29 Jul 2009
We are told that Wall Street is bouncing back and the recession is bottoming out, but Richard Wolff, economist from the New School in New York City, pokes holes in the economic recovery and false euphoria of Wall Street.
He says, what we are seeing now is a peculiar economic phenomenon. Across the United States, business are hurting. Revenues are down for almost every kind of business. And in response, the businesses have done what businesses always do. Cut back in order to survive.
So they lay off workers, which is why unemployment continues to rise in America. They cut back on buying supplies and don't replace machinery that wears out.
They cut back so much that even though their revenues are going down, their profits are not going down so much. But, its profits made by cost cutting and layoffs and that's not going to renew an economy. That's everybody hunkering down.
But the stock market looks at the profits alone without understanding or focusing - partly out of a euphoria and a hope that things get better - but the underlying numbers for the companies, workers and their families are consistently grim.
This is clearly going to be the worst downturn since the great depression and its still an open question how many years it will take. How bad it will be and how many millions of people will suffer. Nothing has changed that basic situation.
What happens on Wall Street is that if they do better - even if its not good - but if they do better than the consensus guess of the Wall Street professionals, then there is a splurge of investment in them. It can disappear as fast as it comes.
But the bottom line is, they're getting more out of fewer workers.
They're making more profits out of fewer people and economizing on inputs. That's why their profits are a little better than expected, even though they keep laying off people and there continues to be cutbacks on the total amount of business done in the United States.