And Now, The Bad News About The Economy

by Alexander Cockburn

Trouble is, the fundamentals aren't that good, unless we measure the health of the economy by the colossal fortunes amassed by a tiny fraction of the populace. In terms of the main indices of economic dynamism -- the growth of output, productivity and investment, the economy of the 1990s has been the worst of the postwar epoch, inferior even to the stagnant 1970s and 1980s, and not remotely comparable to the boom decades if the 1950s and 1960s.

Indeed, Robert Brenner of UCLA, who draws a stark picture of world economic "fundamentals" in the July/August issue of New Left Review, "The Economics of Global Turbulence," points out that the growth of output per hour and also the growth of hourly wages, since 1973, have been worse than in any period during the last century, including the Great Depression and, on average, have not improved in the 1990s.

To put some numbers on the famous "fundamentals": Between 1950 and 1973, labor productivity growth in the private, non-farm sector was 2.7 percent a year. From 1990 to 1996, it was 0.7 percent. In 1997, workers' hourly wages were 12 percent lower than in 1973 and exactly the same as in 1965.

To be sure, the jubilation of financiers, industrialists and their acolytes in the business press has not been entirely irrational. After a long period of depressed returns, corporate profitability, especially in manufacturing, did increase spectacularly in the 1990s. With the increased profits came the stock market boom, albeit at a tempo increasingly out of sync with reality. As always with bull markets, the children of Dr. Pangloss rushed out excited essays, arguing that we were now in a "New Age" or "Third Wave" economy, that there was no reason why the elevator should ever go down.

But the boom came at the expense of the working people and also of America's leading competitors. Between 1987 and 1997, real hourly wages here for production workers fell by more than 5 percent, and the U.S. dollar was devalued by some 40-60 percent against the Japanese yen and the German mark. Our goods thus became world beaters on the international markets.

But this state of affairs, which provoked ecstasy on Wall Street and in the speeches of Team Clinton, full of self-congratulation about "growing the economy," could not last long. The economies of Germany and Japan went into crisis because of the sag in exports consequent upon U.S. competition. The U.S. dollar duly began to rise, thus shaving down the American advantage. And as the U.S. economy began to grow rapidly in the one glorious year of 1997, U.S. wages at last began to rise.

By the middle of 1998, a snapshot of the fundamentals showed the predictable consequence. With their competitiveness now falling as a result of rising wages and also the rising U.S. dollar, U.S. producers' profit rates began to go down. The stock market would not take long to reflect this changed situation.

Ironically, the very success of the United States in imposing its neo-liberal model of the rest of the world has played no small role in inducing the current downward lurch in economies round the globe. Neoliberalism spells out as slashed social spending, balancing budgets and tight credit. So, country after country, lashed into austerity by the International Monetary Fund and other U.S.-dominated institutions, have seen their own internal markets shrivel in consequence. Their only option has therefore been to export or die, and so they have, flooding the oversupplied world markets and forcing down prices. The crises in Asia and Russia have been the direct result of this international overcapacity in manufacturing and oil.

And so, homeward fly the chickens. The desperate export drives put pressure on U.S. manufactures' prices and profits. And the Russian collapse slashed into the profits of big U.S. banks. Collapses in Latin America cast another dark shadow. With the stock market in tumult, consumers here will ease up on their gallant spending, which has been propelling the economy forward.

Now what? So fervent have been the neoliberals in their preachments and in their presumed victories that it will take an immense effort in mental self-abasement and reappraisal -- probably beyond their limited powers -- to make them realize the folly of their doctrines, which have yielded only the bitter fruit of a world depression, already lacerating major portions of the globe. Can they abandon the totems of balanced budgets, reduced government spending, high interest rates and financial deregulation?

We have now reached a moment in which there is no good news on the agenda anywhere in the world. Chipmunk chatter about the fundamentals no longer suffices. The received wisdom was wrong. Look at one more figure. Between 1989 and 1995, U.S. government spending increased in real terms by only 0.1 percent. President Clinton would do well to get that number up off the floor and to realize that ex-bond traders like Robert Rubin have a very limited notion of what fundamentals can mean to ordinary people, who don't see the '90s in quite the terms as have he and his Wall Street friends.