Is the US Recession Really Over?


There is little agreement among the ruling rich as to the state of the U.S. economy. While some government officials tentatively assert that the recession is virtually over, a poll of Fortune 500 CEOs indicated that 75 percent disagree.

The fact that Congress failed to pass President Bush’s proposed $100 billion stimulus package was hailed as evidence that government intervention was indeed unnecessary to avert a deepening of the slowdown. After the congressional sound and fury over Bush’s bill receded, a paltry $8 billion was allocated, mostly for extending unemployment benefits plus unnamed sums in tax cuts for business to supposedly stimulate new investment.

But a new survey by leading capitalist economist and former presidential adviser Louis Uchitelle indicates that behind-the-scenes billions were spent by federal and state governments to prime the economy at a startling pace.

Uchitelle reports in a March 23 New York Times article entitled, “Sharp Rise in Federal Spending May Have Helped Ease Recession,” that some $106 billion was recently pumped into the economy, mostly in the form of increased military expenditures but in several other categories as well.

Medicaid and Medicare payments, mostly for increased drug costs imposed by a rapacious drug industry, accounted for $16 billion while “unspecified programs,” a term usually reserved for corporate welfare, received $40 billion.

Pumped up military

Some $14 billion went to “military/defense.” This is in addition to the $50 billion already added to the military budget in the formal budget proceedings, plus another $50 billion to Homeland Security. The total U.S. yearly military expenditure now exceeds $450 billion, the highest in history.

This massive infusion of capital into a stagnant economy is expected to reverse the negative or virtually flat growth rate statistics of the past year and boost economic growth a full percentage point. In addition to federal spending boosts, Uchitelle reports that state governments have also found ways to circumvent spending limits to bolster the economy.

This year’s government pump-priming is admittedly undertaken in the context of a decline in government revenues. Unlike last year when Bush’s $1.3 trillion in tax cuts and other corporate welfare for the rich was justified in the name of redistributing a massive government surplus, today’s gifts will be paid for by deficit spending-that is, by increasing the already bloated national debt through a series of loans from America’s leading bankers and other financial institutions.

In truth, the $1.3 trillion gift to corporate America was based on a fictitious surplus as well as the looting of social services, and Social Security funds.

Once again, a declining capitalism is rejecting “free enterprise” in favor of Keynsian deficit spending to keep faltering corporations afloat. Today, however, there is no assurance of success since the heightened state of worldwide capitalist competition has reduced profit rates to the point where new investment in supermodern industrial plants, as compared to those already operating with state-of-the-art technology, offers bleak prospects of success.

Simply put, today’s major corporations, facing saturated world markets and ruthless competition, see no way out by borrowing money or even taking it free, as the government offers, as a way of modernizing to beat the competition.

Free money, of course, is never rejected by any self-respecting capitalist. It’s to be expected from their cohorts in Congress who function to protect the interests of their corporate employers. But it is not invested in arenas of the economy where returns are uncertain. This is precisely why Enron officials turned to stock market speculation and other such ventures rather than entering into real competition with the world’s superpower corporations in the energy business.

In this regard, Ford Motor Company’s fortunes are instructive. Ford announced the closing of four U.S. plants in late March plus an additional Ford plant operating in Canada. Overall profits are down 3.4 percent, with no prospect of a reversal in sight. Incentives to buyers like zero percent interest rates on new car purchases, plus rebates, have proved incapable of reversing Ford’s fortunes in the face of Japanese competitors whose cars are produced with levels of technological sophistication that far exceed the U.S. car industry.

Military spending in capitalist America does have an advantage that other areas of investment lack. Largely operating as a monopoly with a guaranteed market, the U.S. armed forces, the military-industrial complex can achieve profit rates that exceed the norm. They can sell submarines, aircraft carriers, jet fighters, and nuclear weapons, or example, at virtually any price that corrupt officials in the government “negotiate.”

U.S. imposes tariff on steel

The supposedly free-enterprise Bush administration revealed the system’s weakness when it imposed a 30 percent tariff on foreign steel imports in early March. Free trade gave way to instant protectionism when U.S. steel, a vital component of the nation’s industrial infrastructure, was threatened by foreign steel produced with superior technology and qualitatively lower costs. A modern European plant produces high quality steel at a hundredth the cost of a number of antiquated U.S. plants.

The wounded steel magnates demand that their government guarantee their profits even if it means buying steel and steel products at prices far above those available on the world market. Bush complied, proving once again that capitalist free enterprise is a myth, operative only when it benefits the corporate elite. When a laggard but essential U.S. industry proves incapable of meeting today’s competition, it is pampered.

Bush’s action guaranteed a response. The March 23 New York Timesreported, “The European Union has drawn up a list of imports from the United States, worth about $2.1 billion annually, to penalize in retaliation for the Bush administration’s recent imposition of tariffs of up to 30 percent on some imported steel.”

Europe’s penalty list includes U.S. textiles, citrus fruits, and steel. Under World Trade Organization (WTO) rules, an “unjustified tariff” can be met with a retaliatory tariff of up to 100 percent, imposed immediately. The U.S. is counting on the myriad of WTO and other trade-organization rules and regulations as well as the delays attendant to litigation on these issues to justify its protectionist measures and to limit the penalties.

But the line of march is undeniable. Once there is a major breach in the “free trade” barrier, the rules of the game will change, as each nation is compelled to protect its own industries from more powerful competitors.

World capitalism’s worst nightmare, the cascading imposition of one protective tariff after another, has witnessed its first major incarnation. The mad drive for profits, inseparable from the production of commodities in numbers far beyond what the market can absorb, inevitably results in the major players imposing restrictions on the entry of each other’s products into their own markets. The result can only be a deepening protectionist restriction of trade and a threatened collapse of the entire system.

Similar developments led to the Great Depression of 1929 and to other periods of world economic stagnation. In the end trade wars gave way to regional and world wars as the leading contenders resorted to force to protect their home markets and their international “spheres of influence.”

Today’s WTO-type organizations are designed to mitigate these contradictions, but when the vital interests of the leading imperialists are at stake, there are no limits to the measures to be considered and undertaken. Europe has already embarked on its own arms-production program, proclaiming at the same time that its “unity” will result in its world superiority in the next half decade. But superiority in the economic sphere cannot be separated from the military capacity to enforce it.

The underdeveloped world, on the other hand, is virtually helpless as the imperialist nations impose at will the opening of their markets and the associated destruction of their state industries. Argentina is a prime example of a nation whose industrial infrastructure was severely compromised as it proved incapable of meeting foreign competition.

Today the world economy stands on a precarious precipice, with imperialist rivalry on the upswing and the focus on increasing profitability at the expense of working people everywhere. The corporate rich seek to promote divisions among the exploited and oppressed, in this country employing various “Buy America” campaigns designed to counterpose the interests of workers here to our sisters and brothers in other nations.

Each ruling class cuts wages and erodes working conditions in the name of staying in business and beating the competition abroad. The U.S. economy is far from reaching a safe haven with the injection of Bush’s hundreds of billions into a severely weakened system. The gains of the super-rich come at the expense of an increasingly exploited working class.

In France the number of strikes has increased 41 percent over the past year. Three million marched against the government’s anti-labor policies in Rome last month. U.S. workers will not be far behind.

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[Editor’s note: We reprint this article by the Committee for the Abolition of Illegitimate Debt (CADTM). In 1989, the Bastille Appeal was launched, inviting popular movements throughout the world to unite in demanding the immediate and unconditional cancellation of the debt of the so-called developing countries. This crushing debt, along with neo-liberal macro-economic reforms imposed on the global South, has led to an explosion of worldwide inequality, mass poverty, flagrant injustice and the destruction of the environment.