Analysing the Economic Stimulus Package

Another giveaway to the rich by Congress, White House

The “economic stimulus” plan agreed to by the Democrats in Congress and the Bush White House is another giveaway to the rich.

There is a mini one-time payment of $300 to $600 to anyone who is employed. That’s not a significant amount, considering that the average rent for an apartment in the U.S. is $1,027 a month. (Business Week, Jan. 17)

If you are jobless, you get no payment; a minimum yearly income of $6,000 is required to get the one-time rebate. The jobless don’t even get an extension of unemployment benefits, which usually adds 16 weeks of payments, or food stamps. Adding those to the plan would have put thousands of dollars in the pockets of the people who need it most.

Unlike the one-time rebate, which won’t happen for months, an extension of jobless benefits and food stamp increases would put money into the economy immediately.

The original plan proposed in the House of Representatives included an extension of benefits for the jobless and an increase in food stamp money for the 35 million low-income households eligible for payments. In a logic-defying statement, top Democrat Nancy Pelosi claimed the Democrats agreed with Bush to drop those benefits in order to help “the middle class.” (New York Times, Jan. 24)

The “stimulus” plan also includes more than $50 billion in tax breaks for businesses.

The mini payment and the tax break for businesses have gotten most of the publicity. But neither of them is the really big item in the package. Most significant is a bailout of the banks and mortgage companies and a giveaway of a housing loan guarantee to the rich.

The details of this part of the plan can’t be found in either the White House statement or the Democrats’ summary of the plan; the inside story is hidden in the financial pages of the media.

“The plan tries to make it easier to secure or refinance mortgages for more expensive homes. First it would allow Fannie Mae and Freddie Mac, for a year, to buy loans of up to $729,750. The current limit is $417,000. The package would similarly increase the $362,790 limit on loans insured by the Federal Housing Administration, while making it easier for borrowers to qualify,” USA Today reported in its business section on Jan. 24.

The report adds that the plan also shifts the “risk” for financing the more expensive loans to working people, whose taxes will now be used to insure the loans for expensive houses.

The plan was falsely labeled a stimulant in order to pass it through Congress quickly, without any further review.

But could any plan really be a stimulant and stop the spiraling economic downturn?

Dangers of the military stimulant

The current capitalist cycle started its upward climb following the stock market crash in 2002, often referred to as the bursting of the Internet bubble. The U.S. was in a recession; the economy was stagnant with no recovery in sight. The massive military buildup that started then, estimated at over $2 trillion over the last five years, was a huge stimulus.

But a military stimulus is not the same as normal capitalist production. Military expansion by no means guarantees an economic recovery with full employment. In fact, its expansion may well spell a deepening of the economic crisis and may be depressing the economy instead.

The cyclical capitalist upturn that began after the crash in 2002 has been one of the weakest recoveries on record. It has frequently been described as a jobless recovery, meaning that while profits for the rich recovered, there was not the usual rise in employment that goes with a rising economy. Unemployment didn’t increase, but jobs didn’t grow in the way usually seen during a recovery.

Now the unemployment rate is starting to increase. The official figure, which by design underreports the levels of joblessness, for December showed a significant increase to 5 percent.

“An uptick of this magnitude (up 0.3 percent in December),” says the Economic Policy Institute, “has historically been either a symptom or a harbinger of recession. Moreover, the increase in unemployment was not isolated among any one group—joblessness increased significantly among all demographic groups.” (www.epi.org)

In a recession, the first thing that happens is that people lose their jobs; the reserve army of unemployed workers grows. The length and depth of the recession determines the severity of the unemployment, the spread of homelessness and loss of food.

For the working class—the ones that bear the brunt of a recession—the most important issue is jobs. For the capitalist, the only issue is profits. Government “stimulus” plans are aimed at restoring profits.

For anyone but the rich, what is needed is a rescue plan—a guarantee of a job, no evictions/foreclosures and adequate food. Any plan that isn’t about jobs, housing and food isn’t responding to the real crisis.

Crisis of overproduction

A recession is most often the result of what Karl Marx called a capitalist crisis of overproduction. Capitalist overproduction is poorly understood, partly because the capitalists want to obscure the reasons for recessions and the misery they cause.

A crisis of overproduction comes because the capitalists, in chasing after profits, try to get a market advantage by lowering the production cost of each individual item. This is most often done by introducing labor-saving technology that can turn out more products at the same or a lower overall cost. Capitalists are driven to constantly accumulate new machinery, new technology in order to compete.

Each capitalist tries to outdo the others in revolutionizing the means of production and lowering the unit price of the products—be they computers or clothing or corn. But eventually the new technology becomes the norm and many more products are being produced by fewer workers. This crisis of overproduction then reveals itself as an inability to sell at an acceptable rate of profit all that’s been produced. Bankruptcies, layoffs and shutdowns follow.

Marx showed that all new value comes from the direct application of labor power in the production process. Unlike raw materials and plant and equipment, labor power is the only commodity that, in the course of being used up in the production process, creates new value.

This dual character of labor power—that workers get paid only what it takes to keep them alive as a class, while at the same time they produce much more than that in new value—is the basis for exploitation and the immense profits taken by the capitalists.

Marx also explained why the rate of profit drops as the proportion of investment in machinery and technology—Marx calls this constant capital—keeps rising in relation to wages, or variable capital. Variable capital is the source of profit, but it becomes a smaller part of the total investment.

Overproduction of capital, for Marx, is the over-accumulation of constant capital.

When over-accumulation sets in and profit rates fall, capitalists begin to shift the investment funds at their disposal out of machinery, technology and labor and into financial assets. Eventually there is a shortage of profitable financial investment outlets.

When that happens, capitalist investors often bid up the prices of various social goods without increasing the real wealth in society or expanding productivity. The sub-prime loan crisis is exactly such a scheme, aggravated by easy credit.

The economic downturn that is now unfolding can’t be prevented by acts of Congress. Short of getting rid of capitalism, there is no means to prevent such economic disasters. But Marx did show that the workers, through struggle, can lessen the devastating impact of such crises on their lives and also gain the consciousness and organization to begin to challenge the system itself.