According to Bloomberg, 7 out of 10 Americans believe the economy is in a deep recession. That shouldn’t surprise us and I would have thought it might be even higher; but polls do have their limits. A major brake on the economy is job growth; unemployment officially hovers around 10% nationally but is much higher. In Michigan the official unemployment rate is 13.6%, down a bit from the 14.5% figure in December. This could be due to an exodus of worker’s from the state seeking opportunity elsewhere, Michigan has lost 11% of its total jobs since 2007.
Some of us on this blog have consistently pointed out the likelihood of continued economic stagnation and/or a double dip. A deeper slump cannot be ruled out either. Housing, the source of so much spending power for US workers, is still in a slump. According to LPS Applied Analystics a firm that tracks mortgage data, 4.5 million loans are in default or in some stage of foreclosure. (1) Mortgages held by Fannie Mae and Freddie Mac have risen significantly, 21% in May and analysts point out that this reflects the failure of the government’s loan modification program having any permanent success. This is all bad news.
The insanity of the free market is that the oversupply of housing is likely to grow because developers and builders bought up huge tracts of land last year in anticipation of a housing rebound. California’s coastal region has about two years supply of “builder ready land” according to the Wall Street Journal. This land is owned by banks, speculators, investors and the government. In many cases, investors are reluctant to let go of land or cease building as they assume the economy will eventually improve enough for them to make healthy profits and they don’t want to lose market share. This is the problem; why is shelter an issue with market share? But that is because it is a commodity, an investment. The fact that it is shelter for people is secondary for those that control this sector of the economy.
This crisis is historic in the sense that is also a reflection of the continuing decline US capitalism’s global influence. Two former government bureaucrats are arguing for more foreign direct investment in to the US in today’s Wall Street Journal. The US has lost 16% of its manufacturing jobs in this recession and now only 11.7 million workers are in this sector of the economy. The authors point out that foreign multinationals account for 11.3% of capital investment, 14.8% of R&D in the private sector and 18.5% of all exports. They claim that compensation at foreign firms is 32% higher than the rest of the private sector and that unionization rates are higher also, 12.4% as opposed to 8.2%.
These strategists of capital recognize the shifting relations between the world powers and particularly the rise of China and India. And are calling on the Obama administration to liberalize the US economy, opening it up to more foreign direct investment in order to create jobs. This is recognition of the facts on the ground. US share of global foreign direct investment has fallen 50% in the past 20 years they point out.
But the future does not look too rosy as the world is awash with excess capacity as they say. The productive forces that capitalism has at its disposal are too productive. Production is set in motion in order to produce surplus value, the source of their profits. If this is not forthcoming or profits are weak or low compared to outlay, they seek other moneymaking ventures. It is not an accident that gold prices have risen and there is need for more storage space for the metal reports claim.
As for those three out of ten that the survey found did not think the economy is in a deep recession, I assume two of them are Oracle CEO Larry Ellison, top earner over the last decade whose compensation from 1999 to 2009 totaled $1.84 billion and Barry Diller IAC/Interactive CEO who came in second at a meager $1.14 billion.
It’s a tough life but they probably worked a lot of overtime for that.
For the rest of us, economic crises devastate lives while the Larry Ellisons and Warren Buffets (he lost $25 billion in 2008 poor sod) of this world feel no real pain whatsoever. I cannot see a rosy scenario ahead for the capitalist economy, instead increasing insecurity and economic turmoil. There is a real storm brewing out there if you ask me and I cannot see the anger not bursting to the surface in some major way at some point in the not too distant future if the economic picture is anything like I perceive it. Of course, if I’m wrong and the debt, wars, political and economic crisis are overcome easily by US capitalism I’ll have to eat my words won’t I.
(1) Wall Street Journal 7-27-10
"Just because you don't take an interest in politics doesn't mean politics won't take an interest in you." Pericles, 430 BC
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