June 4: News headlines announce the latest casualties of the current recession, as employers cut 345,000 more workers from their payrolls in May. Yet somehow, this is good news!
Economic pundits pointed to this as evidence that an economic recovery is imminent: “Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall — raising the brightest hope yet that an economic recovery will take hold later this year.” (AP, 6/5/09)
Fast forward a month. The June layoff report dims the recovery prospects. The number of job losses jumps to 467,000, bringing the total number to 6.5 million for this recession.
So which is it? Are we moving towards economic recovery, or is the pace of the economic slaughter just relenting slightly?
Premature Talk of Recovery
The June jobs report appears to have rendered forecasts of a recovery premature and overly optimistic. According to one economist, “The numbers are indicative of a continued, very severe recession. There’s nothing in here to show that the economy and the market are pulling out of the grip of recession.” (NY Times, 7/2/09)
So in effect, we’re not out of the woods yet. Instead, many signs point to us still being in the midst of a bleak recession. The current 18-month-long crisis is so severe that it’s “the only recession since the Great Depression to wipe out all job growth from the previous business cycle,” according to the Economic Policy Institute.
And as unemployment continues to rise, it pushes the prospects of recovery further into the future. Consumer spending makes up 70% of the U.S. economy. With so many workers out of a job, there’s less money being spent on goods and services.
NY Times columnist Paul Krugman pointed out that this poses the threat of deflation: “The job figures weren’t the only bad news…wages [are] stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse.”
In the past, U.S. workers were able to overcome stagnating and declining wages through increased debt. Credit cards and borrowing against rising home values were common methods.
But with housing prices continuing to decline and households buried under a mountain of debt, these are no longer options. Meanwhile, paychecks are shrinking for many who still have a job, as tens of millions have had their hours cut or have been furloughed.
There are still many other problem areas in the economy that are weighing against economic growth: construction, retail, and manufacturing are all weak; home foreclosures are again rising, causing more bank losses; and banks, despite numerous government bailouts, are extremely reluctant to lend.
To help outline perspectives for where the current economic situation could lead, looking back at Japan’s “Lost Decade” of economic stagnation in the 1990s is instructive. There, in the late 1980s widespread real estate speculation inflated property prices, creating a massive housing bubble. The bursting of this bubble left in its wake a wave of bank failures and a decade of deflation, high unemployment, and economic stagnation.
Similar to the U.S., Japan spent big bucks on government stimulus programs to turn the economy around. However, rather than resulting in sustainable growth, they merely prevented the economy from falling off the cliff into a depression-like scenario.
The Japanese economy was only able to recover in 2003 because of an increase in exports in the context of growth in the world economy. But today, we are witnessing the first simultaneous global downturn in 60 years, resulting in a contraction of global trade.
All this points to the likelihood that even if the U.S. economy is no longer in free-fall and has hit bottom, we could be facing a long, “L-shaped” period of economic stagnation. Even if there is a recovery, which would likely be weak, there will be no return to the conditions of decades past where ordinary people saw a growth in living standards.
Today, with the U.S. economy still littered with so many unsolved problems, what’s with all the talk of recovery? The corporate media is desperate to restore some semblance of confidence in the capitalist system, after it spent months in intensive care.
Corporate America fears the political repercussions of a prolonged recession: the current growing popular anger going even further, sparking mass protests that challenge their control over our lives and the economic and political system we live under. They want us to have hopes that the good times will return again, preserving working people’s faith that the American dream is attainable.
Obama’s stimulus and $13+ trillion bank bailout plans, along with the wars in Iraq and Afghanistan, are also running up large budget deficits. At some point, this bill will get passed on to ordinary people in the form of higher taxes and cuts to education, healthcare, and other vital public services.
This could also fuel inflation, as buyers of U.S. government debt become nervous about ballooning budget deficits and demand higher interest rates.
These assaults on working people will push them to fight to defend their jobs and wages, and spark struggles to create jobs to put the unemployed back to work. It’s crucial that workers, young people, and the unemployed begin organizing to fend off these attacks. Big business and their economic system caused this crisis. They should be the ones to pay for it.