by Nick Baker, published on Socialist Action, September 5, 2020
In the midst of a global pandemic, unprecedented economic collapse, mass unemployment, hunger and desperation, the stock market is booming and the richest of the rich are richer than ever before.
Since March, more than 58 million people in the U.S. have filed for unemployment. The Internal Revenue Service now predicts that the U.S. economy will have almost 40 million fewer jobs in 2021 than they predicted before the pandemic, as a result of the prolonged economic depression. As it becomes widely recognized that the economy is not going to “bounce right back” into full activity – even when coronavirus cases do eventually decline – and that the current depression will continue for a long time, companies are doing anything they can to drive their stock prices higher.
Desperate to maintain their profits, many large corporations are planning massive layoffs and acknowledging that currently furloughed workers are not going to have jobs to come back to. The Wall Street Journal reports that a recent study found, “nearly half of U.S. employers that furloughed or laid off staff because of COVID-19 are considering additional workplace cuts in the next 12 months.” The companies say low-paid workers will be the first to be cut.
Twice as many workers had their pay cut by July 1 as during the Bush-Obama recession that began in 2009, according to the Washington Post. More than 10 million private sector workers have had their wages cut or been forced to work part-time.
Car company Tesla forced all workers to take a 10 percent pay cut from mid-April until July. In the same period, Tesla stock skyrocketed, and CEO Elon Musk’s net worth has now quadrupled from $25 billion to over $100 billion. Business software company Salesforce announced record sales levels one day and layoffs of 1,000 workers the next. The company’s stock rose 26 percent.
Among small businesses, another study found that 50 percent of all small-business employees who were furloughed since March are still without work. Twenty-eight percent are still furloughed; 22 percent have been permanently laid off. Even in the government’s rigged and severely undercounted unemployment statistics, the number of people who have been unemployed 15-26 weeks is nearly double what it was at the height of the 2009 recession — and exponentially higher than at any other time since the Great Depression of the 1930s.
The “stimulus” bills signed by Trump and passed by Democrats have already given away trillions to major corporations and tens of billions in tax cuts to the richest Americans. Even two-thirds of the original set of supposedly “small-business”-focused Paycheck Protection Program loans went to large corporations, such as Ritz Carlton, while gifting billions in fees to the banks that distributed the loans.
While millions of low-wage workers, “many of whom work in service jobs in hard-hit industries such as hospitality, travel and retail…have lost jobs, been furloughed or seen their hours cut,” writes the Wall Street Journal, “the livelihoods of white-collar professionals…have remained largely intact.”
The super-rich are getting richer than ever
On August 18 — a day when 1,349 people died of COVID-19 and tens of millions were unemployed — the S&P 500 stock index hit an all-time record high with the tech-focused Nasdaq 100 index already well into record territory. Financial newspapers announced a new “bull market,” predicting that stock prices would only go higher.
The runaway success of the stock market in the present context has come as a shock to many people. Barely two weeks before stocks reached an all-time high, the United States announced the largest 3-month fall in the economy since the Great Depression. Even calling it the largest doesn’t quite capture the magnitude. The 9.5 percent contraction from April to June was four times larger than the previous largest drop since World War II.
Economies around the world are in freefall. The GDP of the OECD countries, the world’s largest economies, fell almost 10 percent in the same period — also four times greater than in the 2009 global collapse — and global GDP is expected to decrease by 5 percent this year, a historic amount. Yet the stock market blithely rushes along, as the mega-rich try to squeeze the last drops they can out of it, ahead of the abyss.
Bloomberg News reports that the 500 richest people in the world have increased their wealth by $871 billion so far this year, though “the surge in wealth is especially concentrated in the upper ranks of the billionaires index.” During the week of August 24–28 alone, the world’s 500 wealthiest people increased their wealth by $209 billion. The world’s 10 richest billionaires now collectively have more than $1 trillion.
Amazon CEO Jeff Bezos, the richest person in the world by a wide margin, now boasts personal wealth of $204.6 billion, as of August 26. His riches largely come from Amazon stock, which has risen 80 percent so far this year. Bezos’s wealth has nearly doubled during the pandemic, including one single day in which he made $13 billion.
Historical estimates vary, but most agree that John D. Rockefeller and Andrew Carnegie are the only U.S. tycoons who have ever had more money, adjusted for inflation, than Jeff Bezos now has.
The largest stock gains this year have gone to the largest companies, especially in tech, as the pandemic and the economic collapse have become a boon for monopoly capitalism. Tech monopoly Apple is now the world’s most valuable company, with its total stock worth over $2 trillion — the first company ever to reach that mark — having increased by $1 trillion in just 21 weeks.
The secret to Apple’s incredible success? It has engaged in the largest stock buybacks in history, re-purchasing $360 billion of its own stock since 2012, according to the New York Times. This self-enrichment tactic inflates the value of a company’s stock by buying it back from shareholders, thus giving money directly to the shareholders by the tens and hundreds of billions and enriching them further by decreasing the number of remaining shares available for investors to buy — driving up the share price.
Apple has spent $141 billion on buybacks in the past two years alone, after Trump’s 2017 tax cuts enabled the company to return to the U.S. tax-free $252 billion in profits. Apple had held the money in tax havens for years, explicitly refusing to pay taxes and claiming that, if returned to the U.S., the money would be used to “create” tens of thousands of jobs — but that they wouldn’t do it if they had to pay taxes. Trump’s 2017 Tax Cuts and Jobs Act removed the repatriation tax on the same false premise, and, once returned, the money was used for its intended purpose all along and given straight to the company’s millionaire and billionaire shareholders. One of those billionaires is the company’s CEO Tim Cook — though his wealth of $1 billion is rather pitiful by ruling class standards.
Other tech monopolies like Microsoft and Google have also seen enormous increases. Both Amazon and Microsoft are on pace to join Apple at the $2 trillion level later this year. The only other publicly traded company in the world that comes close is Saudi ARAMCO, the Saudi Arabian state oil and gas company. By comparison, the total stock of Walmart, by far the world’s largest company by revenue — i.e., actual products made and sold — is worth $370 billion.
Giving the lie to this wild stock rally, corporate profits fell almost 25% through the first half of 2020, despite consumer spending – the overwhelming majority of the U.S. economy – being heavily propped up by the $600 unemployment supplement, near-zero interest rates, and to a lesser extent the $1200 stimulus checks. The unemployment supplement effectively replaced the lost wages of unemployed workers, enabling them to continue making needed purchases, while low interest rates have fueled a spending bonanza for the wealthy who have been largely unscathed by the economic depression.
These overheated and entirely fictitious stock market gains are the reason that CEOs, leading shareholders and corporate executives have dumped more than $50 billion in stock since May. CNN notes that these “insiders,” as they are known, “are privy to more information about the true health of their companies than average investors. And if they were confident in the market rally, insiders would be unlikely to sell now.”
With the unemployment supplement ending and no future stimulus checks announced, spending by the wealthy alone will not be enough the maintain the façade covering an economy in the midst of an historic collapse.
Working class suffers while the rich splurge
“The recession is over for the rich, but the working class is far from recovered,” wrote the Washington Post on August 18. Less than half – 42 percent – of jobs lost during the pandemic have returned, with workers in low-wage jobs being the least likely to be back working. People of color and women have fared worst. Women make up two thirds of those employed in the 40 lowest-paid jobs, with women of color making up the majority of low-paid workers.
“Black men and women have recovered about 20 percent of the jobs they lost in the pandemic,” reports the Post, while white men and women have recovered 40 and 45 percent of their lost jobs, respectively. Between February and May 2020, 11 million jobs held by women have disappeared. The U.S. Census Bureau reports that “one in five working-age adults is unemployed because COVID-19 upended their child-care arrangements,” with women three times more likely than men to have to leave their jobs – and up to five times more likely to decrease their work hours – to take care of children. The losses in the workplace that women are facing today will be felt for decades.
Some 30–50 million people in the U.S. are at risk of eviction in the coming months, as temporary eviction protections end. In a recent U.S. Census Bureau survey, “nearly half of Hispanic renters and 42 percent of Black renters said they had ‘no confidence’ or only ‘slight confidence’ they could pay their August rent,” the article states.
At the same time, food prices are rising at the fastest rate in nearly 50 years, making meat and eggs unaffordable for many. The price of beef alone is up 25 percent this year. The same Census Bureau survey found that “20 percent of Hispanic households with children and nearly a quarter of Black households with children say they don’t have enough to eat.”
The Kaiser Family Foundation estimates that 27 million people in the U.S. have lost their health insurance during the pandemic.
While tens of millions of working-class people struggle, starve, and are constantly threatened and harassed by their landlords, record-low interest rates are fueling huge spending sprees for the wealthy. Mortgage interest rates are at the lowest in U.S. history, leading to record levels of house purchases by those who have no financial worries. Car sales, too, are benefiting from low interest rates.
“Some dealerships have had their best July ever,”reports the Post. Needless to say, these cars are not part of the miles-long lines at drive-up food banks.
Though tens of millions are now jobless, retail sales have returned to pre-pandemic levels, with massive gains going to big box stores such as Target, Walmart, and Home Depot, which are seeing their largest sales in history. Meanwhile 100,000 small businesses closed permanently by mid-May and estimates are that hundreds of thousands more will not survive the pandemic and the burgeoning economic depression, putting additional millions of workers out of work.
As the small businesses close, the Walmarts and Targets move in to take their place. This is part of the process by which capitalism translates catastrophe into “opportunity,” accelerating its tendency towards monopoly and consolidating the marketplace into fewer and fewer hands in a desperate search for higher profits.
Fed prints shovelfuls of money for the rich
The Federal Reserve Bank has been constantly printing money and forking it over to the rich. In the last economic collapse, under George W. Bush and Barack Obama, the total amount came to over $29 trillion. No doubt the final accounting this time around will leave that number far behind.
The August 18 New York Times, noting the ever-widening economic gap between capitalists and workers, says that the Federal Reserve has no plans to stop driving piles of cash to the rich anytime soon.
“The Fed has started new programs to buy Treasury bonds and other financial assets to calm investors, and is financing those programs by essentially creating new money,” writes The Times.
At the beginning of the crisis, the Fed instantly bought $3 trillion of the Treasury and corporate bonds, largely in the form of buying huge amounts of corporate debt from major companies like Microsoft, Coca-Cola, McDonald’s, Exxon Mobil, Walmart, AT&T and Visa. These large purchases of debt by the Fed both fund the companies and drive down the cost of issuing debt for the companies.
While the Federal Reserve Bank has a program to lend to small and medium-sized businesses, called the Main Street Lending Program, it has made almost no loans to these companies. Of the $600 billion earmarked for the program, only $92 million – 0.015% – has been loaned. This is because the commercial banks who set up the loans and keep a small percentage while selling the rest to the Fed, are not interested in making small, near-zero-interest loans to small businesses with almost no expected profit and a greater downside if the small companies go under. The banks would much rather be using their funds to make enormous, higher-interest, much more profitable loans to massive corporations in need of large amounts of debt to get themselves through the economic crisis.
In this way, the natural profit-driven mechanics of capitalism ensure that larger companies crowd out the smaller ones, agglomerating to themselves ever greater shares of the marketplace.
Monopoly capitalism consolidates its gains
The stock market has rebounded after the shortest “bear market” in history —
“a marked display of what analysts describe, by turns, as optimism, hubris or sheer speculative greed,”
says The New York Times. Maintaining these stock surges, however,
“is heavily reliant on federal spending, easy monetary policy and continued signs of progress in the hunt for virus vaccines.”
The reader may note that such things as lower unemployment, more social spending, higher wages, and lower coronavirus case numbers and deaths in the short-term – not to mention even actual corporate revenue and profits – are not among the concerns of the stock market.
While stock indexes may be at record highs, the gains are far from universal, even among major companies.
“Almost all the gains in major stock market indexes this year are attributable to the surging share prices of a few giant technology companies, foremost among them Apple, Amazon and Microsoft,” reports The New York Times.
“A weak economy can actually be quite good for Wall Street,” explains The Times, “if it means that the Fed keeps the river of freshly created money — what’s known on Wall Street as liquidity — flowing into financial markets.” The Times notes that this is why studies show “little connection” between economic growth and the stock market.
On August 27, Federal Reserve chair Jerome Powell announced that the central bank would be keeping interest rates at near zero for the long-term, even if it causes inflation to rise, all but stating outright the government’s intention to try to drive the stock market up as high as it possibly can.
Michael Hartnett, chief investment strategist at Bank of America Global Research, quoted in The New York Times, calls this the “nihilistic” bull market of 2020.
“The performance of the market in the face of such dire expectations for growth, he wrote, is just the latest example of investors betting that low growth will prompt the Fed to continue pushing money into the financial system, ultimately bolstering stocks. In other words, stocks are going up not because of economic optimism, but because the future looks fairly grim.”
It’s much worse than 2009
Many economists, including Federal Reserve chair Jerome Powell, predict that this downturn will last a very long time — and for good reason. It took the U.S. economy nearly 10 years to add the number of jobs that have been wiped out so far this year. The share of the population that has a job is at its lowest level since the 1960s — and far lower than at any point during the Great Recession.
Wall Street investment bank Goldman Sachs predicts that the U.S. economy will contract by 4.6% this year — nearly double the 2.5% contraction in 2009, the worst year of the Great Recession.
With states’ tax revenue plummeting while workers were laid-off or furloughed en masse, state governments are now seeking to re-balance their budgets not by raising taxes on the rich — heaven forbid! — who have received 95% of income gains since the Great Recession of ten years ago, but by massive austerity suffered by workers and the poor, disproportionately women and people of color.
Already, 2.8 million state and local government workers have lost their jobs since February — over four times more than the 750,000 jobs cut during five years in the Bush-Obama recession. There are estimates that the jobs of 2.8 million more state and local government workers could be cut.
These massive cuts to jobs for state and local government workers come on top of already enormous cuts in public employment. Before the pandemic, twenty-one states and Washington D.C. still had fewer government jobs than in July 2008. Those jobs are especially likely to be held by women and people of color — and are much more likely than average to be unionized. Public sector unionization is currently at 37 percent, compared with 7 percent in the private sector.
California Democratic governor Gavin Newsom has imposed a 10 percent pay cut on all state employees and suspended planned pay raises. Newsom, who is a multi-millionaire, pledged that his own pay would also be cut 10 percent, but the Sacramento Bee found two months later that he had not taken any cut at all and kept receiving his full $17,000 per month salary.
Democratic governor of New York Andrew Cuomo is planning similar massive austerity. Cuomo and state Democrats are cutting billions from Medicaid during a pandemic, alongside massive cuts to public education. Cuomo, who briefly became a media darling for his daily COVID-19 press conferences that took the pandemic much more seriously than Trump, refuses to raise taxes on rich New Yorkers. New York City is home to 92 billionaires.
What more can we say about a diseased system where the worst of times for the vast majority become the best of times for the corporate elite? Capitalism, alternately administered by one of its twin parties of war and plunder, cannot be reformed. It must be abolished at the hands of the vast majority who suffer its inherent evils. Today, the first legions of those forces are in the streets in unprecedented numbers condemning capitalism’s systemic racism. They portend earthshaking struggles in the period ahead. Join us! Join Socialist Action!