by Michael Roberts
The US presidential election is just eleven months away and the
US economy appears to be slowing down. Eight years after the election
of Barack Obama at the depth of the Great Recession, the economic
policies of the administration and the forecasts of sustained recovery
by mainstream economics have failed.
The latest Atlanta Fed estimate for US real GDP growth in the last quarter of 2015 is just a 0.7% annual rate.
If that turns out to be right with the first official estimate out
this week, then the US economy will have grown (after inflation) by just
1.8% in 2015, down from 2.4% in 2014. In addition, industrial
production and manufacturing output have slowed to a trickle and retail
sales, a measure of how much is being bought in the shops, has also
And most important, corporate profits are falling and companies are
reporting fewer earnings in their quarterly results. When profits fall,
investment and then employment will eventually do so.
Stock markets globally are worried about the slowdown in China and in the collapse in oil prices.
This has brought recessions in many energy and commodity producers,
like Russia, Brazil, South Africa and even Canada. And just at this
time, the US Federal Reserve decided to hike its interest rate, claiming that all was well in America.
Instead there is a rising risk that the US could enter a new slump in
2016 or 2017 – right at the time of the election of a new President.
And whoever is elected, do they have any idea of how to avoid a new
slump or get America out of it when they are elected?
On the Republican side, we are offered a range of neo-conservative,
pro-gun lobby, anti-abortion, anti-gay rights, anti-labour,
anti-welfare, anti-tax, climate change denying multi-millionaires, the
noisiest and most popular (among Republican party supporters) of which
apparently being Donald Trump.
Let’s leave aside Trump’s provocations on gays, immigration, muslims,
and ‘liberals’ and instead have a look at the economic policies he
advocates for America. The Republican party leadership represents Wall
Street, the big corporate moguls and the military-industrial complex.
But Republican party activists are mostly small businessmen and, older white ‘middle class’ male workers in America’s suburbs who
reckon or are told that what is wrong with America’s economy is too
much government, too high taxes and too much free trade and immigration
that do not protect Americans. This is the classic petty-bourgeois (to
use Marx’s phrase) view.
It is these people that the billionaire Trump appeals to. So his
economic proposals boil down to cutting taxes, reducing government
spending (but not medicare needed by his elderly supporters), taxing
imports to ‘protect’ American jobs and reducing bureaucracy.
But, of course, Trump’s economic plan does not really help his base
of support. He wants to cut income tax for all and corporate taxes.
The biggest beneficiaries of this would the very rich. Top billionaires
would see their taxes decline from 36 percent to 25 percent, and
corporations would get a cut from 35 percent to 15 percent. On average,
most people would see their tax bill reduced by about 7 percent of their
after-tax income, but savings for the top .1 percent of the wealthy
would be $1.3 million in savings, which amounts of 19 percent of their income.
These tax cuts if implemented, would, according to the Tax Policy Center, cause a loss of government revenues worth $25 trillion over the next ten years.
So just to get to 2025 without increasing the deficit, government
spending would have to be cut by about 20 percent. The biggest loophole
in the Trump tax plan, according to Robertson Williams of the Tax
Policy Center, is the “pass through” provision that would allow
self-employed contract workers to have their income taxed at the lower
15 percent rate (this again is a policy aimed at Trump’s base).
Trump says he’d raise tariffs on foreign goods to help American
industry and impose punitive sanctions on China and Mexico, which are
America’s two largest trading partners. This would break the NAFTA
agreement. If the US were to impose tariffs (driving up domestic
prices), retaliation would follow from trading competitors. All of this
is anathema to the Republican grandees who follow the demands of Wall
Street and the big corporations for ‘free trade’. But it sounds great
to the self-employed and other small businessmen who are struggling to
make ends meet, even though reduced government services would hit them
So the strategists of capital in Wall Street and Main Street are
getting worried. It seems that Trump could actually win the Republican
nomination. The weakness of the other candidates and his appeal to
activists is winning the day. Sure, it is likely that Hillary Clinton,
if chosen as the Democrat candidate, would easily beat Trump in the
presidential ballot. And, on balance, that would be better than Trump.
But Clinton is being pushed to the left by the campaign of Bernie
Sanders and her election would probably involve higher taxation, more
regulation and some concessions to labour. It would be more much
preferable to find another Republican candidate or, now it seems, even a
third party runner.
So the talk is that billionaire Michael Bloomberg, the owner of the
financial services company and former mayor of New York, could be the
man to step in and defeat Trump. Apparently, Bloomberg is exploring an
independent run for president and is willing to spend $1bn to finance a
campaign. But backing Bloomberg is a risky strategy for capital. Many
of Bloomberg’s positions on social issues from the environment to gun
control are closely aligned with the Democrats. So his candidature
could simply hurt the chances of Hillary Clinton and put Trump into the
So Republican Wall Street financiers are still thinking of finding
another Republican. Billionaire Charles Koch, the man who finances many
Tea party groups within the Republicans, commented to the Financial Times that he was “disappointed” by the current crop of Republican presidential candidates and especially critical of Trump and Cruz. “It is hard for me to get a high level of enthusiasm,” he said, “because the things I’m passionate about and I think this country urgently needs aren’t being addressed.”
What is he proposing? Apparently to fix the convention with money: “state
legislators who are Republicans, congressmen, senators, local
committeemen should join with the donors so they don’t send the party
into suicide.” The donors and their allies would handpick their candidate, “winnowing the field”.
That’s what happening with the Republican Tweedledee. But what is
happening with the Democrat Tweedledum? There, Clinton is facing a
strong challenge from Bernie Sanders, the ‘socialist’ senator from
Vermont. That again is another sign that union workers, public sector
employees and active working class Democrats are fed up with the
dominance of the Democrat establishment, financed by hedge funds and big
business and so tied to their policy needs. Sanders has called for a
living wage for all, government investment, breaking up the banks etc.
These policies are mild in their impact on a capitalist economy in
successful times, but they are unacceptable in a capitalist economy
still struggling to grow after the Great Recession and possibly heading
back into economic slump. So, for capital, it would be a disaster if
Sanders won the Democrat nomination because it would pose a new threat
to the profitability of capital.
But Sanders is also opposed by supposedly liberal reformist elements
on the Democrat side. Top Keynesian economist and NYT blogger Paul
Krugman has launched a series of posts against Sanders.
Krugman is opposed not particularly because he is against Sanders’ mild
measures, but because Krugman considers them unrealistic in the face of
a Republican Congress and the might of Wall Street and the media. So
we ‘liberals’ ought to settle for Hillary so that we can get a few
things done, as we did under Obama!
As Krugman put it, “accepting half loaves as being better than
none: health reform that leaves the system largely private, financial
reform that seriously restricts Wall Street’s abuses without fully
breaking its power, higher taxes on the rich but no full-scale assault
Sanders’ more radical program is doomed. You see, if Obama could not
do anything at a time when Bush and Republicans were discredited with
the Great Recession in 2008, there is even less chance now. Of course,
this argument assumes that Obama ever advocated anything radical to
control the financial sector, reduce inequality or help labour. On the
contrary, Obama appointed Wall Street bankers to bail out the financial institutions, Ben Bernanke to help the banks with cash and a Treasury team that aimed to curb government spending.
But Krugman argues that a campaign for a “radical overhaul of our institutions”
is a pipe dream because the ‘broad public’ will never support it. You
see, even Roosevelt could not carry out a radical program at the depth
of the Great Depression because of opposition from ‘Southern racists’
with the Democrat party. Actually, Roosevelt was never interested in
eradicating racism and segregation in the south and the southern
Democrats did not oppose radical economic measures. The opposition came
from Wall Street and mainstream economics; the former because of their
vested interests; and the latter because of their blind belief in the
Krugman is right when he says that the “thing that F.D.R.
created were add-ons, not replacements: Social Security didn’t replace
private pensions, unlike the Sanders proposal to replace private health
insurance with single-payer. And Social Security originally covered
only half the work force, and as a result largely excluded African-Americans.”
Roosevelt started out with big talk about radical changes in the
American economy. In his inaugural speech on election in 1933,
Roosevelt said that in “the long run is the problem of controlling
by adequate planning the creation and distribution of those products
which our vast economic machine is capable of yielding… Too many
so-called leaders of the Nation fail to see the forest because of the
trees. Too many of them fail to recognize the vital necessity of
planning for definite objectives. True leadership calls for the setting
forth of the objectives and the rallying of public opinion in support of
these objectives.” There was a need for a “federal role so
assertive that the country’s national government would be called on to
supervise all forms of transportation and of communications and other
utilities which have a definitely public character.”
But that radical objective of government planning over capitalist
profit was soon dropped in favour of balanced budgets (as advised by the
Treasury) and hiking interest rates (as advised by Wall Street and the
Fed), as a recent paper at ASSA 2016 by Jan Kregel shows (WhatWeLearnedFromTheGlobalFinancia_preview (2).
The result was that the depression continued and only ended when
America entered the world war and introduced state control of capitalist
production and forced saving for the military effort. In his book, End the Depression now, Krugman admitted that it was only ‘military Keynesianism’ that ended the depression not Keynes or the New Deal. But it was not even Keynesianism but the (temporary) removal of the capitalist mode of production.
According to Krugman, there is nothing we can do. To use Margaret Thatcher’s phrase, ‘there is no alternative’ (TINA):
“The point is that while idealism is fine and essential — you have to
dream of a better world — it’s not a virtue unless it goes along with
hardheaded realism about the means that might achieve your ends. That’s
true even when, like F.D.R., you ride a political tidal wave into
office. It’s even more true for a modern Democrat, who will be lucky if
his or her party controls even one house of Congress at any point this
So there it is. The US economy is heading down again. The policies
of the last eight years under Obama have not turned things around. And
there is the prospect of a populist demagogue oligarch running as the
Republican candidate, scaring the wits out of the majority of the ruling
financial class. Krugman’s response is just accepting that anything
that would really improve the lives of majority is not on and backing
Clinton is the only thing to do – in the hope that a few crumbs will
fall the people’s way as a new recession looms.
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