US Economy Grows Past the People: A Million Jobs Disappear without a Trace
By Nicole Liebert, New York
[This article originally published July 31, 2003 in die tageszeitung is translated from the German on the World Wide Web, http://wwwtaz.de/pt/2003/07/31/a0099.nf/textdruck.]
Imagine the recession ends and no one notices! The economic cycle reached its depression in November 2001 and since then has gone upwards. This was t6he proclamation of the National Bureau of Economic Research, an association of prominent economists regarded as an ultimate authority on recession questions.
Nevertheless millions of Americans may feel badly deceived by this declaration. "We celebrate the victory over the recession while several hundred thousand employees are dismissed every month," decries congressman Pete Stark from California. "This would be almost hilarious if it weren't so sad."
An upswing cannot be seen either for those who are jobless or for those who fear soon becoming unemployed. Employers also see nothing of an improvement and hold back from investing and hiring new people. Employers prefer reducing personnel to save costs and gain profits. A million jobs disappeared withou9t a trace nationwide.
Fear of being replaced
Some envision an upswing and view the economy as glorious. Many businesses like Microsoft or Citigroup announce effervescent profits. The stock market and stock prices have gone upwards for months. The growth rates of the gross domestic product have fluctuated since the end of the recession in the fall of 2001 between 1.3 percent and five percent. An economic growth of two percent is expected for the second quarter. People in Germany, a country with declining economic output, drool after such growth.
Twenty months after the official end of the recession, the situation on the labor market worsens even more. The unemployment rate in June rose to 6.4 percent, the highest rate in nine years. Economic growth is not high enough to surpass growth in productivity. As a result, the number of workers decreases despite increasing output. After the last recession (1990 to 1991), it took only a year until the number of jobs increased again. These numbers reveal a paradox of the US economy. In a practical regard, the growth passes by the people. Insecurity grows. Those who still have work grit their teeth, finish the work of their terminated co-workers and hope for an improvement. According to a survey in June 2003, half of the employees don't take a vacation any more "so the boss doesn't get the idea they are replaceable" as one respondent explained.
The growing unemployment is a bad omen for economic development in the US. When more and more people have no income or are frugal because they are afraid of losing their job, they consume less. However private consumption alone amounts to two-thirds of the gross domestic product of the US. When consumption gives way, the whole economy breaks down.
The risks for the development of the US economy remain high because the country still suffers in a kind of hang-over from the excesses of the boom years. The indebtedness of private households and many businesses is gigantic. In view of the extremely low interests, many Americans still accept debts to regain their solvency sometime or other at the end - when the mortgage interests are attractive.
Not medically insured
In the meantime another problem arises: people earn less when they still have work. Some designers, programmers or managers from an Internet firm who wouldn't have accepted any job under $100,000 a year a few years ago are suddenly satisfied with half of that amount. In the first three months of the year, the inflation-adjusted average salary declined around 1.5 percent according to an analysis of the US Labor Department.
More than the high tech sector is involved. Workers whose well-paid jobs in industry fell victim to the all-pervasive savings pressure have to cope in the volatile service sector where they may not be able to afford membership in a health insurance plan. 17 percent of all Americans are not medically insured. Economic researchers insist that the service sector is growing. The industrial sector has constantly shriveled for years.
"I am simply glad to have a job", says a gas station attendant, a former airplane mechanic who now no longer earns 18 dollars an hour but only nine dollars. He speaks representatively for many. He doesn't believe that the recession has ended. Whole personnel of firms threatened with bankruptcy like American Airlines adjust to wage cuts to escape this fate. The airline workers renounce on 16 to 23 percent of their wages. Only members of the board of directors increased their salaries 15 percent in 2002.
How this can continue is completely unclear. The National Bureau of Economic Research admits this. Their study declares:
"That the depression was reached in November 2001 doesn't mean that economic conditions were more favorable since then or that the economy is again working at normal capacity." "In fact, the latest data suggests that employment has by no means begun to rise." A week before last, Federal Reserve chairman Alan Greenspan pretended to be optimistic in a speech before the Congress. "We believe we have arrived at a turning point", he said although the basis of the old economic guru's confidence remained hidden behind the verbal hyperbole or smokescreen.
In June 2003 the US central bank cut the leading interest one percent for the 13th time since 2001. This step shows the continuing anxiety with which the central bankers see the economic development. Although Greenspan speaks again and again of signs of recovery, he trivializes the present risks. For a long time, the Fed insisted that recession or deflation represented a greater danger than inflation.
President George W. Bush builds all his hopes for a reelection next year on a recovery of the economy. The weak economy cost his father the 1992 election. The son now hopes in the effect of the tax cut resolved in May 2003 which will spill out more money to salary accounts of many US citizens for the first time in July 2003. Altogether the taxes will be lowered, $350 billion over ten years. Observers set the true costs at $800 billion.
Delicate tax gifts
The problem is that many economists are not sure whether or not the tax gifts will have an opposite effect. The Bank for International Balance of Payments, the central bank of national central banks, recently warned that the mad costs of the tax cut could undermine trust in the public finances of the US. For a long time investors from all over the world were willing to invest their money in the US even if the public debts were usufructory. This could change doesn't rebound as expected.
The high borrowing of the state to finance the budget deficit of $455 billion dollars in 2003 alone will drive interests higher on the capital markets according to the law of supply and demand. This will make investments and private consumption on credit more expensive and thus an economic recovery more unlikely.