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the economy reels
When on June 27, Federal Reserve Chair Alan Greenspan announced the sixth reduction in federal interest rates since Jan. 1, no government official felt confident to predict that the staggering U.S. economy would respond favorably.
Greenspan was compelled to record a continuing decline in capital spending and productivity losses as U.S. corporations, despite the most rapid decline in interest rates in U.S. history, saw no reason to invest in modernizing profitless plants that were already close to state of the art.
In the face of ferocious global capitalist competition impelled by corporations that have already invested billions in productivity-increasing technology, saturated world markets and declining profit rates are the norm for capitalists worldwide.
The Japanese government, like the U.S. Federal Reserve, has also lowered interest rates for the sixth consecutive time until the point where they are virtually zero. The new Bank of Japan lending rate for overnight loans to banks is 3.75 percent, down from 6.5 percent in January. Yet the Japanese economy continues to stagnate and falter.
Economists at Morgan Stanley brokers report that the decline in growth of world trade, from a 12.8 percent increase in 2000 to a projected 4.7 percent increase in 2001 is the sharpest in history.
The June 28 New York Times observed in an article entitled, "No Fed Magic This Time for Corporate Earnings," that "the problem is that global trade accounts for a growing portion of world gross domestic product. The volume of world trade amounts to about one-quarter of world output, double the share that prevailed in the 1970s. As a result, declines in world trade will reinforce the downtrends in the United States, Japan, and Europe."
Morgan Stanley's chief economist, Stephen Roach, summarized the problem accurately: "The Fed can do little to restart the global demand for goods. The Fed's fund rate at this point is not going to temper global contagion. There's a new dimension to this downturn. Stage 1 was the United States; Stage 2 is the world; and Stage 3 is what's happening in the world com[ing] back to hit the United States."
And the worldwide capitalist crisis has indeed come back to hit the United States. U.S. businesses cut 271,000 jobs in the second quarter of this year, the biggest three-month decline in employment since the 1991 recession. The Bureau of Labor Statistics reports that about 1.1 million jobs were lost in the past six months.
According to the Labor Department, the U.S. jobless rate rose to 4.5 percent in June. Of course, government unemployment rates are far from accurate since they exclude those whose unemployment insurance has ceased after the 26-week period, or who are "discouraged" from looking for work. In past years, this has accounted for as much as an additional 7.5 percent unemployment rate.
To be added to these figures are the additional millions of part-time workers who are counted as officially employed because they have paid into the social security system at least once in the past year.
The recession in the U.S. economy has hit the most vital sectors. U.S. industrial output declined for the eighth consecutive month and plants operated at the slowest rate since 1983, according to the Federal Reserve.
"It's a disaster," said David Orr, of First Union Bank. "The sustained decline exceeded the six-month drop in the last recession in 1990-91."
Government efforts to prettify economic prospects focussed on a May rise in the Consumer Price Index of "only" 0.4 percent and of a slight increase in consumer spending. But the significant increases in food and energy costs are not included in this index and thus mask the real inflation that the government's statistical experts seek to hide.
And consumer spending is a contradictory phenomenon, with the average U.S. adult's savings at an all-time low-actually a negative savings rate-while the average credit card debt of $8100 stands at a record high.
The recent $1.34 trillion bipartisan tax cut engineered by Congress serves as history's largest example of corporate welfare, an outright effort to boost corporate profit rates at the expense of working people. Yet the overall economic decline has now raised fears that this 10-year congressional giveaway program is no longer viable since new government predictions of continued surpluses have been shattered.
The free-trading corporate elite, backed to the hilt by "their" government, have pulled out all the stops to place U.S. industry in the most competitive positions worldwide. But U.S. capitalism's major competitive opponents in Europe and Asia have sought to meet the challenge at every turn. The result has been the spectacle of global capitalism gone mad, reducing much of the underdeveloped world to near ruin and now threatening to do the same in the major industrial centers.
The World Trade Organization and related international financial institutions were designed to mitigate the conflicts between the major competitors that have today come to the fore. But the unceasing drive for profits at the expense of human life itself has brought the great economic powers to an impasse.
Capitalism's very capacity to increase productivity beyond human imagination is at the same time its Achilles heel. We are witness to a world amuck in new factories that stand idle while workers are without jobs, a world with warehouses filled with goods that cannot be sold at a profit, and a world where gigantic agribusiness receives subsidies to refrain from producing crops while billions starve.
The great free-trading George Bush is compelled to seek fast-track legislation to engineer trade agreements with minimal congressional interference while at the same time being forced to agree to amendments to protect inefficient U.S. steel products from foreign competition.
In the end, when WTO-type treaties regulating capitalist competition stand in the way of capitalist profits, they will be discarded by the leading contenders when their vital interests are at stake. In a similar manner, the Bush administration announced its rejection of the already ineffective Kyoto global-warming accords and the U.S.-Soviet treaties restricting nuclear weapons.
More recently, the June 27 decision of the U.S. Court of Appeals to remand to a lower court and a different judge a decision that threatened Microsoft's monopoly practices is instructive. U.S. law to the contrary, in the era of frenzied global competition and megamergers, monopoly is the rule, not the exception. Capitalist law is subordinate to capitalist profit.
Microsoft, the corporation that produces the operating systems on most of the world's computers, showed a stock price increase of 66 percent in the very period when a lower court threatened to break it up into lesser components in order to increase competition.
The deciding judges in the case are well aware that U.S. law is subordinate to profit, especially when the stakes are high and the United States is struggling to retain its superior position in world computer manufacturing.
The conclusion is obvious. The United States can retain its position as the world's chief imperialist power only at the expense of its international rivals. To achieve this, U.S. capitalism is prepared to overheat and destroy the world's environment and attempt to fill the far reaches of space with devastating nuclear weapons capable of ending all life on earth.
Nuclear war and world conflagration are the ultimate expressions of the mounting economic conflicts that have no means of resolution other than vanquishing one's competitors. This has been capitalism's history, including two world wars and innumerable interventions the world over.
The only rational alternative is socialism, a truly democratic world society in which human ingenuity, technological progress, and the world's abundance serve to meet the needs and aspirations of the vast majority.
The article above was written by Jeff Mackler, the National Secretary of Socialist Action.
