A friend of mine used to tell the story of the day in 1929, when, after the big stock market crash, her father furiously took drawers full of worthless stock certificates and threw them into the burning barrel.
Hers was a blue-collar, immigrant family. During the 1920s, the relentless ascent of the stock market lured middleclass and workingclass people, not just the wealthy.
Now this pattern is repeating itself.
During the 1990s, the value of the Standard and Poor’s 500, a broad index of the market, soared by almost 400 percent. Today, nearly half of the U.S. population owns stocks, largely through pension funds and retirement accounts.
But over the last year, stockholders watched the S&P 500 fall by almost 25 percent while technology shares, tracked on the NASDAQ Composite Index, plunged by more than 62 percent. Then, after hitting low points in March and early April, the exchange began to rally, while still veering up and down.
As stocks careen and bad news is delivered on other economic fronts, mainstream authorities debate whether the economy is merely in a slight turndown, or headed for disaster. What does it all mean?
Wall Street at the apex, production at the base. Stock buyers are gamblers. They wager that either corporate profits will repay in dividends the price of their shares, and more, or that they will be able to sell at a gain.
The value of shares is supposed to reflect the expected future earnings of a company. But during the late 1990s, the stock exchange expanded in a gigantic speculative bubble; the prices of stocks spiked far above the profits being accrued. Some internet companies ended up with stocks valued in the tens of billions of dollars — without having yet shown a penny in profits!
And now, the bill for all of this irrationality is coming due.
Profits are generated in the process of production of goods and services. They come from one source — the difference between what workers are paid and the value of the commodities the workers create.
But profits can only be realized when — and if — the merchandise is sold. If production has overshot demand, as it chronically does, the entire outlay for labor and raw materials is a loss.
Such a state of overproduction preceded and provoked the gargantuan crash of October 1929. Construction, auto manufacturing, freight transportation: these and other key industries had already declined, while commodity stocks had piled up unsold.
Recession: too much stuff to sell, not enough earning power. Today, productive capacity has once again far outstripped the ability of consumers to buy the products that they as workers bring into existence.
One example: Cisco Systems, “the bellwether maker of network systems for the Web” according to BusinessWeek, announced in February that its unsold inventory ballooned in its most recent quarter by 29 percent — on top of a 59 percent increase the previous quarter.
In the first quarter of 2001, U.S. economic growth dropped to nearly zero. There’s just no getting around it: the U.S., like Japan, is in a recession. That is the underlying reality that means trouble for the stock market.
Much attention is focussed on the role of the Federal Reserve Board in steadying the economy. Responding to the current slowdown, the board cut the interest rate that banks charge each other five times in barely more than four months. By influencing overall rates, this is supposed to make credit more available and thus spur spending. But with risk-averse businesses reacting to downturn with instant layoffs and consumers already in debt to their ears, tinkering with interest levels can at best provide limited and temporary relief.
Unemployment: a ticking bomb. After years of relatively low joblessness, the official unemployment figure has leapt to 4.5 percent. Computer and internet company crackups and cutbacks wiped out 350,000 jobs in the first three months of 2001, and 104,000 manufacturing jobs disappeared in April alone.
And, in fact, the employment situation wasn’t rosy to begin with. For one thing, the government’s joblessness figures don’t include either people who have given up looking for work or those who are underemployed.
Neither do they include the U.S. prison population, five to 10 times larger than in other industrialized countries, nor the enormous standing army. If we count in the members of these groups, who are not part of the regular workforce, plus job seekers who have stopped looking, the figure for unemployment jumps to more than ten percent!
As always, some groups are hit harder than others. Official teen unemployment stands at 14.2 percent, Black joblessness at 8.2 percent, and Hispanic at 6.5 percent. A study that also included people in prison found that nearly one in five African American men were out of work throughout the roaring ’90s.
Internationally, the number of people unemployed and underemployed was estimated in 1998 at one billion. Meanwhile, according to the U.N., women performed 53 percent of the world’s total work while making up 70 percent of those who live in poverty.
“Free trade” and the movement against it. The current push for free trade only compounds the problem of overproduction (or under-consumption).
More severe exploitation, represented graphically by maquiladoras and free enterprise zones, further impoverishes poor countries and workers everywhere, reducing their buying power. Each short-term gain of the corporations only paves the way for bigger trouble next time. This is one of the unsolvable flaws of the profit system.
In the end, Bill Gates can only build so many mansions. The economy is kept afloat by working people consuming what they need to survive.
Also buoying up the economy is permanent spending on armaments. This guarantees steady production and reliable sales in at least one area — although it generates its own destructive economic byproducts, like inflation.
This is the inhuman and anti-natural world Wall Street has created. And across the globe, more and more people are concluding that this is a world that they can’t live in. The exploding movement against free trade is building ties between labor and a dynamic anti-corporate youth mobilization and among working people internationally.
Already, in its infancy, this movement has hit bumps along the way. And it will encounter more. But workers and oppressed people owe it to themselves to overcome the obstacles and deal with the questions dividing them.
It’s a matter of survival. History teaches us that economic crises hardly touch the ruling elites — in fact, they open up new opportunities for the strongest companies to swallow up weaker ones. Who gets hurt is working people, and it’s past time to turn the tables.