By Joe Sims
With plummeting stock markets, skyrocketing foreclosures, and credit markets tightening, a recession looms large on the economic horizon. The severe crisis that has been plaguing financial markets is now beginning to ricochet through other areas of the economy, precipitating layoffs in related industries like construction and dampening consumer confidence.
For the first time since the Depression years of the 1930s banks are recording negative profits, with record losses in the tens of billions. According to today’s papers, bank presidents are scurrying across the globe, “hat in hand” (in the words of the New York Times) in search of desperately needed capital. Crisis management seems to be on the order of the day.
Today’s economic indicators report either downturns or mixed results in 5 of 13 “beige paper” categories, leaving only 7 unaffected. Indeed, recession conditions are already manifest in states severely effected by the sub prime mess, among them, California, Florida, Ohio and Michigan. And while it is true, the national economy has still not felt the downturn’s full effects, policymakers and plutocrats are worrying themselves sick about a countrywide economic shock and well they should: if the US economy sneezes, the world might catch pneumonia.
Is a hard landing ahead? Is an economic crisis in the making? Marxists seem loath to make such a prediction. Some seem to go to great pains to downplay such a scenario pointing to robust indicators of production and productivity. I listened in amazement recently to a conversation among thinkers in PA circles who went to great lengths to point to the stability of the US economy, one of who argued that the US economy is not in crisis, basing this, incredibly on the stabilizing influence of China and Vietnam’s purchases of US industrial and technological goods and services! (More on this later).
But the bourgeois pundits are not so cautious. The economy is now dominating the presidential contest on both sides of the aisle. The Federal Reserve is meeting with Congress to discuss what to do. Bush is holding conference calls with the Congressional leadership.
Everywhere one looks the bad signs portend. “If those signs turn into broad weaknesses,” wrote this mornings Washington Post, “it would mirror the late 1980s, when there were "rolling recessions," in which one region or industry after another suffered from weak economic conditions.”
What are the chances of recession? Try a “preponderance of probability” said a recent secretary of the US Treasury:
“At this point, I think the preponderance of probability is on a US recession this year, and there is the possibility, though not yet at all the probability, that a recession could prove long and severe if a vicious cycle of credit problems cause economic problems, cause further credit problems, exacerbate the economic problems,” Lawrence Summers … said in testimony before the Joint Economic Committee yesterday.
For Summers a domino effect may be observed; cascading crisis multiplying upon itself.
To be fair, no one is saying a severe contraction is inevitable. But the language sure is gloomy. Here’s how David Leonhardt, wrote about it in today’s New York Times:
“This year, it’s still possible — if less likely after Tuesday’s dismal retail sales report and another sharp decline in stock prices — that the country will avoid a full-blown recession.”
Still possible but less likely that the country will avoid a full-blown recession. And what is the reason? It seems a classic principle of political-economy: Workers aint got enough money to buy back what they produce, a sign of crisis of overproduction. Writes Leonhardt:
“The main problem now is that the good times are no longer good enough to carry the middle class through the bad times. For much of the last 35 years, the incomes of most workers have been growing far more slowly than they once did. In the current expansion, which started in 2001, the median weekly paycheck of workers has actually fallen 1 percent, once inflation is taken into account, according to the Labor Department.”
The New York Times continued in this vein:
“The inflation report also suggested that the purchasing power of American workers was being steadily eroded. The cost of gasoline rose nearly 30 percent in 2007, and medical care costs also soared. Commodities and food prices increased about 5 percent for the year.”
Clearly, then, a wide section of the economy, namely the US working class is in crisis and feeling the effects of a steadily worsening situation: their buying power is less, goods costs more. And this in turn is leading to an aggravation of already existing crisis in other areas of the economy.
There used to be a time when we spoke of an “era of crisis.” However, the last fifteen years of expansion in certain areas of the economy, (notwithstanding the mild downturn of 2001) has fueled the thought that US transnational monopoly has managed, if not to overcome, then to mitigate the economic cycle. However, the coming economic crisis may lay all these threadbare analysis to rest. Time for the political economists to stand up! Otherwise, someone might say of us, what said in another election: It's about the economy, stupid!