Search This Blog

Sunday, January 23, 2011

Is Obama Wall Street’s New Best Friend?

Is President Obama Wall Street’s best friend? CNBC seems to think so.

In the column “Talking Numbers” posted on Yahoo Finance (“Why Obama May be Wall Street’s New Best Friend”, 01-18-10), CNBC pundits postulate that President Obama has swiftly moved into bed with Wall Street financiers and corporate moguls. They opine:

Candidate Obama was an anti-tax cut, pro-regulation, anti-big business populist ready to take on Wall Street and any fat-cat CEO who stood in his way. President Obama? A bit of a different story.

The president's tack to the middle began with a trickle last year when he made some key concessions on health care policy and financial reform.

But since the November election, after which he famously described his Democratic Party's defeat as a "shellacking" at the hands of reformist Republicans, the move has become even more pronounced.

The post-campaign president has hired Wall Street insider William Daley as his chief of staff in an apparent means to ingratiate himself with the leaders of corporate America, struck a high-profile bargain on tax cuts, and now has put burdensome job-killing regulations on the table.

While it remains to be seen how sincere the president's conversion is, it's been a winning ticket for investors so far.

Like Paul on the road to Damascus, President Obama has been struck with the recognition that economic recovery must come from obeisance to the corporate agenda. Or at least that’s the way that Wall Street sees it. CNBC writers smugly cite Wall Street colleagues to bolster their claim:

"It's amazing how far he has moved off his campaign promises to the left, and moved over to the center-right," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "The White House is definitely going to be more accommodative of Wall Street, because they see the absolute big enchilada on the ground is unemployment. The only real way to tackle unemployment is to get banks lending and companies hiring."

Some may find it puzzling that banks and companies have had two years of bailouts and loans followed by soaring productivity and exploding profits and have yet to lend or hire, yet Obama is said to believe that more warmth and fuzzy “accommodation” will produce results. Is this really what is going on?

Perhaps the truth is suggested by a few other slippery quotes from the posting:

After all, the president barely hid his contempt for Wall Street during the campaign even as many of its workers were pumping money into his campaign coffers. Employees of Goldman Sachs (NYSE:GS - News), for instance, contributed nearly $1 billion[sic] to the Obama campaign. (my italics)


"He had a come-to-Jesus meeting with some major leaders in this country, most of them running big corporations. I think he came out of there impressed that he needed to take a different view toward business," says Rob Lutts, CIO and president of Cabot Money Management in Salem, Mass. "If you analyze his speeches, it was always 'us and them.' What he didn't realize was those are the people who are going to create the jobs, create the environment so he can get re-elected." (my italics)

Would it be cynic to suggest that the cozy relation that Obama is fostering with Wall Street and corporate executives has more to do with his re-election effort than economic policy?

Would it be mean-spirited to suggest that Obama has started his 2012 fund-raising campaign in earnest?

I’m afraid that is my view. In any case, Obama’s embrace of the interests of monopoly capital is now more than the suspicion raised by hard-lefties and fellow Marxists that called him out two years ago as another –albeit softer and slipperier – bourgeois candidate. As hard as it is to swallow by those once intoxicated with Obama-mania, the truth is now out in the open: On Monday, President Obama offered his contrition to the temple of Wall Street, The Wall Street Journal with an op-ed piece pledging a campaign of de-regulation for US corporations. Yes, de-regulation of those formerly lured by previous de-regulation into catastrophic speculative ventures – a jail break for financial criminals with deep pockets for potential campaign contributions.

Obama’s new-found love fest with business interests should not come as a shock. It is hardly a betrayal to those who studied his early career, his campaign, and the first two years of his Administration – a history of friendliness to power and means, occasionally masked with vague, highly rhetorical homage to popular causes seductive to voters.

With Obama’s public hug from Wall Street, two dangers arise. Some may now be inclined to turn towards cynicism, walking away from struggles that they thought Obama would lead. They may fail to draw the lessons of bourgeois politics, repeated since the beginnings of the Republic: change emanates and succeeds only through independent, popular pressure.

Others may repeat the failed strategy of the past and argue once again that Obama, despite his shortcomings, is still better than Palin, Romney, or whatever candidate the Republicans offer. While this will undoubtedly be true, it consistently leaves working people with a smaller piece of the pie. Decades of preferring death by a thousand cuts over a brutal coup de grace hardly seems worthy of a democracy.

It is neither a time to despair nor a time to retreat, but a time to fight. But this time, our fight must not invest all in the “hope” and “change” promised by a media-savvy politician hand-picked by a corrupted, corporate-owned political party. It won’t be an easy step for many.

Zoltan Zigedy

Tuesday, January 11, 2011

Doug Henwood’s Alternate State-of-the-Union Address

I had a dream that Doug Henwood, editor/publisher of Left Business Observer, gave the forthcoming State-of-the-Union address. The event that no doubt triggered this dream was reading a recent essay appropriately entitled “What a Damn Mess” (LBO #130). With his usual well-timed sarcasm, Henwood sets out to take “a comprehensive look at the state of the US economy – not the usual a little of this, a little of that approach, but some measure of how it all fits together.” It is this approach to “how it fits together” that most closely resembles the Marxist method. Rather than taking a snapshot of the economy, Henwood places our historic moment in time lines of fifty, a hundred, and even a hundred and fifty years, revealing trends, relationships, and perspectives otherwise overlooked. A story emerges that is far more insightful than the usual shallow speculations of mainstream economists.

Henwood gauges the last decade of growth of Gross Domestic Product per capita against that of past decades going back to the 1870s. It turns out that in the first decade of the twenty-first century the GDP grew less than in any decade excepting the second decade of the twentieth century. Even before the severe economic downturn, the economy was on track to suffer the worst decade of per capita growth in 80 years!

I am reminded of the pundits who blamed the demise of the Soviet Union on worsening growth through the 1970s and 1980s. I wonder if they foresee a similar outcome for the US. In any case, sluggish, slowing growth gives policy makers little to herald in their performance of the last ten years. And in the face of brisk growth in the so-called developing countries, this feat projects poorly for the maintenance of US global dominance in the future.

Outside of the growth fanatics, these numbers would mean little if the general well being of the population were advanced despite slow economic growth. But this is far from the results obtained, as Henwood’s charts and data show.

Employment is an all too familiar story: the drop in employment growth generated by the crisis is unprecedented since before WWII. But there is more in the details. The level of male employment as a percentage of the male population has been dropping steadily since World War II while the percentage of female workers as a percentage has grown even more steeply. While we should hail these numbers as somewhat reflecting a welcome reduction of barriers against female employment, they also represent the necessity of maintaining two workers per household in order to maintain a sustainable standard of living with stagnant wages.

Henwood also notes that a record number of the employed are part-time employees, the highest in 55 years.

A telling graph on page 4 of the LBO issue provides a host of interesting insights by tracking the growth of real incomes by income level from 1920 until today. Not surprisingly, the top .01% of incomes (the filthy rich, the ruling class, the haute bourgeoisie) always fares well with an interesting exception: their relative position against other income classes actually sank throughout the decade of the seventies. This coincides, of course, with the crisis of Keynesian economic philosophy (from a ruling class point of view) and the subsequent emergence of neo-liberalism as the dominant policy ideology in the US. As a response to this crisis (for the few), our venerable political system gave us the destruction of PATCO and union bashing, deregulation, tax relief for the rich and corporations, reduced social spending and the other features associated with unfettered capitalism. And the decline of incomes was not only arrested, but the real incomes for the wealthiest soared from that time forward.

But for the working class (90% of income earners), the story is different: throughout the “golden era” of US capitalism (1945-1970) coincident with the destruction of the labor left and the embracing of class collaboration, the conscious blurring of class lines, and the intensification of consumerism, the growth of incomes in different strata marched forward almost in lock step. The fact that everyone seemed to be doing better created the illusion of market fairness.

But the growth of real income for the working classes stagnated after the early seventies – it essentially flat lines – through today. For nearly forty years, the vast majority of the US saw no significant increase in real income. By contrast – as noted above – the incomes of the obscenely rich climbed to unprecedented heights.

It doesn’t take a chart or much imagination to see that the distribution of income between the vast majority of US citizens and the extraordinarily privileged has shifted dramatically under the reign of neo-liberal ideology, an ideology that thoroughly infects both major political parties.

An interesting – and, I think, profound – connection revealed by Henwood’s chart is the steep spike in real income enjoyed by the grossly rich before both the Great Depression and again before the current severe crisis. The chart dramatizes these spikes against ninety years of income relationships and suggests that great swings of income distribution in favor of the wealthy presage severe economic decline beyond the periodic business cycles.

Certainly this is consistent with the left-Keynesian position that misdistribution of wealth in favor of the rich diminishes the buying power of the masses and leads to a crisis of overproduction. Progressives and even a large part of the Marxist left have subscribed to the view that pressure brought on by reduced consumer demand slows production, resulting in a spiral of declining production, consequent unemployment, and even sharper drops in consumption only abated with government intervention and the restoration of consumer demand. While this is a convenient and neat explanation, it fails to agree with the facts as they unfolded before the current crisis and turns a blind eye to the critical role of debt in modern state-monopoly-capitalism. In fact, there was no sharp fall off in consumer consumption leading up to the current crisis because consumer debt continued to sustain consumption.

But there was a fall off in profit growth in the lead-up to the still raging crisis: year-to-year profit growth began to decline from roughly its decade-long average in the fourth quarter of 2006 (Standard and Poor’s 500) and continued downward through the fourth quarter of 2008, returning dramatically positive in the fourth quarter of 2009. It is this notion of profit as the motor force of capitalism that is central to the Marxist analysis of crisis. And it is the constant tendency of its rate to decline that explains the current crisis. The huge pool of accumulated and often idle capital brought on by the explosion of wealth concentration, as demonstrated by Henwood’s chart, brought enormous pressure on the capitalist system to find new sources of return. Much of the task of expanding profit was taken on by a financial sector that sought profitability through risky financial contraptions constructed around debt and further and further removed from productive activity. It was the malfunction of this profit-generating tactic that brought on the crisis.

For those who fail to see the decisive role of profitability in the motion of the capitalist system, the jobless recovery remains a mystery. With five periods clocked of robust profit growth, no amount of cajoling, incentives or prayer will bring capitalists to hire. Either job creation will re-connect with profit growth or the jobs must come from somewhere besides capitalist corporations.

Henwood constructs a clever chart that tracks the relationship between corporate profits and employee compensation a year after the bottom of the eleven downturns since 1949. In all but the last two economic declines, profit growth outstrips the growth of employee compensation (after all, it is capitalism!), but at a generally growing ratio between 1.8 and 5.1. But with the recovery of 2001 the ratio leaps to 27.7. And with the tentative “recovery” of 2009 the ratio explodes to 50.4! This data will not be noted in Obama’s State-of-the-Union address.

Something new is happening here. Virtually all of the benefits brought on by recovery are now passed on to the corporate sector. In both the crises of the first decade of the twenty-first century, the costs of the downturn have been borne by the majority without any of the benefits of recovery. I have written about this in previous posts, arguing that rising productivity and fewer employees with stagnant wages and benefits account for the explosion of profits. In Marxist terms, this constitutes an increase in the rate of exploitation. As Marx argues in Vol. III of Capital, increasing the rate of exploitation is a principal means of counter-acting the tendency of the rate of profit to fall and a way out of crisis. And what lubricates this intensification of labor exploitation is a supine labor movement and an accommodating state.

Indeed, it is a “damn” mess. Henwood provides much more evidence to bolster the case for an economy in shambles, sometimes understating the case against a corporate orgy at the expense of the rest of us. For example, he pegs the “effective” tax rate for corporations as hovering around 30% (the ineffective statutory rate is 35%). In fact, the effective rate for publicly traded corporations – the big earners - is around 16.5% (the rate they actually pay). Moreover, the share of corporate taxes of total federal tax receipts has dropped from just under 25% in 1960 to well less than 10% at the beginning of 2010. And the share of pre-tax profits going to federal tax payments has dropped from over 30% to less than 15% over the last decade. They’ll go down even further with the Obama corporate tax incentives coming this year.

As stated above, there is no good reason to expect this improvement in profitability from tax breaks to have any effect at all on job creation. In fact, just the opposite should be projected.

I don’t expect Obama to acknowledge this sad, gloomy picture in his State-of-the-Union address. Likely, he will tout a non-existent recovery and a rosy future. I suspect that he will tell a scary tale of debt looming over his fragile recovery and call for common sacrifice to ward off the frightening debt-monster. No doubt he will celebrate his new-found warm friendship with corporate America, posing this affair as the key to job creation.

Instead of watching this nonsense, I’ll turn off the telly and re-read Doug Henwood’s “What a Damn Mess.” I suggest you take out a subscription to Left Business Observer and do the same (only $22/year).

Zoltan Zigedy