The Freefalling Economy
When the applause dies down, the first African-American President of the United States will have to deal with things less cheerful than his Inaugural Ball. The US is losing close to 16,000 jobs a day on average. (That was 14,000 a day just a month ago.) It lost over 1.1 million jobs in just the two months of November and December. And the December loss in payroll employment (5,24,000) recorded by the Bureau of Labour Statistics, is a provisional figure. It is likely be revised upwards by several thousand – as were the numbers of earlier months.
This means that 2008, with 2.75 million jobs lost, was the worst year for layoffs in the United States since 1945. What does President Obama do? And what will he have to confront in doing it? He will have to create jobs on a scale unheard of in decades in his nation. Unemployment benefits, giant public works, massive infrastructure spending, a good health system, all these would also help lessen the hardship ahead. He will need – assuming he wants that – to flip a system where wealth still flows most disproportionately towards the top 1 per cent. In any effort he makes, he will run into an awesome corporate power – already regrouping from Meltdown Phase I.
Parallels with Franklin Delano Roosevelt are tempting – and dicey. True, FDR did not start out as a progressive. Quite the contrary. But circumstances forced him to take a path he might not have dreamed of. In that, there is perhaps hope for Obama. However, FDR lived and worked in a very different era. In an America where Labour and poor people had a voice. Where unions mattered. Where many diverse political currents had their own following. Where Socialists, Populists, Communists, Anarchists and others made an impact on political thought and process. In such a world, it was not only easier to do the bold thing – it was perhaps unavoidable. What kind of diversity is there now? Obama can choose to toe the corporate line broadly. Or he can choose to toe the corporate line narrowly. Anything else would be radical. It was great to have Pete Seeger at the inaugural concert. Alas, it won’t be that best-loved folk singer calling the tune now,
The America Obama inherits is one where most Democrats and Republicans in Congress unite to stifle Labour. Where the simplest of statements during the poll campaign already drew charges of "Socialism" against Obama. Note that Congress swiftly cleared hundreds of billions of dollars for the banks and insurance giants in the bailout. But it grudged and fought every cent of the $14.5 billion given to the auto companies. Why? Because those are amongst the last holdouts of organised labour. Workers and unions in those companies had already given up many benefits and made major concessions even before the meltdown began. But the bailout was most generous with a gang that used even this public money to hand out rewards to corporate executives some of whom ought to have been in prison. The banks laughed all the way to the banks.
No society in the world has been so fully under corporate sway as the United States. (This is the model our own elite so admire and lust for.) And corporate privileges have grown under every American administration. According to the Government Accountability Office, two-thirds of corporations in America paid no federal income taxes at all between 1998 and 2005. This includes a fourth of all large US companies. (That is, those with at least $ 250 million in assets or $50 million in receipts). And this, despite all these corporations collectively reporting trillions of dollars in sales.
Indeed, corporate profits were on record highs. By 2006, they made up a historic 14.1 per cent of the nation’s total income. Yet, as the New York Times says: "the percentage of these profits paid out in taxes is near its lowest since the 1930s." (An earlier GAO report showed that 61 per cent of US corporations paid no federal income taxes between 1996 and 2000 – also a period of high growth and huge corporate profits.) Enough to have one wit declare that America had moved from the historic slogan of "No taxation without representation" to "Representation with no taxation."
There’s ‘corporate governance’ for you – they simply run the country. Administrations exist. Corporations govern. US corporations govern a number of other countries, too. But that’s another story.
Yet, even during the race for the presidency, Senator John McCain claimed that US companies faced the highest corporate income taxes in the world, bar Japan. The poor lambs needed relief from their burden. Oddly, the man who will head the Internal Revenue Service — America’s tax agency — apologised this week for failing to pay taxes of $ 34,000 himself, dating back to 2001. Tim Geithner, chosen as Treasury Secretary by Barack Obama, now says of his "errors" that they were "careless" and "avoidable."
The noises from Obama’s Dream Team are uninspiring. The Summers and Geithners still think problems can be fixed the old way. And a lot of others, too, seem to believe it’s about things like getting folks to go out and start spending. They won’t. Not so easily. Too many people have taken a beating. Millions have lost their jobs. Large numbers find it harder to afford basic needs. The credit card catastrophe looms ahead. Many more have seen their pension funds plummet in value. Housing prices are a nightmare.
You could of course improve some things on the spending front if salaries went up nicely. But here’s a Congress and a country that has been beating the stuffing out of existing wages. So how likely is that to happen? If anything, people are now far more likely to save than they have been in decades. Some 25 years ago, Americans saved about ten per cent of their income. More recently it has been below two per cent – sometimes worse. By 2008, consumer debt had risen to 98 per cent of GDP. People are trying and will try to reduce their spending. They will try to save more.
Meanwhile, as they stand, things are set to get worse, not better. Not only are we seeing just the tip of the Wall Street iceberg, there are more to come. As the economist Nouriel Roubini points out, this crisis is now global. And it isn’t just about a housing bubble in the USA. Bubbles dot the economic landscape like it’s bath foam. In Roubini’s words, "a housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, and a hedge funds bubble — are all now bursting simultaneously."
The costs and fallout of that will also be global. And there is this problem, too: as long as you try fixing it within a dead framework, things will only get worse. Typically, governments will come up tomorrow with something that might have worked yesterday. And then too little of it. India, though, is different. Our government seems set to come up tomorrow with things that never worked on any day, anywhere. Actions whose insanity lies bare in the ruins of the US collapse (like trying to prise open the Insurance sector still further.) And a now pathetic pretence that neo-liberal policies had nothing to do with the trouble the world is in. There’s even at this point a smug complacence, that our genius has somehow insulated us from the fate of most of the Western world.
Meanwhile, the crowds have departed and the dancers have left the floor. The Inaugural is over. And yes, it was a truly historic election and a great victory that the world can justly be happy about. It’s different from hereon, though. With a team full of flacks from neo-liberalism’s ancien regime, President Barack Obama will try and present his people with change they can believe in. So far, they’re only gripped by change they can’t believe they’re seeing.
P. SAINATH is the rural affairs editor of The Hindu, where this piece appears, and is the author of Everybody Loves a Good Drought. This fall he is giving a course at UC Berkeley. He can be reached at: firstname.lastname@example.org.