Oct 23, 2019
In July of this year, news reports announced that the current economic expansion, which had begun in July 2009 and rose from the ashes of the worst economic crisis since the Great Depression, had become the longest in history. But those reports were very misleading, since the expansion was also the weakest in history. During the last 10 years, the economy grew at only about half the rate than it did during the last expansion, which itself was not strong at all.
Moreover, by July it was already apparent that the so-called expansion was petering out. At the end of July, the U.S. Federal Reserve declared that U.S. manufacturing production was in an official “recession,” that is, manufacturing had declined steadily since the beginning of the year.
Manufacturing was declining for several reasons. First, after ten years, the domestic markets—such as for automobiles and home appliances—were saturated and sales were stagnating or declining. Overseas, major markets for U.S. exports in the European Union and Asia were slowing down or were in full-blown recession. On top of that, Trump’s trade wars, real and not-so-real, had introduced an element of uncertainty, which obviously did not help.
The decline in U.S. manufacturing soon bled into other sectors of the U.S. economy. In the spring, residential and fixed business investment began to drop.
The news media might claim that manufacturing makes up only a small fraction of the overall U.S. economy. But its influence extends far beyond production, as factory-made goods push their way through the economy, getting loaded into trucks and trains and ships, moving through warehouses and ending up on retailers’ lots and floors—and with the financial sector positioning itself to profit at each step of the operation.
As manufacturing goes, so goes the rest of the economy. And right now, that direction is pointing down.
Behind the very weak expansion has been the capitalist class itself. The very way that the capitalist class restored its profits after the 2007–2008 recession—by cutting jobs, wages and benefits—means that the working population doesn’t have money to buy things. So the capitalists haven’t invested in the real economy.
Throughout the last 10 years, the capitalist class has lowered the standard of living of the working class in a multitude of ways. The capitalists have closed factories and workplaces in one section of the country and moved them to another, while decimating entire communities and regions. They have imposed enormous productivity increases on workers, forcing two workers to do the work of three, increasing the ranks of the jobless, while overworking those still employed. They have destroyed tens of millions of relatively decent-paying full-time jobs and replaced them with low-wage temporary workers, part-timers and workers classified as independent contractors. And even the wages of the regular, full-time jobs have not kept up with the rise of the cost of living.
Throughout the last decade, government officials, the news media and academicians have gone to great lengths to try to cover up this offensive and pretend that the economic expansion has brought about an improvement in living conditions. Every month they tout an unemployment statistic that they say shows that the unemployment rate has dropped to historic lows, claiming that the economic expansion had achieved full employment. But the reality is that the percentage of the population which actually has a job is lower. Today, there are seven million more workers without jobs than there were in 2007. Rather than unemployment reaching record lows, it is rising to new heights. The reserve army of the unemployed, as Karl Marx called it, is getting larger.
To illustrate just how bad unemployment is: when companies advertise that they are hiring, they are inundated with applications. In 2017, Delta Airlines had 1,200 flight attendant jobs available and received 150,000 applications. In 2018 it received another 125,000 applications for 1,000 more jobs. And entry level flight attendants earn $25,000 per year! There are plenty of other anecdotes like that. In August 2017, at a job fair in Baltimore, Amazon posted 60 job openings and got more than 1,700 applications—for jobs that pay close to the minimum wage. In 2013, Walmart stores in Washington D.C. got 11,000 applications in the first week for 1,800 jobs.
The news media and official experts in the economy gloss over the decline in living standards. Every month, they pretend to be puzzled about why wages haven’t gone up over the last 10 years of supposed full employment. Gone up? Even according to the Bureau of Labor Statistics, real weekly earnings of production workers were about nine percent lower in 2018 than they were ... back in 1972, almost a half a century before!
A big part of the working class is living paycheck to paycheck, with no margin of safety. Even the Federal Reserve found in its “Report on the Economic Well-Being of U.S. Households in 2018” that about 40% of the population does not have $400 to meet “relatively small, unexpected expenses, such as a car repair or replacing a broken appliance....”
Because of the rise in unemployment and the cuts in wages, working people have less money to buy what they need. To maintain the level of sales, the capitalists have pushed them to take out record amounts of household debt. This allowed the capitalists to sell more products and services for a while. But having to pay back the debt, with all the interest charges and fees tacked on, has pushed record numbers of families over the edge. Currently 71 million American adults—more than 30% of the adults in the country—already have debts in collection.
So, over the last 10 years a growing part of the working population has been reduced to poverty.
To further enrich the capitalist class at the expense of the working population, the government, on all levels, has handed the capitalist class trillions more dollars in tax breaks, bailouts and loans.
First, the federal government carried out big cuts in corporate income taxes, as well as cutting taxes for the very wealthy. The Obama administration, with the Democrats controlling both houses of Congress, in 2014 made permanent the Bush tax cuts, which were enacted in 2001 and 2003, even though the Democrats had denounced them for being hand-outs to the rich when the Democrats were out of office. In 2017, the Republicans passed a tax cut worth two trillion dollars over 10 years, most of which by the end of that time will have gone to the capitalists and their big companies. Government officials cut corporations’ taxes so much, the revenue collected from corporations fell to a record low level compared to the size of the overall economy.
Politicians, economists and government officials justified the tax cuts by asserting that the capitalists would put the money that they save in taxes back into the economy. Tax cuts were supposed to stimulate investment, economic growth and the creation of jobs for the benefit of everyone. But they didn’t. There was no new investment, no new job creation. The capitalists just kept the money for their own use.
The government also handed out fat contracts to the biggest military contractors, which also happen to be most of the biggest companies. Those contracts have gotten bigger as the Defense Department budget has steadily grown over the last five years. This year it is as high as it has been since the mid-1970s, taking inflation into account. Of course, both Democrats and Republicans justify this spending—just like the tax cuts—by saying that defense spending creates jobs and economic development. In fact, it contributes to lowering the standard of living of the working population by reducing services and programs for the working class.
All that government spending for the capitalist class has produced record annual deficits in the federal budget, which are expected to hit a trillion dollars this year. These deficits have built up so quickly, they have doubled the national debt in ten years, growing from 11 trillion dollars in 2009 to 22 trillion dollars in 2019. To service those debts, the government has made interest payments that have doubled in ten years to 326 billion dollars, which comes to about 8% of all federal spending. Interest from government debt has been another valuable source of money for the banks and the capitalist class ... but it further reduces government spending for the needs of the population.
As for the Federal Reserve, it has floated loans to the biggest banks at very low interest rates, which the capitalists use for speculation and not for investment.
All of this taken together to further enrich the capitalist class has further eroded the situation of the population. Spending for schools and health care have been slashed; various kinds of income support for the disabled and poor have been slashed; spending on the construction and repair of vital infrastructure, including roads and mass transit, has been slashed.
So, what have companies done with all the money?
First of all, they paid off their biggest stockholders, the capitalist class. According to University of Massachusetts economist William Lazonick, from 2014 to 2018, the 500 biggest companies listed on the New York Stock Exchange, known as the Standard and Poor’s 500, collectively spent about 106% of their profits in dividends and on buying back their own stock. That is, these companies not only drained their coffers of all profits, they took out loans, in order to pay their biggest shareholders even more.
Second of all, they have used all the money they have to merge or buy up each other. Often, these companies have turned around and stripped the companies that they bought of their assets, downsized the workforce, and sold off the rest. Big companies have been buying and selling each other at a record pace, about two trillion dollars per year in the U.S. since 2014, in an attempt by each to increase its own market share. That comes to about 10% of the entire economy of the United States every year.
In the process, they have run up record amounts of debt. The very biggest companies, like AT&T, Ford, Verizon, Comcast, and GE, are also the companies with the most debt. AT&T stuffed itself to the gills with an estimated 191 billion dollars in debt following its 85 billion dollar acquisition of TimeWarner, making it, according to Moody’s, the “most indebted, nongovernment-controlled, nonfinancial-rated corporate issuer.”
Financial companies have been roaming every corner of the corporate world, snapping up businesses, such as pet store chains, nationwide doctors’ networks, clothing companies, giant food companies, newspapers, real estate companies, rent-a-car companies, giant retailers, fast-food companies, and auto-parts makers only to dump them a few years later. The financial companies often load up the companies that they buy with so much debt, it forces them to go broke. But long before that, the financial companies and their investors had already drained those companies of all their wealth.
This destroys jobs, over 1.3 million jobs in retail alone over the last decade, according to some studies. And it destroys communities, blowing big holes in the local economy. When some of the biggest retail chains in working class communities went under, they left a big void.
Now, with economic growth slowing and the prospect rising of an outright global recession recurring ten years after the last one, the debt held by corporations may soon become so burdensome to a sufficiently large number of companies that it will trigger a round of corporate bankruptcies. In its latest “Global Financial Stability” report, the IMF (International Monetary Fund) pointed out the danger that: “corporations in eight major economies are taking on more debt, and their ability to service it is weakening.” In other words, the biggest corporations are creating the conditions that could trigger a new, major crisis.
The capitalist system has become so predatory, it is devouring itself, undermining its own economy and setting the stage for the next collapse, which could be much worse than the one a little more than ten years ago.
Over the last 10 years, the capitalist class in the United States has become ever more parasitic. It doesn’t invest the vast wealth that it accumulates. Instead, the capitalists’ drive for ever more profits leads them to devour their own society. This shows just how rotten and degenerated their own system is. The capitalists themselves create the conditions that provoke much greater crises, crises that the capitalists have no answer for. Capitalist society has run into a dead end.
And yet, humanity has built up the technology and productive capacity that would satisfy the needs of everyone on the planet, and allow humanity to attain new levels of achievement.
What is necessary is for the working class, the class that produces everything and makes society run, to wrest power from the capitalist class, and run society in the interests of everyone, not for the private profit of a tiny minority, as it is run today.