Editor's note: Art Perlo chairs the economics commission of the Communist Party. Perlo talked previously with PA about the housing crisis and its role in bringing the economy to the brink of recession in September 2006. Now that it's here, Perlo talks about the impact on workers and the best policies that could help ease its impact.

PA: Can you talk about the origins of this recession and what it means for workers?

ART PERLO: For working people, the long-term trend in the US has been toward greater inequality in wages, less job security, fewer pensions, and fewer people with healthcare. All these long-term trends are being further aggravated by the economic crisis the country is currently going through. How does this crisis manifest itself?

Let’s look at jobs. For the first half 2007 there was an average gain of 107,000 jobs each month. That might not sound bad, but you need 140-150,000 jobs a month to even keep up with the need for new jobs. In the second half of the year job growth fell to 82,000 per month – so you could see an already weakening economy slowing even further. Then in January 2008 there was a net loss of 17,000 jobs.

Manufacturing has lost jobs for 19 consecutive months; since 1998, 1-in-5 manufacturing jobs, or almost 4 million, have been lost. The recovery from the 2001 recession (for what it was worth as a recovery) was the first recovery in US history during which the absolute number of manufacturing jobs actually declined.

Coupled with this in the last 3 months of 2007, the consumer price index (inflation) was up to a rate of 5.6 percent, more than 2 percentage points above wage growth. If that trend continues, it will mean that the average worker’s purchasing power is dropping by 2 percent per year, which is really a big drop.

The housing situation continues to worsen. You now have headlines like “Housing Meltdown” on the cover of Business Week, and more and business papers and magazines are saying the worst is yet to come. The residential construction industry lost 240,000 jobs in the past year, a drop of 7.3 percent for the year, but new home construction is down 50 percent. So even though half as many homes are being built, they still have over 90 percent of the workforce they had the year before. That means there are huge numbers of layoffs still to come in construction. In addition to construction workers, there are layoffs in real estate, mortgage banking, and all the associated home construction industries.

We now see local governments with both a drop in property tax collections and increased costs for policing foreclosed or abandoned properties. And of course we see foreclosures, which are continuing at a rate of over a million per year. Over and above the people who actually have lost their homes, there are millions more who owe on their homes far more than they are worth. A lot of these families are just trapped. They are working two or three jobs and trying to meet their mortgage payments. They can’t sell the house, because in today’s market the house is worth less than what they owe the bank. If they sold the house and gave all the money to the bank, they would still end up owing additional money to the bank.

This is in addition to the general economic and social trends, including the subprime mortgage crisis, which have particularly impacted African American, Latino, and immigrant communities. It is particularly difficult for youth, who, if they manage to go to college, are graduating with huge debt levels. The majority of youth, however, don’t even get to attend college. In some of our cities, the majority of youth never even finish high school. The schools have essentially been turned into temporary warehouses, places where kids can spend some time, on their way to being pushed into jail. So for a lot of the working class kids things are looking pretty grim.

PA: You mentioned the massive decline in manufacturing jobs. Why are manufacturing jobs so important?

AP: Since the 1930s and 1940s, manufacturing jobs have been important to American workers, because, after the big union victories of that period (now 60 and 70 years ago), many manufacturing jobs provided solid wages and solid benefits. They were the anchors of the community, and the union wages and conditions of workers in manufacturing helped pull up the general condition of their entire community. The children of those union workers were the first working-class generation who had the opportunity to attend college in large numbers and to actually move into what is called the middle class, that is, to have a reasonably decent standard of living.

You often hear people talking about the loss of good manufacturing jobs, but there are two things that have actually happened. We have not only lost manufacturing jobs, but we have lost union manufacturing jobs even faster. So you can no longer assume that manufacturing jobs are good jobs. However, manufacturing remains very important because manufacturing is really a primary part of the economy, where value is actually created. Workers in manufacturing take raw materials, energy and unfinished goods. They work with them, and at the end of the manufacturing process they actually create something more valuable.

A lot of what has replaced manufacturing in the US economy is speculative or parasitic, and by that I mean these are activities that not really add value to the economy. It is parasitic in that it feeds on the real value that has been created by productive sectors like manufacturing, utilities, or transportation. There has been a huge growth in jobs in finance, both in New York and in other parts of the country. There are a lot of people employed in moving money around, and a few of them get paid insanely high salaries for doing nothing but essentially gambling with other people’s money. It represents a kind of financialization or parasitization of the economy. But manufacturing remains important, because it is the base on which everything else is built.

PA: You also mentioned the way in which the business media is talking about this recession. Based on the numbers you gave about the decline in job growth in 2007, it seems their recognition that a recession is upon us has come late to the game. Are you suggesting that the working class experiences a recession before the business media gets around to it?

AP: That is always the case. The business media talks about a recession when business feels the pain. Take the recession of 2001, which according to the official figures was over by the end of that year. Within a short time most of the business media were talking about the recovery and how well the economy was doing, but for many workers there was no recovery. Jobs continued to be lost into 2003, and even when jobs started to rebound, it was at a relatively slow pace for a recovery.

There has also been a continued trend even during the recovery of the loss of good, higher wage jobs and their replacement with low wage jobs. We have seen this most recently in the auto contracts, where jobs that were paying $30 dollars an hour are being replaced with jobs paying $15 dollars an hour, for doing the same work. So the business media reflects what is happening to business.

There is now a sense of gloom and almost panic in establishment circles over the likelihood of a prolonged and stubborn downturn. For instance, Business Week in a special report on the economy asks the question: “How did conditions get so turbulent so quickly? Economists, money managers, CEOs, and regulators are grasping for clues.” The German publication, Der Spiegel, reporting on the recent economic forum at Davos (a gathering of the world’s big business and financial honchos) has this to say, “Backstage at Davos the sense of helplessness among those attending is palpable. Few have any idea how to proceed from here.”

My recollection is that even in past recessions like 2001, you have not had this sense of gloom and panic. They don’t understand what they have created with this huge parasitic financial superstructure on Wall Street, and because they didn’t understand it they were caught by surprise by this huge credit crunch. Some more rational economists – very few of them, who rarely broke through into the media, were warning several years ago this whole situation was going to collapse like a house of cards.

PA: One solution that has been offered by the US government is this massive tax rebate that was just passed as part of the economic stimulus bill. Is this the best economic stimulus that we are going to get under the current balance of forces, you know, a few hundred dollars here and there? What kind of stimulus do you see as key to stabilizing the economy and improving the dire situation of workers that you have just described?

AP: First of all, I would be as happy as anybody else to receive a check, an extra, unexpected check from the government for $300 or $600. Who is going to turn down a free check? Secondly, the agreement that was eventually struck between the White House and Congress added a number of improvements beyond what the Bush administration would have done on its own. In the House version, the Democrats succeeded in getting payments to low-income workers included, which were not included in Bush’s proposal. Then in the Senate they managed to get some payments included to social security recipients and disabled veterans.

Having said that, the stimulus package is a lousy idea, and it is widely viewed that way by the labor movement, progressive economists, and social activists, because the immediate victims of this situation are the people who have been laid off, the people who never had jobs, the people who can’t even go out and look for jobs, because they can’t pay $3.25 a gallon to fill up their tanks with gas – if they have a car.

The first order of business should be to give help to the people who need it most, which means extending the duration of unemployment insurance, because the number of long-term unemployed keeps increasing, and you use up your unemployed compensation after 6 months. Extending unemployment compensation was in the Senate bill, and they got 1 out of every 6 Republican senators to go along, but they fell one vote short, so that got defeated and was knocked out of the bill.

Another very important thing not in the bill would be to extend the number of those who are covered by unemployment insurance. Currently, only about 1/3 of the people without jobs are eligible for unemployment compensation. Everybody who does not have a job and wants one should be eligible for unemployment compensation.

There should also be an increase in food stamps. This was a demand that was widely raised which would help people who need help the most.

There should be immediate measures to provide aid for state and local governments. Half the states now know they are facing budget shortfalls, and as the economy slows down, that will probably expand to most of the states. When states face shortfalls, they are forced to cut essential spending just when the people and the economy need it the most.

There have also been calls for a big program of infrastructure investment. This has two advantages: First it creates jobs, but secondly there is a huge backlog of infrastructure that needs to be dealt with. In addition to the physical infrastructure, I would add the social infrastructure. It takes a while to start to get physical projects underway. But you could immediately make funds available, for example, to add to the number of teacher’s aides in schools or to hire more community people for after-school programs, along with all sorts of social services that communities need and which could be expanded very quickly.

Another necessary measure is legislation for an indefinite moratorium on home foreclosures, and for other measures to make it possible for people to stay in their homes.

Each of the things I have mentioned has two benefits: First they would directly help the people who need help the most; the second thing they would do would be to stimulate the economy far more than a general tax rebate, because they would put money into the hands of those people who would spend it immediately.

There is no definitive way of preventing recessions or curing recessions under capitalism, because capitalism is an irrational system that builds up huge excesses and then has busts to clear out those excesses. For five years, for instance, they built more houses than they could, in the end, sell at a profit. There is no easy way to unwind from that, but what we can do is protect the victims – by that I mean all the construction workers and the people who brought the houses, all the people who are in danger of losing their jobs or whose communities are being undermined. As it turns out, measures that actually help the people are the ones that are most helpful in moderating the underlying economic problems.