Why Obama is Bound to Fail (?)
I found this piece by David Harvey to be an absolutely brilliant and compelling analysis of just how difficult it will be to get out of this crisis, especially now that the global economy is visibly in free fall before our eyes. His argument is that there is no adequate political base in the US to sustain a solution radical enough to deal with the problem. I hope he is wrong but, as they say, you have to have illusions to be disillusioned. (Harvey’s history of neo liberalism is to my mind one of the very best critiques of the world the right built … and events certainly vindicate his position that a fundamental transformation is needed to turn things around.)Â I have no view on Harvey’s judgement that China will ride to the rescue – bringing about a huge tectonic shift in the contours of global capitalism.
I recommedn the full version but here is a key extract:
“In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers that are almost impossible to overcome. A Keynesian solution would require massive and prolonged deficit financing if it were to succeed. It has been correctly argued that Roosevelt’s attempt to return to a balanced budget in 1937-8 plunged the United States back into depression and that it was, therefore, World War II that saved the situation and not Roosevelt’s too timid approach to deficit financing in the New Deal. So even if the institutional reforms as well as the push toward a more egalitarian policy did lay the foundations for the Post World War II recovery, the New Deal in itself actually failed to resolve the crisis in the United States.
The problem for the United States in 2008-9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2-billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred. (This was not a serious problem for Roosevelt who began with a roughly balanced budget). There is also a geo-political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy. This problem is exacerbated by ideological reluctance on the part of both political parties to embrace the huge amounts of deficit spending that will be required, ironically in part because the previous Republican administration worked on Dick Cheney’s principle that â€œReagan taught us that deficits don’t matter.â€ As Paul Krugman, the leading public advocate for a Keynesian solution, for one has argued, the $800-billion reluctantly voted on by Congress in 2009, while better than nothing, is nowhere near enough. It may take something of the order to $2-trillion to do the job and that is indeed excessive debt relative to where the U.S. deficit now stands. The only possible economic option, would be to replace the weak Keynesianism of excessive military expenditures by the much stronger Keynesianism of social programs. Cutting the U.S. defense budget in half (bringing it more in line with that of Europe in relation to proportion of GDP) might technically help but it would be, of course, political suicide, given the posture of the Republican Party as well as many Democrats, for anyone who proposed it.
The second barrier is more purely political. In order to work, the stimulus has to be administered in such a way as to guarantee that it will be spent on goods and services and so get the economy humming again. This means that any relief must be directed to those who will spend it, which means the lower classes, since even the middle classes, if they spend it at all, are more likely to spend it on bidding up asset values (buying up foreclosed houses, for example), rather than increasing their purchases of goods and services. In any case, when times are bad many people will tend to use any extra income they receive to retire debt or to save (as largely happened with the $600 rebate designed by the Bush Administration in the early summer of 2008).
What appears prudent and rational from the standpoint of the household bodes ill for the economy at large (in much the same way that the banks have rationally taken public money and either hoarded it or used it to buy assets rather than to lend). The prevailing hostility in the United States to â€œspreading the wealth aroundâ€ and to administering any sort of relief other than tax cuts to individuals, arises out of hard core neoliberal ideological doctrine (centered in but by no means confined to the Republican Party) that â€œhouseholds know best.â€ These doctrines have broadly been accepted as gospel by the American public at large after more than thirty years of neoliberal political indoctrination. We are, as I have argued elsewhere, â€œall neoliberals nowâ€ for the most part without even knowing it. There is a tacit acceptance, for example, that â€œwage repressionâ€ â€“ a key component to the present problem â€“ is a â€œnormalâ€ state of affairs in the United States. One of the three legs of a Keynesian solution, greater empowerment of labour, rising wages and redistribution toward the lower classes is politically impossible in the United States at this point in time. The very charge that some such program amounts to “socialism” sends shivers of terror through the political establishment. Labour is not strong enough (after thirty years of being battered by political forces) and no broad social movement is in sight that will force redistributions toward the working classes.
One other way to achieve Keynesian goals, is to provide collective goods. This has traditionally entailed investments in both physical and social infrastructures (the WPA programs of the 1930s is a forerunner). Hence the attempt to insert into the stimulus package programs to rebuild and extend physical infrastructures for transport and communications, power and other public works along with increasing expenditures on health care, education, municipal services, and the like. These collective goods do have the potential to generate multipliers for employment as well as for the effective demand for further goods and services. But the presumption is that these collective goods are, at some point, going to belong to the category of “productive state expenditures” (i.e. stimulate further growth) rather than become a series of public “white elephants” which, as Keynes long ago remarked, amounted to nothing more than putting people to work digging ditches and filling them in again. In other words, an infrastructural investment strategy has to be targeted toward systematic revival of three percent growth through, for example, systematic redesign of our urban infrastructures and ways of life. This will not work without sophisticated state planning plus an existing productive base that can take advantage of the new infrastructural configurations. Here, too, the long prior history of deindustrialization in the United States and the intense ideological opposition to state planning (elements of which were incorporated into Roosevelt’s New Deal and which continued into the 1960s only to be abandoned in the face of the neoliberal assault upon that particular exercise of state power in the 1980s) and the obvious preference for tax cuts rather than infrastructural transformations makes the pursuit of a full-fledged Keynesian solution all but impossible in the United States.
In China, on the other hand, both the economic and political conditions exist where a full-fledged Keynesian solution would indeed be possible and where there are abundant signs that this path will likely be followed. “