Chapter 3: May 2010 Update
- On the TARP front, Ben Bernanke (in a April 8 speech at the Center for the Study of the Presidency and Congress) defended the way central bankers and public policy-makers had acted since September 2008, having learned the lessons of the Great Depression and so averted an even worse calamity. ‘In the current episode,” he said, “in contrast to the 1930s, policymakers around the world worked assiduously to stabilize the financial system. As a result, although the economic consequences of the financial crisis have been painfully severe, the world was spared an even worse cataclysm that could have rivaled or surpassed the Great depression…Critics had Warned that the stress test could backfire, but as it turned out, the release of the results last May helped restore confidence in the banks, and many institutions have been able to raise capital from investors and repay the capital the government had injected.” (cited in The Washington Post, April 9 2010). The “success’ of TARP in narrow financial terms was evidenced by the Treasury’s announcement that same month that it plans to sell off its 27% stake in Citigroup at a likely profit of $8 billion. “Once the sale is complete, the government will have recouped three-quarters of the $245 billion worth of capital it pumped into financial institutions” (ibid), with the ultimate cost of TARP to the taxpayer of probably just $100 billion, mostly lost to General Motors, Chrysler and AIG. Small regional banks are likely to repay their loans more slowly than the big Wall Street institutions because of their greater exposure to the still deflated commercial real estate market.
(For a powerful critique of the Citigroup bailout, showing how much more the Treasury could have got for less in the dark days of November 2008, see Dean Baker’s “Did We Make a Profit on Citigroup?” The Huffington Post: posted April 1, 2010. For the possibility that the fiscal spending solution may yet trigger a generalized return to recession, as the problems of financing public debt in weak economies escalates, we all need to watch the developing story of Greece and the EU/IMF bailout now under way. After Greece, may be Portugal, Italy, Spain and Ireland. UK banks reported huge losses on Greek public debt in April 2010!!)
- That latter reminds us that the return to profitability on Wall Street (however tax-payer subsidized) has not yet been matched by an equivalent bounce-back on Main Street. US economic growth (and manufacturing output) did bounce back slightly in the first quarter of 2010 (a 3.2% overall growth rate, after a 5.6% burst in the last quarter of 2009), as did labor productivity. But firms were slow to hire new workers, preferring to work their slimmed down labor force more intensely and for longer hours. The official rate of unemployment remained stuck at 9.7% through to May 2010. The 2009 last quarter figures largely reflected US businesses not drawing their inventories so rapidly. The first quarter 2010 figures reflected rising consumer spending. 33 states reported job growth in March, but that did not include Nevada, Florida or Michigan (still possessing a 14.1% unemployment rate!) Since December 2007, the US economy has shed 8.4 million jobs and failed to create the extra 2.7 million required to keep pace with the rising labor force. 11 million jobs missing in total, not to mention the amount of underemployment represented by the reluctance acceptance of part time work. So March 2010’s 116,000 new jobs – a third of which were temporary workers employed on the census – fell short of the 150,000 new jobs required that month simply to keep pace with the growth of the US population. (On this, see Robert Reich, “The Jobs Picture still looks bleak”, The Wall Street Journal, April 12 2010.)
- Not surprisingly therefore, the data from the Pew Research Center on popular attitudes to health care form found some very depressed (and depressed) responses to questions on the economy. 92% of those polled gave the economy a negative rating, 70% reported personal job-related or financial problems in the last year, and over half (54%) had someone in their home without work or looking for work. The 2008 figures on the last two issues were 59% and 39% respectively. ‘The poll saw an aggravation of conditions in every area of economic life studied the year before” (this from Hiram Lee, The Staggering Collapse of Living Standards in the US; posted on Alternet April 26, 2010, at http://www.alternet.org/story/146630
- Contrary to the claims of the tea-party movement, who mobilized in strength on April 15 (tax day) to protest higher taxes, most Americans received a tax cut in 2009-10. Cato’s Chris Edwards was honest enough to say that: “The only tax I can think that has been put in place so far is an increase in the federal cigarette tax, I can’t think of another Obama tax that has gone in place so far” (cited by Sam Stein, The Huffington Post, April 15 2010). The Bush tax cuts on the very rich are planned to run out at the end of 2010, and will not be replaced. 38% of all US citizens now pay no federal income tax (they still pay property and sales taxes), reflecting the acute inequalities of income inherited from the post-Reagan years. That figure is likely to rise by 2011 to 46% in the wake of the stimulus package and health care reform.
- For data on economic performance, go to the US Department of Labor’s statistics, regularly updated, at http://www.dol.gov/index.htm#stats. For data on future trends, go to the report by David Autor for the Center for American Progress, The Polarization of Job Opportunities in the U.S. Labor Market, published April 30 2010 at http://www.amercanprogress.org/issues/2010/4/job-polarization
- Among the findings of that report, two stand out: one is that between December 2007 and March 2010 the number of employment workers in the U.S. fell by 8.2 million, from 138.0 million to 129.8 million. The second is that there has been a sharp rise in wage inequality and a declining number of middle class jobs as the US job creation pattern polarizes, creating new high-wage, high-skill jobs and low-wage, low-skill ones. Solid lower middle class employment is on the decline.
David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.
He writes here in a personal capacity.