A sense of melancholy about the intractable economic crisis has settled over Democrats in the run-up to Novembers elections; they dont know what to do and seem resigned to their political fate. Republicans, on the other hand, appear deliriously happy, giddy in fact, about their prospects. They shouldnt be, because they dont know what to do about the economy either.
If pushed to the wall, despondent Democrats will call for another government stimulus package, knowing full well they cant pass one through Congress. And even if they could, Stimulus II would only nibble around the edges and mitigate the agony a bit unless it was radically different from Stimulus I. Republicans, pressed for their solution, will naturally opt for their unwavering response to all economic problems: tax cuts aimed primarily at corporate America and the upper-income classes, the sainted investors whove done so well since Reagan.
Democrats stubbornly insist the 2009 stimulus program worked, saving us from economic catastrophe. Theres considerable truth in this, but its an overstatement. The stimulus liberals originally wanted, the one championed by minority administration insiders such as economic advisor Christina Romer ($1.2 trillion instead of the eventual $800 billion), might have done the trick; well never know, since it was killed in its crib by the White House tag team of Emanuel, Summers, and Geithner, and by the demands of bipartisan holdouts like Republican Sens. Collins and Snowe of Maine. We do know, with the benefit of hindsight, that the stimulus finally enacted was badly targeted, excessively reliant on tax cuts, and too small, a stopgap measure at best. And its lingering positive impact will soon be behind us.
Republicans, meanwhile, who wanted no stimulus at all, blindly insist on more tax cuts as the answer to economic stagnation. The fact is American fiscal policy has been about nothing but tax cuts for the past 30 years tax cuts under Reagan, modified ever so slightly by Bush 41 and Clinton, and then doubled down upon with a vengeance by Bush 43.
Americans, the lowest-taxed people in the industrialized world, presently pay cumulative federal taxes totalling just 14% of gross domestic product (GDP), down from an average of 18% for several prior decades, including 21% during the Clinton years. The economic impact of tax policy has been negligible; modest upper-bracket enhancements during the 1990s did not curtail the high-tech boom, and massive reductions during the early 2000s did not save us from the Great Recession.
So, whats going on here? Quite simply, American capitalism is evolving, rapidly changing in a negative fashion and outstripping the response capacity of public policymakers and regulators. Government is caught in a time warp; its solutions are geared to a capitalist structure that has ceased to exist. Take the federal stimulus, for example. In theory, it should have put the country back to work, as similar pump-priming measures did in the past. But modern-day capitalism has learned to disregard government actions that dont immediately translate into fattening the overall bottom line or fattening it to the desired extent.
Corporate America will gladly accept any favors federal officials want to offer in the form of bailouts, tax breaks, eased regulations, infrastructure improvements, employee retraining, and the like; it will then implement whatever expedients boost profit margins without regard for the national interest. These include employment outsourcing, which proceeds apace, mass firings, rollbacks in pay and benefits, and job-killing conversions to automation and computerization. There is no sense of a moral quid pro quo in terms of domestic hiring.
One of the newer ways capitalism achieves its ends is by increasing production of saleable goods and services without creating jobs. Productivity, defined as GDP per hour, has long been a misnomer. Rising productivity, Americans are led to believe, means the nations dedicated workforce is growing increasingly more efficient, with a work ethic superior to that of less productive countries in places like Europe. In actuality, what higher productivity really means is that American employers have learned to squeeze more output from smaller workforces by pushing existing employees harder (but not paying them more) and by replacing many labor-intensive functions with expanded information-technology (IT) applications. What it most emphatically does not involve is more hiring.
According to The Economist magazine, a staunch defender of the free-market system, the US is replicating, on a massive scale, the jobless recovery from the recession of 2001, when business first experimented with using IT, not additional hiring, to raise productivity and meet post- recession demand. In addition, American firms have taken advantage of a uniquely flexible (unregulated) US job market to accelerate layoffs, resulting in record postwar unemployment. The recession has made executives realize, business researchers at the Conference Board observed in March of this year, that they can keep their operations going with fewer staff. By August, Economist editors were forced to acknowledge that not since records began to be kept had so deep a recession been followed by so shallow a recovery in employment.
And shallow it is. The recession officially ended over a year ago, in June 2009; thats when GDP and industrial production hit bottom and started up. Productivity, the false indicator, rose an average of 7.25% per quarter for the balance of that year, and its still rising. Yet, the economy lost 900,000 jobs in the nine months following the purported June 2009 turnaround, the worst post-recession performance ever, and roughly 24 million Americans remain unemployed or underemployed.
US businesses hired workers after the recessions of 1990-91, 1981-82, and 1973-75; they even hired following the worst years of the Great Depression (1929-33). But they wont hire now. In raw numbers, actual employment remains at the same level in 2010 as it was in late 1999. Neither traditional stimulus projects nor tax cuts will do much to alter the dynamic because American capitalism, in its quest for maximum profits with a minimum labor force, has moved on.
Those prone to blame President Obama for changes in capitalist behavior presently beyond his control are obviously barking up the wrong tree. The president can be blamed, however, if he fails to recognize the new behavior and fails to develop strategies to address it. A brave, new capitalist world, with 10% unemployment as its new normal, is clearly unacceptable.
Wayne OLeary is a writer in Orono, Maine.
From The Progressive Populist, November 1, 2010
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