ARCHIVE - December, 2001

Recession and Structure
Tom Mayer, Department of Sociology

A capitalist economy – that is an economy based upon private property, wage labor, and market allocation – usually generates a business cycle with alternating booms and recessions. Yet among capitalist economies great variation occurs in the longevity and prosperity of booms, in the duration and severity of recessions, and in exactly who wins and loses during these periods.

The United States economy has four distinctive structural characteristics that shape its business cycle and render its economic performance less than optimal for a modern capitalist economy. These distinctive characteristics are: (1) high income and wealth inequality; (2) extensive corporate concentration within most major industries; (3) high levels of personal, business, and international debt; and (4) a meager social safety net whose burden falls heavily upon the middle class. These four economic attributes are deeply interrelated. Corporate concentration induces both income and wealth inequality, which in turn encourage high debt levels. The inadequate social safety net follows directly from the other three structural characteristics.

Consider the significance of these structural attributes for the economic recession that started in the spring of 2001 and, as I write, continues unabated. High income inequality hinders the creation of the demand needed to sustain an advanced capitalist economy. In past decades this difficulty has been addressed by the generous extension of credit leading to extraordinarily high debt levels. If the working and middle classes become hesitant about acquiring further debt – as they have since September 11 if not earlier – then the entire economy flounders and a mild recession turns into a deep one. The forty billion dollar tax rebate that began in July did little to increase consumer spending. Most of the additional income apparently went into increased savings and debt repayment. High debt under conditions of recession creates numerous defaults and chains of business failures. Indeed, the bankruptcy rate has increased sharply during the last quarter of 2001.

A generous social safety net can function as a mechanism of economic stabilization maintaining consumer demand during times of economic crisis. Conversely, a penny-pinching safety net, such as our own, cannot have a strong stabilizing effect and cannot begin to meet the needs of the poor and unemployed. Over eight million people are now unemployed in the United States, and in the last few months joblessness has increased among every educational group. Unemployment among single mothers has grown particularly sharply. Yet two-thirds of all unemployment insurance checks are under $250 per week, and will not spare the recipients and their families from poverty.

Wealth and corporate concentration are associated with political power. Indicative of corporate political power is the fiscal stimulus package supported by the Bush administration and passed by the House of Representatives. This provides permanent tax cuts the benefits of which go largely to wealthy individuals and giant corporations. The proposed stimulus package hardly expands badly needed unemployment benefits that would increase spending immediately. Not only is this approach to recession inequitable, it is also unlikely to create the additional demand imperative for getting the American economy out of the doldrums. The recent bailout of airlines, for example, has not prevented job loss in the air transportation industry.

Mainstream economists often claim that better understanding of economic processes prevents any return to conditions like those of the Great Depression of the nineteen-thirties. Perhaps they are right. On the other hand, the art of economic forecasting is something less than rocket science, and the current recession is one of the deepest since World War Two. Capacity utilization, an important indicator of economic health, is now at its lowest level since 1980. None of the mainstream proposals for dealing with the current downturn seriously address the structural liabilities discussed above – income and wealth inequality, corporate concentration, high debt, and stingy social benefits. Whatever the immediate future may bring, these conditions will severely hamper the long term equity and vitality of the American economy.

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The opinions expressed in these articles are those of the authors, and do not represent those of the Boulder Faculty Assembly, CU faculty at large, or the University of Colorado.

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