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Workers Caught in a Squeeze Between Higher Prices and Higher Unemployment

by Adam Price |
November 27, 2007
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San Jose, CA - In October, soaring energy prices pushed the official Consumer Price Index 3.5% higher than the year before. At the same time the labor market is weaker, with the official unemployment rate at 4.7%, up slightly from the second quarter (April to June), while claims for unemployment benefits have continued to rise. With average weekly wages almost flat for three months, the purchasing power of working people has dropped 0.3% from a year earlier. Housing prices continued to drop, with the best measure showing a 4.4% fall from the year before.

This squeeze on working people has shown up in weaker retail sales, which were up only 0.1% in October - once gasoline was taken out. When higher gas prices are factored in, the actual amount of sales in October dropped.

But a look at the corporate-owned newspapers’ headlines from coast to coast would tell a different story. “Consumer Prices Were Stable in October” said my hometown Mercury News (owned by Media News Group, which publishes over 140 newspapers as well as television and radio stations). “Inflation was Tame in October” was the headline at the influential New York Times. The Los Angles Times (owned by the Tribune Corporation, which claims to reach 80% of the U.S. population through its newspapers, television and radio station) also said “Inflation Tame.” None of these papers mentioned that the purchasing power of working people dropped.

The weaker October retail sales for the first time extended to the so-called ‘affordable luxury’ stores such as Seattle-based Nordstroms, which caters to households with $100,000 to $150,000 income. This shows that the economic squeeze has gone from the working poor and average workers to better-off workers and many professionals and managers who earn (low) six-digit incomes. However the most expensive luxury stores did well in October, showing that the growing economic crisis is not hurting the rich.

This divide between the rich and everyone else was also seen in the corporate reaction to the mortgage mess. Citigroup, the country’s largest bank and the biggest player in processing mortgage loans into financial investments, announced it had lost at least an additional $8 billion on bad mortgage loans. They ‘retired’ their Chief Executive Office, Stan O’Neal, who walked away with $160 million. This treatment stands in stark contract to renters of foreclosed homes, who had absolutely nothing to do with the mortgage mess, who are given as little as three days to leave their homes, forcing some of them into homeless shelters.

After years of U.S. corporations shifting their operations overseas in search of lower wages and the resulting tide of imports, the rest of the world is flooded with U.S. dollars. The fall in the value of the U.S. dollar has been speeding up, and with it prices of imports, including oil, have been rising. This is fanning the flames of inflation and cutting into working people’s living standards.

However big corporations and the rich are not in the same boat as the rest of us. Large U.S. corporations now earn almost half their profits in other countries, so a falling dollar can actually make them look more profitable (in U.S. dollar terms). Wealthy Americans, such as billionaire investor Warren Buffet, who are selling the U.S. dollar and buying foreign currencies, are profiting from the decline in the U.S. dollar, and at the same time driving its value down even more.

But don’t expect any help from the Bush administration or big business. In October, President Bush said that he was ‘encouraged’ by the rate of inflation in a press conference. His Fiscal Year 2008 proposal for the Low Income Home Energy Assistance Program (LIHEAP) cuts that budget by 19% from the year before (FY 2007), which was 29% below FY 2006. General Motors, Ford and Chrysler just got new contracts that slash wages and benefits for new workers. Cuts in autoworkers’ wages will push down wages for other manufacturing workers, causing even more economic pain, especially in the Midwest. Working people are going to have to step up their fightback as the economy slows, as difficult as that may be. Fighting doesn’t guarantee victory, but not fighting surely guarantees defeat.

Oh, and by, the way, George Bush did say in his press conference that he was concerned about inflation…in Iran.