Has the U.S. entered its Third Depression?

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I and elsewhere in Europe refocused attention on n May, worries provoked by “debt crises” in Greece increasingly tepid economic indicators in the United States. As these indicators worsened in June, The New York Times liberal columnist Paul Krugman worried that the “Great Recession” had all along been just the start of a new Depression.

In his June 27 column, Krugman warned against claims of a supposed recovery: “Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline … episodes of improvement were never enough to undo the damage from the initial slump. ...

“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost—to the world economy and, above all, to the millions of lives blighted by the absence of jobs—will nonetheless be immense.”

The U.S. added just 83,000 private-sector jobs in June. The economy needs to add about 130,000 to 150,000 jobs a month, private or public, just to keep pace with new workers entering the market, not even counting the millions laid-off.

Federal Reserve chair Ben Bernanke admitted the alleged recovery is “not going to be fast enough to put back eight million people who lost their jobs within a few years.” The more than 7 million long-term unemployed, those out of work for 27 weeks or more, is the most since the Labor Department began collecting such data shortly after the Great Depression.

Other indicators are equally bleak. On June 30 The Wall Street Journal reported that thanks to “European debt woes, China’s slowing growth and the stagnating U.S. recovery,” the second quarter could be the worst for U.S. stocks in over a year. The various stock indices in the U.S. are down to levels of last October, ending the supposed bull market of recent months.

Advocates of greater government stimulus pointed to the decline in the housing market now that federal home-buyer tax credits have expired. New home sales plunged 33% in May to an annual rate of 300,000— the lowest level on record.

Billionaire investor George Soros said in a speech on June 10 that ‘’we have just entered Act II’’ of the crisis.” Soros, like Krugman and other liberals, warned against proposals by “deficit hawks” to abandon stimulus efforts, saying the current situation is ‘’eerily’’ reminiscent of the 1930s, with governments under pressure to narrow budget deficits at a time of weak recovery.

The loss of stimulus funding is hitting state and local governments hard; they face combined deficits of $137 billion this year and $144 billion in 2011. Some states have already gone through most of the federal education funds earmarked for the 2009-1010 and 2010-2011 school years, and have begun cutting services and firing tens of thousands of teachers. Jobs, wages, and pensions of all public sector workers are coming under increasing attack.

Yet amidst all this bad news President Barack Obama maintained his Hooveresque optimism, saying, “the 6 Socialist Action july 2010 Ken James / Bloomberg economy is strengthening.” And ignoring liberals’ pleas for renewed stimulus, he threatened to veto the supplementary war-spending bill unless House Democrats dropped their attempt to add $10 billion to save teacher jobs. (The veto threat was also in retaliation for an attempt to cut a quarter of the $4 billion from his “Race to the Top” teacher/student testing program, which funnels money to the richest, most anti-union schools.)

Also singing Obama’s austerity tune are “moderate” Democrats in the Senate, who on three separate occasions in May and June refused to pass an equivalent to the House bill extending unemployment benefits, citing worries over the deficit. “A dangerous experiment”

In two separate publisher’s editorials, and in repeated op-ed columns, the liberals running The New York Times complained about federal inaction on saving or creating jobs, and lambasted those putting long-term deficit worries over the short-term need to stimulate the economy to stave off a depression. Yet the Senate, The Times noted, didn’t hesitate to preserve tax breaks for the wealthy.

The worries of the paper’s editors was signaled by the front-page placement of a column by David Leonhardt, usually relegated to the business section. He warned: “The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s—starting to cut spending and raise taxes before a recovery is assured.”

Reporting that governments around the world were simultaneously ending stimulus measures, he noted: “Policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. … If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.”

The investing class in general is worried about the sparse opportunities for profitable investment, so much so that, as The Wall Street Journal reported, “U.S. companies are holding more cash in the bank than at any point on record … nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets … the highest level since 1963.

“While renewed confidence in corporate-bond markets has allowed big companies to raise a re(Above) Union workers march in Chicago’s financial district to demand jobs, April 28. (Left) Protest at Wells Fargo shareholders’ meeting in San Francisco, April 27.

cord amount of money, many are still hesitant to spend the cash on hiring or expansion amid doubts about the strength of the recovery. They are also anxious to keep cash on hand in case Europe’s debt troubles lead to a new market freeze.” The austerity through deficit reduction approach was unanimously agreed to by the Group of 20 (a group of the biggest imperialist countries) at its June meeting in Toronto. While Obama lectured the group about the need for pro-growth policies, European bankers told the London Telegraph that Obama himself has gone just as far as the Europeans in tightening fiscal policy with his jobs and budget-cutting policies. The final agreement reached in Toronto called for all member countries to halve their deficits by 2013.

Liberals like Krugman argue that if a third depression occurs, it “will be primarily a failure of policy”— like that agreed to in Toronto. “Governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending….

“There is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors,” he wrote, noting that troubles in Greece, Ireland, and elsewhere worsened after massive cuts to lessen their deficits. And the price will be paid, he declared, by “tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.”

Reinforcing predictions of the futility of deficit reduction is a profile in The New York Times of Ireland’s recent experience, headlined, “The High Cost of Austerity”: “The once thriving nation is struggling, with no sign of a rapid turnaround in sight.” Rather than being rewarded for cutting spending and raises taxes, “Ireland is being penalized. Lacking stimulus money, the Irish economy shrank 7.1% last year and remains in recession.” Joblessness is above 13%, and over 5% of the workforce has been out of work for a year or more.

“Despite its strenuous efforts … investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.” Yet amidst these cuts, $37 billion was found for “zombie banks” like Anglo Irish, which was nationalized after lavishing loans on developers.

Obama goes after Social Security The prime vehicle for Obama’s austerity plans is his deficit commission, which will recommend drastic cuts in Social Security, Medicare, and other programs, and higher taxes for workers, with an aim of reducing annual deficits to 3% of GDP by 2015—a target in keeping with the G-20 agreement, despite Obama’s rhetoric about the need for growth.

Refuting claims of insolvency, critics of his commission—and of its brother body set up by billionaire Peter Peterson—point out that if the Treasury would repay the $2.6 trillion in surplus Social Security taxes borrowed over the years, the program could pay full benefits through 2037. That surplus will rise to $4.3 trillion by 2023, and cover all benefits until the 2040s.

As for Medicare’s financial troubles, these—and the plight of patients swindled by private insurers—can be solved overnight with a single-payer system.

The AFL-CIO urged members and allies to attend town hall meetings held on June 26 in 20 cities, called (continued on page 9, in “Chicago rank-and-file teachers win election victory”)

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Amidst all the bad news, Obama maintains his Hooveresque optimism, saying that ‘the economy is strengthening.’