Talking Points on the Economic Crisis

From the National Executive Committee of the Freedom Road Socialist Organization/Organizacion Socialista del Camino para Libertad

What’s happening?

• The economy is in a slow motion train wreck, and the worst is yet to come.


• People are being hurt through home foreclosures and layoffs, while huge amounts of money—more than $7 trillion so far—are going to prop up banks and insurance companies.


• The election of Obama, together with the deep disgust for Bush & co., opens up the possibility for significant shifts—if people can organize to make it happen.
  

What’s the context?

• U.S. imperialism is overextended and being challenged on all sides. Decades of exporting manufacturing jobs have left the U.S. with a hollowed-out economy. Reliance on U.S military power to solve problems works against the interests of the world’s peoples.


• A looming ecological crisis ups the stakes for people across the globe to avoid an epoch of resource wars and social barbarism.


• The history of race, national, and gender oppression in the United States suggests leadership must be centered among people of color and women—within the U.S. working class—in order to avoid rampant scapegoating and extreme divisions among grassroots forces.

Where did the crisis come from?

• Short term: A collapse of high-risk housing loans beginning in the summer of 2007 led to a wave of financial failures. A mountain of worthless paper assets has been hidden away from bank regulators and their value is difficult to assess. Many banks, however, are probably insolvent and would have to close if their accounts were brought to light.


• Medium term: A regime of deregulation began in the 1970s and gained full steam with the Reagan administration. Eventually this reliance on pure market forces removed all the financial safeguards put in place after the 1930s depression. Deregulation is one piece of a policy package called neoliberalism that relies on union-busting, privatization, cuts in the social wage, and the imposition of market forces on working people around the globe. But as we've seen in the current crisis, when the dominant capitalist institutions find themselves in trouble, public money flows freely.


• Long term: By the 1970s the post-World War II boom had played out and outlets for new investment became harder to find. Profits came under pressure and companies sought out new ways to invest. The result has been a series of bubbles and crashes for the past 30 years: farm, Third World debt, savings and loan, Asian economic, dot-com, and, most recently, housing. The temporary resolution of one crisis sets the stage for the next, eventually building up a huge disconnect between profit-making activity in the financial sphere and real production.
  

Who benefits from the crisis?

• The capitalist system benefits because it is through a crisis like this one that the system corrects itself and establishes the true monetary value of all the resources in society—both material and human. Once everything shakes out through the widespread destruction of value and people, conditions will then be in place for a new upturn in the cycle. By the logic of the system, everything is working just fine.


• The top 1% of society are in good shape. In fact, they are likely to come out ahead if things run according to their expectations. They’ve made out during the past decades of increasing economic inequality. While some nasty infighting is likely to take place, the top financiers and industrialists are well-situated to ride out the storm. Then when things settle down, and their competitors have been squeezed out, these capitalists buy up the cheap assets and further consolidate their position at the top of the economic pyramid. We’re already seeing this process with the closing and merging of various financial institutions.


• Those who feed on division and despair to council reliance on the next world, or on demagogic leaders, or on a narrow sense of community that excludes and scapegoats other working people are likely to find fertile ground for their message.

Who’s being hurt by the crisis?

• Working class people, and people of color and women in particular:
  

• Unemployment is increasing at a rate not seen since the early 1980s and is predicted to reach 10% or more over the next couple years.


• Marginal workers, the last hired and first fired, are often unable to collect unemployment insurance.


• Some two-thirds of the epidemic of home foreclosures are affecting people of color. Along with foreclosures come pressures on affordable rental properties, crowding in with family members, and increased homelessness.


• Health problems increase, and muggings and break-ins impact people in poor communities more than the well-off.
  

• Retired people have seen their pensions nearly halved by the fall of stock market values. With the shift away from defined benefit plans—one more example of how working people have lost out in recent decades—people are left dependent on the ups and downs of the stock market.
  

• Government budgets are under pressure due to reduced business activity. Forced cuts in the social wage are underway, affecting education, child care and public transportation—another example of how the power structure transfers the impact of the crisis onto working people.
  

What’s coming?

• The Japanese economy’s doldrums of the 1990s after their housing bubble burst suggests that we are in for an extended period of difficult economic conditions.
• All the trillions of dollars in bailouts have to be paid for in some way, and the options seem to point to an eventual strong increase in prices:


• People in the U.S. are being asked to spend rather than save—and actually being forced to use up savings since almost none of the bailout money has gone to grassroots people.


• The U.S. government could end the wars in Central Asia and cut back on the mammoth military budget. More likely, however, there will be pressures at all levels of government to cut the social wage.


• China and Europe are experiencing their own problems and cannot be expected to increase their purchases of U.S. Treasury bonds. In fact, movement toward multiple reserve currencies is likely to occur as a way to break dependence on the U.S. dollar. The eventual result will probably be a significant erosion of the value of the dollar. Because of the hollowed-out economy, prices of foreign produced goods will then increase.
  
• The Federal Reserve System will, in effect, print up more money. Internally, this excess of dollars will likely push prices up, adding to the impact of devaluation of the dollar internationally.


• We are likely to be faced with stagflation worse than the 1970s: an economic depression accompanied by rising prices, or inflation. The last time this occurred, the result was the “Reagan revolution” and 30 years of reaction. The stakes are probably even higher this time. Taking advantage of openings provided by the Obama administration, the social movements will have to shift power significantly to the base. If not, we are likely to see as a backlash an even more rabid rightwing administration coming to power.
  

How can we respond, resist, and take the offensive?

• Focus our efforts on collective activities: planning, action, sharing, and summing-up. Individual responses to the crisis, by contrast, are bound to lead to despair and infighting. Examples of collective activities include:
  

• Local crisis centers that can be a focus for collective resistance.


• Producer and consumer cooperatives that can reinitiate economic activity to fill in the hollow economy.


• Local farming ventures that draw on environmentally friendly practices, as are being practiced in Cuba’s urban farming program.


• Defending people from being evicted from their homes.


• Inclusive, multi-lingual forms of organization that give voice and vote to everyone who lives and works in a region.
  

• Carry out struggles aimed at
  

• Increasing the social wage and shifting the burden from the working class to the ruling sectors that caused the crisis and are currently administering it in their own interest.


• Empowering the base—and not just the “middle class,” which is often viewed as white, straight, and male, and therefore more legitimate.


• Unleashing organizing of workplace and community organizations of all kinds—and their coming together in regional councils that can exercise local power.


• Establishing real public oversight over finance and industry.


• Refound an influential left in the U.S. that brings together into a single formation—front, alliance, or party—the leading forces in the social movements with a consciously anti-capitalist analysis and program.