As the subprime mortgage crisis has spread into a housing crisis and slowing economy, serious economic spokespersons are now predicting the U.S. is slipping into an economic recession. Politicians from the Democratic and Republican parties have come together to offer a $150 billion stimulus package to “prevent” or “shorten” the coming recession.

The offer on the table at present is a series of tax rebates, up to $600 per person or $1,200 per couple, with $300 per child, with the amount being reduced for incomes above $75,000 for individuals and $150,000 for a couple. Also a payment of $300 is promised to those who earn over $3,000 but not enough to pay taxes. Also carefully tucked into the bill are over $40 billion in tax handouts to business.

What was it that prompted this sudden piece of emergency bi-partisanship? What are workers and young people to think of this surprising generosity to the average taxpayer? Will this stimulus package actually get us out of trouble?

The immediate cause of this event was the simultaneous collapse of share prices around the world. This was triggered by the fear of the collapse of two pivotal financial companies that guarantee the security of bond guarantees. The bonds held by a huge number of financial companies and issued by state governments are linked to the status of these companies. The fear was that if their situation worsened it could lead to widespread economic panic, throwing the economy into a tail spin.

Subprime crisis exposes cracks in economy

The year 2007 had already seen the subprime mortgage market crash under the impact of the housing bubble and the speculative activity of rich investors who ripped off millions of average workers. This subprime lending crisis then spread to other financial institutions which found they had bought into the subprime lending crisis. Since then almost every major bank and financial institution has had to accept record losses as the collapse of the housing bubble uncovered bad debt and overvalued assets throughout the financial system.

If the crisis was only a subprime mortgage crisis then this could have been contained. But it is much more. It reflects the fact that the economy and consumer spending has only been maintained due the accumulation of a mountain of debt. According to financier George Soros, “The current crisis is not only the bust that follows the housing boom. It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.” (New York Times, 1/24/08)

In particular tens of millions of homeowners financed spending by taking extra mortgages based on the inflation of their property values. The subprime crisis exposed this bubble, and we are only seeing the beginning of the pain as this property bubble and the wider debt bubble starts to collapse. In 2007, there were over 2 million home foreclosures. The dreams and lives of tens of millions of workers are being shattered as part of this collapse.

The collapse of the economy into a new recession reflects a new round of economic boom and bust inherent in the capitalist system. The wealth created by the labor of workers in the American century of the 1900s has been squandered by the owners of the corporations. This system of enriching the few and lowering costs (i.e. wages) has created a low-wage economy. Now the debts which sustained economic growth over the last 20 years have been exposed – and are bursting. The question in front of every American worker is: Who is going to pay for this? More specifically: Is big business going to be able to fool the American public into allowing them to use their corporate political parties to unload it onto the backs of workers and the poor?

Two parties defend corporate interests

This brings us to the bi-partisan stimulus package. The driving force behind this stimulus package is an attempt by both parties to demonstrate to financial markets that they can act together in a crisis, and to assure the rich investors that they should not panic. The content of the package is being driven by the ongoing election, where tens of millions of workers and poor Americans are suffering under the burden of a doubling of food prices, a 55% increase in home foreclosures, skyrocketing gas prices, fears about the future and an increase in unemployment.

The fact that both political parties are funded and controlled by big business is not a secret. The fact that the rich have got fabulously wealthy and that Corporate American has done very well while workers have suffered is also not a secret. This stimulus package is an attempt to buy off the anger of the public, and an attempt to hide the pro-corporate policies that dominate in Washington.
In the coming months this proposed package will enable both parties to bombard us with a constant refrain about how pro-worker and pro-taxpayer they are. This ‘deal’ enables both parties to parade in front of the public as the election season heats up.

The Democrats will say how they couldn’t get a more substantial policy through because Bush wouldn’t agree. Yet the Democrats control both houses and they proposed this policy. Since we won’t see any potential checks until late-May, they could have spent a few weeks and months fighting for a real stimulus program if they were interested. What happened to their promise to increase unemployment coverage and spend money on food stamps, which would have injected money more quickly into the economy, and provided some immediate help to those in most need? Instead, they made the deal in three days flat behind closed doors, and then congratulated themselves on a job well done.

Of course, Republicans will create their own spin on these events about how more money should have gone to rich investors – who “really create jobs.”

Consider, that just last month oil companies were given $12 billion in federal subsidies in the energy bill adopted by the Democratic Congress. Just two months ago the biggest banks were given over $100 billion in interest–free loans by the federal government. Most important was the bi-partisan bankruptcy bill which passed in October 2005. Written by the credit card companies, it will hit workers hard since it drastically restricts their ability to declare bankruptcy when faced with un-payable debt.

Will the stimulus have any real effect?

The next question is: will this stimulus package actual make have any immediate effect? The answer according to almost every economist not tied to the two parties is a resounding “No”. The tax rebates, assuming that they are actually delivered by the parties, will not arrive until the end of May! Hardly an action that can affect the economy now. Possibly it will have some small stimulus effect six or nine months down the road. As Mayor Frank Jackson of Cleveland Ohio states: “Anything from the federal government short of a massive infusion of resources into urban centers to rebuild infrastructure and pay for services is too little, too late” (New York Times, 1/24/08).

Not only is this a tiny drop compared to the massive problems facing the economy. It does not directly help solve the problems. With the capitalist economy slowing on a global basis, investment decisions made by corporate owners are based on whether there is market for new products. If there is no growing market, big business will not invest in new plant and equipment. So handouts to business will not stimulate any new economic activity now. In essence, it’s an attempt to disguise a blatant handout from the two parties to their corporate bosses, which will be cashed in on at a later date.

With workers being thrown out of their homes, losing their jobs and fearing for the future, what kind of policies can protect workers from the pain of this new recession? The accumulated problems in the economy are more powerful that any polices that the two corporate parties will support. Any policy that fails to provide a major stimulus to jobs and direct support for workers and also addresses the structure crisis of the economy will not provide any real relief for workers as the coming recession starts to bite.

We need to demand:

  • No layoffs and a moratorium on home foreclosures. No handouts to banks and corporations who are responsible for creating this economic chaos.
  • For a massive program of public works administered at a local level with democratic control, and with community and union involvement. This should create living wage jobs to all those out of work or under-employed at a living wage. It should rebuild the infrastructure, build more schools, hospitals and more factories etc, so everyone has a living wage job and that the country could be rebuilt.
  • Build millions of new quality houses at affordable rents, and create a health care system where insurance companies are abolished and where everyone can get quality health care.
  • For a living minimum wage of at least $12.50 an hour, the right to a living weekly wage of $500 for all those who are caring full-time for children or sick relatives, or are disabled.

A call for action to defend jobs and living standards

The question is: who would implement such a program? Clearly any political party funded by corporate money cannot do that. They are tied to corporate interests. We call on labor unions community and activist organizations and all interested individuals to campaign for such a program. As part of this we need to organize community protests to stop any foreclosures and layoffs and to demand living wage jobs for all.

Also, these organizations need to break from the supporting the two parties of big business and build a political party that represents ordinary working people and the poor – i.e. the working class. We need a party that is driven by our interests as workers that will challenge the power of the big corporations and the chaos that the capitalist economy has inflected on us.

Of course, big business would not favor such polices and would actively attempt to sabotage them. That’s why we call for the public ownership of these profit-driven top 500 corporations under workers’ democratic control so that the logic of profit does not drive the economic system, and instead, we can have genuine pro-worker socialist policies and a new democratic socialist society.

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