A few months ago, it looked like the Great Recession was over and the economy on its way to full recovery. The Federal Reserve and the Treasury had bailed out the nation’s financial sector and engaged in enough deficit spending to stop the dramatic rise in unemployment. The major European economies were holding their own, and the rising BRIC (Brazil, Russia, India and China) economies seemed to be taking up any global slack in consumer demand and capital investment. Gross domestic product (GDP) here and in many other nations had stopped falling and started rising, sometimes dramatically. Worldwide, stock markets boomed.
Today, matters aren’t looking so rosy. GDP growth has slowed in the United States. Unemployment has remained stubbornly high. For months now, the underemployment rate (the officially unemployed plus those involuntarily employed part-time plus those too discouraged to look for work) has exceeded 16 percent, and more than 40 percent of the unemployed have been out of work for at least 27 weeks. In every sector of the economy, there is still an excess of job seekers over available jobs. Public employment is now declining, as state and local government shed workers to balance their budgets. The housing market is still in the doldrums and showing little sign of recovery.
Outside the United States, we won’t find much about which to be optimistic. Ireland, Spain, Portugal, Italy and Greece are still in bad shape, as are most countries in central Europe. There is a eurozone but no central European government or true central bank, so there is limited capacity to deal with economic problems. The European monetary authorities seem almost obsessively concerned with inflation and have never embraced expansionary monetary and fiscal policies. There is a public unwillingness in wealthier countries like Germany to help troubled countries like Greece. China is now facing a host of difficulties, including slower growth, real estate bubbles, growing unemployment, resurgent working class anger, and intractable environmental problems. If this major engine of global economic growth falters, economies everywhere else will suffer serious consequences.
Second, an increasing share of our GDP took the form of useless and destructive financial activity, and the lion’s share of business profits accrued to those who engaged in it. The selling of credit default swaps and the securities that bundled subprime mortgages — both of which helped to burst the housing bubble and bring us the Great Recession — was negatively productive and should actually have been subtracted from the GDP. Yet, those who sold these toxic assets made previously unheard of sums of money, which they spent on every imaginable luxury. A small coterie of socially unproductive multi-billionaires wielded more power than most sovereigns, and they used this power to push for socially retrograde policies: the elimination or privatization of everything from social welfare programs to public schools, the destruction of labor unions, tax rates on their income and wealth as close to zero as possible, complete freedom to move their capital around the globe, and an elimination of all regulations on any of their activities.
Third, a combination of deregulation of the movement of capital, electronic technology, and the modern management techniques known as lean production, allowed businesses to outsource and offshore increasing amounts of production, not just manufactured goods but a host of services as well. Because labor was not nearly as mobile as capital, these created a system of wage arbitrage, or, put simply, a race to the bottom in terms of working class living standards. They also created a reserve army of labor of more than two billion people worldwide. Employers now have very powerful threats — moving their capital, outsourcing work, using technology to downsize operations — to make their employees accede to their demands.
Tragically, nothing done since the downturn ended has changed these trends. Inequality is still growing. Poverty is on the rise. Finance rules every country’s politics. The globalization of capital continues full speed ahead. The governments of the rich nations bailed out the banks but not the people. Now the deficits they ran to do this are being to justify savage cuts in spending that will harm the people the politicians claim to be concerned about. And the financial systems of the United States and much of the world are still houses of cards, which could again implode.
There are, of course, policies that could be enacted now to alleviate the accumulation of misery that the Great Recession brought to a head. Public employment could be sharply increased. Social welfare programs, especially the social security system, could be expanded. Financial institutions could be closely regulated. Speculative activity could be outlawed or heavily taxed. Tax rates on rich individuals and corporations could be increased and enforced. High quality, energy-efficient public housing could be built. Union organizing could be legally encouraged. Controls could be placed on the international movements of capital. Wars could be ended. These are things that could sustain economic recovery. However, given the current balance of power in most societies, none of these things will be done. Quite the contrary. In the United States and most everywhere else, austerity is the watchword. Which means that a double-dip recession may be the least of our worries.
Michael D. Yates is associate editor of Monthly Review, editorial director of Monthly Press and author (with Fred Magdoff) of “The ABCs of the Economic Crisis: What Working People Need to Know.”