Mar 19, 2001
In November, companies announced 45,000 job cuts; in December 134,000; in January, over 200,000. During the last recession, in 1990-91, layoffs didn't jump like this until more than a year after the recession had started.
George W. Bush, three days after taking office, was already talking about the "recession we are already in." Bush's advisers, even though they understood that he did not want to take the blame for a recession if it comes, cautioned him against using that horrible "R" word. By talking about a recession, he was told, he might actually bring it on.
Clearly the economy is sitting on the edge of a precipice, and those who really make economic policy know it. Otherwise, a politician's words would evaporate just like hot air usually does.
Alan Greenspan, Chairman of the U.S. Federal Reserve and the U.S. government's most important financial officer, recognized the gravity of the situation when a Congressional committee recently asked him about the possibilities of a new recession. He avoided giving a direct answer, saying "A recession is almost impossible to predict," depending so much on what he called "consumer and investor confidence." But, significantly, he compared changes in "confidence" to "water backing up against a dam which finally breaks, with the torrent carrying away whatever remnants of certainty and euphoria built up in the previous period."
So, is the dam about to break? Are we headed into a new recession or –given the recent slide of the stock markets –into the "torrent" which will carry everything away?
We have just lived through nine years of so-called economic prosperity. But not only have the fruits of this "prosperity" not been shared out equally. The standard of living of the working class has actually gone down. Almost one-third of all workers last year held full-time jobs which would not support a family of four above the official poverty line.
It's true that the majority of working class families came close to maintaining their total family income –but only because everyone in the family worked many more hours. The main breadwinner, including women with young children, worked more overtime or took a second job. In two-couple families, both people worked, with women going back to work much sooner after the birth of their children.
The lower wages we see today are, in part, one consequence of Clinton's welfare "reform." By forcing women with young children to work, Clinton provided fresh entrants into the working class so desperate they had to take any low wage offered –thus bringing more downward pressure on everyone's wages.
During the last nine years of "good times," many working people tried to maintain their standard of living by going further and further into debt. Today, consumer and mortgage debt stands at an all time high –it totals more than the total amount of disposable income held by consumers. While this enormous increase in debt allowed workers to go on buying what they had been buying before, this only put off the day of reckoning. The new bankruptcy laws will bring that day of reckoning closer.
Having endured lower real wages and longer hours of work, and now facing a new round of unemployment, working people have a lot of reason to express "no confidence" in this economy.
While the working class continued to fall behind, despite the prosperity, the wealthiest layers of society increased their income and their holdings many times over. Since 1977, the wealthiest one% of the population doubled their share of the national income. By 1999, inequality had progressed so far that the wealthiest five% of the population owned 60% of the national wealth, while the remaining 95% owned only 40%.
The capitalists have been accumulating more and more wealth at the expense of working people. This, of course, has always been the case in a capitalist economy. The wealth in the hands of the capitalist class comes from the exploitation of the laboring population. And over time, the general trend is for the capitalist class to take an ever bigger share of the total wealth produced.
But –and this is important –only one other time in the last hundred years did the standard of living of the American working class actually go down even while an expansion was going on. In all other previous expansions, while the capitalists were taking a bigger share of the wealth created by the labor of the working class, the working class nonetheless enjoyed an increase in its standard of living. That is, the real, productive economy was expanding fast enough to allow both things to happen at the same time.
It's difficult to make exact comparisons because the statistics are kept so much differently today, but the one other time when the working class fell backwards in similar fashion was in the years leading up to the 1929 market collapse. Of course, this parallel isn't a proof that we are about to go through a new crash this week, but it is nonetheless significant.
Instead of investing in production, building up the infrastructure that any society needs to function efficiently, the capitalists saw greater opportunities for profit by placing their wealth in all kinds of speculative ventures. As more money flooded into these ventures, prices rose to record levels. And this attracted more money ... leading to even higher prices. This speculation encouraged a skyrocketing of debt. More and more stock was bought by people and institutions going into debt to do so, hoping to buy, only to resell, make a profit, pay off the loan, and go out and do the same thing all over again. The capitalists seemed to be making money out of thin air, with millionaires becoming billionaires and billionaires becoming multi-billionaires.
The prices on stock became totally fictitious.
The U.S. economy today is living in what the commentators call a "bubble." That is, the financial structure has ballooned out of all proportion to the underlying economy which, in theory, it is supposed to serve.
Financial instruments –a fancy term for money –are required to facilitate the exchange of goods and services, as well as the investment in new production. These financial instruments take many forms, but what is important today is that the amount of these instruments in circulation is enormously bigger than what the productive economy requires to function. It's difficult to say exactly how much "extra" money is floating around in the financial circuits of the world. But one comparison will give a rough estimation of the situation today. The U.S. GDP (Gross Domestic Product, that is, all the goods and services created in a year) today stands at close to ten trillion dollars. The total valuation of all the stocks listed on all the U.S. stock markets is today something on the order of 15 trillion dollars –give or take a few trillion.
The last time the value of the stockmarket even matched the total GDP, don't even talk about surpassing it, was in ... yes, once again, 1929. And we know what happened to that financial "bubble."
The United States is not the first country in the world to find its economy caught inside a financial bubble. Japan did two decades ago, only to go into a nearly catastrophic nosedive when the bubble burst, a nosedive which continues to worsen. The economies of the Far East –the so-called "Asian tigers" like Indonesia –all were enclosed in financial bubbles which burst.
These are not nice light bubbles disappearing into air with a little pop, pretty to look at on a dreamy summer day. These are financial bubbles, which bring about a severe attack on the standard of living of the working class when they burst: a big jump-up in unemployment, a sharp decrease in actual wages.
For almost two decades, the stock markets in the U.S. have risen almost inexorably, interrupted by an occasional downturn, the most spectacular being the crash of 1987, only to rise to new and more dizzying heights. This surge was led by the NASDAQ, the market where the so-called "new economy" companies list their stock. Starting in 1982, the NASDAQ composite index climbed by 3,072% to its high last year. At the same time, the Dow Jones Industrial Average, which measures the stock of some of the biggest U.S. companies, climbed 1,409%.
If this were a year ago and we were talking about the "new economy," we would have been pointing out the enormous disproportion between the valuation of these stocks and the profits which these companies could reasonably be expected to produce, not to mention what these companies could be expected to contribute to the total GDP.
Palm Pilot, for example, on the day its stock was issued a little more than a year ago, was valued, if we believe what stock prices told us, at 53 billion dollars, six billion more than GM, a company many times its size, in the industry which still accounts for almost one sixth the total U.S. GDP.
The vast majority of the stocks listed on the NASDAQ have never turned a profit, never paid a dividend. In other words, "investors" bought them only for speculative purposes, expecting to sell them for more than they paid for them.
The money valuation put on the stock of these companies was purely fictitious, reflecting only the belief of investors that the stock prices would keep going up.
For the last year, however, they have been going down. And the plunge down, just as the ride up, was led by the NASDAQ index, whose stocks have lost almost two-thirds of their money valuation in one year's time. But most other stocks have been falling too, raising the specter of a much bigger financial crash. Investors didn't move their money into other stocks –their money just disappeared into thin air.
Now, "investors" are not your next-door neighbors, rushing into the internet to buy and sell stocks. Your neighbors may even do that, but they were not the ones who suddenly brought these indexes to come tumbling down. What brought the indexes tumbling down were the speculators –who are nothing more nor less than the whole financial structure of this country: the biggest banks, brokerages, insurance companies, financial arms of industrial companies. They are the ones rushing today to get out, to protect their "investments." In so doing, they can bring about the very thing they fear, a collapse of these stock markets –and with it, the destruction of so much fictitious money valuation that the underlying economy could easily grind to a halt.
What makes this present slide of stock prices potentially so dangerous is that it has been building for a long time, gaining speed and momentum along the way, replacing investor confidence with fear and panic.
Of course, no one knows what the future holds for the stock market this time around. The government, the Federal Reserve and the capitalists may be able, once again, to forestall the crisis, using the familiar means at their disposal, issuing more debt, printing up more money. In so doing, not only would they not deal with the imbalances that have built up during the rise in the stock markets, by papering them over, they would make them still worse. That is why several respected economists have lately suggested it would be better to bite the bullet –that is, to allow markets to "correct" themselves, that is, continue to plunge, rather than to put the plunge off, only to have an even bigger one in the future.
This has led to an increase of competition inside the capitalist class itself, as the biggest corporations and industries have sometimes tried to benefit at the expense of not only society as a whole, but other corporations as well. This has been illustrated by the rampant speculation in the utility industry. In California, in the open market, one megawatt of electricity cost $30 in December of 1999, $150 in June of 2000 and $1500 in February of 2001. Obviously, Wall Street was not the only place to attract speculators.
Of course, these price spikes were not caused by a shortage of electrical power, but were caused by a shortage of electricity organized by the very companies producing and distributing it.
While a contrived shortage like this may be good for the profit sheets of companies selling electricity (or natural gas, etc.) for the rest of the economy, price spikes and shortages can spell disaster. Consumers and other businesses have less money to spend, not to mention the fact that they can't even count on having electricity when they need it.
What is happening today is like a replay of the situation in the 1920s, when utilities of all kinds, in "competition" with each other, merged, bought up each other, went out of business or became so dominant they were able to impose whatever price they wanted and to provide service only where they wanted. Large urban areas went without power for weeks at a time, many rural areas had no electricity at all. In 1929, not only was the financial system encased in its bubble, service by the utilities was on the verge of collapse.
Today, this is not just the case of electrical power in California, but about all the utilities, where the same dynamic is working to push up prices and cut off service: oil and natural gas, telephones, railroads, airlines, mail service.
But no matter how much the capitalists compete against each other for the lion's share of profits, their main attack is always aimed at the working class.
When Chrysler announced, in November, that it was cutting back its workforce by over one quarter –it heralded a new round of concession demands by the big corporations. Cutting back production somewhat, Chrysler nonetheless cut back its work force much more, indicating that it intends to make use of the situation to increase the speed of work.
Looking at the difficulties ahead, the big corporations have all been lining up, preparing to discipline their own workforce, to extort still more production of still fewer workers, to increase exploitation.
Each of them, anticipating a new recession, attempting to protect their own profits, does the very thing which can bring about recession: that is, they cut back on investment, cut back on production, increase unemployment, lower wages: a perfect formula for recession.
If we are standing today on the verge of a new recession, it's because the capitalists are bringing it about. And if it develops into something worse –a financial collapse with the economy grinding to a halt – that will be because the capitalists have also laid the groundwork for it with their wild speculation, both in the financial markets and the utilities field.
The last time the capitalist economy got to this point, it took a world wide depression to get out: vast destruction of capital, not only the fictitious capital on the stock market, but the real capital of factories and machinery; and a world war which destroyed 50 or so million people.
Capitalism has no more prospects to offer the vast majority of humanity. It is a worn-out system, which long ago outlived its usefulness.