A double-dip recession may be the least of our worries
October 3, 2011
Michael D. Yates is associate editor of Monthly Review, editorial director of Monthly Press and author (with Fred Magdoff) of “The ABCs of the Economic Crisis: What Working People Need to Know.”
A few months ago, it looked like the Great Recession was over and the economy on its way to full recovery. The Federal Reserve and the Treasury had bailed out the nation’s financial sector and engaged in enough deficit spending to stop the dramatic rise in unemployment. The major European economies were holding their own, and the rising BRIC (Brazil, Russia, India and China) economies seemed to be taking up any global slack in consumer demand and capital investment. Gross domestic product (GDP) here and in many other nations had stopped falling and started rising, sometimes dramatically. Worldwide, stock markets boomed.
Today, matters aren’t looking so rosy. GDP growth has slowed in the United States. Unemployment has remained stubbornly high. For months now, the underemployment rate (the officially unemployed plus those involuntarily employed part-time plus those too discouraged to look for work) has exceeded 16 percent, and more than 40 percent of the unemployed have been out of work for at least 27 weeks. In every sector of the economy, there is still an excess of job seekers over available jobs. Public employment is now declining, as state and local government shed workers to balance their budgets. The housing market is still in the doldrums and showing little sign of recovery.
Outside the United States, we won’t find much about which to be optimistic. Ireland, Spain, Portugal, Italy and Greece are still in bad shape, as are most countries in central Europe. There is a eurozone but no central European government or true central bank, so there is limited capacity to deal with economic problems. The European monetary authorities seem almost obsessively concerned with inflation and have never embraced expansionary monetary and fiscal policies. There is a public unwillingness in wealthier countries like Germany to help troubled countries like Greece. China is now facing a host of difficulties, including slower growth, real estate bubbles, growing unemployment, resurgent working class anger, and intractable environmental problems. If this major engine of global economic growth falters, economies everywhere else will suffer serious consequences.
So, are we headed for another, and possibly deeper, recession? I do not know the answer. But what I do know is this: we should be pessimistic about our futures. There were certain immediate causes of the Great Recession, and nothing has been done by governments to address these. First, incomes had become shockingly unequal. Most of the country’s economic growth went to the top 1 percent of households. This stifled aggregate spending on goods and services and helped fuel the tremendous growth of personal debt, especially mortgage debt. Insecure households, encouraged by the banks and the financiers, began to see real estate as a nest egg, with disastrous consequences. Inequality made a mockery of democracy; only the very rich paid the political pipers and only they called the tunes. In addition, inequality led to all sorts of social problems, from poorer educational achievement to rising prison admissions to higher incidences of both physical and mental illnesses….
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