The Budget Battles–from the standpoint of progressives

The budget is an ethical and spiritual issue–it is the concrete manifestation of our values both as individuals who vote for the candidates who shape the budget, and as a society. Below a few progressives make sense of the budget battles we are facing in the coming months.

Budget Battles: Sound, Fury and Fakery
by Richard D. Wolff

Weeks of highly publicized debates — some in Congress, more in the mass media — brought Republicans and Democrats to a budget deal.  To maximize public attention, they threatened a possible government shutdown.  Both parties said that large government deficits and accumulated debt were “serious problems.”  They agreed that solving them required only spending cuts, not revenue increases.  In unison, they repeated, “we” must “learn to live within our means.”

In fact, both sides never actually engaged the deficit and the debt.  They limited themselves to purely cosmetic, symbol-laden cuts (Republicans) and refusals to cut (Democrats).  Aiming at the 2012 election, both parties used the deficit and budget debates purely to impress their voters.

Basic numbers tell the true story.  The current (Fiscal Year 2011) budget spends about $3.5 trillion while receiving $2.0 trillion in tax revenues.  The difference of $1.5 trillion (the equivalent of $1,500 billion) is this year’s deficit.  The US Treasury must borrow that from whoever will lend to the US government.  After much hot air, Republicans and Democrats reached an “historic compromise,” namely a spending cut of $38 billion.  That will reduce this year’s deficit from $1,500 billion to $1,462 billion, an economically insignificant sum.  The sound and fury of Washington’s debates signified nothing was to be done about the actual deficit.

Republicans pretend to be deeply troubled by huge government deficits run up in recent years.  They conveniently forget why those deficits soared: (1) capitalism’s crisis increased unemployment and so cut income tax receipts, and (2) Washington response was to borrow trillions and spend them on bailing out banks and credit and stock markets.  Republicans revive their old mantra: reduce deficits by cutting “wasteful spending” and “government mismanagement,” which turns out to mean the social programs they don’t like.  Republicans hope to cash in politically on popular upset over the crisis’s costs and the government’s unfair and ineffective response.

Democrats pretend to be as troubled by deficits as Republicans.  They parrot Republicans in denouncing wasteful government spending and mismanagement.  However, they champion fewer spending cuts than Republicans, hoping thereby to cash in politically on popular support for helpful government programs needed especially in hard times.  Democrats are also loudly oppositional where that might appeal to their voters (e.g. saving Planned Parenthood from cuts).

Democrats and Republicans did not even discuss, let alone agree on, tax increases on the wealthy or on corporations as ways to cut deficits.  At the same time, their proposals for cutting spending were economically insignificant.  In short, the two parties’ deficit-reduction campaigns were fakes.

What difference do deficits make?  When the government’s tax revenues fall short of its expenditures, it must borrow the difference.  That borrowing adds to the country’s total accumulated debt.  As a result, next year and thereafter, government spending will have to pay interest on this year’s borrowing.  That means using a portion of its tax revenues in the future NOT to provide public services or help people but instead to pay interest on its borrowing this year.

Deficits matter because they divert tax revenues away from serving most taxpayers to enriching Washington’s creditors instead.  They also matter when Republicans and conservative Democrats use deficits and government debts as excuses to cut government programs they oppose.

Conservatives fear and oppose government economic interventions other than those that support and protect business interests.  When most recessions hit, conservatives want tax cuts for business and little more.  When major recessions hit, they want massive government bailouts of businesses.  If those require deficits, the conservatives support them (they backed the Bush and Obama bailouts from 2008 to 2010).  They only turn against deficits later, once business profits are restored, and then demand cutting government economic interventions that benefit other-than-business interests.

Liberals and Keynesians usually favor government deficits during recessions.  They want the government to spend not only to soften hardships during economic downturns, but also to compensate for businesses’ hesitancy to invest in poor economic conditions.  Otherwise, liberals fear that crises may turn people against the capitalist system and/or to extremist politics.  Thus Paul Krugman angrily urges Obama to increase rather than limit government spending and not worry about deficits.  In such enthusiasms, liberals and Keynesians underestimate the real costs of deficits and who will likely have to pay for them.

The problems with these liberals’ logic are many.  First, if the government taxed corporations and the wealthiest individuals more, it could maintain high spending without having to incur huge deficits. One recent calculation showed that if corporations and individuals earning over $1,000,000 per year paid the same rate of taxes today as they paid in 1961, the US Treasury would collect an addition $716 billion per year.  That would cut the 2011 deficit by half and likewise its interest costs.  Second, consider who lends to the US government.  Major creditors include the People’s Republic of China, Japan, large corporations and wealthy individuals in the US and abroad.  The greater our deficits, the more of everyone’s taxes go to pay interest to those creditors.  Third, consider the basic injustice of deficits: (1) Washington taxes corporations and the rich far less than it used to in, say, the 1960s; (2) Washington therefore runs a deficit; and (3) the US Treasury then borrows from corporations and the rich the money that the government allowed them not to pay in taxes.

The bottom line: US capitalism collapsed into dependence on massive government support in 2008 and since.  Beyond providing immense, open-ended guarantees for the debts of defunct banks, insurance companies, etc., government support to business included trillions spent on bank and corporate bailouts.  The government chose to pay for most of that by massive borrowing (rather than raising taxes on corporations and the rich – not even on those corporations that government funds saved from certain bankruptcy).  That is why those huge bailouts required correspondingly huge deficits.

On April 13, Obama suggested a small tax increase on rich individuals (raising the top bracket from 35 to 39% compared to the 91% it was in the 1960s) and an end to certain corporate tax loopholes.  If ever enacted into law, those suggestions together would not change much.  They would yield less than $100 billion per year.  That would cut this year’s deficit, for example, by a mere 7.5%.  Moreover, more “historic compromises” with Republicans will only further reduce (or eliminate) even these modest tax burdens on corporations and the rich.

Both parties in Washington have sustained massive ongoing deficits supporting a crippled, state-dependent capitalism.  Those deficits will continue to raise our national debt and continue to be used as excuses for cutting government services to people.  Fake debates around deficits should not distract us from what capitalism has demanded and obtained from both of its parties or from the urgent need to build a real opposition to them both.


Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.   He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications.  Check out Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at www.capitalismhitsthefan.com.  Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.

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STILL WATCHING THE FLIGHT OF THE CONSERVATIVE ARROW

April 14, 2011

Dear Citizens and Elected Officials:

We hadn’t planned to comment on President Obama’s speech about the federal budget because we already wrote a long essay a year ago which gave the historical and ideological background to this struggle, a clash which duplicates what unfolded in the 1930’s, here in America and in Europe, between the ideas of the left and the right.

And yes Mr. President, we too went back to Abraham Lincoln, whom you mentioned early in your speech, but for a different reason than the one you cited.  President Lincoln inherited, because of the Panic of 1857, “a run of four consecutive budget deficits, the first time the nation had such a series since the War of 1812.” But after April, 1861, it only got worse, and to raise the revenue needed to cope with the continued budget deficits,  he: introduced a fiat currency (“greenbacks”); expanded bond issuances and made them available to the average citizen; began a graduated federal income tax; and, horror of horrors, added an inheritance-estate tax to pay for that war to save the Union.

Readers who missed those postings can catch up with them online: “Debt, Deficits & Balanced Budget Bull from April 23, 2010 here at http://www.ourfuture.org/blog-entry/2010041625/debt-deficits-balanced-budget-bull  and, a week later, Part II, “Austerity, Courtesy of the Best Men” at http://www.ourfuture.org/blog-entry/2010041730/austerity-courtesy-best-men

However, as we were reading this morning’s New York Times, we were drawn to “The Caucus” section headed – “Obama’s Speech Defends Liberal Principles,” and so we felt compelled to post our own response, # 82 in the Comments online, which we have copied in below, with only slight editing.

The content comes right out of the next essay we’re working on which will take a closer look at the furor set off by the Times’ March 25th front page story on General Electric: “G.E. Turns the Tax Man Away Empty-Handed.”

There isn’t a better way to understand the changes in our economy since the 1950’s than taking a long and careful look at that company, whose roots go back to Thomas Edison and J.P. Morgan at the end of the 19th century.  We searched our library shelves, and naturally, we were carried back to William Greider’s almost forgotten classic from two decades ago (1992): Who Will Tell the People: The Betrayal of American Democracy, which contained a chapter on GE which became famous in its own right – “Citizen GE.”  We had forgotten how good this book was, how well it used GE to illuminate the already negative trends in the economy then, trends which have continued to follow that conservative arrow arc right up to the present moment, now revealing the deep fracture lines in the structure of the private economy.

And thinking of GE, and the better parts of the Presidents speech last night, the parts which recalled that “we are all connected,” that we believe in “shared responsibility and sacrifice,” and that we have a “basic social compact in America,” that the America he knows “is generous and compassionate”  – we wonder what he makes out of not Jeffrey Immelt, the current CEO – that we already know – but what he thinks about  someone whom some business journals consider to be the greatest corporate leader of the 20th century, one Dr. John Francis Welch, Jr., also known as “Neutron Jack” Welch, GE CEO from 1981-2001, a span which almost perfectly coincides with the rise of the Right, someone who got that name because his corporate employment policies, which disposed of tens of thousands of workers, but left the buildings standing and made the shareholders very happy?

Because so much of what is about to unfold in Washington is going to turn upon tax deals which citizens are going to have a hard time getting access to, much less influence upon, we think that Greider’s book will, along with our essays from last year, be a very useful guide.  You can still find it at Amazon.com for a top price of $11 – and many much cheaper than that.  We’ll have more to say about the work in future writings, but what’s not to like about chapter titles such as  “The Politics of Rude and Crude,” “Rancid Populism,” “The Fixers,” and “Who Owns the Democrats?”  But for now, and for the matters about to unfold inside the Beltway, consider these thoughts from the opening pages of Chapter Three, “Bait and Switch,” which tell a little different story than President Obama’s citations yesterday of previous bouts of bi-partisan cooperation on taxing matters:

The political drama of taxation provides what is probably the best measure of democracy’s condition, the clearest evidence of where power truly resides in the society…From 1977 to 1990, Congress enacted seven major tax bills and many other minor ones, raising or lowering tax liabilities for individuals and corporations.  The results of this legislative torrent are startlingly one-sided…the tax burden on the richest 1 percent of the population fell cumulatively by a staggering 36 percent…the turning point on tax politics, when the monied elites first began to win big, occurred in 1978 with the Democratic party fully in power and well before Ronald Reagan came to Washington.  Democratic majorities have supported this great shift in tax burden every step of the way.

So that’s why we think, in order to make sure that the grand “compromises” coming, which will be taking place in a still unreformed Washington “process” which Greider called, in the next chapter, “The Grand Bazaar,” live up to the better, “progressive” shadows thrown by Obama’s speech, it would be a good idea to have Bill’s insights close at hand…and yes, to keep ours below (and above) nearby as well…

Until the next post, be sure to enjoy all the blessings of “Entrepreneurial Romanticism,” which, whatever else it has brought us, has also coincided with the greatest transfer of wealth and income to the top 1% of our society since the 1920’s.  And keep in mind one very important question for our democracy: just who is it, exactly, that got between the citizens and their representatives in Washington, citizens “who can least afford it {sacrifice} and don’t have any clout on Capitol Hill,” in the President’s own words from yesterday’s speech?

Best,

Bill Neil
Rockville, MD

RESPONSE TO THE PRESIDENT’S SPEECH

“Let’s not get carried away. The speech comes from a spot on the political spectrum which was formerly occupied by moderate Republicans during the late 1960′s until about the mid-1970′s. While we should welcome the President’s defense of Medicare and seemingly firm “stand” ending the Bush tax cuts, still, the overall frame is to put federal debt and deficits at the center of the debate on the nature of the nation’s political economy, forgetting two enormous and painful facts which don’t fit: the terrible unemployment situation and the ten million foreclosures from the still hemorrhaging housing situation.

By agreeing to move ahead on sustained deficit reductions, the President is abandoning Keynesianism at the worst possible time as well as pushing the other deep fractures in the private economy out of sight. They’ve gotten a thin coat of plaster but no deep structural reforms.

This is a very defensive form of liberalism or progressivism, take you pick, which reaches back in the President’s revealing sense of history to only the post New Deal GI Bill – leaving out the Populist movement of the late 1890′s, the Progressive movement at the turn of the Century, and the first phase of the New Deal, 1933-1936, when these traditions in American thought (and action) actually believed that to achieve the broad goals mentioned by the President,  deeper structural interventions in the economy were necessary. The President, like most of the Center and the Right (which he refuses to name as The Republican Right) have displaced the standing of the average American citizen which these movements stood for with what we call “Romantic Entrepreneurialism,” another, slightly friendlier face of market fundamentalism, which does have standing in the halls of Congress, as we will soon learn again as the deep tax negotiations begin.

The Times’ own front page story today on the failure to prosecute major executives for their actions in causing the financial crisis gives us a good reminder that this so called liberal President is really continuing the arc of the arrow launched by the Right, one which has set the nation’s deeper economic agenda over the past 30 years. Carter, Clinton, Obama, all do flight monitoring but don’t change the arc of that arrow. And how is the nation’s international economic standing doing while looking up at this trajectory, which has taken the nation down?

It is also clear from the President’s ten page speech that the golden era for him and the American economy was the late 1990′s under President Clinton. The fact that he still buys this story ought to worry us all because no President contributed more directly to the financial disaster we have lived through than Mr. Clinton, in his de-regulatory positions and his refusal to defend the American national economic interest in trade negotiations – as opposed to the agendas of our tax avoiding, job shifting and employment shedding multinationals, like General Electric – and thanks NY Times for the cover story on their 975 person “tax department”  back on March 25th.

The entire debt and deficit debate does more to conceal the real problems and the scope of the solutions necessary than they do to correct them. Time and events will, unfortunately, bear this out.”

P.S.  If readers are having trouble wrapping their minds around the term “Entrepreneurial Romanticism,” try thinking about it in this sense: the private sector, has, decade by decade since the mid-1970’s, appropriated to itself the almost “divine right” to create jobs.  Only the private sector can create meaningful work, this strand of romanticism claims; the public sector has no right to shape the national employment direction, much less an “industrial policy,” and any jobs touched by it will be, by fiat declaration, “make work” and inefficient.  Public job creation, like the WPA or CCC from the New Deal, therefore stands in relation to free market fundamentalism and entrepreneurial romanticism as democracy once did to monarchy in Tom Paine’s day.   If you don’t believe this, try asking the President or any one of his present or now departed economic advisors why they won’t back public job creation.  Be forewarned, the answer won’t be pretty.  That’s some “social compact” that we have then, some “shared sense of responsibility and sacrifice” – when one sector of the economy claims an absolute monopoly upon the world of work and job creation.  But that is what conservative columnist Michael Barone meant when he wrote this in the Washington Examiner on October 31, 2010:  “leave the private sector alone…so it can recover from the financial crisis recession and once again create the bounteous and unscripted growth that has been the norm in American history.” (“Obama’s economists missed what voters plainly saw.”)


 
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