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US: economic woes « Previous | |Next »
May 29, 2011

Since the global financial crisis the Obama administration has been good to Wall Street and big business. It bailed out the Street. It saved GM, Chrysler, and AIG. And most government spending improves the profits of big businesses – military contractors, big agriculture, giant health-care insurers, Big Pharma, large construction companies. The White House are holding their breath, hoping the recovery catches fire next year before Election Day.

In Making Things in America in the New York Times Paul Krugman says that manufacturing is one of the bright spots of a generally disappointing recovery:

America’s industrial heartland is now leading the economic recovery.... I don’t want to suggest that everything is wonderful about U.S. manufacturing. So far, the job gains are modest, and many new manufacturing jobs don’t offer good pay or benefits. The manufacturing revival isn’t going to make health reform unnecessary or obviate the need for a strong social safety net.Still, better to have those jobs than none at all.

Krugman says that what is primarily driving the turnaround in the US's manufacturing trade is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage.

Krugman's 'generally disappointing recovery' refers to the combination of high unemployment and high home foreclosures that assures a deeply depressed economy. The US economy, like so many others, is caught in serious stagnation.

Richard Wolff observes:

In reality, the US is fast becoming more and more like so many countries where a rich, cosmopolitan elite occupies major cities with a vast hinterland of people struggling to make ends meet. The vaunted US "middle class" – so celebrated after the second world war even as it slowly shrank – is now fast evaporating, as the economic crisis and the government's "austerity" response both favour the top 10% of the population at the expense of everyone else.

It isn't looking good for many Americans at the moment. The technocrats at the Federal Reserve are running the US economy because the political arms of government—Congress and the Administration—largely abdicated responsibility for managing the economy to the Federal Reserve.

This has basically worked out to the benefit of the rich (people with lots of assets) as opposed to the poor (people with few or no assets). The Federal Reserve's economic policy is essentially a tradeoff between inflation and unemployment, and it gives greater priority to the former over the latter.

| Posted by Gary Sauer-Thompson at 12:31 PM | | Comments (7)


The original rescue of Wall Street was done under the Bush Administration by Henry Paulson, to save his friends in Wall Street. And they did save his friends, and in so doing they promoted the consolidation of investment banks and made the problem worse. Paulson didn’t recognize these banks as a problem---too big to fail.

Now Wall Street campaigns for minimal government. Minimal government would not require many taxes as it would not have large expenditures; it would not interfere in labor markets, letting individual workers deal with large business firms as ordinary people deal with the grocery store. This is not an attractive place to live for many people.

It's rule by bankers. American politics is being run for the benefit of bankers not the middle or working class. The broad principle is that governments should run their economies on behalf of banks and bondholders.

They should bail out at least the senior creditors of banks that fail (that is, the big institutional investors and gamblers) and pay these debts and public debts by selling off enterprises and shifting the tax burden onto labor. To balance their budgets they are to cut back spending programs, lower public employment and wages, and charge more for public services from medical care to education.

Bankers ruling ---that governments should run their economies on behalf of banks and bondholders--is also happening in Europe.

There we have an austerity programme of privatization and regressive tax shifts (its called a financial rescue) and a deep opposition to debt write-downs and progressive taxation to protect the domestic economies in the EU.

European bankers have their eye on the sale as much as $400 billion of Greek assets – enough to pay off all the government debt.

the financially fragile white working class fears losing ground economically. This huge bloc of battered Americans increasingly feels itself left behind—and lacks faith that either government or business cares much about its plight.

One of the reasons for the recovery in manufacturing is that American wages are being driven relentlessly lower thanks to the kind of free market labour relations practices that John Howard's Liberals wanted to introduce here. In some industries it's only a matter of time before US wages on the way down meet Third World wages on the way up. One reason for the sustained attacks on welfare in the USA is to ensure workers have to work at whatever wages are on offer unless they want literally to starve.

It's a case study in other words of what happens when you let the market rule wages and employee benefits but of course the empirical evidence will be cheerfully ignored by conservatives in favour of the usual dogma about the evils of Big Government and the virtues of incentivising people to seek out the dignity of work ... for the sake of their own self-esteem of course, nothing to do with keeping the masses in a condition of dependency on capital.

The Obama administration reestablished the old order with its out-of-control finance, which had brought on the global financial crisis. It did nothing to rein in the bloated financial sector, or to change the way the guys in Wall Street do business.

When it came to decisions the financial crisis forced upon policymakers, (Hank Paulson, Ben Bernanke, Timothy Geithner, and Larry Summers) they chose the blank check option over and over again. They did the opposite of what the United States had pressed upon emerging market governments in the 1990s

In the blank check scenario, the government keeps the bank afloat in its current form: managers keep their jobs, shareholders keep some value, and creditors are kept whole, so taxpayers bear most of the losses. Shareholders own all the "upside," meaning that if the bank recovers and increases in value, they will reap the benefits.

The portion of "temp" workers in the US economy is almost FOUR times as high as it was a decade ago.

The working poor, who provided the taxes which the treasury used in the bailouts, are getting screwed into the ground. The current rise in profits is built mainly on falling labour costs.

...and the rich are getting richer... "From mid-2009 through the end of 2010, out­put per hour at U.S. non­farm busines­ses rose 5.2% as companies found ways to squeeze more from their existing workers. But the lion's share of that gain went to shareholders in the form of re­cord profits, rather than to work­ers..."

Meanwhile, the schemes and mechanisms which collapsed this ridiculous house-of-cards remains mostly unchanged.

So excuse me if I don't share Mr Krugman's "glass half full" optimism.