On September 10, 2008 the author Robert Kuttner appeared on the Fox Television program Hannity and Colmes to promote his book Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency. Kuttner described the economy of the United States in late 2008 as being an economy in dire straits. The program host and Republican attack dog Sean Hannity called Kuttner a fool and argued that the economy was in great shape. Unemployment is low and economic growth is over three percent, Hannity yelled at the author. According to Hannity, Kuttner's claim that the economy is in trouble is nothing more than Democratic party talking points.
Sean Hannity's claim that the economy the last quarter of 2008 is in wonderful shape is directly contradicted by the fact that the US Federal Government is currently undertaking a massive bailout of the financial system. Without these unprecedented interventions, US Treasury and Federal Reserve officials have said that the world financial system could be shattered, leading to a depression that has not been seen since the 1930s.
Economic growth in the United States has been relatively strong from 2000 to 2008, but the vast majority of workers have reaped very little benefit from this growth. While income growth for the majority of people has been stagnant or has gone down, corporate profits and the income of the top one percent has increased dramatically.
Rick Davis, the campaign manager for Republican presidential candidate John McCain said that the 2008 election is not about issues. In saying this, Davis acknowledged that John McCain cannot be elected president unless voters ignore the issues surround them and effecting their lives. The McCain campaign hopes that once again voters will vote for someone who they would be comfortable having a beer with, rather than voting for an intelligent and articulate leader.
What are the issues that the Republicans and the McCain campaign would like the voters to ignore? Failure of the US financial system, massive corporate bailouts, stagnant wages and job insecurity.
In March 2008 the US government bailed out the Bear Stearns investment bank which was on the edge of failure. Bear Stearns was a major clearing house for financial market transactions. The US government stated that a failure of Bear Stearns would endanger the US financial markets and, potentially, the world financial markets. In September 2008 the US Federal Government took over the largest mortgage lenders in the United States, Fannie Mae and Freddie Mac. A few days later the investment bank Lehman Brothers sought loan guarantees from the US Federal Government as Lehan Brothers looked into the abyss of bankruptcy.
In each of these cases, intervention by the US government in what is supposed to be a free market was justified by the claim that the alternative would be total financial collapse and economic chaos. The workers and tax payers in the United States are being blackmailed to bailout the Wall Street investors and corporations that made vast profits as the housing bubble was expanding.
The name used to describe these bank failures is "the mortgage crisis". Historically mortgages has been considered safe investments. Mortgages had a low rate of default and bonds backed by mortgages have been given some of the highest investment ratings. During the G.W. Bush administration, the riskiness of mortgages dramatically increased. At the same time, the bonds that were backed by these riskier mortgages were still treated as safe investment vehicles. In 2007 and 2008 investors woke up to find that the bonds that they thought we safe investments were, in fact, little more than junk bonds.
Mortgages have been considered a safe investment because lenders followed lending guidelines that helped assure that the borrower could afford the mortgage. Bank and lending regulators were supposed to enforce these lending guidelines. In the housing boom of the early 2000s, these lending guidelines were not followed. Under the Bush administration, regulators did very little to assure that banks and lenders were following the kind of conservative lending rules that made mortgages a safe investment. The end result was that hundreds of billions of dollars of mortgage bonds that were originally classified as safe investments have turned out to be worth less than investors thought. The value of mortgage backed bonds plummeted. Bear Stearns, Lehman Brothers, Fannie Mae and Freddie Mac lost most of their value along with the fall of these bonds. Only the intervention of the US government has saved these lenders from bankruptcy.
In the 2008 election there has been very little discussion about how mortgages, a conservative, safe investment, became a risky investment, endangering the world financial system. The failure in banking and lending regulation is just another example of the corruption and incompetence of the G.W. Bush administration. Loans that never should have been made are now in default. While a small number of people have reaped the fees from these loans, the US tax payers must now make up for the losses. The Bush administration has created an era where profits are privatized and risk and losses belong to the tax payer.
The failure of government regulation is the failure of the government to make sure that corporations and individuals follow the law. The lack of regulation that has been seen in lending is a form of lawlessness that can also be seen in the workplace.
In the book The Big Squeeze, the New York Times writer Steven Greenhouse describes how lawlessness in the workplace has forced down wages and incomes for many US workers.
Violations of minimum-wage and maximum-hour laws are increasing. Immigrants are especially easy targets, even thought they are protected by the federal and state wage and hour laws. Julia Ortiz, an immigrant from the Dominican Republic, landed a job at a retailer called Save Smart in New York City. She worked for $35 a day for three years, six days a week, her pay typically coming to $210 a week.
Had she earned the legal minimum wage as well as time and a half pay for overtime, as is required by law, she would have taken home $414 a week.
Time for a New Deal By Jeff Madrick, New York Review of Books, September 25, 2008 (a review of The Big Squeeze by Steven Greenhouse)
In The Big Squeeze, Steven Greenhouse writes that managers at Toys-R-Us, Wal-Mart, Pep Boys, Taco Bell and countless other companies erase hours worked from the time records of workers to reduce their pay and force them to work illegally long hours.
Companies that pay immigrant labor starvation wages drive down the pay of all workers in the US, regardless of where they are born. One of the factors behind the stagnation of wages in the United States is a government that does not enforce the law.
The downward pressure on wages is not limited to hourly workers. Few jobs are safe from competition by workers in low wage countries like India and China. Software engineering jobs are being moved from the United States to India. Legal and financial research is now moving to India as well. Some medical providers have experimented with having Indian radiologists provide diagnosis from medial X-Rays.
Education is frequently cited as the answer to competition from low wage countries. This ignores the fact that software engineers, legal researchers and financial analysts are already highly trained. Education is not the answer when education is only available an elite. College aid has been slashed and a university education is increasingly available only to the affluent. The "American Dream" of a college education and a rising standard of living has faded like a newspaper left in the sun.
The strong and vibrant economy that John McCain sees is really an economy of financial crisis and stagnant wages. The US economy and possibly the world economy is facing the treat of failure and collapse. Job loss and stagnant wages are the common experience of US workers, whether they work for Wal-Mart or Microsoft. John McCain and Republican flacks like Sean Hannity are saying "Who are you going to believe, me or your lying eyes?" The only hope that John McCain has of being elected is that people will ignore their everyday experience. McCain can only win if people vote for him because they feel more comfortable with an aged white multi-millionaire rather than an intelligent, articulate, accomplished black man.
Ian Kaplan, September 2008
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