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)

And:

"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
zoltanzigedy@gmail.com

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
zoltanzigedy@gmail.com

Obama and the Left: Crossroads

In the fall of 2008, I wrote the following (2008: A Reprise of 1976?). It seems timely to reproduce it today:

Upon taking office, the Carter administration began a steady drift to the right. Following the lead of Democratic Party strategist, Patrick Caddell, Carter chose a business-friendly approach that placed the battle against inflation at the center of domestic policy. His personal opposition to the Humphrey-Hawkins bill led to the passage of a bill unsatisfactory to organized labor. National health care was shelved and tax reform was never achieved. Carter vetoed public works legislation as inflationary. The neo-liberal deregulation agenda generally attributed to the ultra-right actually began with Carter’s deregulation of the airline industry in 1978. He also started the process of deregulation of other industries, such as communications, oil and finance.

Little was advanced to improve either the status of African Americans or race relations, though Carter appointed more minorities to posts in his administration than any previous President.

Despite his platform promise to reduce military spending, Carter expanded the military budget, reversing the trend of the prior ten years. With Carter’s assent, the US began to send military equipment to the Afghan mujahadeen even before the Soviet occupation. Support for these feudal warlords harnessed to US Cold War aims soon reached $600 million per year. Ironically, they are the cadres now fighting the US occupation of Afghanistan. Carter instituted the so-called Carter Doctrine pledged to oppose any but US influences in the Persian Gulf area. This oil-driven version of the previous Monroe and Truman Doctrines has remained US policy to this day and justifies the use of military force in the region when US “interests” are claimed.

To his credit, Carter negotiated nuclear weapons reductions (SALT II) and a Panama Canal treaty, and also secured a minor reduction of US occupation troops in the Republic of Korea.

Carter’s retreat from the Democratic platform produced a number of oppositional blocs, including the labor/liberal-supported Democratic Agenda in late 1977 and the Progressive Alliance in 1978. The Democratic Party base of labor, African Americans and liberals was stung by the growing conservatism of the Carter Administration, a rebuff that led to Ted Kennedy’s campaign against the incumbent in the 1980 primary elections.

With Carter’s failure to steer a new, progressive course, the electorate, with the limited choice offered by the two-party system, opted for a different direction in 1980.

The promise of 1976 was squandered by the Carter Administration. Will the opportunities for change afforded by Republican failure be wasted again in 2008?

After much hesitancy, a growing segment of the broadly conceived left – Communists, Socialists, radical democrats, and New Deal Democrats – has come to recognize that the Obama Administration operates much like the previous Democratic administrations over the last thirty-five years. Carter shared self-righteousness and cultivated civility with the current President, along with a ready willingness to sell out campaign promises and platform statements. Clinton exhibited a cunning slipperiness and lack of even superficial principle that is often revealed in Obama’s public statements.

But these are merely features of their political personality, features that occupy the pundits at The Nation and other liberal publications. The common thread that binds Democratic administrations, top national Democratic elected officials, and their attendants is that they are members of an elite club and bound to place the interests of the club first- they are part of and employed by the rich and powerful. While this is readily apparent to many of us, there are still many waiting for a public confession.

Some temper their disappointment by arguing that the Obama Administration stands between us and a far worse fate at the hands of the extreme-right. Therefore, we must support it or permit the pain of a more onerous administration. This is, of course, an iteration of the old “lesser-of-two-evils” position. But that position was meant only to be a tactical retreat - a temporary, uncomfortable affair followed by an embarrassed exit – and not a life-long marriage. Instead, it is the constant refrain, election after election, of many prominent leftists and “progressive” Democratic Party apologists.

While there may be nothing wrong with this stance for those solidly – and happily – wedded to the Democratic Party and its self-limiting goals, the “lesser-of-two-evils” concession is poison to anyone with greater aspirations for the country and partisanship for its majority of people who work for a living. For the left, it is simply disastrous.

The “lesser-of-two-evils” left suffers two pathologies: the first, a delusion of grandeur, and the second, an allergy to the principles of oppositional politics.

It is illusory to think that the US left yet matters in national or even state-wide bourgeois politics, especially within the most advanced form of bourgeois politics: the two-party system. When pundits and the media refer to the Democratic Party base, some take that to be the “left.” It is not. It is actually the bureaucracy-led labor movement, urban liberals, and African American and Latino voters. They matter in supporting the Democrats, but less and less in the policies pursued by elected officials. They are not, as a whole, the left, but constitute the natural constituency for left-led movements. They are potentially a left base, should the left organize and agitate among these groups.

But to believe that the left matters within the two-party system is delusional. Come election time in the national or statewide arena, the efforts or absence of the left on behalf of the Democrats is never decisive and is usually not even marginally influential. Nor does the left’s cheerleading make a difference. Some leaders and pundits rally the ranks at election time as though a squad of infantry would decide the clash of armies.

Of course there is always the Nader example that liberals dredge up whenever pressed on the folly of supporting weak, ineffectual candidates. Left votes for Nader, they assert, cost Al Gore the 2000 election. They conveniently ignore the dozens of reasons - most importantly, Gore’s lack luster campaign – for the defeat. And they arrogantly presume that Nader votes really belong to the Democratic Party. Such a presumption underlines the contempt that Democrats show to their base. Their votes, too, are owned by the Democrats, a condition of electoral slavery.

Secondly, the “lesser-of-two-evils” strategy constitutes a complete and catastrophic misreading of oppositional politics. A left political organization – too small to actually contest elections – serves nonetheless as a material force for influencing elections by projecting advanced demands. Those demands may, in turn, shift electoral discourse away from the usually overwhelming pressure of wealth, media access and power. Of course, it may not, but it will draw adherents to the side of truth and justice. And in the longer view, it will strengthen and build the left. Thus, the left grows in times of strong independent movements for social change. And contra the “lesser-of-two-evils” philosophy, it provides the spine for those rare occasions when the Democratic Party actually advances the peoples’ interests such as with the New Deal or racial desegregation.

Therefore, the role of the left is a critical role - a role to challenge and provoke social institutions to move away from their tendency to accept and expand the privileges of the few.

Since the diffusion and loss of focus of the anti-capitalist left, this critical role has been lost in US politics. Reinforced by the handful of left publications that obsess over the maneuvers and deals of bourgeois politicians, the broad left has accepted electoral politics as its touchstone, waiting patiently for an establishment candidate who can revisit the myths attached to the great liberal icons: Roosevelt and Kennedy. This is a tragic misreading of history and a shameless neglect of the historic mission of left movements.

But even more shameless is the posture of elements of the anti-capitalist left who speak and write of a grand coalition against the ultra- or extreme right. They posture as though there is a supra-organization joined around the sole goal of burying the foul creatures inhabiting a corner of US politics since the country’s founding. There is no such coalition. Instead, there are many groups with varied interests that latch onto the Democratic Party because they see nowhere else to turn. Historically, it has been the goal of the left to nurture a broader vision that could tie these interests together into a real coalition, not to merely halt the influence of the most backward political forces, but to improve the lot of the majority.

Miguel Figueroa, leader of the Communist Party of Canada, spoke well when he addressed a recent gathering of Communist Parties in South Africa:

It is equally if not more impermissible however for the Communists to enter into alliances in a self-effacing way, making unprincipled political and ideological concessions for the sake of maintaining unity, and jettisoning the independent role of the Communist Party in the process.

But in the case of the US, there is only an imaginary alliance that makes one concessionary demand upon its members: vote and support Democratic Party candidates. When all the rhetoric is cast off, the “alliance” is merely a fig leaf for unconditional loyalty to the Democratic Party and its agenda. And “unity” is never in jeopardy when there is only a one-way conversation between the Democratic Party leadership and those who dutifully follow.

The “Marxists” who contrive this fictional alliance, in moments of ideological nostalgia, appeal to the United Front tactics offered by the Communist movement in the struggle against fascism. But even a casual read of the documents endorsed by the Communist International demonstrate that these “Marxists” neither understand the tactic nor know when and how to apply it.

But suppose Obama had delivered on many of his campaign promises. Would that have earned our uncritical support? Respect, sure. Critical support, perhaps. But not the fawning idolatry that much of the left demonstrated after the election. Nor should it have brought a virtual collapse of the peace and justice movement. For the left, the task of constantly prodding and pushing the political goal forward should not be compromised in victory or defeat.

And now it’s time to get beyond wringing our hands over what Obama promised, what he did, and what he will or will not do, and focus on what we will do – a stance that promises to bring life back to the left.

Zoltan Zigedy
zoltanzigedy@gmail.com

Through the Looking Glass

Debt hysteria is undoubtedly the most disgusting, lie-infested scam since George W. Bush launched his propaganda blitz leading up to the unprovoked invasion of Iraq. Like the Bush offensive, the debt scam has drawn public attention away from the critical issues facing the world - especially working people - at this critical moment. Unlike the Bush-era deceptions, debt hysteria has thoroughly infected policy throughout the world.

It is a supreme irony that the debt fears now provoked by government deficits are construed as excessive, while the decades of growth of personal debt and speculative debt in the private sector were seen as benign. Where all government debt grew roughly 8.5 times from 1978 to 2008, US mortgage debt grew 11.5 times, non-financial business debt grew by over 10 times, and debt in the financial sector by nearly 50 times! (Estimates from Epic Recession: Prelude to Global Depression, Jack Rasmus, p. 33) Yet few alarms were triggered as these vast sums of debt served to sustain and grow the profit margins of monopoly corporations. As long as the debt energized profit taking, the level of indebtedness was of no consequence. All of this changed – or should have changed – after the mountains of debt accumulated in the financial sector collapsed, bringing the global economy to its knees two years ago.

It is equally ironic that a quasi-governmental body – the Federal Reserve – pumped, with no transparency, $9 trillion in loans into the private sector to rescue corporations from the consequences of their collapsing debt load, as recent revelations have shown. We now know that the private sector, primarily the financial industry, hung by a slender thread thanks to years of promiscuous borrowing to fuel scandalously risky speculation.

Despite this indictment of private sector abuse of debt, policy makers have offered few guarantees that private sector debt will not again paralyze the global economy. Nor is there any hysterical concern over private debt with the opinion makers who protest so loudly over public sector debt.

US Debt: A Dose of Terrorism

With the federal deficit reaching $1.5 trillion in 2010, it is understandable that some would react to the figure with alarm. It is formidable figure, but what does it mean?

Actually, it means very little. There have been Federal budgets that have shown more percentage growth of the deficit or more growth against other measures such as GDP. Some of these budgets have correlated with good times, some with bad times. There is no strict relationship between budgetary frugality or generosity and prosperity.

Some deficits have resulted from reduced tax revenues, some from leaps in government spending. Interestingly, some of the biggest recent boosts in government spending – the great sin of debt scolds – have occurred under the Presidential stewardship of professed archenemies of deficits (Reagan, Bush I, Bush II).

Without exploring the details of government spending, there is no factual basis for alarm with the absolute or relative size of a Federal deficit. In the case of the current deficit, there are good reasons to examine why the US deficit is growing. As Jeff Madrick points out (NY Review of Books, 12-23-10), “…almost all of the projected deficit through 2020 will be the result of three factors: the recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.” I would add that the continued growth of the costs of private medical services passed on to the public sector also adds substantially to these projections. All are social evils worthy of attacking, but not because they add to the deficit.

Other liberal economists, like Dean Baker and James K. Galbraith, have demonstrated loudly and conclusively why there are no theoretical reasons to fear an expanding Federal deficit or higher levels of public debt (apart from state and municipal budgets that are limited statutorily to balancing revenues and expenditures). They vigorously dispute the inappropriate parallel with family budgets and the catastrophic consequences of individuals spending more than they make. The Federal government does not endure the pain of the profligate neighbor who runs the credit card to the limit. Instead, the Federal government can borrow extensively through the sales of Treasury securities, particularly at a time when interest rates are at an historic low. Moreover, the Federal Reserve’s QE2 program is currently attempting to drive those interest rates down further through $600 billion in Treasury purchases, but with a different goal in mind.

Sane people will find no plausible explanation for the intensifying debt scare in the US, beyond political manipulation. And crude political manipulation it is: a ruse akin to the hysteria generated by the “war on terrorism.” With fear piled upon fear, politicians and policy makers are exploiting the ensuing panic to vigorously attack both the already inadequate safety net and working class living standards.

Political elites and their minions have taken to heart the slogan “every crisis presents an opportunity” by turning it on its head through a campaign of disinformation and fear mongering. Instead of taking up the cause of the twenty-five million unemployed and underemployed, they have seized the moment to impose even greater hardships on the vast majority of US citizens.

It took very little to rouse President Obama and his Administration to join the baying dogs of debt hysteria. With the creation of the Bowles-Simpson Debt Commission, he embraced the hypocrisy of debt terrorism. And his recent freezing of the wages and salaries of Federal workers justified by deficit concerns only underlines both his dishonesty and his callousness. His sharp right turn from his already right leanings should chasten those still star-struck with “change that you can believe in…” And those who still posture Obama as a progressive champion should be boiled in oil. His recent agreement to establish a NAFTA-clone trade pact with Korea has stirred great anger in the upper echelons of the AFL-CIO, the same labor leaders who hailed his pledge to revisit NAFTA and make it more labor-friendly.

The plain and simple truth is that the debt hysteria has no sound basis in economic theory or experience. Instead, it is a political ploy to raise fears to justify imposing austerity on workers, youth, minorities and the elderly. Its quick and ready acceptance by opinion makers demonstrates a callous dishonesty.

European Debt: Plundering the Weak

The European debt fears that have brought panic to the EU leaders and a wave of austere budget cuts has a real villain, but it’s not the profligate spending and big deficits that the media shrilly reports. Instead, it is hedge fund managers and a motley crew of other powerful financial pirates – Barron’s magazine cleverly calls them “bond vigilantes” -who understand the dynamics of international debt markets and prey on the weakest players. The wondrous thing about the new financial instruments devised in the late-twentieth century is that they allow and invite as much or more money to be made betting on failure as betting on success. Moreover, the financial predators have the weight in the market to force panic and reap profit from the chaos they produce.

These vultures ply on the fact that the weaker economies in the European Union are caught in a deadly vise: they owe much of their debt to foreign banks and they have surrendered monetary powers by replacing their sovereign currencies with the euro. First, Greece came under fire beginning in the fall of 2009 with a massive campaign driving the cost of insuring debt and acquiring loans. Of course these pessimistic bets further stressed Greece’s ability to muster funds, leading to even further aggression on the part of vulture capitalism through even more pessimistic bets against Greece’s ability to repay debt. And thus the noose tightened around the Greek economy.

As a result, Greece was forced to surrender its sovereignty and economy to the leaders of the European Union and the International Monetary Fund. In return for loans and guarantees that dispersed the vultures, the EU and IMF dictated an austerity program that drastically lowered the standard of living of the Greek people. Only the most militant sector of the Greek working class – the Communist Party and PAME – offered any real alternative to this devastating aggression.

The debt vultures turned next to Ireland later in 2010: same process, same result. With the EU and IMF now effectively ruling Ireland, the already shrunken Irish public sector is further squeezed with a drastic cut in jobs and public services piled onto an existing unemployment rate of 14%.

With the Greek and Irish carcasses picked clean, the aggressors are turning to Portugal, another country carrying debt and hamstrung by the acceptance of the euro as its national currency. And Spain - perhaps even Italy – is vulnerable to future attack.

In an unusually candid admission, The Wall Street Journal wrote of this insidious process in late November (Traders’ Targets: Portugal and Spain). Author Cassell Bryan-Low concedes that “hedge-fund managers are cautiously setting their sights on potential problems in countries such as Portugal and Spain…[T]hey are expecting more bad news to come, predicting that borrowing costs elsewhere will become prohibitive, potentially forcing other countries to also seek a bailout or restructure their debt.” Bryan-Low notes that some traders are a bit gun-shy because “the notion of betting against Europe’s peripheral economies has… become an emotional topic amid debate whether such moves have contributed to those countries financial woes…” Some officials “have called for the banning of certain instruments, such as derivatives…” Several fund managers are cited who confirm “bearish bets” on Spanish debt, with one stating ominously, “I don’t think those issues are going to go away, which is why the euro is going to stay under pressure.” The carnage continues…

Vulture capitalism preys on countries outside of the euro-zone as well. As I have shown previously (IMF Debt Hypocrisy: Sticking it to the Hungarians http://zzs-blg.blogspot.com/2010/08/imf-debt-hypocrisy-sticking-it-to.html), the game is really not about reducing deficits or debt levels, but about imposing the will of international capital on vulnerable countries and hammering the conditions of life for working people. When the Hungarian government proposed raising taxes on banks to reduce the deficit, their international overseers became hysterical - threatening repercussions - despite the fact that Hungary would meet the targets set by the IMF. It was not defiance of debt-reduction goals that brought on censure, but the refusal to put the burden on the Hungarian people.

Since the article, the defiant Hungarian government has pledged to lower personal taxes and boost welfare spending while increasing taxes on banks, telecommunications, retail businesses and energy companies, to raise revenue by $2 billion. This defiance has brought on a severe downgrading of Hungary’s credit rating to near junk status by Moody’s credit rating service. The prime minister’s office bluntly, but accurately, characterized this move as a response to “measures that hurt the interests of international capital in the short term” as reported in the back pages of the WSJ (12-7-10). So there is another path to debt management, but one would never know it from the actions of the cowardly governments that rule in the rest of Europe. Instead, they surrender their national sovereignty with a whimper.

Today, the capitalist class leads with the debt card in its efforts to discipline and dominate the working class. The failure to understand this strategy disarms working people caught in the throes of a new offensive in the class struggle. Just as we exposed the hypocrisy of George W. Bush’s contrived invasion of Iraq, we must bring light on the hypocrisy and deceit of the debt scare.

Zoltan Zigedy
zoltanzigedy@gmail.com

International Finance’s Raid and Occupation of Ireland

Ireland is a young country, established only 88 years ago after centuries of domination by its powerful neighbor the United Kingdom. After liberation, the country remained largely in the shadow of its former colonial master, serving as a source of cheap immigrant labor. Irish youth would leave their homeland, portrayed in popular lore as a quaint land of small villages and crude agricultural economies, for work in London or other UK cities. The more ambitious would venture to the US, where the earlier successes of millions of Irish immigrants elevated a few to the upper echelons of wealth and power.

But with the emergence of a new era of intense capitalist growth spurred by unfettered and ever-expanding markets, technological advances, and financial daring, Irish policy makers decided to join the race to success promised by this developmental model.

Enthusiastically, successive Irish governments followed the scriptures of neo-liberal dogma. Possessing an educated, but low-wage work force, they enticed transnational corporations to locate in Ireland by offering them an obscenely low corporate tax rate, the lowest in the euro-zone except for Bulgaria. Tax rates for the wealthy were lowered, including a constantly shrinking capital-gains tax.

Given domestic growth, the financial sector was encouraged to exploit the newly found prosperity with an orgy of lending and investment in housing, commercial real estate, and the new, exotic instruments common to the financial sector over the last thirty years.

As a result, Ireland and the Irish economy were heralded by opinion makers, politicians, and the gatekeepers of capitalism, the World Bank and the IMF. With a public relations flourish, they dubbed Ireland the “Celtic Tiger” of the world economy.

Today, the tiger is on its deathbed.

Slammed by the global economic downturn, Ireland now stands as an example of all that is rotten in the global economy, all that is misguided in the neo-liberal program, and all that is painful in an unfounded faith in capitalist social relations.

With the pace of economic activity decelerating rapidly in 2008, the Irish government recognized that declining tax revenues placed stress on its budget. Where some governments sought to use public funds to stimulate growth, Ireland began a process of government austerity that would please the financial world and hew to the most dogmatic of neo-liberal principles – the budget was substantially in balance at the end of 2007.

But overlooked by Irish officials, the banks were carrying enormous debt with little prospect of realization. As in the US, the Irish financial industry had supported an orgy of real estate development that could only prove of value if the “Tiger” kept its furious pace of growth. Foreign banks, principally in the UK, France and Belgium, added their capital to stoke the fires of speculation. When this growth collapsed, the prospect of recovering these loans also collapsed. In addition, Irish banks, like their US and Icelandic counterparts, engaged in a risky speculative game with the flashy, but risky financial instruments invented in recent years. The potential losses were staggering. The banks tried to hide their losses. Officials pretended they didn’t exist.

As late as May 2008, Irish regulators assured the public that the banks were “sound and robust.” But early the next year, the government injected around 7 billion euros of public funds into the banking industry. And for the next two years, the Irish government denied that the banks were collapsing while adding billions more of public funds to rescue them.

In the fall of 2010, the Irish finance minister called for a final, honest accounting of the costs to the public for the bankers’ folly. The figure – undoubtedly an underestimation – totaled 50 billion euros or roughly US$ 50,000 per household.

While it is true that the collapse of the Celtic road to prosperity is an indictment of the policy choice of free market “cowboy” capitalism - the zealous faith in the dogmas of neo-liberalism - there is more to this tragedy. Unspoken in accounts of the Irish developmental debacle is the role of international finance capital in exploiting the crisis and driving Ireland into the hands of the European Central Bank and the IMF with a painful loss of national sovereignty.

Over the last thirty years, the financial industry has constructed and employed new, sophisticated methods of garnering profit from betting on negative outcomes as well as success. Hedge funds, private-equity firms, as well as big banks gain as much or more from exploiting weakness and economic vulnerability as they once did from supporting strength and growth. Consequently, they pounce on wounded economies, driving up borrowing rates and risk assessments while betting on default. This financial attack creates a disastrous, unending escalation of the costs of financing and refinancing debt that chokes off a government’s ability to fund even its most critical functions.

We saw this process in Greece last fall and winter. And we saw it again in Ireland this summer and fall: since the summer of 2010 the spread between the yield necessary to sell Irish government bonds and the yield of stable German bonds has jumped four-fold. This is an instance of financial aggression, pure and simple, with the next target undoubtedly the economic sovereignty of Portugal.

Inevitably, a country under this withering attack from the financial sector must turn to others for debt relief. In the case of Ireland, the European Union and IMF are staving off the assault with an 85-billion euro loan. In return, the Irish people surrender their sovereignty and submit to a severe further dose of austerity: the minimum wage is to be slashed by 12.5%, welfare benefits will be cut, pensions reduced, health care denied, public workers’ jobs eliminated, and the costs of education increased. This comes on top of an existing 14% unemployment rate. Once again, Irish youth are leaving in droves.

Ireland and its economy are effectively under the stewardship of the European Union and the IMF.

It is common, especially on the Left, to blame the Irish tragedy on the foolish belief that markets and business-friendly policies will bring prosperity to a poor country competing in a world of rapacious corporations and more advanced economies. While this is true, it misses the important point that the predatory international financial sector looms over a country’s effort, ever ready to pick the bones should that country falter. There is capitalism and then there is vulture capitalism.

Zoltan Zigedy
zoltanzigedy@gmail.com

MARKET-BASED SOLUTIONS: ZZ TACKLES THE DEFICIT

As the number of Debt Commissions multiplies and media gasbags generate hurricane-like forces and hysterical fears of government insolvency, I’ve decided to surrender to the madness and propose a fresh, creative approach to debt reduction. My approach has the added value of requiring no budget cuts or tax increases. Instead, the solution will be found in cutting waste and acquiring new revenue sources hitherto unexplored.

And all of these revenues are generated by tapping the hidden potentials of the market place, a solution that will endear this plan to the vast majority of free-market economists and policy jockeys.

In its essence, my program exploits the vast assets currently wasted in our two-party political system. Instead of holding costly primary elections, I propose that we auction off the candidacies for the two parties with all proceeds going to the Federal budget. And instead of holding costly electoral campaigns, we adopt a system based upon cash votes: one vote for every dollar spent. The nine months currently devoted to canned speeches, staged rallies and meaningless debates could serve as an ongoing telethon with the dollars (votes) pouring in with a huge surge near the end. Again, all proceeds would go to the Federal budget. The beauty of this scheme is that the process is totally transparent and the results very likely close to the ones we usually get with the current electoral system.

But there is more: We could sell the naming rights to all of the House and Senate seats. The 18th Congressional District of state X might become the Halliburton or Goldman Sachs seat. The Delaware Senate seats could be sold to Dupont and the credit card industry. The possibilities are endless.

Likewise, the naming rights to departments, public buildings, airports, parks and roads might well generate millions to the Federal government. Admittedly, this might result in some awkward moments – the Richard Nixon Justice Department, the Strom Thurman Equal Rights Commission, etc. – but a small cost for market efficiency!

Instead of all the lobbying money currently wasted on campaign coffers and personal graft, we might consider installing turnstiles in government offices and agencies, charging lobbyists by the hour or earmark.

We might also consider marketizing the judiciary by selling judgeships and auctioning decisions. Undoubtedly, the legal profession would object since there would be little need for private attorneys, but the resultant revenues could go directly to the Federal budget, thus aiding widows and orphans.

The market-based solutions to the widely acclaimed deficit crisis are limited only by our imagination. Instead of slowly choking public education with privatization schemes (charter schools), why not simply construct a government fee schedule that allows youth to buy their way into a future career or profession? Of course, their fees would be refunded if they failed to meet the standards minimally necessary for performance in their fields. Doctors who consistently harm their patients would be asked to purchase a new profession more consistent with public welfare. Surely this would meet the requirements of market rationality.

For those without the funds to bid on prestigious professions, a government lottery could sort out those relegated to low-paying service jobs, those destined for prison, and those unhappily cast out as redundant. As always, the proceeds of this process would go to ease the deficit.

The beauty of this debt-reduction scheme lies in its total transparency. There are no hidden agendas, secret meetings, under-the-table deals; all transactions are in the open. While it produces virtually the same results that current practices deliver, it dispenses with the hypocrisy that infects the present political system. Moreover, the funds currently absorbed by our parasitic class of consultants, political staffers, office holders, campaign professionals, media moguls, etc. are shifted to debt reduction. It is no exaggeration that this market-based approach could produce billions of revenue to bolster the Federal budget.

Some may object, citing the absence of democracy in this approach. But this is a petty complaint, given that the results would most likely be the same as our current way of doing things. Social scientists call this an isomorphism: The processes may appear different, but operate the same and produce the same outcomes. Less kindly, Marxists call our current political system “bourgeois democracy,” a political doctrine that postures as democratic while functioning to produce and reproduce rule by wealth and power.

Undoubtedly, those who persist in defending the current two-party system will be outraged, condemning this proposal as cruelly cynical. Indeed it is. But the option is to reject the vulgar entertainment we accept as democracy and fight for a third peoples’ party or a new democracy. Anything less is rotten with hypocrisy.

Zoltan Zigedy
zoltanzigedy@gmail.com

Election Results: Telling the Forest from the Trees

I have slogged through uncountable commentaries on the mid-term elections. Many have offered useful insights on an event that will no doubt shape the political direction of the next two years. Yet, there is little to surprise in the outcome for anyone following recent and long-term developments in the US political system.

Two years ago, I projected that the Obama presidency would likely follow the pattern of the Carter presidency. Both came after a deep crisis of legitimacy: in one case, the Nixon debacle, in the other, the disastrous Bush presidency. The candidates postured as outsiders and in both cases they made impassioned pleas for change with a vague commitment to a “progressive” agenda. But in the end, the two administrations proved to be shaped by and acquiescent to a ruling-class agenda. The election of both candidates energized, protected and promoted a two-party system in need of credibility.

In another contemporaneous post, I drew upon the venerated I. F. Stone, who, groping for understanding of his disappointment with the Kennedy tenure, wrote of the enormous institutional forces that blocked any deviancy from the ruling-class agenda in the unlikely event that any President should truly want to stray.

In all three cases, performance fell far short of public expectations. In all three cases, the left mistook cosmetic adjustment for real change.

With the exception of a brief interlude of New Deal vigor during Lyndon Johnson’s presidency, spawned by a martyred Democratic president, an overwhelming defeat of the Goldwater extreme right and the pressures of a militant Civil Rights Movement, this has been the pattern of Democratic presidencies for the last fifty years.

While many know this history, few see it as a pattern. Since the marginalization of the Marxist left, few find or even look for meaningful connections and continuities linking political events. Instead, the media and establishment punditry portray the US electoral process as a regular contest, fought around carefully crafted personalities, shifting demographics, debate performance and the poll results of the moment disconnected from class and process. They neither look for nor find the deeper structural forces that determine how the game is played and who wins.

A deeper look exposes the internal logic of a two-party electoral system in a class-divided society. Without a radical challenge, such a system inevitably produces rule by wealth and power over the popular will. As money and wealth determine both the candidates and the outcomes, the political leaders become more and more distant from the people, something the Tea Party movement knows and exploits effectively.

Further, the issues raised in electoral campaigns function to establish a space between the candidates, necessary to legitimize the elections in the eyes of voters. But once elected, the differences between candidates prove illusive. Thus, we find more and more commentators referring to the Bush/Obama continuum. On war, immigration, civil liberties, etc, we are all too familiar with the shortcomings of the Democratic Administration and its legislative allies. But the Republicans demonstrate the same cynicism toward their promises: both Reagan and G.W. Bush ran as deficit hawks, but oversaw some of the largest government spending splurges in history, all in the interest of the military-industrial sector of monopoly capital. This cynical manipulation of the electoral process is neither an historical accident, nor an aberration of an otherwise democratic procedure, but a logical development of a two-party system in an increasingly class-divided society.

Some will find this overly deterministic, suggestive of a fatalistic course to US politics. Still others will find this dismally pessimistic. It is neither. It is, instead, a realistic assessment of where our neglect of the structural limitations of the US two-party system has taken us. Any response to the power of money, the corruption, and the cynicism of today must address these structural impediments. It is not enough to live in a fantasy world of marginal reform, incremental change, or slavish faith in a corporate-sponsored party.

Just as careful study reveals the rigid logic of the two-party system, a long look at periods of progressive change expose the genuine alternatives to a system that trivializes public engagement and guarantees results friendly to the wealthy and powerful. All important reversals of the two-party trajectory came with the building of mass movements driven by peoples’ causes – the plight of the rural poor, the exploitation of industrial workers, against imperialist wars, for civil rights for minorities, equality for women, etc. Insofar as these movements maintained a distance from the two parties, along with a dogged commitment sustained regardless of the party in power, they were able to leave an indelible mark on the political landscape. Insofar as they hitched their movement to the Democratic Party or Republican Party, they were quickly absorbed into the electoral campaign machinery, with their cause tacked on to the end of a long list of Party priorities. Again, these are historical constants that must be addressed going forward if we are not to continue down the same ineffective, well-worn path.

Recognizing that in the US today we are accustomed to preferring score cards to theory, I suggest we consider the voting patterns in the mid-term elections. Exit polls show that the groups most supportive of the Democrats in the election were: African-Americans, Hispanics, youth, union households, and urban dwellers. Yet they were the groups that benefited least from two years of a Democratic Executive and Congress. These are the same groups that demonstrated the most enthusiasm for change and have suffered the most from a profound economic crisis. They have witnessed and will pay for the enthusiastic rescue of Wall Street and the corporate sector, while their own interests have been neglected or trampled.

Until we come to grips with this glaring contradiction, we will continue to repeat the same mistakes with the same disappointing results.

Zoltan Zigedy
zoltanzigedy@gmail.com