At the beginning of this year, the capitalist media’s continual refrain was that all that was holding back the long-promised economic recovery was “uncertainty” in corporate America about the war in Iraq. However, as the economic data has gone from bad to worse in recent weeks, a number of mainstream commentators have wised up to the fact that what ails the US economy is far more serious, and that even though the war came to a rapid end this may not necessarily lead to a spurt of growth.

Consumer spending dropped for the second month in a row in February, while manufacturing has experienced the sharpest three-month decline in 20 years. Most serious of all is the scale of new layoffs, which the “experts” have consistently underestimated. In February and March, a staggering 465,000 people lost their jobs in the US. This brings the total job loss since March 2001 – the beginning of the recession – to over two million.

The liberal economist Paul Krugman recently observed, “At this point the employment decline has been bigger, and has gone on longer than the slump that took place during the first Bush administration. And there’s no sign of an upturn.” (New York Times, 4/11/03)

In fact, the economic news is so grim that the National Bureau of Economic Research, an academic group seen as the official historian of US business cycles, refuses to declare the 2001 recession officially over.

Of course, it can’t be excluded that economic activity might briefly pick up in the wake of the rapid collapse of Saddam Hussein’s regime.

But that is not enough to correct the underlying problems. The bursting of the speculative bubble economy of the late 1990’s has created a massive hangover, which is far from over. The way in which the irrational capitalist system “corrects” its regular periods of “irrational exuberance” is by the large-scale destruction of productive capacity, which also means mass layoffs. Given that industrial companies in the US are still only using 75% of their available capacity, this strongly suggests there will be hundreds of thousands of jobs lost before there are any signs of a pickup in investment and a recovery.

However, mass layoffs have the effect of reducing the ability of working people to purchase goods. This is exactly what is happening now. There is also a softening of the housing market, which could burst the remaining economic bubble that was based on the boom in mortgage refinancing. This would have devastating consequences for millions of people.

If you factor in the rapidly growing trade and budget deficits, and the fact that the stock market and the dollar are still seriously overvalued, you can see why the more farsighted capitalists are so worried.

The final problem is the war on Iraq itself. Even if there is a short-term boost with the conclusion of the war and falling oil prices, there will be a huge price tag attached to the military occupation, which is likely to last for years. Estimates range from $100 to $500 billion, depending on the size of the occupying US force, the level of ongoing military strife, and the scale of reconstruction. The federal budget deficit is already at $300 billion, but this figure does not take into account the costs of the war or occupation.

In the longer term, it is now starting to dawn on some in the establishment that an ongoing series of military conflicts in the “war on terrorism” will seriously disrupt global trade and the process of globalization that helped fuel profits in the ’80s and ’90s. Not the least of the problems are the serious divisions that have opened up between the US and its “allies” in Western Europe, as recently exemplified in the WTO ruling against Bush’s steel tariffs.

This is life under capitalism at the start of the 21st century. Far from being a paradise fuelled by ever-increasing global trade and wealth, it is already a nightmare for hundreds of millions around the world, and increasingly here at home.