Things are not as bad as they seem for the U.S. economy. They are worse.
On average, the United States has seen the loss of nearly 14,000 jobs each day since September 1. In 90 days from that date, close to 1.3 million Americans lost their jobs. After weeks of headline-grabbing events on Wall Street, these developments tend to recede into the background. Current estimates suggest that over half a million Americans lost their jobs in November alone. Something not seen in a single month since December 1974.
Things are not as bad as they seem for the U.S. economy. They are worse. As the data flow in, even estimates for earlier months have been revised sharply upwards. The September job loss figure was recorded as 159,000 two months ago. The Bureau of Labour Statistics now says the figure is 403,000. The first figure for October was 240,000 jobs lost. Now it is 320,000. The unemployment rate for teenagers, at 20.4 per cent, is three times the claimed national rate of 6.7 per cent. (This does not include those who have given up looking for work in despair. Nor does it count those working far fewer hours than they need or would like to.) A measure that includes such factors would raise the unemployment rate to 12.5 per cent. Yet, even with this flawed measure, the rate is at its highest in 15 years. There were 10.3 million jobless people in November and that was 3.1 million more workers unemployed than just a year ago. Worse, massive layoffs continue. Even the IT sector has lost thousands of jobs.
There are other icebergs ahead. This is winter, when at least two major sectors — agriculture and construction — do not hire much. Come spring, and there will be different benchmarks to test jobless figures against. There could also be a new round of layoffs (in Retail, for instance) starting January after the last two major holidays — Christmas and New Year — get over. Things might improve if the new administration has massive programmes running by spring that help millions return to work. Circumstances might force this administration to make choices that could in America be denounced as “Leftist.” Not impossible — but on current evidence, tough. Huge job stimulus programmes, even if brought in, would take time to work through. If Barack Obama’s plan to create 3 million jobs over the next two years works, it would still barely recover those that vanished over the previous two.
The Federal Reserve has cut interest rates to between 0 and 0.25 per cent. (Leading one wit to declare that “the Fed is now the only institution truly attempting Islamic Banking.”) It believes the positive results of this will be seen in time. However, this will not solve the credit crunch — the problem of banks fearful or unwilling to lend to those who currently need it. The mortgage and other crises show no major signs of a let-up. Even if all the measures of the Bush and the incoming Obama administration work, it won’t be a return to business as usual. For tens of millions of people, life might never be the same again.
The housing mortgage crisis still burns. Six million people could lose their homes over the next two years. And the credit card crisis, already setting in, could strike sharply in a few months. That hit would encompass far more people than housing would, even if the amounts involved (and impact on the financial markets) are smaller. As Business Week puts it: “Making matters worse, the subprime threat is also greater in credit-card land. Risky borrowers with low credit scores account for roughly 30% of outstanding credit-card debt, compared with 11% of mortgage debt.” This is a country where almost everybody uses credit cards (often several of them).
If job losses continue to mount at their present pace, the card catastrophe will accelerate. Those out of work will not be able to meet their payments. They could also find it hard to purchase essentials and would likely fall deeper into debt. This was a sector already headed for crisis for quite some time. In some estimates, U.S. credit card debt grew from $211 billion in 2002 to $915 billion by the end of 2007. When this house of cards falls, it will spur further the home mortgage mess and the recession already under way. There are those making their housing payments off their credit cards — at huge interest.
Meanwhile, the emphasis right through has been on bailing out the financial giants. (An Institute for Policy Studies report notes that the U.S. and European governments are set to spend 40 times more to rescue financial firms than to fight climate and poverty crises in the developing world.) And yet, daily, new scandals emerge from Wall Street. Both from the banks and other types of operations. The billions paid out as bonuses to executives have not been reversed even when the ‘profits’ for which these bonuses were ‘rewards’ have proved illusory. Merrill Lynch, as the New York Times points out, handed out $5 billion to $6 billion in bonuses in 2006. “But Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage.”
It is only now that the obscene compensation for CEOs and top executives is a matter of — limited — debate. As for the hundreds of billions of dollars given to the banks in the bailout, there is no evidence of this money being used to ease the credit and mortgage crises at the level of the public. Not even a requirement that they make details of their use of the money public — though it is public money they make use of.
Meanwhile, the latest Wall Street scandal snowballing is that of the Bernard L. Madoff Investment Securities. Madoff, a shining beacon of Wall Street enterprise and philanthropy, ran what has been described as “the biggest Ponzi scheme in history.” His own estimate of the fraud is in the region of $50 billion (more than three times India’s farm loan waiver). Huge charities, trusts and individuals, including billionaires, have lost massively in this rip-off. And there’s more to come. Yet again the question how such gigantic rackets thrived in Wall Street without the massive financial media ever noticing leaps up. The Madoff scam is only one among many things unravelling.
However, there is far more passion generated over the obnoxious Governor of Illinois who tried to sell the Senate seat that Mr. Obama vacated — for personal benefit. Governor Blagojevich’s action is neither new to Chicago, nor huge. It is a petty deal by a petty person, reeking of low corruption in high places. The energy it generates, though, is like focussing on the local pick-pocket when grand larceny proceeds next door. Maybe there is a need to hold businessmen to the same standards as elected representatives. Especially those dealing with untold sums of public money?
In this bleak landscape came a surprise at a factory in Chicago. “You got bailed out. We got sold out.” So read the banner at the sit-in strike of the workers of the Republic Windows and Doors factory. Having been robbed of their jobs in a stealthy shutdown, over 200 unionised workers and their families occupied the factory and demanded severance and vacation pay. They got it, too. The action drew national attention. In a sign of changed times, politicians, celebrities, and public figures turned up at the factory to declare support. Even Mr. Obama said he agreed with their demands. The media which, pre-meltdown, would have savaged the strike, were less hostile. “Prior to the economic crisis,” says analyst and columnist Carl Bloice who writes in the Black Commentator, “the police might have gone into the factory and evicted the workers as trespassers.” Post-meltdown, it was a different story. Bloice says the U.S. has not seen such a labour action in decades. Impressively, ordinary citizens went up with food hampers to help out the strikers. Could we be witnessing the start of more militant labour action in the U.S. after decades? And could we be seeing greater sympathy in the country for such actions after decades, as job losses mount?