Transiting through Dulles Airport in Washington, DC on my return from Dakar on Sunday, I was struck by the titles of the mass-market books on US politics in the bookstore. The shelves were full of books fulminating against US President Barack Obama; the rage was so palpably strong I could almost taste it.
That rage appears to be reflected in the results of the US mid-term elections on Tuesday. The media has been proclaiming the Republican triumph as the most dramatic mid-term swing since the 1930s, although the fact that only 37 per cent of the eligible electorate actually voted makes this result far less dramatic than the media would like. The mid-terms represent the rage of the white, socially conservative, Christian fundamentalist right, commonly called the Tea Party, which clearly represents a minority of the US electorate.
It seems to me that the rage of the Tea Party movement is the rage of the ignorant. While supporters of the Tea Party movement claim that they are interested in limited government and reduced regulation (although they love Federal entitlement programs that proffer largesse to their core constituency, such as Medicare) they seem to forget that in late 2008 US capitalism was in the midst of its worst crisis since the 1930s. Obama did not cause the crisis, which originated in the financial market de-regulation engineered by Alan Greenspan under Bill Clinton following Clinton's rightward tack after the 1994 mid-term elections. De-regulation was designed to address the dramatic rise in US social and economic inequality, and was predicated upon the type of policies the Tea Party supports, most notably the liberalization of US financial markets. True to his neoconservative ways, George Bush recognized that the crisis of US finance capital was turning into a crisis of US capitalism, which he and Hank Paulson therefore attempted to shore up by a massive injection of government spending designed to stabilize the US economy: at a cost of US$700 billion the Troubled Asset Relief Programme was enacted by Bush, in the face of Congressional hostility, a hostility that was only overcome in the wake of a stock market panic and a huge sell-off of equities as US financial markets plunged.
TARP was barely underway when Obama entered the White House, but to the 'right Keynesians' that populated his economic team following his inauguration, it was clear that TARP was, on its own, inadequate to sustain the resurgence of US capitalism. More was needed, especially as banks, fearful for their existence under the weight of so-called 'ninja' mortgages, has stopped lending. The Obama administration therefore enacted a second fiscal stimulus, the Recovery Act, worth some US$787 billion, within a month of his inauguration. The Recovery Act cut taxes, raised government spending and transferred money to cash-strapped states.
The Tea Party movement may not like government, but US finance capital knows that most of the 7800 banks in the US still exist because of the various liquidity interventions engineered by the Federal Reserve, along with guarantees, loans and outright bail-outs engineered by the US state. Obama did not take the banks into public ownership, as some were advising him to do. Drastic bank reform was off the table as the Federal Reserve embarked on a round of 'quantitative easing' to flood markets with cheap money designed to complement the Recovery Act. Instead, the Treasury designed 'stress tests' to increase the capital reserves of banks, with the result that US banks are now better capitalized –and financially healthier – than at any time in recent decades.
The companies that relied on those banks would have gone down if the financial system had collapsed. Instead, with cheap money, low interest rates, and rising unemployment not only have the companies, for the most part, remained in business, but profits after taxes in the US during the worst crisis in decades have actually increased by one-third. Consider the case of General Motors and Chrysler. The Obama administration brought GM in temporary public ownership under stringent conditions that allowed the company to rewrite its labour contracts, fire its ineffectual management, and quickly close its less efficient lines and activities. Placing GM in short order into such a favourable corporate environment allowed the company to quickly repay its government loans and rapidly return to profitability.
Strong profitability across the US corporate sector has produced a predictable result: equity prices in stock markets have boomed. From March 2009, some 7 weeks after Obama's inauguration, equity prices have nearly doubled. Booming profits and equity prices were not translated by the Obama administration into a tax grab: in the second quarter of 2010 total corporate taxes in the US were, at about US$442 billion, almost the same as during the peak of the credit boom in 2007, prior to the crisis; the US corporate sector is paying a lower share of its income in tax.
Of course, part of the discontent that the Tea Party has played to is high unemployment. Yet increased unemployment has been pivotal to the success of the US corporate sector since the depths of the crisis were breached. Unemployment disciplines the labour force and in so doing sustains the corporate profits that have restored the vigour of US capital. Indeed, according to the Congressional Budget Office, a non-partisan body, far more would have been out of work without the stimulus and quantitative easing.
Claims that Obama is the first US president not to believe in the US Constitution, that Obama is committed to fundamentally rewriting the relationship between the US state and civil society, and that Obama is a socialist thus seem to brazenly ignore what Barack Obama has done since he became President. In the face of a crisis of US capitalism, under the advice of his 'right Keynesian' economic team Obama's actions have robustly restored the reign of capital – and particularly finance capital – in the US. Indeed, the new round of quantitative easing announced on the day of the US mid-terms is great for finance capital – it is good for equities, for bonds, as well as real assets, while at the same time cheap money will depress the US dollar, stimulate exports, and stimulate corporate profits in circumstances where labour has been fiercely disciplined by increased economic insecurity. The US has gone back to the future, facilitating the continued rise of the plutocrats that increasingly shape the operation of the US political economy, and in so doing directly shape the process of global development.
Thursday, November 4, 2010
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