Bush or Kerry: Federal Reserve Bank Chairman Greenspan assures Congress wages will be kept low
From: senhor san (dharma_at_nwinfo.net)
Date: 07/27/04
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Date: Tue, 27 Jul 2004 14:45:38 -0700
The Federal Reserve controls the money supply - they can make money tight
for some and easy for others -- and here is the policy for the next four
years regardless of which bi-partisan is President.
Chairman of US Federal Reserve assures Congress "wages will be kept low"
(i.e., more debt, bankruptcies and need to work several jobs to feed a
family)
By Joseph Kay and Barry Grey
26 July 2004Use this version to print | Send this link by email | Email the
author
In his July 20 testimony before the Senate Banking Committee, US Federal
Reserve Board Chairman Alan Greenspan revealed the ruthless class strategy
of American big business, which is based on an unrelenting offensive against
the wages and living standards of workers.
Signaling the central banking institution's determination to head off any
tendency toward significant wage increases for American workers, Greenspan
downplayed the importance of soaring gas prices, which are taking an
enormous toll on workers' paychecks, while making it clear he was prepared
to raise interest rates more sharply if signs emerged that unit labor costs
were rising significantly.
The Fed chairman did not spell out the consequences of such a move for the
jobs and living standards of American workers. He did not have to. It was
well understood by the politicians seated across from him, and the Wall
Street firms, corporate bosses and large investors to whom he was indirectly
speaking. It would mean a new round of plant closures and layoffs-a
development calculated to undermine any movement by workers to reverse an
ongoing decline in overall family income.
That this was precisely what Corporate America wanted to hear was reflected
in the surge in share values on Wall Street that followed Greenspan's
testimony. The stock market, which has been declining in recent weeks and
generally reacts negatively to any talk of sharp interest rate hikes,
registered a healthy increase for the day. The Dow Jones Industrial Average
rose by 55 points, and the technology-heavy Nasdaq index registered a gain
of 33 points, an increase of 1.8 percent.
This signal to the US corporate and financial elite comes in the wake of
mounting evidence that the so-called economic recovery touted by Greenspan
in his testimony has benefited only a small section of the population.
While emphasizing the need for a monetary policy designed to ensure price
stability, Greenspan noted that the acceleration of inflation in recent
weeks has come largely as a result of elevated profit levels. He told the
Senate panel: "Consumer prices excluding food and energy-so-called core
prices-have been rising more rapidly this year than in 2003.... Core
inflation, of course, has been elevated by the indirect effects of higher
energy prices on business costs and by increases in non-oil import
prices.... But the acceleration of core prices has been augmented by a
marked rise in profit margins, even excluding domestic energy corporations."
Greenspan reported that corporate profits were up 42 percent since 2001.
He added that, "at least from an accounting perspective, between the first
quarter of 2003 and the first quarter of 2004, all of the 1.1 percent
increase in prices of final goods and services produced in the non-financial
corporate sector can be attributed to a rise in profit margins rather than
rising cost pressures."
Greenspan's central message was that the Fed would not permit the profit
boom for big business to be disrupted by the elevation in wages that
normally accompanies an economic recovery.
"To be sure," he noted with evident satisfaction, "the increases in average
hourly earnings of non-supervisory workers have been subdued in recent
months and barely budged in June. But other compensation has accelerated
this year, reflecting continued sizable increases in health insurance costs,
a sharp increase in business contributions to pension funds, and an
apparently more robust rate of growth of hourly earnings of supervisory
workers."
A modest or negligible rise in labor costs will not have a major effect on
inflation, he said. However, he added, "We cannot be certain that this
benign environment will persist and that there are not more deep-seated
forces emerging as a consequence of prolonged monetary accommodation."
Focusing on unit labor costs, Greenspan pledged that in the event of greater
than anticipated inflationary pressures, the Federal Reserve Board would
abandon its policy of raising interest rates at a "measured pace,"
substituting a "more dynamic adjustment of interest rates."
One might say that Greenspan laid out here the economic policy equivalent of
the Bush administration's foreign policy doctrine of preemptive war. In this
case, the direct target of a preemptive economic strike is the American
working class.
The overtly class character of the Fed's policy was underscored by Greenspan
's testimony the following day before the House Financial Services
Committee. He made the assertion there that the Bush administration's tax
cuts, skewed overwhelmingly to benefit the wealthy, had helped stimulate the
economy. He suggested that further tax cuts might be necessary. To pay for
these handouts to the rich, Greenspan called for rules that would require
lawmakers to make cuts in spending programs to match any decline in
government revenue from tax cuts. In particular, he warned of the need to
restrain spending on Medicare and Social Security.
Not so long ago, a Fed chairman would have felt obliged by political
constraints to at least acknowledge the economic situation facing the vast
majority of the population. In Greenspan's testimony last week, however,
there was not even a pretense of concern for the increasingly harsh economic
conditions facing millions of people, fueled by soaring gasoline prices,
ever-increasing health care costs, the destruction of decent-paying jobs,
and record levels of personal debt. To the extent that these issues were
alluded to, it was merely from the standpoint of how they might affect the
economic interests of the elite.
Greenspan's call for limiting wage growth, curtailing social programs and
increasing tax cuts comes at a time when even the mass media are taking note
of reports documenting the fact that the so-called recovery has almost
exclusively benefited the most wealthy and privileged sections of the
population.
On the same day as Greenspan's Senate testimony, for example, The Wall
Street Journal published a front-page article under the headline: "Affluent
Advantage: So Far, Economic Recovery Tilts to Highest-Income Americans." The
authors wrote: "Upper-income families, who pay the most in taxes and reaped
the largest gains from the tax cuts President Bush championed, drove a surge
of consumer spending a year ago that helped to rev up the recovery.
Wealthier households also have been big beneficiaries of the stronger stock
market, higher corporate profits, bigger dividend payments and the boom in
housing."
Lower- and middle-income families, on the other hand, had suffered. "For
them, paychecks and day-to-day living expenses have a much bigger effect.
Many have been squeezed, with wages under pressure and with gasoline and
food prices higher." The unevenness in the economic recovery has been
clearly expressed in its differential impact on retail sales, the article
explained. There has been a sharp rise in sales at luxury stores like Neiman
Marcus, while sales at discount stores such as Wal-Mart and Payless have
stagnated.
The Journal article quoted Dean Maki, an economist at J.P. Morgan Chase, as
noting, "The main factors supporting spending over the past year, tax cuts
and increases in [stock] wealth, have sharply benefited upper-income
households relative to others."
In addition to a rise in the stock market over the past year, there has also
been a sharp increase in dividend payments, which have risen 22 percent
since the end of 2002. These payments have been propelled by a substantial
cut in taxes on dividend earnings put in place by the Bush administration.
In contrast, wages have leveled off or fallen over the same period. On July
16, the Bureau of Labor Statistics released figures showing a decline of 1.1
percent in real wages for production workers in June. The category of
production worker includes all non-management workers (in service work and
industry), and accounts for about 80 percent of the private-sector
workforce.
A New York Times article published July 18 ("Hourly Pay in US Not Keeping
Pace with Price Rises") noted: "The June drop, the steepest decline since
the depths of recession in mid-1991, came after a 0.8 percent fall in real
hourly earnings in May. Coming on top of a 12-minute drop in the average
workweek, the decline in the hourly rate last month cut deeply into workers'
pay. In June, production workers took home $524.84 a week, on average. After
accounting for inflation, this is about $8 less than they were pocketing
last January, and is the lowest level of weekly pay since October 2001."
There are no signs that this tendency will reverse itself in coming months.
According to surveys, companies are budgeting modest pay increases of 3.3
percent to 3.5 percent for this year and next, only slightly higher than
projected inflation. Increased costs for housing and health care, as well as
increased interest rates for credit cards and mortgages, will eliminate even
these limited raises.
While the Bush administration has made much of the addition of 1.5 million
jobs since last August, this increase has barely kept up with the entry of
new workers into the jobs market. Since 2001, there has been a net decline
of some 1 million jobs, but, as New York Times columnist Edmund Andrews
pointed out ("A Growing Force of Nonworkers," July 18), even this figure
underestimates the real jobs crisis in the United States.
Andrews noted that there has been a sharp increase in the number of workers
who are no longer looking for jobs and are therefore not included in
unemployment figures. "Among adults in their prime earning years, ages 25 to
54, the work force participation rate has dropped to 82.8 percent from 83.9
percent in 2000. That may seem a minuscule decline, but it is the lowest
rate since 1987, and it translates into millions of people. In June 2000,
the Labor Department estimated that 62.2 million people over the age of 20
were 'not in the labor force.' By this June, the number had jumped to 66.6
million. The extra 4.4 million amounted to more than half of the 8.2 million
people officially labeled unemployed."
Those jobs that have been added in recent months have been, on average,
lower-paying than the jobs that have been lost. Manufacturing jobs continue
to disappear, especially in Midwestern states like Michigan and Ohio. In
June, Ohio lost 3,400 factory jobs and Michigan lost almost 10,000. The
figure in Michigan was the highest in nearly three years, and in both states
the decline is part of a long-term trend. Since 1999, the two states have
lost over 20 percent of their factory jobs.
Stephen Roach of Morgan Stanley estimates that over the past year, 81
percent of total job growth has been in lower-paying sectors like service
and transportation.
See Also:
Growing imbalances belie Greenspan's confidence
[23 July 2004]
US balance of payments gap widens again
[22 June 2004]
Summer job prospects for US teenagers worst in 58 years
[8 July 2004]
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