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The Invisible Recovery

Jonathan Stavole

For months now the front pages of daily papers across the country have heralded sporadic sightings of a fresh economic upturn. But for most working Americans, any return to prosperity is barely a rumor at present. While it's true that the economy has stopped shedding jobs for the moment (after losing a net 2 to 3 million of them in the first two and a half years of the Bush administration), the turnaround is so far a fairly paltry one in which a limited number of new jobs mostly involve menial work for low pay. Meanwhile the specter of crushing debt--both national and household--looms ever larger. Last week I caught up with economist Doug Henwood, the longtime publisher of the Left Business Observer newsletter and author of the newly released After the New Economy (New Press, $24.95), which is possibly the best and most accessible survey of myths and facts regarding the '90s boom and the stagnation of the present day.

City Pages: What's your view of the apparent rebound in the third quarter? How do you read the signs?

Doug Henwood: Things are improving, there's no question. But very slowly. That 7.2 percent GDP number seems to suggest greater improvement than is really happening on the ground, and there's a chance it will be revised down. It sort of illustrates what the present situation is like. You get some good-looking numbers, high-level numbers. But the actual numbers in the labor market are still pretty weak. Unemployment is--certainly it's good to have three straight months of growth after seven of decline, but the numbers are still a fraction of what they would be in a normal month, much less what they would be in the early stages of an economic recovery. In a normal month we'd be seeing somewhere in the neighborhood of 220,000 jobs created based on long-term historical averages. And a typical early recovery would see 300-400,000 jobs a month. A hundred thousand or 125,000 a month is weak tea next to that.

CP: Do you think it might signal the kind of turnaround that could carry Bush through next year without the political heat over the economy that we've expected?

Henwood: It's a possibility, yeah. If it carries on for several more months, even if it's not going like gangbusters, the mere fact of improvement may be enough to get Bush re-elected. It's exactly the opposite of what we thought a few months ago. Iraq looks really, really fucked-up and the economy seems to be healing slowly. You have to look at this economic improvement in the context of the kind of fiscal stimulus it's gotten--enormous amounts of tax cutting and rebate checks, and we're still getting a weak recovery. It's not surprising that we're getting a rebound, but given the kind of money Bush is throwing at it, it's not that impressive. But it may be enough to convince people it's getting better.

CP: One question I've heard a lot of people pose is why there's been so little talk of a "war dividend" stimulus to the economy.

Henwood: Well, a lot of the money's being spent on what they call "support services." In the GDP accounts for the second quarter, for example, the military component was growing at a 45 percent annual rate, and that was the highest since 1951. But it was heavily concentrated in these support services--carrying troops over, setting up bases. The kinds of contracts that Halliburton is getting. It's not like the old days when they were making lots of trucks and uniforms and things like that. The old industrial economy got a lot of stimulus out of war procurement. Now it's these services, and high-tech weaponry, which is highly specialized, highly automated, and doesn't really generate that much job growth.

I was talking to a union organizer a couple of weeks ago who was trying to organize a plant where they make the bulletproof vests. These are really low-wage jobs, just classic garment industry jobs where the workers only make a few bucks an hour. So it's not like these people are getting high wages out of war procurement. It's basically sweatshop conditions.

CP: You write at considerable length about income and household debt in the book. It seems hard not to notice a lot of bad omens out there. I'm thinking particularly about the continuing explosion of personal debt. Why is personal debt increasing so dramatically? Is it a matter of people going into the hole to maintain a lifestyle while their real wages are stagnant or slipping?

Henwood: I think that's a good bit of it. But the recent debt explosion has not been so much in credit cards. It's been all about housing-related debt. People have been borrowing enormous amounts of money against appreciated house values--about $400 to $600 billion a year for the past couple of years. That's really kept consumption going during the recession. I guess it sort of looks like free money. You have this great housing bubble--and by some measures it is one of the great housing bubbles we've had; if you just look at the ratio of house prices to household incomes, we're really tying records from the late '70s and late '80s. And when people go to refinance the house, with interest rates as low as they are, they see they can take out a few thousand bucks and it feels just like money coming from the sky. It's kind of irresistible.

 

The economy, though, is very dependent on this sort of thing. And household finances have become very dependent on low interest rates. If rates start creeping up again and people have adjustable-rate mortgages, they're going to find that the debt service that seemed easy with interest rates this low won't be so manageable anymore. But yeah, I think people do want to maintain a middle-class standard of living, or something even higher than that in many cases, even if their incomes don't support it. And the ingenuity of the credit system is endless. There's always a way to deliver fresh means of borrowing to people who want to go out on a limb.

The other side of it too is that if we have this extreme polarizing income and wealth situation, that means that rich people have a lot of money that needs to be invested somewhere, and effectively, through consumer finance, they're lending it to people below them on the social ladder.

CP: I refinanced my house recently, and the mortgage broker was telling me about all the piecemeal devices the business is using, essentially to get people into houses they can't really afford. There are now finance packages called "stated income products," he said, which basically allow borrowers to make up a personal income figure for themselves to get into properties they couldn't otherwise qualify for. And in return, of course, they agree to pay higher interest and costs. These kinds of cheats and patches are happening throughout the consumer economy, aren't they?

Henwood: Yeah. Although the Clinton administration liked to brag about the increase in home ownership in the late '90s--and it did rise, particularly for lower-income people--but it was done with like 0 or 5 percent down. And if there were any more serious kind of recession in which the unemployment rate went toward 10 percent, then people would just be up against a wall. As Jim Grant likes to say, the American economy is capitalized for prosperity. Everything has to go right: The unemployment figure can't go too high, interest rates can't rise too much, and also, the big thing--when foreign investors decide they don't want to keep pouring money into the US economy at the rate of $2 billion a business day, there's trouble. That factor kept the boom going a lot longer than it would have otherwise.

CP: You write a lot about the radical polarization of incomes over the last generation or so. It strikes me sometimes that we now live in a country that effectively has two economies--one in which real incomes are rising and personal consumption prerogatives are greater than ever (the top 15 or 20 percent of wage-earners, roughly), and one in which there is practically a depression going on, but for the fact that workers and families are stretching themselves thinner all the time to keep up the same standard of living.

Henwood: That seems like a fair impression. There was a brief period in the late '90s when there were income gains pretty much across the board, but that was a brief interruption in the trend of the previous 20 to 25 years, which was the rich getting well, the upper middle class doing okay, and everybody else below that lucky to keep their noses above water. We seem to be heading back into that kind of realm now. Real wage gains have gone back to zero after staying positive for a couple of years. The kinds of jobs we see appearing in the last few months are heavily skewed toward low-wage, low-skill things like retail food service and low-wage health care jobs. In that sense it's like a return to the '80s economy.

In the '80s, the whole polarization issue was much more political. I think that's because in the '90s, even though inequality was increasing, people in the middle and lower ranks were showing positive income gains. Now they're not, so we may see it come back as a political issue.

But it does seem that this is a tale of two countries. If you just look at the retailers who are doing well, it's the Tiffany's and the Sam's Clubs. All the department stores and so forth that cater to a middle-income crowd aren't doing nearly as well. The growth is at the two extremes.

 

CP: Is it possible to say how much of the growth in income inequality can be accounted for by political changes such as tax cuts and so forth?

Henwood: There's been an increase in the level of pre-tax inequality. And in the last few years the tax system has gotten more regressive, so that's certainly adding to it. But if you look at the sorts of things promoting the pre-tax inequality, they include union-busting, erosion of the value of the minimum wage--the general things you associate with our very weak labor market protections. There aren't many other civilized countries where the at-will employment doctrine holds. It's hard to fire people in other countries. Here it's very easy. So a lot of it has to do with the whole institutional/legal structure, which is what allows employers to pay next to nothing and offer no benefits. It's the American way of economic life.

CP: You cite a Bureau of Labor Statistics survey of the 30 fastest-growing occupations over the next few years, and it's a little shocking how few of them require any education at all. It does tend to make sense of our political approach to starving the public schools, doesn't it?

Henwood: Yeah. Every now and then you hear this noise about how workers don't have the necessary skills, and employers complain about how they can't find the right kind of workers. But if you look at the kind of jobs the economy is creating and probably will create over the next decade, there are some high-end jobs. But that's a minority. The impressively growing sectors are things like home health aides and cashiers, security guards. All things that require pretty low levels of education and short on-the-job training. When employers talk about lack of skills, what they're really saying is that workers just don't have the right attitude. They don't know how to show up on time and show the proper deference to the boss. But it's not a matter of academic or work skills we're talking about. It's personal habits that they're really concerned about.

CP: What's your sense about the temperature of worker resentment these days? Are we seeing increases in workplace sabotage, things like that?

Henwood: The evidence on this is really contradictory. The Conference Board periodically surveys worker attitudes, and the last couple have reported an increasingly sullen workforce. People feel overworked and underappreciated--which, you would think, is how they should feel. Americans work very hard, work very long hours with little in the way of vacations, and generally make pretty crummy wages.

But on the other hand, they often report to pollsters that they're pretty happy in their jobs and like their work. I'm never quite sure how to understand that. It's almost a patriotic obligation to be happy; to complain about things is un-American. If you look at international comparisons--happiness surveys, and things like that--Americans are always the happiest people in the world. Which is hard to reconcile with all the self-help books you see for sale and all the Prozac people are popping.

But I think it's also that people like aspects of their jobs. They like the work, they like dealing with their co-workers and maybe with the public. But they don't like their pay levels and they don't like the way they're treated by the boss. So that may be a way to reconcile the contradiction. People essentially like their work but wish they were treated better and paid better for it.

CP: Does it seem to you that the brazenness of big employers has increased under cover of wartime, or are we just seeing long-term trends come to light? I'm thinking not just of all the 401K raids and so forth, but news like the recent allegations about Wal-Mart forcing hourly employees to work off the clock routinely.

Henwood: Actually, my wife is writing a book about Wal-Mart, so I've had a pretty close look at this stuff. This is the way the company has been forever. The INS busts and so forth, they reflect things the company has done all along. It's an amazing conjunction of redneck sensibilities and high-tech management of the supply chain. The Wal-Mart phenomenon is an amazing thing.

Workers always get squeezed harder in recessions. They're expected to work more for less pay. We're seeing more of that coming out. But it's really the way the American economy has been trending for decades: Just work them harder and pay them less.

 

One of the chapter epigraphs in the book is from Alan Cowell, a New York Times reporter, who's urging the Germans--in one of those periodic lectures the Times likes to give to the pampered Europeans--that they need to get in touch with the American economic way of life, which is working longer for less. Hey, where do we sign up?

CP: The book contains a number of express and implied comparisons between our age and the gilded age of the robber barons a hundred years ago, when capital held basically all the cards. How close is our political and economic climate to theirs? Or to put it another way, where can we expect business to continue pushing for more rollbacks?

Henwood: I think they want to go all the way. They want to have no welfare state at all, no unions and no labor protections, no environmental protections. They just have a completely maximal agenda. On the plane here, I was reading a piece in Vanity Fair about Bush's judge nominations. These people are truly insane. They really do want to undo all the social gains of the 20th century. They want to undo the New Deal, get the federal government out of providing any labor protections. One of them was even arguing for eliminating wage-an-hour legislation--allowing employers to work people as long as they want without paying any overtime.

I think this is the way a lot of right-wing thinking is going these days, and a lot of business thinking. Until there's any kind of resistance, or some kind of real economic smashup, they're just going to push as hard as they can.

CP: We're talking about the unprecedented prerogatives of capital, and yet there are those who argue that the US is so belligerent these days not because it's so strong but because its economy is so structurally weak. There was an Immanuel Wallerstein piece in Monthly Review a while ago making that case.

Henwood: I've seen him make that argument. I've seen people like David Harvey make that argument, too. I'm not entirely convinced I see the cause-effect relationship. As far as I can tell, the Bush administration in particular doesn't really seem to care very much about economic policy, domestic or international. They have a very aggressively nationalist/imperialist view of things. They just want to exercise American power abroad. But it's not really clear that they see a great economic payoff from it. I'm not even clear what the payoff would be from running Iraq. I think it's more a matter of imperial glory and aggrandizement of power.

CP: But doesn't U.S. control of Iraqi oil help to ensure continued political control over the rest of the industrial world's oil supply?

Henwood: Well, yeah, I've heard that argument made too. Noam Chomsky's a fan of that one. But I'm not entirely convinced of that either. Just controlling the taps in Iraq wouldn't necessarily mean they could turn off the supply to Kyoto or Paris. It'd be much more efficient, if they wanted to put a squeeze on Japan or western Europe, just to blockade them. So if we're talking about acts of war, there are much more efficient ways of going about it.

I almost think Bush's people are living in the past, that they want to recapture the glories of the late 19th and early 20th century imperial style. But whether there's a great economic payoff for it, I'm still skeptical about that.

CP: How profound is the cost to the US economy going to be stemming from the Bush tax cuts and deficits, and the occupation of Iraq with its costs? What's the effect of these things going to be on the near- or medium-term economy?

Henwood: It's not good. In the near term, it does provide some kind of counter-recession stimulus. It's also being done very inefficiently--it's a very expensive way of stimulating the economy. Over the longer term, they can't keep borrowing like that indefinitely. Something has to give. And that either means we'll have some kind of financial crisis when foreigners refuse to buy Treasury bonds anymore, or they will go on a manic budget-cutting spree.

I got on the press list for the Council on Foreign Relations, so I've been going to these periodic breakfast meetings where wise and powerful people share their view of the world. There was one of these with a bunch of Wall Street economists a couple of months ago, and the chief economist of Citigroup said Wall Street wasn't really worried about the deficit, because they figured a second Bush administration could make the necessary spending cuts to bring the budget into balance.

 

The idea of a second Bush administration was a little hard to take at 8:30 in the morning, but also they're dreaming if they think they can cut that much out of the budget. Unless they cut the military budget, which of course they're not going to do. They would have to cut civilian programs so deeply--

CP: There just isn't that much discretionary spending.

Henwood: No, there isn't. It's just not there. Even if they started on it, it would really start hurting middle-income people. Government would just have to get out of the business of education and environmental spending. Even that wouldn't balance the budget, but they would have to cut all this stuff down to zero even to approach what they're after. That would enrage a lot of constituencies that might otherwise vote for Bush.

So it just can't go on. But I think this is their strategy. As [anti-tax activist] Grover Norquist said, he wants to shrink the government down to a size where he can drown it in the bathtub. Their long-term ambition is starving the beast, but the beast is not particularly overweight at this point. It just can't be done. It's going to provoke some kind of political or economic crisis at some point. It's reckless and very dangerous.

CP: Are you surprised there haven't been more Soroses and Buffetts, more capitalist luminaries, speaking up against the Bush policy?

Henwood: Not really. I think these guys are extremely shortsighted. They're so pleased that Bush cut their personal taxes that they can't see beyond that. They do hire people to think for them, and those people are a little alarmed. But the big-time capitalists themselves are extremely narrow, self-interested people who really can't think beyond the next quarter.

CP: The book relentlessly debunks the notion that there's very much that's new in the so-called information economy. But if computers and automation aren't the main source of the last decade's productivity gains and the more recent loss of jobs from the economy, what else is contributing? Describe the "Wal-Mart effect" you talk about in the book.

Henwood: People treat computers and other gadgetry as if they were directly productive in themselves. Just because computers are getting faster and faster, this is supposed to provide some great economic or social payoff. And it does to some extent. But if you think more seriously about that--McKinsey is a consulting firm with an in-house think tank that did an 800-page study of several industries to look at what the productivity revolution of the '90s meant. The star of the study turned out to be Wal-Mart.

And yes, they are very aggressive about using technology, but what that technology enables them to do is create an enormous structure of exploitation, from grossly underpaid and sexually-discriminated-against workers at their retail stores all the way to supplier plants in China where they pit one factory against another to see who can supply Wal-Mart for less. It's a system of relentless exploitation and cheapening of labor, and technology is one means that makes that possible. But so is violation of labor law and old-fashioned cheating and squeezing. The technology makes it sound sexy and new, but it's really in a lot of ways just the 19th century revisited.

CP: We've been talking about a number of discouraging signs. Are there any encouraging signs you can see of brewing political resistance?

Henwood: There are these global movements, the anti-globalization movement, the global justice movement, that are deeply involved in economic issues. And they're really developing global connections and a global way of thinking. One thing that these technological miracles of our time have made possible is instant communication with people around the world. While that enables Wal-Mart to engineer its system of exploitation, it also enables a countermovement to organize itself across borders. It at least offers the possibility of true international labor solidarity, which we've never seen before.

The development of these movements and their novel approach to organization is a very inspiring sign. I don't know where it's going to go or whether it'll be able to resist the endless war on terror and the economic troubles. But it's encouraging to see the antiwar movement of earlier this year that developed in large part out of these movements.


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