BY EVA CHENG
Until July 31, the latest official statistics reported that the United States last year suffered only one quarter of negative GDP growth. But on that day, revised figures based on more comprehensive data revealed that the US economy had actually contracted for the first three quarters of last year.
Earlier estimates put the three quarters' GDP growth at 1.3%, 0.3% and -1.3% respectively. They have now been revised to -0.6%, -1.6% and -0.3%.
Meanwhile, current estimates for this year's first quarter US economic growth have been revised down, yet again, to 5% (from 5.6% and an earlier 6.1%), while the second quarter growth rate is now estimated to be a mere 1.1%.
Up until a few months ago, the earlier, rosier first quarter GDP estimate was seized upon by mainstream commentators as "evidence" that the US was emerging out of recession. The July revised figures, however, triggered new concern that the US economy might be lapsing back to contraction. Being a key market for many countries, a renewed contraction of the US economy could trigger a global recession.
Recession refers to a significant period of economic downturn, but there's no clear common definition of when it begins or ends. Mainstream commentators tend to define recession as having occurred after two consecutive quarters of negative growth. But the Business Cycle Dating Committee (BCDC) of the US National Bureau of Economic Research, the arbiter of US "business cycle" dates, bases its assessment mainly on four indicators: industrial production, manufacturing sales and trade, employment levels and personal income. It usually makes up its mind based on data from an undefined number of months.
Whether the US was in recession had been in hot debate throughout 2001. The controversy was kicked off by the Federal Reserve Board's January 3, 2001, surprise 0.5% reduction in the US official interest rate, fuelled by the Fed's similar repeated acts throughout the year 11 in all, at an unprecedented frequency.
Despite most key economic indicators throughout 2001 pointing to a marked stalling in US economic activities (e.g., widespread job cuts and stagnating business investment), an official verdict on the US recession hadn't arrived until November 26, when it was revealed that the contraction actually began in March.
However, at the time of the announcement, if the "mainstream" benchmark was employed, there was no recession because until then only the third quarter of 2001 had shown negative growth. Going by this benchmark, it's only on July 31 this year when the latest revisions revealed there were three quarters of negative growth last year rather than just one that the public came to realise there actually was a recession in the US last year after all.
Rubbery figures
The point here isn't only that the mainstream definition of recession is highly inadequate but also that most current economic figures are simply estimates, and thus only a rough guide to what is actually happening.
An "advance" estimate of GDP growth will be announced within weeks of the end of each quarter. It will be updated progressively within months into the "preliminary" estimate, the "revised" estimate and the "final" figure. On top of that, an overall revision of most data dating back a few years will be announced every July.
The July 31 US announcement, for example, contained revisions not only for 2001 but for 2000 and 1999 as well. As it turned out, though the revisions changed the quarterly GDP figures for 1999, the resultant annual figure for that year remains the same, at 4.1%. But the 2000 GDP figure was revised down from 4.1% to 3.8% and the 2001 figure became 0.3% rather than 1.2%.
The mainstream media often don't spell out the provisional nature of the preliminary figures and often report the different estimates at different times as if they were "the final figure". This has been a source of confusion for many people.
However, a bigger source of confusion about 2001 was carefully cultivated. Mainstream newspapers and "stock analysts" (usually employed by stock-broking firms) are inclined to deny or minimise the signs of an economic downturn while talking up a recovery. They were loaded with an undeclared mission and a vested interest to talk up the (stock) market.
So it's not an accident that after playing down the signs of a US recession throughout most of last year, the mainstream media playing to the new propaganda line in Washington following the September 11 attacks unanimously portrayed the attacks as having tipped the US economy into a recession.
How shallow this "collective wisdom" was can be seen by the July 31 revision which revealed that during the 2001 fourth quarter, US GDP grew by 2.7%, rather than the earlier announced estimate of 1.7%.
Moreover, within weeks of the November 26 declaration that a US recession had begun in March, the mainstream commentators began marketing the idea that the recession was nearly over. They stuck to this tune despite the fast developing Enron collapse since December, and toned it down only after the bankruptcy wave started to hit other big corporations like K-Mart and Global Crossing.
The "recovery line" became harder to sell and less of an issue once the WorldCom and other corporate accounting scandals began swamping newspaper headlines from June onwards.
'New economy' bubble
The manipulative reporting of the mainstream media in the last two years, however, was only an extension of the mission they took on in the late 1990s to convince everyone that US capitalism, via the magic of the infotech "new economy", had finally overcome capitalism's inherent boom-bust business cycle.
The "new economy" theory wasn't just dreamed up by the mainstream media. It was pumped up by Fed chairperson Alan Greenspan. His easy-credit policy had been a key factor in fuelling the stockmarket bubble.
Undoubtedly, there was a period of economic expansion in the US and a marked acceleration in US productivity growth in the second half of the 1990s. But the significance of both was blown out of proportion by the "new economy" myth-makers.
Even before the recent revisions, US GDP growth between 1995-2000 an average of 4% per year fell short of the annual 4.1% achieved during the long expansion in 1948-73. Similarly, US non-farm business labour productivity which grew at an average of 2.5% per year in 1995-2000 was less than the average of 2.9% per year in 1948-73.
After the collapse of so many dotcom companies and WorldCom, it's hard to imagine the "new economy" theory finding many subscribers now. But back in the heady days of the late 1990s "boom", with the theory being strongly backed by both the White House and the Fed and dutifully parroted by the corporate media, it raised new illusions among many people about the ability of capitalism to reinvent itself. The lack of timely data on what was really happening in the US economy played an important role in fostering this illusion.
But short-term developments don't exist in a vacuum. Greater clarity often follows when they are put in a broader historical context. There are no signs that either the US or any other developed capitalist economy has been able to overcome the slump in the average rate of profit that set in in the late 1960s, at the end of the long post-war of expansion.
The late 1990s "new economy" frenzy in the US has now been exposed as a giant hoax. Both GDP growth rates and productivity growth rates were lower on average than the period of rapid expansion of what the "new economy" gurus called "rust-belt" industries principally, the production of motor vehicles and other consumer durables.
Nor are there any indications that capitalism's tendency to overinvest in the heat of competition has gone. The US government has been relying for two decades on massive public expenditure principally purchases of war goods to ease the long-term capitalist contradiction between industrial overcapacity and inadequate "effective demand" (as productive capacity exceeds the purchasing power of the working-class majority).
In the late 1990s, the US capitalists supplemented this with an illusory inflation of the paper wealth of the large numbers of shareholding Americans and easy consumer credit.
But the capitalists know their true profit positions well. The bubble did bring in lucrative cheap credit. But when profitability still wasn't picking up enough, many corporations resorted to "creative accounting" or outright fraud to dress up the reported results in order to artificially pump up their share prices. But when actual profitability persistently failed to recover, the bubble had to burst.
From Green Left Weekly, September 4, 2002.
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