Towards the
Precipice Robert Brenner on the crisis in the US economy
(Gekürzte Fassung) (
) When corporate scandals
first hit the headlines early in 2002, the US Treasury Secretary Paul
O'Neill attributed them to the immorality of a 'small number' of
miscreants. Apparently he'd been misinformed. The rapacious practices of
these executives and firms - whether or not technically illegal - are
typical of, and endemic to, corporate America. The recent scandals bear
witness, however, not just to the level of individual corruption
characteristic of US crony capitalism but to systemic problems in the real
economy. It is because the epidemic of fraud makes manifest the ill-health
of the corporations themselves that it has taken such a heavy toll on
investor confidence and the stock market.
The corporate account
rigging now coming to light is the direct result of the economic boom of
the late 1990s, driven by an almost unprecedented increase in equity
prices. Its raison d'κtre has been entirely straightforward: to cover up
the reality of an increasingly desperate corporate-profits picture.
Between 1997 and 2000, just as the fabled economic expansion was reaching
its apex, the rate of profit in the non-financial corporate sector was
falling by a dramatic 20 per cent, initially as a consequence of
overcapacity in international manufacturing. Under normal circumstances,
this would have caused capital accumulation and economic growth to slow.
As it was, however, stock prices soared, in information technology
especially, even as corporate returns fell. Companies could thus access
funds with unprecedented ease, either by issuing shares at highly inflated
prices or by borrowing money from banks against the collateral of those
overpriced equities. On the basis of this financial windfall, US
corporations, especially in the IT industries, vastly stepped up their
capital accumulation. The investment boom continued, with increasing
growth of output and productivity. Even the staid academic economists of
the Council of Economic Advisers, not to mention the chair of the Federal
Reserve, celebrated a new synergy of technological change and freed-up
financial markets that was ushering in an unprecedented era of
progress.
The catch, of course, was that fast-rising profits are
normally required to justify and support fast-rising stock prices, as well
as rapid investment. Instead, as investment accelerated in the face of
declining returns, overcapacity worsened, and the fall in profitability
extended from manufacturing to major high-tech industries - above all,
telecommunications. Faced with this patent failure of 'fundamentals',
corporate executives were under mounting pressure to keep stock prices
high by any means necessary, in order to maintain access to cheap finance
and the investment funds required to compete; the fact that they had come
to depend heavily on stock options for their own compensation naturally
quickened the temptation. One after another great corporation falsified
its accounts to exaggerate short-term earnings. But the economy could
defy gravity for only so long. From the middle of 2000, the reality of the
profits crisis became apparent as a never-ending parade of corporations,
including almost all the stars of the boom, were obliged to report
increasingly dismal earnings. Share prices began a steep descent, and
investors gradually awoke to the reality that they had been had. By this
time the stock market was no longer stimulating the economy: on the
contrary, as their equity prices collapsed, corporations were obliged to
cut back on both borrowing and issuing shares, making capital accumulation
more difficult. The huge mass of superfluous plant and equipment that was
the legacy of the bubble-based misinvestment boom was now apparent to
everyone. Corporations were left with little reason to accumulate new
means of production, or labour, but with every reason to initiate price
wars. The economy plunged into recession. (
)
According to the
official story - told not only in Alan Greenspan's testimonies to Congress
but in the Council of Economic Advisers' Economic Report of the
President 2001, the last under the Clinton Administration - the stock
market hothoused a technological revolution in the 1990s which allowed the
US economy, in contrast to its laggard rivals in Japan and Western Europe,
to escape from two decades of stagnation. In this view, a 'new economy'
focused on information technology had emerged which, by significantly
increasing the possibility of productivity growth, opened up the potential
for far higher profits. The stock market rose to extraordinary heights in
anticipation of these profits. Financiers, the story goes, naturally
responded to these firms' elevated share prices by lending them money, or
buying their shares. Rising investment enabled the accelerated
introduction of new economy technology and thus productivity growth, which
made for even higher potential profits, higher share prices, better
funding, accelerated investment and so forth - what Greenspan called a
'virtuous cycle', which issued, between 1995 and 2000, in what the Council
of Economic Advisers hailed as an 'extraordinary economic performance'.
Since the stock market provides investors with unmatched information as to
the most promising firms and industries, or so the theory goes, these
would be expected to expand most rapidly and drive the boom most
efficiently. In particular, by offering astronomical returns on the
initial public offerings of the best new high-tech start-ups, the stock
market allowed venture capitalists to achieve otherwise inconceivable
rates of profit, and thereby to underwrite the fastest possible
technological change.
The reality of the expansion of the 1990s
bears little resemblance to the official version. The claim that this was
an 'extraordinary' boom is belied by the Government's own figures. In
terms of the standard measures - growth of output, capital stock, labour
productivity and wages, as well as the level of unemployment - performance
in the supposedly sensational five-year period between 1995 and 2000
barely matched the levels achieved in the 25-year period between 1948 and
1973. The growth of labour productivity, the most important indicator of
economic dynamism, was a full 20 per cent lower. Taking into account the
whole business cycle of the decade from 1990 to 2000 and not just the five
good years at the end, the average annual rate of growth of GDP per person
was a meagre 1.6 per cent, compared to 2.2 per cent for the hundred-year
period 1889-1989. Even by 2000, real hourly wages for production and
non-supervisory workers were still palpably below, and the poverty rate
above, their 1973 bests.
To grasp what drove the economy in the
1990s demands a longer historical perspective. The economic expansion
during that decade took place against the background of the 'long
downturn', the era of slowed growth in the world economy that followed the
long postwar boom. Between 1973 and 1995 the growth of output, investment,
productivity and wages was one third to two thirds lower than during the
previous quarter century, while unemployment levels were several times
higher (except in the US). What was mainly responsible for the extended
slowdown was overcapacity and overproduction in the international
manufacturing sector, which led, by way of incessant downward pressure on
prices, to reduced profitability - and the failure of successive attempts
made by corporations and governments successfully to respond to this. The
problem originated in the later 1960s as a consequence of the
intensification of international competition, which itself resulted from
the stepped-up entry into the world market of lower-cost producers based
in Japan, as well as Western Europe. During the 1970s, overcapacity and
overproduction worsened as leading firms in advanced capitalist countries
found that it made more sense to respond to their problems with
competitiveness and profitability by stepping up investment in their own
oversubscribed lines than by reallocating capital into new ones, thus
reproducing the initial problem. Meanwhile, firms based in the developing
economies, especially in East Asia, found they could enter certain lines
at a profit despite overcapacity. Only ever greater doses of Keynesian
deficit spending prevented the onset of deep crisis, but at the cost of
runaway inflation. (
)
Appearances to the contrary, the long
downturn was not transcended even during the 1990s. Between 1990 and 1995,
the advanced capitalist economies suffered their worst half-decade of the
postwar epoch. For the decade as a whole, their performance taken together
was, despite the US boom, hardly better than that of the 1980s; which
itself was down from the 1970s; which, in turn, had been much worse than
the 1960s and 1950s.
It was against the background of a
slow-growing global economy that the US launched its economic revival.
Between 1985 and 1995, the US manufacturing sector used an impressive
recovery of international competitiveness to achieve an increase in
profitability that was responsible for bringing the profit rate in the
private economy as a whole above its 1973 level for the first time since
the end of the 1960s. By 1994, this rise in profitability had set the
stage for the investment boom that would be the main source of economic
dynamism in the later 1990s; US economic expansion had begun in
earnest.
The means by which the manufacturing sector achieved its
recovery of profitability were typically destructive. The Plaza Accord,
imposed by the US Government on its leading partners and rivals in 1985,
led to a 40-60 per cent fall in the dollar against the yen and the
deutschmark over the following ten years, dramatically lowering the cost
of US goods compared to those of its main competitors. Employers held real
wage growth close to zero for the whole decade. The Reagan Administration
slashed corporation taxes. While investment continued to stagnate until
1993, companies shed masses of high-cost, low-profit means of production
and labour in order to raise productivity.
But the fact that the
US's recovery of profitability was the result mainly of corporate
downsizing and the gouging of workers, citizens and overseas rivals proved
highly problematic for the two next largest economies, the Japanese and
the German. For most of the period there was little growth in US aggregate
demand. Demand for plant and equipment and for consumption goods both
stagnated. Government demand fell, too, as from 1993, the Clinton
Administration - going back on America's historical willingness to sustain
deficits to stimulate the global economy - turned to balancing the budget.
Meanwhile, US manufacturers' reductions in relative costs through wage
restraint, productivity increase and dollar devaluation allowed them to
appropriate world market share from their competitors in Japan and
Germany.
The outcome was that during the early 1990s German and
Japanese manufacturing profitability fell sharply just as the US was
assembling the basis for its boom. This hydraulic pattern - by which the
recovery of one manufacturing economy would find its counterpart in the
crisis of another as the exchange rate shifted - reflected the system's
slowed growth, and would be repeated time and again. From 1991 both the
Japanese and German economies experienced their worst recessions of the
postwar epoch. By 1995, there had still been no palpable recovery in the
advanced capitalist economies as a whole. The long downturn was alive and
well.
In the spring of 1995 the yen rose to 79 to the dollar; as
recently as 1985 it had stood at 240. The Japanese manufacturing economy,
obliged to absorb this enormous increase in the relative cost of its goods
on the world market, seemed on the verge of freezing up. Having just
weathered the international disruption caused by a major financial crisis
in Mexico that had reverberated throughout Latin America, the US
Government could not allow the Japanese economy to fail. Japan's economy
was second only to that of the US, and a crisis there would pose a threat
to international stability. The country was also the US's leading
creditor, and a Japanese crisis would probably have led to a fire sale of
US bonds, forcing up interest rates and cutting short the American
recovery in the run-up to the 1996 elections. With the so-called 'reverse
Plaza Accord' of summer 1995, the US Government therefore agreed with its
Japanese and German counterparts to drive up the dollar.
This
agreement constituted a turning point in the evolution of the world
economy. It reversed the dominant economic trends of the previous decade
and, in a crucial sense, prepared the way for every major development of
the next five years: the decline of US profitability, the historic equity
price increase, the stock market-led economic boom - and the crash and
recession that have followed.
The first, and most consequential,
effect of the dollar revaluation was to put an abrupt end to the
decade-long recovery of US profitability. Between 1997 and 2000 the
corporate manufacturing profit rate dropped by more than 15 per cent, so
that the US economy lost what had up to this point been a major source of
its momentum. This sudden increase in pressure on the rate of profit posed
a threat not just to the US but to the entire world economy. To counter
the long downturn, and the reductions in profitability that lay behind it,
governments and corporations across the globe had been taking ever more
stringent measures to reduce costs. But the unavoidable by-product of
their offensive had been the shrinking growth of aggregate demand across
the system, which now threatened to short-circuit international economic
recovery. Wage and social spending increases had been cut back
increasingly sharply over the 1970s and 1980s. In the run-up to monetary
union, European governments had imposed even tougher austerity measures,
and the Clinton Administration had followed suit.
In the context of
increasingly sluggish domestic markets, the rest of the world was obliged
to look to the US market to provide the export demand to keep their
economies going. But with American wage growth flat and government demand
rapidly shrinking after 1993 as the Federal deficit fell, dependence on
the US market translated into ever greater dependence on the growth of US
investment - which, it was hoped, would result in greater imports both of
new plant and equipment and, by way of higher employment and rising wages,
of consumer goods. With the new downward stress on the manufacturing
profit rate deriving from the rise of the dollar, however, the capacity of
the US to serve as the 'market of last resort' appeared under
threat.
And yet, from 1996, US economic expansion took on a new
dynamism, and carried the rest of the world along. What increasingly drove
it was a stock market that soared to unmatched heights, despite the
weakening of corporate profitability from 1997. Between the early 1980s
and 1995, the rise of equity prices had been no greater than the rise of
profits. Henceforth, a growing chasm would open up between the two. As the
Wilshire 5000 Index soared 65 per cent between 1997 and 2000, corporate
profits (after tax and net of interest) fell by 23 per cent.
What
laid the basis for the stock market's dizzying ascent was a major,
long-term easing of credit. This resulted, initially, from the same
co-ordinated move in 1995 by the G3 powers to drive up the dollar that had
brought about growing downward pressure on the US manufacturing profit
rate. To push down their own currencies relative to the dollar, the
Japanese - and other East Asian governments - bought US assets, especially
Treasury instruments, in massive quantities. The resulting flood of money
on US markets brought about a sharp reduction in long-term interest rates.
Meanwhile, seeking to secure stability in the wake of the Mexican
financial crisis, the Federal Reserve lowered short-term interest rates.
Investors took advantage of the declining cost of borrowing to pour money
into the stock market, driving up equity values. And with the dollar going
up, stock prices automatically rose in value in international terms, which
attracted more investment that, in turn, drove the stock market even
higher.
What seems puzzling is that the process did not stop there,
once the gap between share values and profit rates had begun to open. By
late 1996, Greenspan was publicly expressing concern about the 'irrational
exuberance' of share prices. But he was clearly even more anxious, in
private, about the possible stumbling of the US economy, especially as
economic growth at first proved hesitant in the face of his interest-rate
reductions and as turmoil shook the East Asian markets in spring 1997. In
this context, as he was well aware, the 'wealth effect' of a rising stock
market could play a stimulating and steadying role, funding investment
growth and consumer demand that could compensate for declining government
deficits and the negative impact of the rising dollar on profit rates. If
the prices of their equities rose, corporations would be able to access
otherwise unavailable funds for investment, either by issuing over-valued
shares or by borrowing from the banks. By the same token, households with
rising paper wealth would find less need to save.
In undertaking
the US's first essay in what might be termed stock-market Keynesianism,
Greenspan, far from seeking to control the bubble, actively encouraged it.
He not only welcomed the enormous increase in liquidity resulting from the
influx of foreign money and his own reduction of interest rates, but also
refused to raise the cost of borrowing from the beginning of 1995 until
mid-1999 (aside from a lone quarter-point rise in early 1997) or to raise
the required margin on share purchases to discourage speculation. He
intervened vigorously by loosening credit whenever the equity markets
threatened to swoon - most spectacularly in autumn 1998, at the nadir of
the world financial crisis. As a result, from 1995 until 1999, the money
supply (M3) increased at six times the rate it had from 1990 until 1994,
opening the way for a gigantic wave of speculation.
US
corporations, in particular, were quick to exploit the easy money
Greenspan was pouring their way. Between 1995 and 2000, they increased
their borrowing to record levels as a percentage of corporate GDP; not
only to fund new plant and equipment, but equally to cover the cost of
buying back their own stocks. In this way, they sidestepped the tedious
process of creating shareholder value by producing goods and services at a
profit, and directly drove up the price of their shares for the benefit of
their stockholders and for corporate executives, who were heavily
remunerated with stock options. Between 1995 and 2000 US corporations were
the largest net purchasers on the stock market.
Still, the
availability of easy money can provide only an incomplete explanation of
the great equity price run-up. After all, the low cost of credit cannot
make people borrow with the intention of speculating; yet speculation - by
mutual funds, insurance companies, pension funds and other such
institutions - was indispensable to the expansion of the bubble. To
explain why money continued to pour into corporate equities even as
corporate profits stagnated, one has to turn to the peculiar way finance
works, and the tendency of its operatives towards herd behaviour. As
equity prices began to rise strongly from early 1996, fund managers were
under heavy pressure to buy, even if they doubted the long-term viability
of their purchases. If they failed to do so, they risked falling behind
their competitors and losing their jobs. On the other hand, if, in the
long run, the assets they had purchased went sour, they could not be held
responsible, since so many others had done the same thing.
As a
result of the historically unprecedented ascent of their share prices,
corporations were able to avoid facing up to the unpleasant reality of
declining returns and to sustain the long expansion of the 1990s right
through to the end of the decade. The magnitude of the wealth effect
celebrated - and bolstered - by Greenspan and others was unprecedented.
Historically, US corporations had been largely self-financing, paying for
their investments largely out of retained profits. By the end of the
1990s, however, they were borrowing at record-breaking levels (compared to
output) in order to fund investment, while also financing themselves by
way of equity issues to a degree never remotely approached
before.
Wealthy households also saw their on-paper assets rise
astronomically. According to a recent Federal Reserve study, the top 20
per cent of wealth holders could account, by themselves, for the
spectacular reduction of the US household savings rate from around 8 per
cent in 1993 to zero in 2000. In so doing, they also accounted for the
increase in the rate of consumption that took place during that period,
helping corporations realise their skyrocketing investments on plant,
equipment and software. In the words of one pundit, this was the first
expansion in history underwritten by 'yuppie consumption'.
Thanks
to the wealth effect of the stock-market increase, especially in
information technology, the expansion did achieve increasing vitality.
Non-residential investment grew by 9 per cent per annum for the rest of
the decade, driving the boom. This made for a rapid growth of output,
decent productivity growth, falling unemployment and even, eventually,
significant wage increases. Last but not least, the huge increase in US
demand that resulted from the speeding up of the expansion, plus the still
rising dollar, first pulled the world economy from its doldrums of the
early 1990s, then rescued it from the international financial crisis of
1997-98 and ultimately incited a new international economic upturn in 1999
and 2000.
The fact remains, however, that a stock-market rise
driven by speculation, far from discerning the most promising fields for
expansion - as it does in the fables of the Federal Reserve, the Council
of Economic Advisers and orthodox economic theory - was systematically
misdirecting investment, because it was not based on rising rates of
return. The rapid growth of expenditure on plant and equipment in new-
economy industries took place against a background of falling
profitability in manufacturing; that decline soon extended to information
technology and telecoms. Productivity growth increased, but could not lead
to a raising of the rate of return because it resulted from the same
overinvestment that was simultaneously creating overcapacity and
overproduction. The consequent downward pressure on prices benefited
consumers in the short run; but by forcing down profits, it limited
investment, growth and employment in the longer term. Between 1997 and
2000, as the boom peaked, the rate of profit in the non-financial
corporate sector as a whole fell by a fifth.
The 'virtuous cycle'
touted by Greenspan was little more than hype. What drove the economy
during the second half of the decade was a vicious cycle that proceeded
from rising equity prices to rising investment, in the face of falling
profitability, which issued in increasing overcapacity that lowered
profitability still further. It was the increasing defiance of gravity by
both the booming economy and the bubbling stock market that opened the way
to the corporate accounting scandals, the stock-market crash and the new
recession. (
)
The reason the scandals have hit the stock market
and the economy so hard is that they have confirmed investors' worst
suspicions about plummeting corporate returns. The revelation of
WorldCom's fraud shook the markets because it became perfectly clear that
what had appeared to be one of the most successful companies in the
telecoms business had made no profits in either 2000 or 2001 (and quite
possibly not in 1998 or 1999 either). WorldCom, as one analyst told
Fortune in July 2002, 'seemed to have some kind of secret formula
for producing decent margins where rivals couldn't'; when this formula was
understood the last bit of air went out of the telecoms
bubble.
Still, it should not be thought that the entrepreneurs
behind the great telecoms bust were so clumsy as to get caught up in the
financial carnage they left in their wake. Between 1997 and 2001, insiders
cashed in some $18 billion in shares, unloading more than half this total
in 2000, the year the price of telecoms shares peaked. But this only
scratches the surface of the titanic redistribution of wealth achieved by
US corporate leaders in the 1990s. Between 1995 and 1999, the value of
stock options granted to US executives more than quadrupled, from $26.5
billion to $110 billion, or one fifth of non-financial corporate profits,
net of interest. In 1992, corporate CEOs held 2 per cent of the equity of
US corporations; today, they own 12 per cent. This ranks among the most
spectacular acts of expropriation in the history of
capitalism. (
)
The problems in telecoms overlapped with a more
general crisis in the high-tech sector, especially in computers and
semiconductors. The depth of this crisis was revealed in an analysis,
published on 16 August 2001 in the Wall Street Journal, of the 4200
companies listed on the Nasdaq Stock Index. The losses these firms
reported in the 12 months following 1 July 2000 amounted to $148.3 billion
- in other words, slightly more than the $145.3 billion profits they had
reported during the five-year boom of 1995 to 2000. As one economist
commented: 'What it means is that, with the benefit of hindsight, the late
1990s never happened.' The high-tech crisis itself unfolded in the context
of a broader US economy already weighed down by overcapacity in
international manufacturing. By early 2002, the profit rate in the
corporate manufacturing sector had fallen, from its peak in 1997, by 42
per cent. Profitability in the non-financial corporate sector as a whole
was at its lowest level during the postwar period (with the exceptions of
1980 and 1982).
Under the impact of the collapse of equity prices
and the crisis of profitability, the growth of output and investment fell
faster between mid-2000 and mid-2001 than at any other time since World
War Two. This is all the more understandable in view of the fact that,
according to the Council of Economic Advisers, the information technology
sector, which constituted just 8 per cent of GDP, accounted for almost a
third of all growth of GDP between 1995 and 1999. GDP growth dropped from
5 per cent to minus 0.1 per cent (on an annualised basis). Non-residential
investment growth fell from 9 per cent to minus 5 per cent. In response,
US corporations have been severely reducing their means of production and,
in particular, their labour forces in an effort to restore
competitiveness, placing huge pressure on their rivals to respond in kind.
Since the first quarter of 2000, manufacturing employment (measured in
hours) has been reduced by a stunning 13.8 per cent. The overall effect
has been a powerful downward spiral in which pressure on prices resulting
from overcapacity has led to falling profitability, which has issued in
falling investment, making for rising unemployment and bankruptcies and,
in turn, reductions in demand that have fed back into falling prices and
profitability, and so on. As the US has entered its cyclical downturn,
the rest of the world has been dragged down too. Under the impact of
plummeting US imports, the economies of Japan, Europe and East Asia began
to lose steam, which caused a further sharp drop in US exports, further
depressing growth. This mutually reinforcing, international recessionary
process is all the more worrying because of the extent to which the
economies of the rest of the world have, over the past two decades, in the
face of stagnating domestic demand, come to depend on exports and thus on
a US economy that can, as a result, look to no one but itself to bail it
out.
Beginning in January 2001, the Federal Reserve lowered
interest rates on 12 occasions, the cuts amounting to a staggering 5.25
per cent, down to today's record postwar low of 1.25 per cent. But, with
respect to corporations, it has been pushing on Keynes's proverbial
string, eliciting no reaction. Investment in plants and equipment, the key
to economic health, has fallen every single quarter since autumn 2000,
driving the recession.
Households, by contrast, have taken
advantage of cheap credit, and have increased their borrowing at an even
faster rate than during the boom, especially by refinancing their
mortgages. As a result of this, consumer expenditure continued to rise,
and was almost entirely responsible for cutting short the economy's
downward spiral of 2001, restoring stability at least temporarily.
Washington hopes that consumer spending will hold up long enough for
corporations to work off their excess capacity. But the worry is that the
overhang of plant and equipment will continue to forestall further capital
investment, and that consumer spending will peter out in the face of
rising unemployment and unsustainable levels of debt.
While the
Fed's easy credit policy has brought a semblance of order, it has also, in
so doing, helped to perpetuate three enormous imbalances left over from
the bubble, thus increasing the potential magnitude of disaster. The first
is that of share values themselves. Equity prices have, of course, fallen
sharply. However, their decline has failed to bring stock values back into
line with profits, because these have fallen even further. At the end of
2001, the S&P composite index had declined by about 25 per cent from
its mid-2000 peak, but the price-earnings ratio of its corporations had
actually increased by about 25 per cent. No doubt, cheap credit has helped
keep shares overpriced, making the business climate seem sunnier. But a
serious 'correction' now could wreck the economy.
Second, in 2002,
US trade and current-account deficits broke all records. Until recently,
overseas investors have been more than willing to fund these deficits,
making huge direct investments in the US, and buying up corporate equities
and bonds. But as the American economy and stock market have continued to
disappoint, the rest of the world has sharply reduced its buying, and its
equity purchases fell by 83 per cent in 2002 compared to 2000. As a result
of this disenchantment, pressure on the currency has mounted and the
dollar has fallen by 16 per cent against the euro in the space of a year.
If these trends continue, the Federal Reserve could soon be faced with an
excruciating choice: either let the dollar fall and risk a wholesale
liquidation of US properties by foreign investors - which might not only
wreak havoc in the asset markets but also set off a real run on the dollar
- or raise interest rates and risk pushing the economy back into deep
recession.
Finally, although corporate borrowing has fallen sharply
over the past two years, the further step up in household borrowing during
that period has enabled total private debt to rocket high above its record
level at the peak of the boom, even in the face of rising joblessness.
What made this possible was a huge run-up in housing prices that was
itself driven not only by rock bottom interest rates, but also by major
fund transfers to real estate from an ailing stock market. The
appreciation of real estate values has enabled homeowners to treat their
houses like ATMs: according to a recent study by Goldman Sachs, in the
third quarter of 2002 Americans netted an astounding $320 billion (on an
annualised basis) from their homes. But should the housing bubble burst,
or even stop inflating, households, their home equity already profoundly
depleted, would have to cut back their borrowing. Consumer spending would
then have to be sharply reduced, threatening the main prop to the
recovery. (
)
Since early 2000, the Federal budget deficit has
risen sharply, as a percentage of GDP, to 1.8 per cent from a surplus of
2.3 per cent, and will certainly go higher. But, up against corporations
gorged with plant and equipment, and households up to their ears in debt
and close to spent out, the deficit is probably insufficient to provide
more than a limited boost to growth. Yet it is unlikely that the Bush
administration is much concerned about this. Its abolition of the tax on
dividends and reduction of rates on high earners would take effect in 2004
at the earliest. These measures would, moreover, sharply reduce revenue to
money-strapped state governments, counteracting the Federal stimulus by
forcing many of them to cut back on spending. Administration spokespeople
and Republican Congressional leaders have made it very clear that, like
Reagan before them, they intend to control the deficit they are creating
by reining in non-military spending. To emphasise the point, they have
already defeated a proposal to extend unemployment insurance for workers
whose benefits are exhausted, and are insisting that a greater number of
people be removed from welfare, despite the declining availability of
jobs. Measures that would sharply raise purchasing power right away by
placing money in the hands of working people - such as immediate
reductions in payroll taxes, subsidies to allow states to maintain
spending on health and social services, or straightforward bonuses to
workers - are anathema to this Administration. In much the same way as the
Bush Government's plans for national security are about the projection of
US military might in the Middle East and beyond, its economic stimulus
programme is about the transfer of wealth from the poor to the already
wealthy. Bush and his advisers are evidently counting on the economy to
right itself. The fact remains that Wall Street analysts were reporting in
late January that the economy had probably contracted in the fourth
quarter of 2002: either the recession was worsening or the dreaded double
dip had begun. For the first time, public opinion polls are recording less
than 50 per cent approval of the Administration's handling of economic
affairs and, perhaps not unrelatedly, that citizen support for the war on
Iraq is down. The road ahead, for the US economy and for the Bush
Administration, is going to be a rocky one.
Robert Brenner is the director of the
Center for Social Theory and Comparative History at UCLA, and the author
of The Boom and the Bubble, published last year.
Kürzungen sind mit
(
) markiert! Wal Buchenberg, 3.2.03 |