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Saturday, August 13, 2011

Sinking Fast

Regrettably, there is much to write about that must take a backseat to the economy and the current panic in equity markets. For the moment, the political fiascos, imperialist misadventures and cultural crudities that cry out for commentary are driven into the background by the fears generated by the latest economic news.

The loss of over 10% of equity value in one week terrorized business and economic pundits while driving investors to the exits. Making matters worse, there is an overriding, profound sense that no one in the seats of power knows what is wrong or how to fix it.

Of course some of us foresaw another round of decline coming, what the media has misleadingly dubbed the “double-dip”.

I posted on May 4, three months ago: “Rather than a recovery, we are in Act II of a severe crisis of capitalism. It is not merely a financial crisis, a severe business cycle trough or a radical imbalance, but a profound crisis of the capitalist system.” (The Crisis of Capitalism: Act II). Citing trends in GDP, labor productivity, unemployment, consumer spending, trade and even profits, I drew the conclusion that the road ahead was not only bumpy, but deeply rutted and perhaps impassable.

In another post in late June (Reliving 1937?), I emphasized the folly of debt hysteria and wholesale government budget slicing as a prescription for a seriously ill economy. A near consensus of economists and policy makers were blithely urging the same policies that nearly wrecked the vulnerable New Deal recovery in 1937. History was indeed repeating itself, first as a misstep in 1937, now as dogma-driven insanity.

Among liberal economists, Paul Krugman has commendably repeated warnings of this disaster in the pages of The New York Times.

And on the left, political economist Jack Rasmus has, for many months, boldly projected an impending relapse of 2008, citing a raft of economic data supportive of this conclusion (see

But most economists and mass media commentators were swept up in the debt fraud and the high drama leading to the last minute capitulation to debt extortion.

After the curtain fell, ridiculousness reached new heights as Standard and Poor’s – one of the feared financial rating agencies (the same cabal that assigned the highest ratings to toxic, Rube Goldberg financial junk)—lowered the US credit rating by one notch. To underline the irrelevancy of this rating, the yield of US Treasury notes immediately dropped. Instead of fleeing US debt, investors stepped up to pay more and buy more. In fact, since late July, as the phony debt standoff grew in intensity, the yield on two and ten year Treasury bonds fell at an unprecedented rate, indicating not only willingness, but eagerness on the part of investors to secure US debt. In addition, the stern warnings about the consequences of debt on interest rates were proven unwarranted, with mortgage rates at an historic low. Still the humbuggery reigned.

This is a strange debt “crisis” indeed that attracts investors to secure more US debt. The same pundits who cite rising interest rates on EU member state bonds as evidence of a debt crisis conveniently overlook the reverse behavior of US bonds. The blatantly contradictory claims of economists and public commentators demonstrate that the “crisis” is really a contrived political maneuver.

No one notes that the credit rating of the Peoples’ Republic of China is two notches below the lowered rating of the US. It is no wonder that PRC officials howled at the US debt drama after they were able to weather the 2008 financial crisis despite a credit rating of only AA-. Standard and Poor’s ratings mean little to a country unchained from the tyranny of bond markets. Thanks to the PRC’s publicly owned banks and its large measure of economic planning, PRC leaders are able to withstand capitalist irrationality better than their Western counterparts.

Capping the confusion and deception of the first week of August was President Obama’s emergency statement during the stock market collapse on August 8. Adding to the madness, he spoke of “a renewed sense of urgency” in drastically reducing US debt, as though throwing gasoline on a fire would somehow extinguish it. I’ll leave it to psychotherapists to determine if the President really believes this nonsense.

Some not-so-random thoughts:

1. We are indeed falling off the economic precipice. While stock market performance is only a secondary indicator of economic health, it does signal the sentiment in ruling circles and among the wealthy. That sentiment is decidedly confused and fearful. Volatility, as in 2007-2008, signals an imminent retreat from investing. The players who remain active are hedge funds and private equity firms who gain even when the rest of us are drowning economically. We lost the chance to tame these renegades in 2009 and 2010 with financial reform, but left them free to prey on our economy. And they are.

2. Profit and its tendency to decline are still at the center of the global economic crisis. While profits have grown enormously over the last two years, they have shown slowing growth for some time. Moreover, the widely noted $2 trillion in cash reserves held by US corporations represent the same glut of liquidity, or vast pool of capital seeking a return, that led to the last crisis of financial speculation. In a Marxist technical sense, these reserves count as potential constant capital and weigh against the profit rate of capitalist enterprises. The lack of investment opportunity for accumulated capital explains why the stock market and economic growth are in such dire straits despite officially high profits. Capitalism only thrives when every possible cent of accumulated surplus is placed back into the profit-generating caldron.

3. Increased labor exploitation – the principle force propelling the proclaimed recovery – has petered out. Labor productivity, won by employing fewer workers to do more work, dropped .6% in the first quarter and another .3% in the second quarter of 2011, calculated on an annual basis. I noted the decline in productivity growth in my May 4 article, but new BLS figures actually show an absolute decline. While capitalists will continue to try to squeeze workers, BLS data prove that hyper-exploitation is showing diminishing returns.

4. Act II of the capitalist crisis is still centered on the financial sector. Despite the absorption of weaker financial institutions by those left standing after the 2008 crisis, despite the concentration of finance capital, banks are in a precarious position, holding shaky loans and dubious assets. Again, the opportunity was lost in 2009-2010 to secure a rational, economically useful role for banks. Instead, they were allowed to resume their rogue, speculative ways, further exacerbating the crisis.

5. Unemployment – the idling of workers seeking to keep their families from despair – continues to loom over the economy. As I urged in my May 4 posting, the “official” rate, as bad as it is, is a false, misleading indicator of the plight of the workforce. Instead, we must measure the pain of job loss and employment frustration by the employment-to-population ratios and the labor participation rates which better show the tragic fate of the US workforce. Jack Rasmus, in a recent post, has given an even more forceful, complete explanation of the true dimensions of unemployment (, an explanation that erases the false hopes encouraged by the media.

6. The trade balance widened in June to the detriment of US exports, a trend that further dilutes GDP growth potential.

All signs point to a perfect conjunction of stubbornly irrational policy decisions and lost economic momentum leading to the second, more intractable act of this twenty-first century economic crisis.

Zoltan Zigedy

Tuesday, August 2, 2011

A Crisis of Liberalism?

“Obama’s offer… falls to the right of the average voter’s preference; in fact, it may outflank the views of the average Republican.” George Packer (The New Yorker) citing The New York Times writer, Nate Silver

“Put it this way: If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph” Paul Krugman, The New York Times

“President Obama presented Republicans with what, at almost any other time in recent history, would be seen as a conservative dream…”
The Nation editorial

“It was shocking when he betrayed core principles of the Democratic Party, portraying himself as high-minded and brave because he defied his loyal constituents.” William Greider, The Nation

The quotes above and many other similar statements point to a crucial, disturbing moment in the evolution of US politics. Self-styled liberals or, as they now prefer to be called, “progressives,” are recognizing the loss of their influence in the dynamics of the US political process. They are feeling the pain of marginalization.

For liberals, the election of Barack Obama signaled a return to an imagined earlier politics that would establish a coalition of the have-not and have-less elements of US society and would counter the unrestrained pillage of the very rich and powerful. This idealized vision never promised to settle accounts with powerful interests, but only to buffer the pain of the less advantaged with a robust, but patronizing “safety-net.” In foreign policy, liberalism never abandoned imperial goals masked as advocacy of transcendent values, but sought a softer, less belligerent imposition of these goals on client states and potential opposition. In the 2008 election campaign, Barack Obama and other Democratic Party candidates did much to encourage the view that new politics were on the horizon.

Nearly three years after the election, the promise of Obama and the hope of liberals are gone, replaced by shock and disappointment.

Liberals-in-denial blame the Obama debacle on the ultra-right: the determined, uncompromising right flank of ruling class politics that unabashedly promote the interests of the wealthy and powerful while advocating unrestrained US global dominance. Standing by 19th-century economics, libertarian social and political policies, and hyper-patriotism, the ultra-right enjoys a base seduced by an ideology in a world awash in compromise, opportunism and hypocrisy. Against their shrill, ideological fervor, Obama, the prince of civility and concession, stands no chance. For the liberals, the ultra-right violates the rules of fair play, a charge of little sting at a time of profound economic and political crisis.

Still other liberals lash out at Obama as a traitor to the cause, a candidate who side-stepped the promised changes and violated the values enunciated in the 2008 campaign. For the most part, they need to revisit the campaign promises and sweep away the naiveté that blinded them to the massive corporate and elite support that put Obama on the main stage. They need to investigate the available, though widely ignored, accounts of Obama’s political career that cast great doubts on his liberal credentials and show his progressivism to rest on the thin ice of opportunism. Those who bought the puffery of vanity political accounts have no one to blame but themselves. More importantly, liberals fail to acknowledge the many decades of Democratic Party embodiment and facilitation of shifting liberal values; they fail to see the continuing escape from and re-shaping of those values as demonstrated transparently by the previous policies of the Carter and Clinton administrations.

US Liberalism

US liberalism is an elusive ideology, if it is an ideology at all. It shares with classical liberalism a reverence for vague and fuzzy notions of freedom and liberty that deny any class relativity to these concepts. For the most part, US liberalism in the era of monopoly capitalism differs from US conservatism by exhibiting more social tolerance, allowing more free space for life-styles, religious attitudes, ethnic differences, and expression. Notably, the limits of liberal tolerance often stop at radical political expression and activity. Liberals are seldom friendlier to socialist, anarchist or Communist movements than their conservative counterparts.

Some locate the roots of modern US liberalism in the Progressive Era. Others see stirrings of the modern variant in the doctrines of Woodrow Wilson. But liberalism, as we came to know it, surely owes its fundamental principles to the Franklin Roosevelt era and New Deal policies. Shaped by a profound capitalist economic crisis, an influential and growing independent left, and emerging ultra-right, fascist threats, Roosevelt and his allies crafted an ideology that re-structured capitalism and its institutions to meet these challenges. Not without many reservations, the Democratic Party became the flag-holder for this new ideology.

Apart from the bloated mythology surrounding the New Deal, the liberal initiatives of the 1930’s ameliorated the hard edge of suffering falling upon most working people, deepened democracy and proved to be immensely popular with a majority of US citizens.

Key elements of New Deal liberalism include the following:
1. Government has a duty to establish a baseline of living standards guaranteed to all.
2. Government has a similar duty to regulate and manage the capitalist economy to ensure its viability and success.
3. Foreign policy should avoid intervention (except in the Americas) and rely on negotiation and international institutions.

To a great extent, these elements served as a cornerstone of liberalism, broadened its appeal and established a loyal base for the Democratic Party. Coupled with the threat of fascism, this produced an uneasy, but stable unity with the socialist and Communist left.

New Deal liberalism reached its zenith during World War II with its Grand Alliance of those fighting fascism, an alliance that included the Soviet Union. The post-war world envisioned by liberals as well as Communists promised an end to war, peaceful democratic governments and a decided social and economic tilt towards the masses. The Potsdam, Tehran and Yalta conferences sketched the outlines of this post-war world.

But it was not to be.

New Deal liberals and Communists alike underestimated the strength of reaction and failed to stem the counterattack by corporate interests and their political allies.

Within three years of the end of the war, liberals melted before an onslaught of hyper-patriotism and anti-Communist zealotry. In a preview of our current moment, liberalism sought to compromise with the most rabid, anti-democratic forces, conceding civil liberties, foreign policy sanity and the militarization of the US to protect remnants of the New Deal agenda. With the left nearly destroyed or in retreat, liberals lost the spurs that prodded the most radical, progressive policies in the New Deal’s response to the Great Depression. With that loss went the spine of liberalism. The Cold War ushered in the retreat of liberalism and the infidelity of its Democratic Party electoral partner.

With the mass upsurge of the 1960s driving the initiative, liberalism and its Democratic Party vehicle made one last, futile attempt to breathe life into the New Deal agenda. Lyndon Johnson’s Great Society returned to the spirit of the New Deal, but made the fatal mistake of embarking on domestic reform while appeasing conservatives with an aggressive, imperialist war. The New Deal and the Cold War were simply incompatible.

Since that time, with liberalism and the Democratic Party joined at the hip, the trajectory of US liberalism and the Democrats has moved further and further away from New Deal ideology. The Democratic Party platform of 1976 was the last gasp of New Deal consensus, only to be neglected and subverted by the Carter administration.

The electoral victory of Ronald Reagan pushed liberals and the Democrats even further from New Deal thinking, with both soon accepting the primacy of free markets, de-regulation, a minimal public sector, balanced budgets, and government non-intervention in the affairs of corporations.

If liberalism had an ideology, it was embodied in the New Deal. With most of the New Deal gone and liberals tepidly defending its remnants – Social Security, Medicare and Medicaid – it’s hard to find the soul of this once vital political force.

Liberals and Democrats

US liberalism, since the time of the New Deal, placed its fate in the hands of the Democratic Party. Indeed, most identify modern liberalism with the Democratic Party. It is easy to understand why. During the New Deal era, the Democratic Party was the vessel for New Deal policies and the legislative executor of those policies. But it is also necessary to understand that it was not an easy fit. Roosevelt battled internally with many factions within the Party, as did his closest liberal allies.

From the onset of his term, Roosevelt felt compelled to appoint conservative Party figures to key positions and appease the pro-business orientation of the Party’s old guard. As a self-proclaimed experimenter, he shifted personnel to find answers to the Great Depression: progressives brought him success, conservatives didn’t. In addition, he was always looking over his left shoulder at a Communist and labor movement that was pressing hard at his heels.

His successes won a huge victory for the Democrats in the 1936 election. While many newly elected Democrats were progressive, many were not. And his program after 1936 was often stalled and even reversed by conservative elements in the Party. In short, the Democratic Party was still a bourgeois party. It did not make Roosevelt and his New Dealers progressive; they made the Democratic Party progressive.

In 1948, New Deal liberals, led by ex-Vice President Henry Wallace, understood this well. In the face of a Democratic Party retreat from the New Deal ideology, they formed a third party, the Progressive Party. While many see this as ill-advised and ill-fated, others of us view this move as a premature recognition of the forthcoming decline and dissolution of New Deal liberalism. While the Progressive Party fell victim to Cold War hysteria and liberal divisiveness, it attempted to keep alive the soul of the New Deal.

Over the next many decades, with the rise of television and other new media, the decisive role of polling, and the accompanying critical necessity of fund raising, the Democratic Party became less of a willing partner for New Deal ideas and more of a brand to be manipulated by consultants and other shapers of public opinion. The draw of ideas and issues was replaced with the politics of personality and vapid sloganeering.

Having made its bed with the Democratic Party, US liberalism valiantly stood by as the Democratic Party was polluted and corrupted with corporate money. A Party allied with the bourgeoisie became a Party owned by the bourgeoisie. Instead of a Party seeking the enlightened interests of US capitalism to be found in a measure of social justice, the Democratic Party became a vulgar tool of US capitalism, paying lip service to its core support in the labor movement and among African Americans and other minorities.

Today, liberalism has paid a heavy price for its marriage with the Democratic Party. By slavishly correcting its vision to comply with an increasingly ideologically bankrupt and crassly opportunistic political machine, liberalism has acceded to the sapping of its once politically relevant principles.

It is not for those of us of the anti-capitalist left to find redemption for liberalism. We have our own work to do. But its collapse has left the door open to the continuing advancement of the most extreme, the most rabid supporters of corporate brigandage and political reaction.

Zoltan Zigedy