Spreading gloom

At El Centro, California, where the unemployment rate is 22.6 per cent, the highest in the U.S., a volunteer gives people a monthly food handout distributed by the Imperial Valley Food Bank, on March 13.-DAVID McNEW/GETTY IMAGES/AFP

When more and more people are thrown out of work, unemployment results.

President Calvin Coolidge, in the 1920s.

DOWN the street from where I live is the home of Calvin Coolidge, the President of the United States from 1923 to 1929. Associated with the laissez-faire Roaring Twenties, Coolidges presidency is regarded as the harbinger of the Great Depression. Against regulations and taxation, Coolidge closely followed the instructions of his Treasury Secretary, the banker Andrew Mellon. Credit was Coolidges credo: The uncivilised make little progress because they have few desires. The inhabitants of our country are stimulated to new wants in all directions. Sinclair Lewis Babbit (1922), the novel of that era, portrayed this world of goods to be bought, these standard advertised wares toothpaste, socks, tires, cameras, instantaneous hot-water heaters [these] were his symbols and proofs of excellence; at first the signs, then the substitutes for joy and passion and wisdom.

It was in this spirit of an abundance of goods and desire for these goods that Coolidges successor to the presidency, Herbert Hoover (1929-1933), said as he took office: We in America today are nearer to the final triumph over poverty than ever before in the history of any land. Not long after, the job cuts began and, eventually, about a third of the American workforce was unemployed. Not far from Coolidges retirement home, in Northampton, 25 starving children broke into a luncheon for war veterans, and vans of police came to drive them away. Of such hubris and suffering is tragedy made.

The current pace of economic and social collapse in the U.S. is staggering. Since January 1, 2009, as many as 1.2 million people have lost their jobs. Almost 5.4 million people go each week to collect their dwindling unemployment benefits; a year ago the number was 2.6 million. This is the highest figure since 1967. The Bureau of Labour Statistics announced that the official unemployment rate now stood at 8.1 per cent, while the underemployed rate (which includes those who have stopped looking for work, and who involuntarily work part-time) was now at 14.8 per cent.

The few job openings are now swamped with applications from overqualified people. Food banks, hospital emergency rooms and homeless shelters are oversubscribed. The mortgage crisis created a burst of foreclosures. Joining these victims of the mortgage casino are newly unemployed people, who cannot pay their mortgages. Foreclosure filings rose by 30 per cent in February 2009 from February 2008.

The numbers are doomed to get worse. The Labour Department reports that productivity rates (output per hour of work) fell by 0.4 per cent, which means that workers report to their jobs but there is little for them to do. The Commerce Department has added to this gloomy scenario with its report that inventories fell by 1.1 per cent, so retail sales are down to the bone.

Kim Whelan of Wachovia told Bloomberg: Wholesalers are trying to cut inventories as fast as they can but its hard to keep up with the pace of declines in sales. The inventory numbers are reflective of extremely weak demand and the severity of the recession. More pink slips are probably being printed as this column goes to press.

A chill blows across the Atlantic. The Obama administration called upon Europe to spend more on a global stimulus plan. Talking to The New York Times on board Air Force One on March 6, President Barack Obama cautioned that if the Europeans did not do more, then what youre seeing now is weaknesses in Europe that are actually greater than some of the weaknesses here, bouncing back and having an impact on our markets.

Jean-Claude Juncker, a veteran Belgian politician, now head of the Eurogroup and Finance Minister of Belgium, fired back: Recent American appeals insisting Europeans make an added budgetary effort were not to our liking, given that we are not prepared to go further in the recovery packages we have put forward. We take the view that we dont need to make a further effort for the moment. We mustnt pile deficit upon deficit.

Washington retracted, but the problems remain, and they will have an effect on the April 2 meeting of the G-20 as well as the coordination that will follow as the global economy declines (the World Bank estimated that global industrial production fell by 20 per cent in the fourth quarter of 2008, and the International Monetary Fund, IMF, believes that output in advanced industrial countries will fall by 2 per cent in 2009).

The gap between Obama and the Europeans is not that wide. At the February 22 meeting in Berlin, leaders of the European countries agreed on a two-pronged assault on the crisis: first, for a more robust global regulation of hedge funds and other private pools of capital which may pose a systematic risk, and second, for more capital to be funnelled into the IMF, largely to help stabilise the region known as emerging Europe (the Balkan and Baltic states, central and eastern Europe).

This emerging Europe is in urgent need of 120 billion euros (according to the World Bank), a sum far in excess of the capacity of the regional European Bank for Reconstruction and Development. The IMFs New Arrangements to Borrow will be the source of outlay, if the Europeans actually send the IMF a cheque worth their promises (Japan already turned in $100 billion in mid-November 2008).

The IMF is currently sitting on $141 billion (as opposed to $202 billion in late 2007), an amount that is far less than the already articulated needs. The Obama administration is also keen on more regulation and more infusion of money into the banks, although it is not clear as of now if it will put its stimulus money towards a global rescue plan. The pressure on the administration to kick-start the U.S. economy is so great that it is politically impossible for the stimulus money to go to the IMF or the World Bank. The Obama team hopes that the Europeans and the Japanese will cover the IMF, while it tries to restart demand within the U.S.

The Europeans and the U.S. differ on the scale of governmental intervention in the domestic economy. A laid-off European worker remains on various forms of national health plans, has decent educational benefits and continues to collect income support. This is not available to the laid-off U.S. worker, who will have no access to health care, faces astronomical educational costs, and will only have time-bound unemployment benefits.

Obamas administration wants to ease the burden on the worker and remove the costs of health care and retirement off the books of the employer. In a 1966 book, economists Paul Sweezy and Paul Baran showed that the U.S. recovered from the Great Depression of the 1930s by the massive expansion of federal spending for the Second World War. The New Deal conducted a salvage operation to fix what had been broken by the Gilded Age, when Coolidge was President. New Deal spending was unable to be a stimulus. Powerful interests refused to allow a pliant Roosevelt administration to increase government civilian consumption and investment beyond an outer limit of around 15 per cent of the gross domestic product (GDP).

In 1938, the figure was 14.5 per cent and in 2007 it was 14.6 per cent. In a recent issue of Monthly Review, editor John Bellamy Foster and Robert McChesney wrote: The reasons for this are straightforward. Beyond some minimal level, real estate interests oppose public housing; private health care interests and medical professionals oppose public health care; insurance companies oppose public insurance programmes; private education interests oppose public education; and so on. The big exceptions to this are highways and prisons within civilian government spending, together with military spending.

What we have from the Obama administration, then, is a salvage operation and not a stimulus capable of breaking the 15 per cent ceiling on government civilian consumption and investment. Anything more than that would require a political change, something that neither the Democrats nor the Republicans can stomach.

In early December 2008, the Business Roundtable (a 40-year-old organisation of the main U.S. corporations, with total revenues of $5 trillion) released a survey of its member-CEOs, which revealed anxiety about the economy. Asked to comment on the top cost pressures, the CEOs pointed to the normal ones that CEOs complain about (labour costs at 18 per cent, litigation costs at 12 per cent, and material expenditures at 26 per cent). But they also pointed to three areas of interest to the Obama agenda: pension or retirement costs (17 per cent), energy costs (12 per cent) and health care expenditures (15 per cent).

The Roundtables leader, Howard McGraw, of the publishing conglomerate McGraw Hill, said: We are looking forward to sitting down with members of both political parties to work towards a meaningful reform of our health care system and a more efficient and sustainable energy future.

The stimulus-bailout pushed by the Obama administration pleased the Roundtable since the money went towards banks and financial institutions but not to the foreclosed homeowners or the unemployed. The banks have still not begun to unload credit, but are using the money to consolidate their power by buying other banks (as Coolidges Treasury Secretary, Andrew Mellon, put it: In a depression, assets return to their rightful owners). The Roundtable has every reason to be pleased with Obamas administration.

But the contradictions continue to unravel. On March 12, Obama delivered a lecture at the Roundtable, saying that the problems in the financial markets, as acute and urgent as they are, are only a part of what threatens our economy. The long-term threats, he said, are the cost of our health care and our oil addiction, our education deficit, and our fiscal deficit.

In Congress, meanwhile, Republicans balked at the expanded agenda, which they have undertaken to block with all their ability. What Obama has promised is not so much to raise the 15 per cent ceiling but to provide a battlefield over that upper limit. Obama has cracked open the space for a debate. Whether the people are able to forge the social will to confront those who swear by the 15 per cent ceiling is to be seen.