The new disclosures of corporate corruption and the instability in the stock market are having an economic impact on the overall economy. The question is: will it trigger a major decline across the full length of the economy?
At the present moment, despite all the talk about an economic recovery, unemployment is near 6 percent and, according to one study, will climb to 6.5 percent by November. Wage growth this year is less than inflation, and income inequality, after a brief turnaround, is again growing. The length of time of unemployment is increasing.
Homelessness, seemingly immune to cyclical upswings, is also at unconscionable levels, while poverty rates are climbing again. And the job gains made by former welfare recipients, who are the first laid off, are now in jeopardy.
Millions of children are ill-fed, ill-housed, ill-clothed and ill-educated, with little prospect for improvement. The health care system remains in crisis, with 41 million people having no coverage at all, and millions of others ill-served. Millions are losing retirement benefits as the private pension system collapses under the weight of corporate malfeasance, plant closings and bankruptcies, and the bursting of the bubble.
As always, the deteriorating economic situation strikes broad sections of the working class, but not in the same way and not to the same degree. The heaviest weight falls on African-American, Latino, Asian, Native American and other nationally and racially oppressed communities. In every social index measuring well being, the nationally and racially oppressed are at the bottom of the ladder.
All of this begs the question – will the pace of economic activity pick up in the near term and lift all boats? Or is the weak recovery going to stall and give way to a broad decline in the economy?
The evidence suggests that a decline is more likely. The stock market is falling. In fact, some $ 1.5 trillion in investor wealth has evaporated since July 4 and the wealth effect that came with rising stock prices is working now in reverse. Profits are off for the sixth straight quarter. Corporate investment in plant and equipment, including hi-tech, is flat. Corporate and consumer indebtedness is astronomically high. The current account deficit is increasingly unsustainable. And the value of the dollar is declining relative to the euro and yen, which might improve the competitiveness of U.S. export industries, but not without straining currency and equity markets.
Moreover, all this occurs in the midst of overcapacity/overproduction in world commodity markets – a condition that world capitalism has been unable to surmount for three decades, despite having shed huge amounts of labor and productive capacity.
Thus, unlike the expansion of the 1990s, which initially surged forward on the strength of a revival in the goods sector and then was carried along in its last years by the wealth effect of rising stock prices, there appear to be no engines in the near and medium term that will jump-start the economy and sustain its growth over the longer term. More probable, in my opinion, is that the U.S. economy will double dip, as some mainstream economists call the phenomena of a brief recovery followed by another downturn.
How steep will the dip be?
We don’t know exactly. But it could be a major decline and could easily combine with downward economic pressures worldwide, in which case the repercussions here and elsewhere around the globe would be huge. In 1998 a near-worldwide economic crisis precipitated by an economic collapse in East Asia could have had catastrophic consequences had it not been for the strength of the U.S. economy. It lifted the world economic system back from the brink.
In present conditions, however, because of huge imbalances built up during the economic upturn of the 1990s, the reverse bubble effect, and a spiraling downward decline of investor and consumer confidence, the likelihood of the U.S. economy providing that lift again – let alone regaining sustained momentum – is dim.
What is more likely is that a downturn in the U.S. economy or, for that matter, any one of the three main centers of global capitalism, could easily become a reinforcing system-wide major crisis because of the new level of integration and the anarchic nature of the world capitalist economy.
If this occurs, it will add an explosive element to the struggle against the Bush administration and corporate globalization. Even if it doesn’t reach such crisis levels, the economy still will cast a long shadow over the 2002 elections and the struggles beyond.
Sam Webb is the national chairman of the Communist Party USA. He can be reached at email@example.com