Apr 23, 2008

April 17, 2008: March Madness, Reaping the Whirlwind, Teaching Americans Economics

"Depressions are what God uses to teach economics to Americans"
--From the "Quotations of Chairman Joe"

David Leonardt, writing in the April 9th New York Times, told us what we have all known all along: that the economic party thrown by the Bushes was a strictly Wall Street affair. In a column entitled “For Many, a Boom That Wasn’t”, Leonhardt said that “the now-finished boom was, for most Americans, nothing of the sort.” Citing the Census Bureau’s inflation-adjusted numbers the median American family made about $500.00 less in 2007 than in 2001. “Real median family income more than doubled from the late 1940’s to the late ‘70s. It has risen less than 25% in the three decades since”, Leonardt writes, “but the larger point is still crucial: the modern American economy distributes the fruits of its growth to a relatively narrow slice of the population”, adding “We don’t need another decade of evidence to feel confident about that conclusion.” (1)

The latest economic reports are not comforting. March, it seems, did not turn in a stellar economic performance. The Labor Department reported that “consumer prices rose 0.3 percent in March”, that is prices rose at an annual rate of 3.6%. “Over the past 12 months, inflation is up by 4%, reflecting relentless gains in energy costs, which are up 17 percent over that period, and food prices which are up 4.4 percent.” The ravages of inflation are exasperated by the astronomical increases in the prices of basic commodities. “The price of bread (is) up 14.7 percent over the past year, milk prices up 13.3 percent.” Additionally, new home construction plunged to the lowest levels in 17 years, dropping by 11.9 percent, while “the weak economy is causing rising job layoffs and an unemployment rate that jumped to 5.1 percent in March”. (2) Meanwhile the retail price of gasoline has pushed past a record high of $3.40 a gallon as crude oil prices have also reached record highs with crude futures trading at a record of $115.54 a barrel. (3)

Economic problems are now becoming acute. Reports from a score of journals paint much the same bleak picture. An article in this week’s BusinessWeek by Pallavi Gogoi highlighted the interrelationship of high energy cost and related inflation in food prices. In an article entitled “Squeezed by Rising Food Costs”, Gogoi quotes the “latest American Farm Bureau market survey of 16 basic groceries was $45.03 in the first quarter, up 9% from the same period last year. Many of the price increases are eye-popping—a five pound bag of flour cost $2.69, 26% more than last year. Volunteers in 32 states participated in the survey, with the 76 shoppers paying 23% more for fryer chicken at $1.37 per pound, while the average price for a gallon of whole milk was $3.31, up 10% from last year…” (4) In all, according to AP Economics Writer Martin Crutsinger, “food costs rose by 1.2 percent in March”, “energy prices jumped 2.9 percent” with gasoline increasing 1.3 percent and natural gas was up 4.2 percent. Home heating oil “shot up by 13.1 percent and diesel fuel used to power the nation’s trucking fleet” rose 15.3 percent. (5)

And then, of course, there are the numbers recording the continuing collapse of the housing industry. It was reported on MSNBC as well as by Reuters that “home foreclosure filings surged 57 percent in the 12 months ended in March and bank repossessions soared 129 percent from a year ago.” Nor is it likely to get any better any time soon. Lynn Adler writing for Yahoo News quoted Rick Sharga, vice president of RealtyTrac that “we’re going to see quite possibly a record amount of foreclosure in the third quarter”. Adler reported that “one in every 538 U.S. households living in single-family dwellings received a foreclosure notice in March”. Auction notices are up 32 percent, suggesting “more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender”, according to the article. (6)

Because the new order has done such a great job of spreading risk, the housing crisis continues to wreak havoc on a much greater part of the economy than would have otherwise been possible, now threatening not only commercial lending institutions but world-wide financial markets. Added to this are the skyrocketing costs of raw materials creating a “cost-push” inflationary pressure not only threatening the return of the ‘Stagflation’ era, first introduced by Richard Nixon, but also threatening to drive up food prices to such an extent as to now threaten governments around the world. The April 11 edition of TIME featured an article by Tony Karon entitled “How Hunger Could Topple Regimes”. There are major food riots in Haiti, threatening the very existence of the fascist dictatorship installed by ‘Ol Two-Cows a few years ago. Karon reports that such countries as Egypt, Cameroon, Mozambique, Indonesia, Uzbekistan and Yemen are immediately at risk, quoting World Bank president Robert Zoellick that “world food prices have risen 80% over the last three years,” warning “that at least 33 countries face social unrest…” Karon cites the growing industrialization of China and India and the demands these economies are now placing on energy resources as one of the culprits. Also to blame is the increase use of bio fuels which diverts ever scarce farmland from growing crops used for food to crops converted into fuel. (7)

It seems that the vultures are coming home to roost. The ‘New World Order’, proclaimed by George H.W. “Pappy” Bush, that “Brave New World” of Neo-Con imagination is about to unravel. By attempting to export Capitalism abroad and make it ‘universal’ we have succeeded in inspiring and jump-starting the Russian, Chinese, and Indian experiments. This in turn has led to massive competition for basic industrial commodities putting enormous pressure on quickly dwindling resources. The consequences are at once severe and of long duration. We are now beginning to reap the whirlwind as prices begin to spiral out of control. Additionally the idiotic conservative mantra that “no regulation is good regulation” has led to a speculative ‘bubble’ in which the Market has distorted real value-- in this case housing-- threatening a collapse of the housing market sending reverberations throughout the economy. With layoffs in construction, loss of home equity, diminished borrowing capacity, diminishing strength of consumer spending, and a nasty undercurrent of inflationary pressure brought on by a combination of inspiringly stupid public policy and an overtaxed supply, we are now faced with a set of economic problems not seen since the ’30s.

“Fortunately, there is an obvious model waiting to be dusted off”, wrote David Leonhardt, in the New York times, “the income gains of the postwar period didn’t just happen. They were the product of a deliberate program to build up the middle class, through the Interstate highway system, the G.I. Bill, and other measures.” (1) Leonhardt is quite right. The New Deal brought us the minimum wage, federal laws to enable workers to unionize; a government that was interested in fostering and protecting organized labor; the Farm Home Bill which helped millions move into middle class housing; the National Defense Student Loan and Grant Programs which helped millions gain a college education at little cost; price supports and subsidies for agriculture to keep food prices low and affordable, and so forth. These were, it should be noted, nearly entirely Democratic programs, opposed tooth and nail by the Republican minority. It should also be noted, for the record, that the reason this middle class is now in such distress has been nearly 40 years of Republican mendacity. This is what happens when you let these people into the corridors of power for any extended period of time. But fear not for unbeknownst to the Republicans, they have been unwittingly about the business of teaching Americans economics and, in so doing, making good Democrats of all of us.




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