The new war on terror isn't going to be of much use in combating
the present plunge in America's economic well-being. Well before the Twin
Towers fell to earth the country was entering a fierce decline, and it is
assuredly going to get worse. The fall in growth and investment from early
2000 to early 2001 was the fastest since 1945, from 5 percent GDP growth to
zero. So fast indeed that people are only now catching on to the extent of
the bad numbers and battening down the hatches as bankruptcies begin to
rise.
How did we get from the Merrie Then to the Dismal Now? The
bubble in stock prices in those last five years sparked an investment boom
as corporations found mountains of cash available, either from the sale of
overvalued stocks or by borrowing money from the banks against the high
asset value of these same stocks. And as the Lewinsky years frolicked by
gaily, there was a simultaneous consumption boom as the richest fifth of the
citizenry, the elite Delta Force of our national consumers, saved a lot less
and spent a lot more.
The shadows were there for those who cared to look for them. In
1998, 1999 and 2000, when the boom was reaching historic proportions, when
annual borrowing by U.S. corporations had reached a historic peak as a
percentage of GDP and when Fed Chairman Alan Greenspan was vaunting the
power of markets, the rate of profits was falling in the non-financial
corporate sector, significantly so in manufacturing.
The bubble was due to burst, and then it did. Now, with the
market going down, corporations have less money, can borrow less and invest
less. Consumers have less to spend and begin to lose the appetite anyway.
Down go the rates of investment and consumption, and the amount of
government debt that the Bush administration can muster as a Keynesian
stimulus is more than offset by the decline in private debt as people turn
prudent and ratchet up their savings.
But the problem goes deeper. The corporate investment boom of
the late 1990s took place against a backdrop of falling profitability. Who
builds new plants when the bottom line is turning sourer year by year?
Answer: U.S. corporations in the late Nineties. There was no correlate of
investment against the rate of return, hence the amassing of over-capacity
on a herculean scale. Between 1995 and 2000, retail store space grew five
times faster than the population. Earlier this year, Business Week reckoned
that only 2.5 percent of communications capacity is being used. The most
notorious sector was indeed telecommunications, where borrowing was vast and
stocks insanely inflated, with stock analysts boiling up ever more ludicrous
ways of claiming profitability for their favored picks. In this sector, the
leading edge of the boom, between 1995 and 2000, the value of TMT stocks
grew by 6.1 times but their earnings by only 2.1 times.
So was there really a "New Economy" emerging in the sunset of
the century, as proclaimed by so many exuberant choristers? True, the 1995
to 2000 economy did do better than in any five year period back to the early
Seventies. By all standard measures such as productivity, economic growth,
wages, growth of investment unemployment, inflation, it was a pretty good
time. But, as Professor Robert Brenner of UCLA, whose "Boom, Bubble, Bust:
The U.S. in the World Economy" is about to be published by Verso, aptly
asks, "If the five years 1995 to 2000 truly saw the emergence of a New
Economy, manifesting 'extraordinary performance,' as Clinton's Council of
Economic Advisers put it, what are we to call the period 1945 to 1973, which
excelled it in every respect?" Productivity growth was about 15 percent
slower in those five recent years than in the 25 years between 1948 and
1973.
For now? On the one hand, over-capacity; on the other, a drop in
investment and consumption driven first by the drop in the market, then by
fear. It will be quite a while before anyone feels the need to invest, hence
to borrow. Give the rich a tax cut? It won't help. They'll put it in the
bank. Government investment? Yes, it could be done on an appropriately vast
scale, but only by public investments of a sort that Republicans have never
countenanced and that vanished from the political platform of the Democratic
Party decades ago. For sure, planes and missiles for the Navy and Air Force,
plus millions worth of food aid dropped on Afghanistan, and new computers
for the Office of Homeland Security aren't going to do the trick.
Alexander Cockburn is coeditor with Jeffrey St Clair of the
muckraking newsletter CounterPunch. To find out more about Alexander
Cockburn and read features by other columnists and cartoonists, visit the
Creators Syndicate Web page at
www.creators.com.
COPYRIGHT 2001 CREATORS SYNDICATE, INC.
