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Towards A New Great Depression In America: Sluggish Economic Growth, Staggering National Debt

Tuesday, October 9, 2012 7:46

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Between Scylla and Charybdis:

By Dr. Rossen Vassilev

Global Research, October 09, 2012

The American economy is caught between the Scylla of sluggish economic growth and the Charybdis of a staggering national debt aggravated by Washington’s unyielding partisan deadlock over taxes and spending cuts.

After the Great Recession of 2008, the approaching “fiscal cliff” at the end of this year threatens to cause even more economic havoc and bring about another recession which some “doom-and-gloom” economists darkly predict may turn into a new Great Depression. The new “normal” state of the economy is marked by a stalled economic recovery, low consumer demand as well as persistently high unemployment engulfing large sectors of the population. The same “gloom-and-doom” economists even claim that the real level of unemployment may be close to the Great Depression level of 25% if one subtracts the number of those gainfully employed from the number of all working-age adults in the active population. But even “optimists” like the IMF’s chief economist Olivier Blanchard insist that economic turmoil will continue and that the global economy may take a decade to recover from the financial crisis.

According to Dr. Joseph Stiglitz, the Nobel Prize-winning ex-chairman of President Clinton’s Council of Economic Advisers, a growing economic inequality between the “haves” and the “have-nots” endangers America’s future. In his latest book, Stiglitz argues that deeply unequal societies like ours cannot have stable economies and that worsening economic inequalities lead to instability and great economic crises. It does not take a Ph.D. in economics to see that the World Bank’s former chief economist is right. As a result of the neoliberal “supply-side” policies embraced by both Reaganite Republicans and Clintonian Democrats, the US has lost much of its middle class—that bastion of democratic capitalism first created by FDR’s New Deal which was not only a barrier to the spread of communism during the Cold War but formed the backbone of the post-WWII economic boom and “consumer society.” With the fall of Soviet-style Communism and the demise of the Democratic Party’s “Great Society” dream, which has been replaced by the so-called “Washington’ consensus” crafted by the Bill Clinton Administration, differences in material well-being have recently become so egregious that many writers have begun to refer to our post-welfare-state era as the new Gilded Age. Globally, matters are becoming not that different from the middle of the 19th century—the “hard times” described by Charles Dickens and Emile Zola, especially in view of the social dislocations and hardships already inflicted by “globalization” and “tricke-down” economics. With the fall of Communism especially there is no need any more to bribe the working classes through welfare-state generosity.

Thanks to the globalization policies pursued and promoted by the champions of neoliberalism, much of the once unrivaled US manufacturing base has been moved offshore to take advantage of lower wages and laxer tax and environmental laws overseas. According to Dr. Paul Craig Roberts, a former Assistant Secretary of the US Treasury in the Reagan Administration, “The US has lost critical supply chains, industrial infrastructure, and the knowledge of skilled workers.” While this “off-shoring” (or “out-sourcing”) of American industry has brought about super-profits for multinational corporations and increased capital gains for equity owners, ordinary Americans have lost ground both financially and socially, as widespread unemployment, under-employment, job insecurity, and falling incomes have eroded their once enviable living standards, known as the “American Dream.” What is equally important from an economic point of view, their purchasing power has plummeted in this “race to the bottom,” reducing consumer demand for goods and services which cannot be made up for by the “conspicuous consumption” of the moneyed classes (to use here Thorstein Veblen’s old but apt phrase), especially when the so-called “1-percent” elite is fond of investing its money in China and India or depositing it in “tax havens” like the Cayman Islands or in secret Swiss bank accounts. As the middle class keeps losing jobs and income due to a capital flight abroad in search of lower taxes, looser regulations, and higher profits, consumer demand keeps plummeting in a national economy, over 70% of which derives from consumer spending. This is the inevitable consequence of setting up a globalized and highly competitive free market, where each year 4 million more cars are produced (and usually exported) than are actually sold. The sky-high wall of tariffs, import duties, and other protectionist barriers behind which America built its vaunted industry in the late 19^th and early 20^th centuries is all gone in the name of free trade, open borders, and globalization.

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