A couple of more concrete and contemporary
questions for discussion:
* What, if anything, is different about the current
bubble in the U.S. stock market?
* How will a burst in the bubble on Wall Street
affect the U.S. working class?
I. The Difference
==========
In some ways, the current bubble appears to be
a "classic" bubble -- this is why many financial
experts and economists have long been
predicting a "correction" due to the "overvaluation"
of a significant percentage of stocks on the Dow
and Nasdeq. Some, including Steve K, have
referred to this bubble as the "Internet bubble"
thus referring to the large amount of money that
was spent (and now "lost") on "high technology"
and ".(dot) com" stocks. I don't dispute this,
but I want to suggest another factor as a
underlying force which has been inflating the
bubble ... WORKERS' SAVINGS.
This takes two forms:
1) workers' PENSION FUNDS invested on the
market, primarily in mutual funds (rather than
targeted investment in individual stocks).
2) INDIVIDUAL SAVINGS by working-class
families.
The role of PENSION FUNDS on Wall Street
is widely recognized. These pension funds
account for BILLIONS of dollars worth of
investment on Wall Street -- so we're not
talking about an insignificant amount of money
here. Indeed, the money invested in pension
funds is so great that some cities, in an attempt
to make the working class pay for their financial
distress, have coerced municipal trade unions
into agreeing to let those cities borrow from the
pension funds of their membership
These pension funds have largely been set up
through the efforts of trade unions and as a
result of the collective bargaining process --
i.e. they represent an advance in workers'
benefits that was struggled for and won by
workers in many, but not all, unions.
It is important to note, though, that the majority
of the working class in the US do not belong
to trade unions or have these type of pensions
provided by employer contributions. Indeed, a
significant percentage of workers have no pension
plan at all (including yours truly) and will have to
rely on social security and savings for retirement.
Since there is no national health insurance in the
US and the medical and prescription costs are
not entirely covered by Medicaid, this means
that workers *have* to have a certain minimum
amount of savings if they expect that these
medical costs will be entirely paid.
The growth in INDIVIDUAL SAVINGS by working-
class families can be explained as follows.
To begin with a controversial point -- from my
perspective there is nothing in Marx's theory of
wages that precludes workers' savings. Indeed,
I believe an allowance for the possibility of
workers' savings is a consequence of considering
the "moral and cultural" component of the wage
rather than considering the wage to be a
subsistence wage. Ajit and I had a discussion
about this a few years ago.
Having said that, one has to admit the reality of
workers' savings in the US -- again amounting
to billions of dollars/ year. While the individual
amount of savings / family is not so great that
it allows for *class mobility* (a point I agreed
with Ajit on), it does nonetheless amount in the
aggregate to a very substantial quantity of money.
How did this money increasingly end up being
invested on Wall Street?
Up until fairly recently, savings by individual
working-class families took the form of accounts
at savings banks (in commercial banks, Savings
and Loan banks, etc.). The rate of interest on
these accounts tended to be small but relatively
steady. In other words, it seemed like a "safe"
investment.
As recently as the late 1980's, the interest rate
offered at many of these banks was MUCH HIGHER
than it has been in recent years. E.g. I can
recall having a savings account that required a
minimum of $1500 but had an annual compound
interest rate of 8.5%.
But in recent years the rates offered on savings
accounts has drastically declined -- to the point
where an average compound interest rate of 2%
is common. In part, this has been a consequence
of FEDERAL RESERVE POLICY which has
systematically attempted to keep interest rates
relatively low as a way of lowering inflation.
And, of course, the inflation rate in the US has
declined. Yet, it nonetheless remains positive.
Under these conditions, if workers have savings
accounts then the rate of interest offered on the
account is often (marginally) less than the rate
of inflation and workers' REAL SAVINGS declines.
This, then, lead increasingly to efforts by working-
class families to find alternative ways of "saving"
their money. It should be recalled that throughout
the 1980's and beyond, there were tremendous
gains -- and fortunes -- being made by investors
on Wall Street. Many of the beneficiaries of this
(and speculation in real estate, et al) were
"yuppies".
It was also a time when federal DEREGULATION
made it easier for working-class families to purchase
stocks, especially mutual funds (which can now be
purchased at commercial banks).
Thus millions of working-class families invested
billions of dollars of their savings in stocks
because of the huge discrepancy between the
rates of interest offered on accounts at savings
banks and the rates of return that were common
during that period on stock investment. Since the
stock market had been on a steady upswing for a
number of years, there was the illusion that this
also was a "safe" investment.
II. When the bubble bursts ...
===================
The "bubble" has already been largely deflated
with huge losses in the Dow and (especially)
Nasdeq.
Large investors have taken the strategy of "riding
out the storm" or even "bottom fishing" (i.e.
using the occasion to buy what they believe now
to be under-valued stocks).
Small investors, including working-class families
who own stocks, have taken it on the chin.
To begin with, the decline in the stock markets
can be expected to change the anticipated
earnings by workers' pension funds. This might
mean in the long run that these funds are not
able to adequately provide for the retirement needs
of the workers that these funds represent.
More immediately, though, the "savings" of working-
class families has been largely eroded. Indeed,
the bubble bursting could result in "negative savings"
for workers. Yet, because the rates of interest
offered by savings banks remain very low, many
of these same families keep their money "on the
market" and "hope for the best".
The "best" is not likely to happen, though, is it?
Compounding this problem is that if (when?) the
US economy goes into a contraction, the industrial
reserve army will expand. Thus, at the precise
moment that many working-class families will have
to rely on their savings, they are seeing it eroded.
This can be expected, then, to lead to a decreased
standard of living for the US working class.
It can be expected to have other consequences as
well. E.g. when workers lose their jobs and their
savings, how will they continue to pay back loans
for housing and cars, etc.? With the "farm crisis"
of the 1980's, we saw a lot of family farms
re-possessed by banks and sold at auction. Will
the same happen with many working-class houses?
Perhaps the biggest question, though, is: how can
there can be effective WORKING-CLASS
RESISTANCE to these attempts to drive down
workers' standards of living and make them pay
for the crisis?
What do others think?
In solidarity, Jerry
This archive was generated by hypermail 2b30 : Wed May 02 2001 - 00:00:05 EDT