The presidential election season always brings a renewed interest in the economy. Every administration has two economic policies: one reflecting the economic philosophy of that administration and the second calculated to bring on the appearance of economic growth and prosperity just prior to the election. Twelve months or more before a presidential election, the incumbent economic gurus craft policies designed to convince the American people that everything is wonderful, or at least, promising. Often they do this knowing that these policies will create enormous problems after the election. But you only get one chance for re-election.
The capitalist media does everything they can to shape the perception of economic health. It is not worker income, equality, social security, life expectancy, and lower infant mortality that define economic prosperity for the opinion makers, but the growth rate of domestic product, productivity gains, and improving equity markets. In other words, the media ignore indicators that would truly reflect the well-being of working people, only keeping score on the well-being of corporate interests.
So, we are well into the presidential election campaign and the quarterly Gross Domestic Product growth rate appears to be on steroids, the Dow Jones Stock Market Average has again passed the magic number of 10,000, corporate America continues to herald the growth in productivity, and inflation appears nowhere in sight.
But before we celebrate this economic miracle, we should look carefully at what it means and how it was achieved. We will find that this vaunted “recovery” is, in fact, built upon a house of cards – dealt from a marked deck.
Most of the acclaimed growth in the last half of 2003 has been achieved with a massive shift in tax burden from the rich to the poor and enormous increases in government spending feeding a wasteful and insatiable war machine.
The administration has also sought to strong-arm its trading partners by allowing the dollar to lose value. The idea is to make U.S. exports more attractive overseas and foreign imports more costly in the domestic market. While this policy flaunts the “fair trade” mantra that free marketers worship, it is seen as another way to juice up the economy by spurring demand for U.S. goods and services.
But there is a hidden cost to this strategy. The huge deficit created by shrunken tax revenues and enormous spending must be financed: the government must issue notes to cover this spending.
But with low interests rates and a declining dollar, it is increasingly difficult to find investors interested in acquiring these notes. In October foreign investors made net purchases of only $27.7 billion in U.S. securities compared with $49.9 billion in August. September’s $4.19 billion was the lowest net foreign investment in five years.
This lack of demand for government-issued notes will create enormous pressure on interest rates. At some point, the government will need to offer better returns, higher rates to attract lenders. Chances are good, however, that the Federal Reserve will dutifully hold this off until the election. But when interest rates do climb, they may release the hounds of inflation and will certainly dampen growth, exposing the weakness and artificiality of the pre-election “recovery.”
Recognizing these dangers, the International Monetary Fund raised the flag of alarm on Dec. 7 out of fear that U.S. policies will hurt the global economy. Nonetheless, the Wall Street Journal acknowledges that the administration will ignore these dangers because these policies “prop up [the] economy in an election year.”
If the administration is successful in maintaining the appearance of a strong, recovering economy through the pre-election period, the simplistic slogan, “It’s the economy, Stupid,” will not work. Nor will it help to scold the administration about balanced budgets.
Instead, the opposition should embrace class-based economics by pointing to the widening income and wealth gaps between the rich and the poor. They should expose the loss of good-paying jobs and the availability of only low-paying jobs. Likewise, the corporate robbing of pension plans and the crisis of health care for millions shows the inherent weaknesses of the economy. The growing economic disadvantages of African Americans, other minorities, and women remain a national disgrace and a mark of a failed economic system. Attention to the economic needs of the vast majority of working people can spur millions to vote.
The author can be reached at pww@pww.org.
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