Euphoria and the bursting bubble By Michael Roberts
As you read this, the papers are probably full of the news that the US economy is growing at the fantastic rate of over 6% a year. No wonder the stock markets of the world have been booming. US share prices are up 25% this year in anticipation that the dark nights of economic recession or slump have been banished from America and, as the US recovers from the terrible year of 2001, it will sweep up the rest of the world (Europe and Japan) in a new economic boom.
US President Bush has been having a hard time of it recently. He thought that his adventurist attack on Iraq and Saddam would win him a landslide re-election victory in 2004, as Americans patriotically flocked to his support - just as some gullible Britons did to Thatcher after the Falklands. But unlike the Falklands war, which merely left a small contingent of the British army to look after the sheep in the fields, the Iraq war did not end last May when Bush declared hostilities over. Since then, Iraq has become a killing field for American troops and for Iraqi civilians in larger numbers than the American military invasion produced.
And the cost of the occupation is also mounting. Bush has already had to ask the US Congress to stump up $150bn to finance the Iraqi and Afghan occupations. He’s trying to raise some funds from the other imperialist powers, but the response of Germany and France has been to hold their noses. So Americans are worried and Bush has slumped in the polls just as his British poodle, Blair, has done back in London.
As always, everything now depends on delivering a successful economy that keeps sufficient numbers of Americans with enough in their pay packets each week. So the Bush gang is spinning euphoria about the success of their economic policies. The Republican National Committee views the state of the US economy through rosy spectacles: “Last month this economy exceeded expectations and added new jobs. Inflation is low. After-tax incomes are rising. Home ownership is at record highs. Productivity is high. Factory orders, particularly for high-tech equipment, have risen over the last several months. Our strategy has set the stage for sustained growth. By reducing taxes we kept a promise, and we did the right thing at the right time for the American economy.”
But growth and investment are one thing. Without jobs, Bush won’t win this time next year. That’s why the Bush gang is now rattling on about jobs. Treasury Secretary John Snow puts his name on the mast: “I would stake my reputation on employment growth happening before Christmas. Everything we know about economics indicates that the sort of economic growth expected for the next year, 3-4%, will translate into two million new jobs from the third quarter of this year to the third quarter of next year. That's an average of about 200,000 new jobs a month.” That’s an ambitious forecast, considering that job numbers have been falling for eight consecutive quarters and only in September was there a rise of just 50,000.
This euphoria is hogwash. Let’s make a prediction that’s more likely to come true. Having watched 2.6m jobs vanish since he took office, Bush will likely soon be the first president since Depression-era leader Herbert Hoover to preside over a net loss of jobs in his first term.
The reality is that the economic growth that the US is now enjoying is an illusion. It is based on three things. The first is massive spending by the government. The Republicans are supposed to believe in the ‘free market’ and oppose the whole idea of a state that interferes in the free rein of capitalism. But when needs must, ideology goes out of the window. Just like Reagan did before him back in the 1980s, Bush is trying to replace the failure of capitalists to invest and spend by getting the government to do it. Defence and “homeland security” spending is at record levels. The free market has been replaced by Keynesian-style pump-priming of the capitalist economic cycle.
full: http://www.marxist.com/Economy/euphoria_bubble_1103.html
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