as homes, bank accounts, stocks, cars and so forth, minus debt. Median wealth for African American and Latino families is about $5000-6000. With half below that, millions have no wealth at all or have negative wealth, owing more than they own.
This gap reflects how hard the recession and weak recovery have hit disproportionately on the oppressed nationalities in unemployment, home foreclosures and every other social indicator. Black youth are on the brink, and it wouldn’t take much to set off British-style rebellions in the US.
Mounting debt crisis
The new financial panic also reflects the increase in capitalist globalisation. When Europe and Asia sneeze, Wall Street catches pneumonia. The debt crisis in Greece appears to be spreading to other peripheral European countries, drawing in the stronger economies of Germany and France in attempts to staunch it.
The big debts in Europe and US arose in part from the massive bailouts of the banks in the 2008 panic. In the US, the burden of paying trillions for the failed wars in Iraq, Afghanistan and Pakistan has to be added. This is another difference with 2007. Then the financial panic began in the US and spread to Europe and elsewhere. If there is a renewed downturn in the US, the rest of the world is not going to be able to come to the rescue.
The debt deal promises that further slashes of federal, state and local government workers are in the immediate offing – well-timed to exacerbate the downturn when it does come, within this “phenomenal period in history”.