Wednesday, August 5, 2015
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Amid continued economic stagnation in Europe, with euro zone output still below the level of 2007, and decelerating growth in China and the so-called emerging markets, the United States is sometimes held up as a “bright spot” in the global capitalist economy.
But more than six years since the official trough of the Great Recession in the second quarter of 2009, the US economy is anything but on the road to a recovery, as the latest data from the Commerce Department make clear.
The department found that the economy had grown at an annual rate of 2.3 percent in the second quarter of 2015 and revised its figures for the first quarter from a contraction of 0.2 percent to an expansion of 0.6 percent. But the seemingly better result for the first quarter was overshadowed by further data revisions showing that the shock waves from the financial crisis of 2008 had had an even more significant impact than previously thought.
As the Wall Street Journal noted, “data revisions going back more than three years show the expansion—already the weakest since World War II—was even worse than previously thought, with GDP increasing at an average annual rate of 2 percent between 2012 and 2014, down 0.3 percentage points from prior estimates.” The newspaper went on to point out that while growth in the first half of the year was better than expected, thanks to the first quarter revision, “economic growth so far this year has been even slower than during last year’s tepid first half and well below the pace of overall recovery.”
In what were regarded as the “normal” business cycles of the past, economic growth at this point would have been accelerating, as firms undertook investment in anticipation of expanding markets and greater profit opportunities. That mechanism no longer operates. Business investment, once the driver of growth, is becoming a drag upon it.
The GDP data showed that lower business investment actually subtracted from growth in the second quarter—the first time that had happened since 2012. Non-residential fixed investment, which includes spending on software, research and development as well as new equipment and factory buildings, declined by 0.6 percent compared to growth of 1.6 percent in the first quarter.
One of the immediate causes appears to have been declining investment in energy due to the sharp fall in the price of oil over the past year. But sluggish US investment has a broader significance. It is part of one of the most pronounced trends in the world economy as a whole—the failure of investment in the real economy to return to anything like the levels it had attained prior to 2008.
As the International Monetary Fund put it in its World Economic Outlook issued last April: “Private fixed investment in advanced economies contracted sharply during the global financial crisis and there has been little recovery since.” In the years after 2008, investment has been down by about 25 percent compared to pre-crisis forecasts. Nothing like this has been seen in any of the previous post-war recessions, pointing to the fact that what began in 2008 was not a turn in the economic cycle, but a breakdown of the most basic processes of the capitalist economy.
The same tendency can be seen in wages data. Wage rates in the United States, along with other major economies, are virtually stagnant. The latest figures from the US Department of Labor show that employment costs rose by only 0.2 percent for the second quarter, the smallest rise since 1982. Then, the US was in the midst of what was, to that point, the deepest recession since the Depression of the 1930s. The present figure, however, has been recorded in what is the sixth year of a supposed economic recovery. Nothing like this has been seen in previous economic history.
The data makes clear that low wages are not a conjunctural feature of the US economy, but a permanent fixture. Underlying economic tendencies have, moreover, been reinforced by the program of the Obama administration, which, through its “restructuring” of the auto industry in 2009, set out to make the US a low-wage economy.
The cuts in investment and wages—two key drivers of the real economy—stand in marked contrast to the world of finance. Since reaching their low points in 2009, US stock market indexes have boomed, increasing almost three-fold. This is a result of financial speculation fuelled by the provision of ultra-cheap money by the US Federal Reserve, which has kept its benchmark interest rate at or near zero for almost seven years.
The official theory behind the low interest rate regime was that it would boost investment, leading to an economic expansion and recovery. In fact, the policy has led to the growth of parasitism on an unprecedented scale. Rather than being utilised for productive activity, cheap money has been used to finance various speculative activities, including share buy-backs and mergers and acquisitions.
It is not simply that the money provided by the Fed and other central banks around the world has not been used for productive activities, giving rise to slow growth and economic stagnation. It has had an even more destructive effect.
Companies that make new investments, but are considered by the market to have too high levels of capital expenditure, are penalised via their share price, marking them as potential targets for takeover and restructuring operations aimed at increasing the short-term return to investors. While this phenomenon is centred in the United States, it is international in scope. As Bank of England chief economist Andy Haldane recently commented, businesses are “almost eating themselves.”
This phenomenon has a profound historical significance. Capitalism has, in the past, destroyed vast sections of the productive forces, either through depression or war. But nothing like the present-day scale of speculative plunder has previously taken place—a fact that, in and of itself, points to the growing rot at the heart of the present economic order.
Furthermore, the colossal growth of financial speculation on the basis of a near-stagnant real economy has created the conditions for another financial crisis, the only question being what particular event or combination of events might set it off.
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Reports filed earlier this month with the Federal Election Commission (FEC) confirm that the US political system is completely dominated by the super-rich. The figures are so staggering, and so at odds with the conventional claims that the United States is a democracy, that even the corporate-controlled media has been compelled to take notice.
Below are some representative headlines that appeared over the weekend:
Small Pool of Rich Donors Dominates Election Giving—New York Times
Million-dollar donors pump huge sums into 2016 White House race—Washington Post
Data: Nearly 5 dozen give a third of all ’16 campaign cash—Associated Press
67 donors and gusher of cash change 2016 race—Politico.com
Each of these reports relies on the figures from the FEC to document the role of a tiny group of extraordinarily wealthy contributors in shaping the course of the 2016 presidential campaign in both the Democratic and Republican parties. The bulk of this money has been channeled through so-called super PACs, the nominally independent political action committees called into existence by the Supreme Court’s 2010 decision in the Citizens United case, which legalized unlimited political contributions by millionaires and billionaires.
A few of the most important figures are worth citing:
* Fewer than 400 families account for nearly half of the $388 million raised by June 30 for the 2016 campaign.
* Just 130 families provide more than half of the super PAC money raised for Republican candidates.
* Some 67 donors have kicked in more than $1 million apiece, nearly half of them in the camp of Jeb Bush, who leads the fundraising race with $119 million.
* Super PAC fundraising has shot up ten-fold since the last presidential campaign, from $26 million at this point in 2011 to $258 million this year, nearly two-thirds of the total campaign cash that has been raised.
Perhaps the most naked expression of the dominant role of big money is the weekend event held by the billionaire brothers Charles and Edward Koch. They invited five of the Republican hopefuls to audition before an audience of 450 like-minded reactionary money men. The Koch brothers alone have pledged to pump $900 million into electing a Republican president and Congress. Republican strategist Mark McKinnon told the New York Times, “For that kind of money you could buy a president. Oh right. That’s the point.”
The fundraising figures help explain the proliferation of Republican candidates, as 13 of the 17 depend on a handful of wealthy supporters to fund their campaigns. Four donors account for two-thirds of the super PAC money for Wisconsin Governor Scott Walker; four donors account for three quarters of the funding for Senator Marco Rubio; three donors account for nearly all the funding for Senator Ted Cruz; two investors fund Senator Rand Paul’s campaign; one poultry magnate is keeping former Arkansas Governor Mike Huckabee’s campaign afloat. In the case of Donald Trump, one donor, the billionaire himself, accounts for 100 percent of his funding.
The Democratic campaign, in terms of the number of candidates, offers the inverse of the Republican. Hillary Clinton became the prohibitive favorite because she was the only candidate with significant backing from the financial oligarchy. Already, eight individuals have given $1 million or more to one of Clinton’s super PACs, with Wall Street and Hollywood the main contributors.
Clinton released eight years of tax returns on Friday, documents that certify the Clintons’ entrance into the financial elite—at least its lower rungs. They made $139 million in adjusted gross income from 2007 to 2014, mainly from speaking fees and books. The former secretary of state gave three speeches to Goldman Sachs, one of the main financial criminals of the 2008 Wall Street crash, for a total of $675,000.
In a little-noticed commentary on a national radio program Tuesday, former President Jimmy Carter said that money had completely corrupted the political system of the United States. “Now it’s just an oligarchy,” he said, “with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and US senators and Congress members.”
Carter has become something of a Cassandra in recent years, cautioning the US ruling elite that it has become so corrupt, reactionary and anti-democratic, so reckless in its militarism, that it risks losing all political legitimacy. His latest warning will be ignored like all the others.
The pleas from Carter, or the editors of the New York Times, to somewhat insulate the political system from the influence of big money are both pathetic and futile. What is emerging in the corruption and filth of the 2016 US presidential election is the essence of capitalist politics—the dictatorship of the financial overlords who dominate every aspect of American society.
There is no quarantining money from politics. The only way to purge the oligarchs from politics is to purge the oligarchs.
The fortunes of the billionaires, amassed through financial fraud, market manipulation and brutal exploitation, must be confiscated and made available to serve the needs of working people. This will be an essential component of the socialist reorganization of economic life as a whole, including the nationalization of the banks and basic industry, and the establishment of a rationally planned economy under democratic control.
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Last month marked six years since the official end of the 2007-2009 recession, and, if official commentators are to be believed, six years since the beginning of the economic “recovery.”
Yet by many indicators, American households are actually far worse off than they were during the depths of the 2008 crisis.
According to data released on Tuesday by the US Census Bureau, the share of Americans who own their homes has fallen to the lowest level since 1967.
Only 63.4 percent of American households owned their homes in the second quarter of 2015. This was a decline of 1.1 percentage points over only twelve months, and 5.8 percentage points less than the peak of 69.2 percent reached in 2004.
In June, median existing-home prices reached a new record of $236,400, after rising for the 40th consecutive month, exceeding the record high reached in July 2006 during the real estate bubble. Meanwhile, median household income was 8 percent below its pre-recession levels, at only $51,900 in 2013.
Economists expect homeownership rates to plummet even further as the rise in housing costs continues to outstrip wage levels. “We may have another percentage point to go before we see a bottom,” Mark Vitner, senior economist at Wells Fargo Securities, told Bloomberg Business this week. Such a drop would mean the lowest homeownership rate since Census records began in 1965.
Unable to purchase a home, many Americans, especially young people, have turned to rental housing as a cheaper alternative, causing rental prices to steadily climb. The real estate industry, however, rather than building new affordable rental units to meet the increased demand, has focused disproportionately on luxury apartments for the rich. A study by one real estate research firm, as reported by the Wall Street Journal, found that 82 percent of the 370,000 rental units built in major metropolitan areas between 2012 and 2014 were luxury units. In some cities, such as Atlanta, Georgia, this figure reached nearly 95 percent.
Young people, one of the segments of the population hardest-hit by the recession, are increasingly responding to the bleak prospects for affordable housing by electing to live with their families. At the beginning of 2015 only 67 percent of adults aged 18-34 lived independently from their parents, a fall of 4 percentage points from 2007, according to a recently released Pew Research Center study. While the total number of people in this age bracket has increased by nearly 3 million, the number of young adults living on their own has actually decreased slightly, from 42.7 million to 42.2 million.
Those who do strike out on their own find themselves spending a large fraction of their income just to pay rent. Between 2003 and 2013, the percentage of renters aged 25 to 34 considered “cost-burdened,” or spending more than 30 percent of their income on rent, increased from 40 to 46 percent, according to a study by Harvard University’s Joint Center for Housing Studies.
The decline in the official unemployment rate, routinely touted in the press as a sign of economic recovery, is in large measure due to the collapse in the labor force participation rate, currently at 62.6 percent, its lowest level in 38 years. Male labor force participation has fallen to its lowest level on record. The official unemployment rate is so at odds with the reality of mass unemployment in the United States that Jim Clifton, the head of the Gallup polling agency, this year called unemployment figures a “Big Lie.”
The jobs that have been added to the economy since the end of the recession are overwhelmingly in low-wage sectors. Despite modest job growth in the manufacturing industry, itself predicated on the slashing of wages in order to compete with low-wage countries such as China, there are still 1.5 million fewer manufacturing jobs in the United States than before the recession.
Despite the millions of jobs lost during the 2007-2009 recession, the US economy has grown at a relatively anemic pace during the so-called recovery. On Thursday the US Commerce Department said that the US economy grew at an annualized rate of 2.3 percent in the second quarter of this year, below Wall Street analysts’ expectations of 2.7 percent.
The report also revised downward the government’s growth estimates from 2011 to 2014, from 2.3 percent to 2 percent, meaning that the most anemic post-recession period since the Great Depression has been even worse than initially thought.
The report noted that business investment continued to shrink in the second quarter. This has taken place despite the fact that American corporations are currently sitting on a cash hoard of $1.4 trillion. Rather than invest this money in new productive capital, raise wages, or hire workers, they are instead using it to buy back shares, increase dividends, and conduct ever-larger mergers and acquisitions.
Meanwhile, the ongoing slump in commodity prices is leading to mass layoffs in the mining and oil sectors. Last week, British mining conglomerate Anglo American announced plans to lay off one-third of its workforce, or 53,000 people, over the next few years. Oil companies, for their part, have slashed new investments and laid off more than 150,000 workers worldwide, as oil continues to trade under $50 per barrel.
The mounting poverty and inequality in the United States, which continues to grow unabated six years into the official “recovery,” finds noxious expression in all aspects of American society. The 2016 elections, which are on track to cost some $10 billion, are characterized by the emergence of individual billionaires directly bankrolling their own candidates. Meanwhile police violence against workers and poor people, the most visible expression of the violent and exploitative social relations within the United States, continues unabated, with 675 people having been killed by police so far this year.