Saturday, March 8, 2008

It's A "Recession," Stupid,and It Can Become a "Depression"

by Norman Markowitz

Unemployment rose by 63,000 last month, the biggest monthly jump in five years. Inventories are piling up and manufacturers, unable to sell as much as they "planned," protect themselves and their profit margins by laying off workers, which in turn reduces workers collective purchasing power. The "subprime mortgage crisis", itself a product of overpriced houses and the sort of deregulation that permitted banks and brokerage houses to become initially accomplices and then fall guys for real estate hustlers preying on low income home owners and would-be home owners, not only puts low income families in foreclosure but also undermines the construction industry, leading contractors to lay off construction workers to protect themselves and their profit margins.

The crisis also interacts with earlier Republican legislation that benefited credit card companies and banks against the interests of card holders and debtors, to tighten such credit and put the squeeze on millions of people, forcing them to go deeper in debt as they seek to pay off their debts as super high interest rates. All of this adds to a continuing crisis of mass purchasing power which "trickle down" policies only make worse, intensifying income inequality by giving corporations and the rich everything and asking nothing back from them.

So what is the government doing, nearly eighty years after the start of the great depression, which saw both the repudiation of Coolidge Hoover policies that denied that any crisis was more than a business cycle blip, and the implementation of reforms that separated commercial from investment banking, established the SEC to regulate the Stock Exchange, enacted the NLRB, public employment under the Works Progress Administration, Social Security, Unemployment Insurance, Minimum Wages, to sustain mass purchasing power by strengthening trade unions and providing the general population with what would later be called a "safety net" and "transfer payments" that would prevent the collapse of mass purchasing in the economy which had produced the depression.

The government today isn't doing any of those pro labor, pro people things and for decades has even stopped thinking about doing modern versions of those things. The press is filled with speculation that the Federal Reserve Board will once again reduce interest rates, the policy that stems from the monetary theory of Milton Friedman, who argued that all the fiscal and social policies that were developed in the depression weren't really necessary and were in many ways counterproductive to the working of a "free market" economy. By controlling through central banks the flow of credit in the economy, by increasing or decreasing the price of money for investment, "recessions" could be contained and government could once more become the "passive policeman" of laissez-faire capitalist theory.

This is not to say that the government has completely abandoned the fiscal policies that were at the center of New Deal and subsequent government programs to regulate and reform the economy, policies associated with the British economist John Maynard Keynes. It still has the biggest fiscal policy of all, military spending(what the historian Richard Hofstadter called "military Keynesianism" in the 1950s) to subsidize corporations directly, even though it has forgotten about fighting "wars on poverty," upgrading rather than downgrading existing labor protections, and establishing programs and agencies to provide jobs by public works construction and infrastructure reconstruction. Its idea of increasing mass purchasing has nothing to do with sharply increasing minimum wages, reviving rent and price controls, funding public education and transportation at pre Reagan era levels so as to reduce their costs, or establishing a social security based national health system that would sharply reduce out of pocket expenses for medical care and drugs for the general population. No, its "fiscal" policy for the people is a tax rebate to pump money into the economy, even if large numbers of those who receive this rebate will probably spend it to try to reduce their present debt on credit cards and other things rather than make new purchases

"Deregulation, detaxation," privatization," as I often tell my classes in U.S. history, were the watchwords of the Harding and Coolidge administrations as they left Herbert Hoover holding the bag that became the great depression. The Democrats of that era offered no alternative until a generation of new urban based liberals supporting labor and social reforms and new radicals, Communists primarily, committed to effectively organizing the people to fight against their exploiters and oppressors, decisively defeated the Coolidge-Hoover policies. I tell them though that reforms are a beginning not an end, and if they are not implemented in both policy and popular understanding, reaction often rears its ugly head.

Updated versions of those Cooldige-Hoover policies have been ascendant since the 1980s, connecting "deregulation with the insurance protections like FDIC which were established in the New Deal area to protect the people (using them in a deregulated system to protect speculators with taxpayers money). Next year will be both the start of a new presidential administration in the U.S and the 80th anniversary of the great Stock Market Crash, which intensified the economic stagnation and growing unemployment in the U.S. economy and over the next three years became the Great Depression. As the campaign continues, we should be educating working people, who already have great fears about the economic crisis, about what the real dangers are and what will be necessary to insure that corporations and the rich don't continue to "trickle down," their crisis to the masses of people, by defeating the government policies which give them everything in subsidies and, through deregulation and anti-labor policies like NAFTA internationally and undermining domestic labor laws, expect nothing in return from them.

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