As the first half of 2020 draws to an end, economic forecasts portend a global economic decline unlike any other in history.
In the U.S., the Federal Reserve Bank of Atlanta’s “GDPNow” model is currently predicting a 46% decline in real (inflation-adjusted) GDP in the second quarter of 2020. Even conservative estimates still predict the U.S. economy shrinking 36%. This would be the worst economic decline in modern U.S. history – during the Great Recession the sharpest single-quarter downturn was “only” 8.4%.
The rest of the world is not doing much better, with the Eurozone’s GDP expected to fall 8.7% this quarter and China’s GDP having already fallen by 6.8% last quarter. The global economy is experiencing an unprecedented crisis.
Trump and the U.S. political establishment, including both Democrats and Republicans, are eager to deny the seriousness of the economic collapse. They blame the current depression exclusively on the coronavirus lockdown and rather than extend stimulus checks and benefits, they are rushing to re-open the economy against the advice from public health experts. Ten states are seeing record COVID-19 cases right now, continuing a first wave that is still raging because of the chaotic and dangerous approach to re-opening by authorities in most parts of the country. In addition, 30 states are reporting surges in new cases – threatening to further hit any chance of economic recovery.
Trump and others promise a “v-shaped recovery,” meaning that once coronavirus health restrictions are lifted, consumers will very quickly return to shopping like before, profits will surge to pre-pandemic levels, and all the workers who lost their jobs will be rehired. We are not seeing this quick recovery. Instead the chaotic reopening of the economy is increasing the danger of more deaths, lockdowns, and quarantines in a “second wave” that could deal more lasting economic damage than the first.
A Successful Rebound?
The corporate media badly wants a “v-shaped recovery” to be a self-fulfilling prophecy, trumpeting successful “rebound” figures – retail sales surging by 17.7%, the stock market’s brief rebound, official unemployment decreasing to 13.3% – that in actuality represent only a temporary improvement over the complete collapse of recent months. Compared to the tens of million jobs still missing, the current rebound is unfortunately minuscule and fragile. With massive unemployment, ordinary people don’t have enough money to prop up businesses with spending. In the immediate term, millions of families need further assistance to prevent falling into poverty.
The official 13.3% unemployment rate erroneously excluded 5.4 million workers – the corrected unemployment rate at 16.3%. But even this measure excludes commonly understood definitions of unemployment, such as part-timers who want to work full-time, or people who’ve given up looking for work. When those people are included, the unemployment rate is estimated at around 20%, near Great Depression levels, with a strong possibility that the real rate is even higher.
On top of that are new waves of layoffs in many industries and in the public sector. That is how we continue to see new jobless claims top one million a week despite officially declining unemployment. The small recovery in retail sales came from working-class households spending on necessities, while the rich have stopped spending on luxuries which, because of tremendous inequality, impedes further retail recovery. Meanwhile, stock prices have recovered only because of pent-up demand from “mom-and-pop” investors who couldn’t afford to invest at previous market highs. Major institutions like hedge funds, banks, and pensions are avoiding the stock market like a ticking time bomb, leaving main street investors holding the bag.
The rebound is unlikely to accelerate into a full recovery because though coronavirus was the trigger, the current depression is more than a crisis of demand and is a reflection of the long-term stagnation in productivity facing capitalism. This fundamental weakness and the hollow recovery from the Great Recession made corporations dependent on debt and speculation to maintain profitability. Now that the coronavirus crisis is testing the speculative valuation of these corporations, a record 66 corporations worth over $1 billion are anticipated to file for bankruptcy this year.
Retail chains, in particular, struggled with corporate debt and closed stores before the pandemic and are now facing total dissolution. Vast swathes of small businesses already on razor-thin margins before the crisis are going bankrupt. Large numbers of self-employed and small business owners will be impoverished or join the working class, strengthening the current anti-establishment mood in politics. The collapse of commercial real estate, which would deepen the crisis because it is woven into the financial sector, is already in motion with almost half of stores and offices failing to pay rent in April and May. This is much, much higher nonpayment than working-class renters who, despite being unemployed or living paycheck-to-paycheck, still paid rent 80% of the time and face much harsher retaliation from the ruling class for nonpayment. As the complicated financial web of speculation and debt unravels, the economic crisis stands to intensify.
Cuts and Layoffs for Workers, Bailouts for Corporations
Shockwaves from the initial downturn are ripping through the fragile post-Recession economy much faster than in 2007-2009. The post-Recession “recovery” was built on massive corporate debt and speculation in unprofitable businesses, especially in tech, that is wildly vulnerable to even the smallest downturn. That is why layoffs have spread unusually quickly from customer-facing jobs, hit first and hardest in a crisis, to capital-reproducing and research jobs like engineering. Professional white-collar workers, who are generally buffered from downturns by time if not effect, are suddenly facing mass layoffs shrinking the total workforce by 5-10%, with more to come. Uber laid off 25% of its workforce, AirBnB also laid off 25%. The profit squeeze is forcing corporations to pull back investment in expansion and productivity, further weakening the fundamentals of the economy.
Public sector workers are also facing massive cuts. According to the most recent research from Pew Charitable Trusts, state and local governments in the U.S. have cut approximately 1.5 million jobs since the beginning of the pandemic. While the layoffs are being described as temporary, two-thirds of lost jobs are related to public education. Nationally this equates to an over 9% decrease in jobs in this sector, a scale that has eclipsed the Great Recession. The Center on Budget and Policy Priorities projects a $615 billion budget shortfall for states over the next three fiscal years.
This is why Socialist Alternative fights to massively defund the police, to fund education and other social services. With impending budget cuts, state funding should go to what working people need, not towards cop weapons and a racist, murderous police system. But defunding the police alone won’t make up the budget shortfall – with $1.85 trillion given in corporate bailouts in the stimulus so far and trillions more possibly on the way, big businesses like Amazon need to be taxed to pay for the failures of capitalism.
One of the only bright spots for the working class during the first three months of the crisis has been the supplemental $600 benefit that was tacked onto unemployment insurance as part of the CARES act. This addition to the bill has illuminated the perpetual crisis of stagnant wages, as two-thirds of laid off workers received more money in unemployment than they made at their jobs. The supplemental benefit has saved additional jobs from disappearing, temporarily staving off a deepening of the economic crisis. However, it has not stopped other crises in motion. Almost a third of the U.S. population, 106 million people, couldn’t make payments on their loans in May. This figure is triple that of April. The heavily financialized capitalist system cannot handle this interruption of profits, and the crisis is spreading to major corporate and financial players even as they use the government bailout to paper over their losses. The supplemental benefit will expire on July 31 and is still not enough for working people to weather the impending storm. While Congress is deadlocked over the next stimulus bill, the majority of which will be even more corporate bailouts, bills are coming due and jobs are being lost.
Unemployment benefits, including the $600 top-up should be extended, while the federal minimum wage should be immediately raised to $15 an hour. In addition, we need immediate rent forgiveness, massive defunding of the police to fund education and housing, and full unemployment benefits with Medicare for all. Unions should be at the forefront of the call to re-train workers in polluting industries and create millions of new good-paying, green energy jobs. Winning these gains will require a sustained mass movement centered on the social power of the working class, including the building of a new party representing our interests.
A World in Crisis
The worldwide capitalist economy is at the beginning of a long phase of depression, though it can be punctuated with temporary upturns. In April, the International Monetary Fund (IMF) projected a 3% global economic contraction for the year 2020. The fund has since slashed that prediction, estimating a 4.9% reduction in global GDP for the rest of this calendar year, and also lowering the expected worldwide economic growth rate in 2021. The IMF’s chief economist said this crisis is “unlike anything the world has seen before.” During the 2007-2009 crisis, the global economy was kept afloat by high growth countries such as Brazil, Russia, India, China, and South Africa (BRICS). Our current period is vastly different as the BRICS countries have already slowed down economically, independent of COVID-19. Now with the pandemic touching the entire globe, relief is nowhere to be found.
Making matters worse, developing countries have over $2 trillion in outstanding loans to the IMF, World Bank, imperialist nations like the U.S. and China, or private investment firms. With lockdowns bringing tourism revenue to a halt and currency markets experiencing extreme volatility, those loans will be harder and harder for the debtor nations to pay off. Argentina, Ecuador and Lebanon have already defaulted on their debt this year, and according to Fitch Ratings, more defaults are probable. The financial institutions will aggressively seek to recoup their investments from these defaulted countries, forcing them into a spiral of vicious cuts and economic contraction just to claw back loaned money.
As the knock-on effects of supply chain disruptions and bankruptcies work its way through the global economy in the coming months, the crisis is likely to deepen. In addition to mass layoffs, cuts, and evictions, we are likely to see politicians in country after country ramp up racism, sexism, and xenophobia to protect the interests of national capitalists and divide the working class to suppress a growing rebellious mood. Florida’s Governor DeSantis, eager to continue the reopening despite a massive spike in COVID-19 cases, has been blaming virus transmission on immigrant Latino farmworkers. Trump himself has suspended work visas for skilled immigrant workers, claiming that the xenophonic move would restore American jobs when in reality many corporations are in a total hiring freeze because of low demand.
All the negative features of capitalism are on full display, and are likely to get worse. Meanwhile, corporations continue to massively pollute and climate experts are sounding the alarm on the rapidly shrinking window for averting climate crisis. Working people did not crash the economy, or fund police brutality, or create the climate crisis – capitalism did. In order to solve these crises, we need a worldwide system change, a socialist transformation of society with a democratic, rationally planned economy that produces for need, not profit. Freed from the constraints of profit, human productivity can be redirected to production for the needs of society and the planet and avoiding “business cycles” that plunge into crisis every decade. Only such a society can guarantee safe, sustainable, comfortable living standards for workers in every corner of the world.