Behind the Fed’s ‘economic stimulus’

BY JEFF MACKLER

In the old days—very old days like the last Great Depression of 1929—most people understood the term “economic stimulus” to mean some form of government investment in the economy aimed at directly producing jobs for working people through various kinds of public works programs. Considerable investment in ventures like construction of massive dams to promote agricultural development, rebuilding deteriorating urban and even rural infrastructures—like schools, hospitals, and highways—and national parks and cultural projects were, in the Keynesian tradition, sometimes employed by crisis-ridden capitalist governments to create jobs and serve the “public good.”

This Keynesian “pump-priming,” or productive job creation aimed at increasing the purchasing power of working people directly, was in significant part aimed at relieving the political pressure arising from unprecedented working-class discontent that threatened to exceed the bounds of capitalist reform. The massive Depression-era unemployment rate—up to 40 percent, with many of the remaining 60 percent having only part-time employment—and the generalized degradation of the human condition inherent in the capitalist system contributed to an historic rise in workers’ class consciousness, the formation and rapid growth of powerful industrial unions and socialist organizations.

But even this Keynesian (named after the British liberal capitalist economist John Maynard Keynes) pump priming proved inadequate to revive capitalism’s flagging economy. The relatively token investment in jobs and social welfare programs aimed at heading off an even deeper anti-capitalist mood in a few years gave way to the world’s greatest arms race. Led by major U.S. corporations, “industry” was “revived” by its near total conversion to war production. Steel and auto plants, mining, and most all other manufacturing industries became war industries. The jobs created were war-related and the profits generated in a near monopolized war economy went overwhelmingly to the super-rich.

The Great Depression was “ended” via a catastrophic war to re-divide the world’s colonies—a war that cost the lives of over 60 million around the globe and reduced entire continents, minus the U.S., to ruin. On the ashes of this conflagration, capitalism, especially the victorious American brand, was presented with a unique opportunity to play the leading role in rebuilding the infrastructures of destroyed European cities and dominating new markets without the slightest concern for competition. Indeed, U.S. allies and enemies alike were incapable of offering the slightest resistance. It was to be truly, according to capitalism’s pundits, “the American Century.”

In sharp contrast, today’s ongoing five-year “recession,”—in fact, a depression for most Americans—finds the ruling-class few, the great banks and financial institutions and the government that serves them, incapable of even the most modest investment or “stimulus” to the “real economy” to create real jobs, and especially manufacturing jobs that produce commodities to meet human needs and that are a product of human labor.

So deep is the worldwide capitalist economic crisis that with few exceptions average profit rates in manufacturing are so low given the unprecedented global competition among and between the leading industrialized nations, that it simply doesn’t pay (at this time, I stress) to invest in yet another round of super-modern factories that have consistently proven to become obsolete soon after they are built.

Instead, U.S. capitalism’s “solution” to this dilemma has been, especially since 2008, to bail out failing banks and corporations directly to the tune of incredible trillions of dollars.

The most recent example is the great debate on Wall Street and in ruling-class circles over the policies of the nation’s quasi-private central bank, called the Federal Reserve (Fed), and headed by Benjamin Bernanke. That Bernanke will be removed post haste is not disputed by anyone, including by President Obama and his capitalist superiors, who really run the country and the nation’s banks and major corporations.

What is in dispute is the Fed’s so-called QE or Quantitative Easing policies. QE began in 2008 shortly after the near collapse of the U.S. banking system. It consisted largely in the Federal Reserve Bank’s pumping trillions of dollars into the banking system by printing virtually unlimited amounts of dollars or their paper/computer equivalents, to purchase essentially failed or near worthless bank-held mortgage bonds. The essence of the matter was and remains that the government paid trillions to the banks based on the banks’ declarations of the value of their mortgages as opposed to the reality that these same mortgages were near worthless.

This QE bailout alone, since 2008, has amounted to a virtual gift of $4.5 trillion to the rich, or an average of a nearly one trillion dollars per year. Add to this the additional forms that the bailout has taken, including congressional legislation that amounts to the same gifting to the corporate few, and the total bailout figures are even more astounding, in the tens of trillions of dollars, that is, more than the nation’s entire annual GDP.

Bernanake lit the ruling-class fuse in May 2013 when he announced that, given the much-hyped “strengthening” of the economy, the Fed might “taper” off the monthly amount of money printed (which is gifted to the rich) from $85 billion to perhaps $5-$10 trillion dollars less. Plus, Bernanke hinted that the Fed might increase the banks’ borrowing rate from zero to perhaps a few percentage points or tenths thereof. The latter would represent a move away from essentially “lending” banks free money, or close to zero percent, supposedly to invest in the real economy to “stimulate” job growth. In truth, the banks and associated recipients of the government’s free money used the occasion to invest in the stock market and other speculative endeavors, driving it to all-time highs. Meanwhile, the real economy continued to decline, all government assertions to the contrary.

Thus, when Bernanke even hinted several months ago that the government’s money trough might be tapered off a bit, the corporate/banking hierarchy responded with what became known as a “taper tantrum.” This amounted to a modest decline in the stock markets here and abroad and a decline in speculate investments abroad, including those that helped fuel China’s “shadow” banking system—which has led to a spectacular real estate bubble, wherein literally millions of new housing units and whole cities were constructed with no one to live in them.

The “taper tantrum” response to Bernanake ended with his backing off for the moment, but not without his returning to the matter a few months later, again sending shivers down the spine of the banksters and all other financial speculators who had become “addicted” to a gambling casino economy without roots in real production—that is, without manufacturing real commodities in the U.S.

Indeed, from 2000 until today the U.S. manufacturing employment has declined from 18 million to 12 million jobs. President Obama’s much touted creation of one million jobs since January 2013 neglects to reveal that 600,000 are low-wage, part-time, and no-benefit jobs. Another 100,000 are temporary work. In truth, since the beginning of this year 250,000 full-time decent-paying jobs have been lost.

A serious look at U.S. employment figures reveals the devastating state of the real economy. Of the 155 million non-supervisory workers in the country today, some 50 million are either unemployed, part-time, or temporary workers—that is, approximately one-third of the entire workforce! Further, the average weekly earnings of those who do have work, adjusted for inflation, is less than it was in 1982.

And even these figures could be called into question when one considers that in today’s economy for some time now, a two-person income is required for a family to live at the same level that one person could earn a generation ago. However approximate this estimate, it reveals that the income of workers in general has declined in the neighborhood of 50 percent over this period.

Today’s top ten percent of the income brackets consume a higher proportion of the national income than ever before in U.S. history, while working people are made to pay the price of the government’s funding the follies of the rich, or better, the cost of bailing out a failing capitalism. This has been reflected in every arena of public life, from massive assaults on wages, working conditions, health care, pensions, education, and social services—and now planned assaults on Social Security, Medicare, and food stamps.

Bernanke’s “Surprise Move To Maintain Pace of Stimulus,” headlined in the Sept. 19 New York Times, was explained by his supposed concern that unemployment rates continued to be troubling, thus indicating that the economy had not sufficiently recovered to discontinue the present monthly $85 billion in gifts to the banks. Capitalist ideologues have today re-defined “stimulus” to mean giving free money to the rich and maintaining low interest rates for the purpose of supposedly benefiting working people. The rich, according to this logic, will invest in new job-creating industries, and low interest rates, so the fiction goes, will enable workers to buy cars and homes at affordable mortgage rates.

These stated intentions of capitalist ideologues have nothing in common with the reality. The re-opening and booming of the textile industry in South Carolina, for example, after a two-decade absence is a prime example. U.S. textile manufacturers like Parkdale Mills, the largest cotton buyer in the U.S., according to The New York Times, have returned to the U.S. and are in full swing—producing for the domestic market and for export, fabric and clothing at profit rates competitive with their previous production in Bangladesh, China, India, and Mexico.

The Times interviewed Bayard Winthrop, who heads the clothing manufacturing behemoth American Giant. “When I framed the business,” said Winthrop, “I wasn’t saying ‘From the cotton to the ground to the finished product, this is going to be all American-made.’”

“This wasn’t some patriotic quest,” Winthrop insisted. And indeed it wasn’t. Like all capitalists his loyalty was to the dollar, not to the working class. In addition to the savings in transportation costs, the turnaround time, and other technical matters, what interested this capitalist the most was the fact that, according to the The Times, “wages aren’t that much more overseas.” By wages, of course, Winthrop included in his calculations not only the low-wage, zero-benefit and part-time non-union labor force that is likely employed throughout the reconstructed industry but the fact that today’s largely automated textile plants use some 200 low-wage workers to do the work that 2000 did just a decade or two ago.

Capitalist globalization has always been predicated on the hunt for low-cost labor. In the course of the past three or four decades of outsourcing U.S. jobs the U.S. workforce has been reduced to pitiful wage levels that today include the poorest and most oppressed sectors of the population as well as immigrants and now prison labor.

Neither Bernanke and his bosses, nor indeed any self-respecting capitalist profiteer or bankster, ever intended to stimulate the economy by investing in jobs at a living wage. Whatever jobs might return to the U.S. are based on the assumption that workers must pay dearly to keep the failing system alive. Today, overall profit rates in the super-heated competitive capitalist world are eroding to the point that it’s simply not profitable—or better, financially impossible—to effectively compete on world markets, except by the extreme super-exploitation of workers everywhere.

In view of this fact the world’s tiny ruling strata prefer to invest at profit rates that are virtually guaranteed by official government policy. Technically, or for public consumption, this is expressed in the corporate-controlled media terms of debates over government “stimulus” programs. In truth, what is under debate is how best to cut all social programs, lower wages, destroy pensions and all other hard won social gains to keep a degenerating social system afloat. The war against working people at home and the wars for resources and cheap labor abroad are inseparable elements of the system’s inherent functioning, as is the associated destruction of the environment.

Bernanke’s concern about the government’s seemingly endless subsidies to speculative endeavors stems from a deeper understanding that the resulting speculative U.S. bubble must inevitably burst, and along with it the world economy that is heavily dependent on valueless U.S. dollars intervening on currency and credit markets and in every other crevice of a world system that today can only exist by inflicting misery on the world’s people.

For the ruling rich there is no other way out other than at workers’ expense. For working people, there is no way out other than the revolutionary transformation of the predatory capitalist  system itself. While this is the music of the future, it is sounding louder and understood by greater numbers than in modern memory.

Approval of socialism as opposed to capitalist plunder and ruin today registers higher than ever before. The gap between the thought and the struggle to bring it into being still remains large, but it is far from insurmountable. Marx was on the mark when he noted that “capitalism creates its own gravediggers,” that is, a working class that can rapidly become conscious of its power and capacity to end a social system that has become intolerable.

 Photo: Wall Street by David Shankbone/Flicker