I reported yesterday that many economic indicators are suggesting bad times ahead for ordinary Americans who can't rely on wealth to carry them through hard times. Yesterday, stocks were dropping, funds were failing (the Carlyle Group's offshore fund had defaulted on margin calls) against a backdrop of escalating war costs and debt.
Before today's labor statistics were released, the New York Times noted, in Credit and Mortgage Slump, the following:
Investors may also be looking ahead to Friday’s employment report from the Labor Department, considered the most important indicator of the nation’s economic health. Economists have predicted that payrolls rose by 25,000 jobs in February.
“Anything that is less than on target could throw Wall Street over the edge,” said Sam Stovall, chief investment strategist at Standard & Poor’s.
Today, the other shoe dropped. We did not have a paltry 25,000 job increase in February. We had no increase at all. In fact, the U.S. lost jobs in February. See Michael Grynbaum, Economy lost 63,000 jobs in February, New York Times, March 8, 2008. These are real people who are hurting under the current economic situation. A country whose people are losing their jobs is a country that is failing its people.
Who is to blame, and what can be done? The investment banks, and the securitization of loans that they have pushed and use to create big profits over the last two decades, are at the root of the credit problems facing us today. While they got unconsciounably high, subsidized interest rates on student loans, they were happy to give out money for loans. While they got the benefit of a federal fiscal policy that created low-priced money, they were happy to make reckless loans, even in many cases fraudulent ones, because they knew they could package all those loans and sell them to investors, slicing and dicing them to get even more profits from fees and servicing and other activities. In the process, there is evidence of discrimination against minorities who were, in many cases, apparently given subprime loans even when they qualified for a lower-rate loan. Because they've packaged these securities, they don't want to modify the loans to make the loans more reasonable for holders--even though in the long run there would likely be fewer foreclosures and more money recovered for investors. They are fighting the availability of bankruptcy modifications of home mortgages, even while credit card debt and yacht debt can be modified there. So the banks that are suffering now share considerable blame for the problem.
But the credit crunch is not all of the problem. Globalization, which has been pursued under an unrealistic and wholly unpragmatic concept that "free markets" will solve all problems, has permitted corporations to play laborers in each country off against each other, moving without loyalty to countries in which they are organized or to which their initial success relates in order to reap the highest profits, including by encouraging tax competition between countries. Ordinary people tend to lose in that situation. My point is not that corporate activity doesn't meet some real needs or that profit motivation is bad per se, but rather that corporate activity needs to be constrained by appropriate policies when the balance is against the public good. (As an example, consider Exxon, with its tens of billions of annual profits last year, refusing for 19 years to pay out the few billion it owes for the damage done to the people of Alaska whose lives, lands and livelihoods were ruined by Exxon's negligence in the Prudhomme Bay oil spill. Will the Supreme Court do right here, and make Exxon, finally, pay up in full?)
The fact is, we have enormous problems that we can only solve acting together, through national institutions. Infrastructure, inner city poverty, health care, educational needs--all these require expenditure of considerable sums of money that cannot be provided by a system in which an enormous amount of money is being spent on all things military or being foregone in a race to the bottom in tax policy. Those ideas--that security and military expenditures trump all other needs, or that taxes should be cut and cut to attract fickle corporations and wealthy individuals to invest--are simply too naive and too simplistic.
I'm not sure what the answer is to all this. But I am sure that we cannot continue to deny the enormous infrastructure and human needs while spending recklessly on the military.
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