9-20-05, 9:20 am
Economic disaster is looming in Katrina's wake. Key government indicators show that job losses and inflation are spiking while real wages are falling. Economic stagnation was the hallmark of the Bush-Republican economy prior to the hurricane, but the ensuing catastrophe has exposed major underlying weaknesses.
The problem
Last week the Labor Department revealed that new unemployment insurance claims surged by 71,000 over the previous week, attributing 95 percent of those new claims to the hurricane.
According to early analysis, that jump alone is the largest for any single week in ten years and more than job losses related to the 9/11 terrorist attacks.
More new claims for unemployment insurance are expected as early estimates by the Congressional Budget Office say that as many as 400,000 jobs could have been wiped out along the Gulf Coast. More accurate numbers will become available in the weeks ahead as facilities for filing claims and receiving benefits have been slowly put in place.
Over the course of the four-year long economic 'recovery' worries about inflation have been mild as the Federal Reserve pushed interest rates down to record levels. More recently, however, the Consumer Price Index has begun to climb, growing by .5 percent in both July and August. Mostly reflecting high energy prices, inflation indicators are expected to continue to climb.
Higher prices are digging into the buying power of working families. The vast majority of working people (about 80 percent) are labeled by the Labor Department’s Bureau of Labor Statistics (BLS) as 'blue-collar and non-managerial workers' and, according to recent statistics gathered by the BLS, real hourly and weekly earnings for this group fell by 1.1 percent in the past year. In fact, real wages have fallen or been flat for the past 16 months.
'Real' earnings means buying power. So when real wages fall for the bulk of the labor force, it signals that working families are having to tighten their belts to make ends meet from month to month and that more and more families just aren’t making it.
A story in the Automotive News over the weekend reported that the United Autoworkers’ (UAW) legal department has handled 10,000 bankruptcies for that union's membership since 2002. It is important to note that only the spike in unemployment claims this past week has been directly caused by the hurricane. All of the other data was compiled from time frames that predate the storm.
The suggestion is that the economy has been on an unsteady course for a very long time, and now we might prepare to expect a sharp period of difficulty for millions of working families.
The Republican leadership in Congress regards more tax cuts for the rich, higher corporate subsidies, and wage reductions (the main pillars of both their general economic doctrine and their response to the disaster in New Orleans) as the solution. This 'free' market economic dogma simply has failed for five years and will not right the economy now.
The main problem with the Republican economic credo is that while it focuses on the rush to protect the profits of large corporations (especially those that are close to the Republican Party with campaign donations and lobbyists), it fails to provide relief for the majority of the population, the mass of working families.
This class bias prevents a better economic principle from being applied. In a capitalist economy, economic growth is driven mainly by higher productivity and consumption, not by high corporate profits for a handful of politically favorite companies. Though profits, or private accumulation from the labor of working people, is always the main goal.
While productivity has grown steadily over the years of the recovery (mainly through sharply reduced real wages and outsourcing, etc.), job creation has been stagnant, and, as we have seen, real wages have steadily been eroded. Expanded credit, a dangerous economic predator waiting to pounce on working families with shrinking incomes, has been the primary means of growing consumption (and debt and bankruptcy) over this period.
What to do
Within the parameters of the logic of a capitalist system, fueling consumption with better wages and redistribution aimed at working families and relief from debt, poverty, and unemployment would be the better solution. And, of course, lower taxes for the wealthiest 1 percent of the population as the Republicans are proposing, doesn't accomplish this task. How many Jaguars can Paris Hilton buy? And how many jobs does that create?
Real recovery requires growth of wages and consumption for that 80 percent of the workforce characterized by BLS as 'blue-collar and non-managerial workers. This could be accomplished in many ways.
First, for workers who have been directly impacted by the hurricane, an immediate increase in unemployment benefits is needed. According to the AFL-CIO, the three Gulf Coast states affected by Katrina pay the lowest benefits in the country.
AFL-CIO President John Sweeney called on President Bush last week to act resolutely to 'increase the unemployment benefit payment to the maximum state level or the federal average, whichever is higher.' Sweeney further called for expanding the disaster benefit to the unemployed to a full year and eliminating the 30-day waiting period.
Bus has ignored the issue.
Third, repealing the tax cuts for the rich going back to 2003 would limit federal budget problems and ensure that funds are available not only for the recovery along the Gulf Coast but also for bolstering natural disaster preparedness in the other 47 states. Money needs to be available for economic recovery in the Midwest and the Upper South hard hit by manufacturing job losses due to outsourcing.
It's the system, stupid
Why do the Republicans favor the 'free' market dogma that simply has failed? Why do they so obviously favor corporate interests in higher profits rather than working people? They say its because working people have an interest in taking lower wages as the CEOs rake in the big bucks. They say that this dynamic creates job and prosperity.
What prosperity? For whom? Do the Republicans believe this just because they are mean and greedy? Maybe, but I think there is a deeper problem that they are trying to hide. Capitalism is in trouble. More and more, profits are being made not by increased production of goods and services, but by cutting wages, cutting public services, government giveaways, tax cuts and loopholes, speculation, theft, monopolization, etc. Look at Enron, Halliburton, ChevronTexaco, and so on.
Whole industries such as transportation and manufacturing are falling apart. Others, such as finance, oil, and media, are consolidating so fast to stave off collapse that our heads are spinning. How many airline bailouts, giveaways, tax breaks and other 'patchwork' policies do they expect will keep things running? How many fingers can they stick into the dike?
More important, how much of a hit do working families and their communities have to take in order to increase Halliburton’s profit margins?
'Free' market ideology says that free competition creates efficiency and growth. But the 'free' market ideologues don’t really believe that or practice it. No-bid contracts, corporate campaign donations, and expensive lobbyists see to it that the companies with the biggest pocket books get the biggest handouts. Just look at the 2005 Highway Bill, the Energy Bill, and the Bankruptcy Bill to see who got what.
Corporations depend on government help all the time; but working families don’t see any of the benefits from this exclusive government-business relationship. In fact when working families seek government help to stave of poverty and disaster, Republicans usually describe them as lazy, selfish, and a drain on society.
Free competition is a myth. Ask any small business owner forced to close shop due to 'free' competition with Wal-Mart or any other enormous multinational corporation.
This isn’t just capitalism gone wrong either. It’s how the system works (or doesn’t, rather).
A solution
Let’s look at Northwest Airlines and Delta Airlines for examples for possible solutions. Since the early 1990s, pilots, flight attendants, mechanics, baggage handlers, and other workers at these companies have literally given the CEOs billions in wage cuts, benefits cuts, more working hours, higher productivity, and other lost benefits to keep the companies afloat. Taxpayers forked over hundreds of millions in 'bailouts.' Yet Northwest and Delta continue to fail, declaring bankruptcy just this past week.
Clearly Northwest and Delta are inefficient. The free market hasn’t worked for them.
Why don’t we say that those billions in worker give-backs and taxpayer welfare to the inefficient companies are a down payment for the airline workers and the taxpayers to own the company? Something like a worker-public partnership.
It makes more sense then throwing more money at inefficient companies. It would allow people to keep their jobs at the airlines as well as thousands of others related to the airline industry. It would prevent a transportation nightmare caused by reduced routes and safety problems. Who knows, the operation probably would end up running more smoothly because the workers would become the major stakeholders in ensuring the companies’ success.
Similar projects could be undertaken in other failing industries: steel, auto, other manufacturing concerns, and even agriculture. Instead of closing down and using taxpayer dollars to move those companies out of the country, let’s keep people working.
--Reach Joel Wendland at jwendland@politicalaffairs.net.
