Is a real recovery in sight?

April 23, 2009

Whatever official statistics show, the economic picture is still grim for working people.

THE OPTIMISTS claim that an economic recovery is near at hand, based on a recent stock market bounce and some less-bad-than-usual economic statistics.

Most sober-minded economists say otherwise. They point to the suffocating effect of the financial crisis on the underlying real economy, which has slowed consumer spending, squeezed world trade and threatened corporate bankruptcies well beyond finance and real estate.

A shrinking global economy--the Organization for Economic Cooperation and Development predicts a global decline of 2.75 percent for 2009, the worst performance since statistics started being kept--will impede any prospects for a U.S. recovery.

"This consensus optimism is, I believe, not supported by the facts," wrote Nouriel Roubini, among the grimmest of the big-name economists. He predicts that the U.S. economy--which shrank by 6 percent in the last six months--will continue to contract by 1.5 to 2 percent for the rest of year.

Roubini thinks the economy could show positive growth figures next, but they "will be so weak (0.5 to 1 percent, as opposed to the consensus of 2 percent or more) and unemployment so high (above 10 percent) that it will still feel like a recession," Roubini said.

Waiting for help in a Michigan unemployment office
Waiting for help in a Michigan unemployment office

"Feeling like a recession"--that means more hard times for workers. Higher unemployment. Lower wages. Growing homelessness. More foreclosures. Rising poverty. Less health care coverage. Increased suffering all around.

In fact, even if the U.S. economy does reach a 2 percent annual growth rate next year, as the "optimists" project, this is unlikely to lead to a sustained boom. In its latest report on the world economy, the International Monetary Fund (IMF) explained why.

"The current downturn is highly synchronized and is associated with a deep financial crisis, a rare combination in the postwar period," the IMF wrote. "Accordingly, the downturn is likely to be unusually severe, and the recovery is expected to be sluggish. It is not surprising, therefore, that many commentators looking for historical parallels for the current episode focus on the Great Depression of the 1930s, by far the deepest and longest recession in the history of most advanced economies."

The very structure of the world economy as it developed during the 1990s and 2000s will hinder a recovery.

The credit crunch has choked off consumer spending, eliminating the U.S.'s ability to serve as the importer of last resort--so countries that rely heavily on exports to the U.S., like China and Japan, face long-term difficulties. And if the U.S. attempts to reorient its economy toward greater domestic investment and manufacturing, a weak or shrinking world economy will limit the markets for its exports.

In other words, a drawn-out and painful restructuring of the world economy lies ahead, even when recession eventually gives way to recovery according to the official statistics.

Capitalists will be forced to eliminate excess productive capacity as companies try to push the costs of the restructuring onto their rivals. National governments will do likewise in the interests of their domestic capitalists collectively. Already, there are rising trade tensions as each country tries to protect its own economy. A worldwide economic upswing may mitigate those pressures, but it certainly won't eliminate them.

The Group of 20 meeting of wealthy nations in London earlier this month failed to confront these problems, argued Financial Times columnist Martin Wolf. "As a result, the world is on a path towards an unsustainable recovery," he wrote. "An unsustainable recovery might be better than none, but it is not good enough."


WHICHEVER SPECULATIONS about a recovery seem most plausible, there's one economic fact that no one can dispute--things are getting a lot worse for U.S. workers as capitalists try to "lower labor costs," a euphemism for eliminating jobs and cutting wages.

In the U.S., this effort has the government's blessing--thus, wage cuts are a condition for automakers to receive government loans. As a result, jobs in unionized auto plants that once paid $28 per hour will pay only $14, and with far fewer benefits. A job that was once a gateway to the "American Dream" of steadily rising living standards will barely pay enough to raise a family on--if you can get the work, that is. Another condition of federal aid is the elimination of thousands of auto jobs.

With the auto industry leading the way, other private employers are seizing the moment to impose wage cuts along with layoffs. According to Heidi Shierholz of the Economic Policy Institute, "In March, with the unemployment rolls increasing by nearly 700,000, there were likely at least 4.5 unemployed workers per job opening. Nearly one-quarter of unemployed workers had been unemployed for six months or longer in March, and 44 percent had been unemployed 15 weeks or longer. In this labor market, where there are literally millions more unemployed workers than job openings, it is unsurprising to see jobless workers stuck in unemployment for long periods."

Many economists expect the unemployment rate, now 8.5 percent, to surpass 10 percent within a few months. In eight states, including California, it already has passed that milestone.

Meanwhile, state and local governments have begun to cut jobs almost as ruthlessly as private employers. Layoffs are widespread, and workers everywhere are being asked--or forced--to take wage cuts, unpaid leave and reductions in benefits.

At the same time, as Clinton-era Labor Secretary Robert Reich points out, states are raising taxes by a total of $350 billion to cover budget deficits, which will cut the impact of Barack Obama's $787 billion stimulus program almost in half.

Huge expenditures by the federal government--amounting to more than $10.5 trillion in spending, loans and commitments all told, according to CNN--will undoubtedly juice the economy somewhat.

But this spending, which is mostly to shore up the crumbling financial order, is a far cry from what's needed to put the U.S. economy on a solid footing, let alone create good-paying jobs and address the pressing social needs created by this crisis.

"Even if the U.S. Treasury's latest plan were to restore solvency to the entire financial system--and this seems very unlikely--we would still be facing a serious recession in the real economy," wrote economist Mark Weisbrot. "Even solvent banks are not going to increase lending if there are no additional credit-worthy borrowers seeking loans."

Indeed, even as mortgage interest rates hit their lowest levels in decades, more people are losing their homes as banks, stuffed with tens of billions of dollars in taxpayers' money, turn the screws on mortgage holders. In the first three months of this year, foreclosure filings surpassed 800,000, a 24 percent increase over the same period a year earlier.


WHILE THE government spares no effort to shovel taxpayer money into the big banks, federal spending on the poor continues to get a pittance by comparison.

Economist Nancy Folbre compared the ongoing spending on the $700 billion bank bailout plan, the Troubled Asset Relief Program (TARP), with the government's $4.5 billion annual budget for single mothers through the Temporary Assistance for Needy Families (TANF) program. "So one year of TANF spending equals less than 1 percent of TARP," she wrote in a New York Times blog. "Citibank alone received $25 billion, five times the cash transferred to mothers and children receiving public assistance in 2007."

This double standard is fueling widespread outrage--which the mainstream media condescendingly dismisses as "populist rage."

A recent Rasmussen poll suggests a different word might be more appropriate. Just 53 percent of people responding to the poll said they favored capitalism over socialism. Adults under 30 are essentially evenly divided: 37 percent said they preferred capitalism, 33 percent said socialism, and 30 percent are undecided.

This shows the thirst for an alternative to a free-market system that is ruining the lives of millions of people. Whether or not a recovery is at hand, the widespread questioning of the capitalist system--its vast inequality and its inability to meet the most basic social needs--will continue.

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