Happy Days are Here Again?

Listening to the mainstream media and the business press, one can only conclude that we are enjoying the most robust economy in a quarter century. Unemployment is low by recent standards, and the much touted European and Japanese economies, while hardly moribund, are sluggish. Some of the leading economic commentators have concluded that U. S. economic success confirms an older common sense. If the Fed will stick to fighting inflation and if government balances its books, steady prosperity is in order.

Europe and Japan have certainly seen undesirable increases in unemployment, but before we take too much comfort in our jobs picture, we might consider a few caveats. Most of Europe's unemployed are still doing far better than the poorest among our job holders, many of whom cannot escape poverty. And even today our jobs picture remains very spotty. Unemployment rates differ considerably by state and region.

But there is a larger problem with this new common wisdom. It is incredibly myopic. One or two years, even spectacular ones, don't a trend make. Extrapolating from yearly data to long term forecasts about the U. S. economy is like trying to predict the outcome of a football game from the first two possessions.

Sure, in the memorable cliche of politicians, many citizens are better off than they were five years ago. Unfortunately, there is an apples and oranges comparison here. U. S. capitalism remains a very cyclical economic system, and most workers are always better off at the end of the up cycle than at previous points. Those who wish to demonstrate our arrival in a new capitalist era are best served by comparing the overall performance of our economy during this cycle with its behavior in previous cycles.

Economic historians chart ten major economic expansions since World War II. Summarizing a range of data on these periods, Doug Henwood recently suggested that by almost every one of the measures (including rate of job growth, earnings, GDP growth, productivity increases, investments, and even profits) the current upward cycle "stacks up as mediocre to poor."

Of course, the new celebrants of our corporate markets may well reply that this boom still isn't complete. Reports of its wimpish character may be a bit premature. True enough. Nonetheless, the inadequate performance in such key areas as investment and productivity growth provide very little reason for anticipating a boom so long and potent that it will eclipse previous standards.

Rather than celebrating our successes or pointing with glee to European and Japanese failures, it might be better to examine some of the problems all these economies share. The Europeans have been engaged in a two-decade task of creating a trade and financial union. German financial authorities have been imposing exceptionally strong deflationary pressures on all members, and wage and labor guarantees within the union have been far weaker than originally promised. Europe as a block has also faced increasing competitive pressure from low-wage states throughout the world. In consequence, it finds it increasingly difficult to create new high-wage jobs. Recent political changes, especially in Germany and France, may place more pressure on governments to stimulate jobs by shortening the work week, but these initiatives face fierce employer resistance. They will be difficult to achieve as long as business is free to move capital at will.

Japan succeeds as an export kingpin by forcing inordinately high levels of savings on its workers, managers, and even owners. It buttresses this strategy through arcane techniques of excluding much foreign competition. Speculative investment and inadequate domestic demand have plunged Japan into recession. Its protectionism contributes to an unbalanced international trade system.

The recent growth in U.S. jobs has been more attributable to a continual ratcheting down of wage rates, relaxed monetary policy, and high levels of consumer debt. But consumer debt can't grow forever. In addition, as Lester Thurow of MIT points out in The Nation, the emergence of the European Union as a huge capital market will place greater constraints on U. S. monetary policy. In the past, the United States could cut interest rates without much concern about the effects on the value of the dollar. We were the only large capital market in town. A United Europe and a new Euro currency changes all of that. If the U.S. keeps rates low and continues to run a large trade deficit, capital will eventually flee our markets for Europe

If there is a lesson in these scenarios, it is that much more than tinkering with monetary policy will be needed to sustain prosperity. Fundamentally, capitalism is a complex set of institutional, cultural, and legal relations between those who own the firms and those who produce the goods and services. An old order in which workers had some say in wages through unions ( the U.S. case ) or a healthy social safety net and some voice in corporate affairs (Western Europe), or the protections of a largely benevolent patriarchy (in Japan) has been collapsing through both internal and external pressures.

The business press may celebrate an unbridled corporate power all its wishes, but there is little reason to suggest that the rebirth of capitalism in its more primitive forms can sustain our prosperity or freedom. In the thirties, governments had to intervene to create jobs and encourage unions that would at least allow worker wages to keep pace with productivity increases. Such initiatives need to be played out on an international stage today. Competition between massive trade blocks based on reducing wages and imports is a recipe for world recession or worse. Absent a politics and a process that gives workers a broader say and stake in the new order, both domestically and internationally, we will be lucky to enjoy even our current anemic booms much longer.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. He is co-author, with Tom DeLuca, of Sustainable Democracy: Individuality and the Politics of the Environment (Sage). He invites comments via e mail at:

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