The Great Shrinking Stimulus

Against the Current, No. 44, May/June 1993

The Editors

BILL CLINTON’S ECONOMIC package received a favorable reception from the media, euphoric applause from the Democratic leadership, and rather muted criticism from the Republican opposition. In fact, when Bob Dole & company responded that Clinton needed to do more cutting of government programs, it sounded more like a ritual making of the political record than any signal of intent to wage a serious fight against the president’s program. As for Clinton’s call for higher taxes, rather than triggering a wave of feature articles and televised specials announcing a populist tax revolt, it stimulated opinion polls showing a public willingness to “contribute” to deficit reduction and better government services.

The smooth ride for Clinton’s package, at least in the early stages, is easily explained: The program as a whole responds, first and foremost, to the demands of corporate and finance capital. It is about the closest possible approximation to a “consensus” capitalist economic policy, given that capitalist interests themselves are far from homogeneous. We can identify three broad components of the Clinton package: stimulus, deficit reduction, enhanced “competitiveness.” A fourth major feature is health insurance reform, in the anticipated form of “managed competition” which is discussed elsewhere in this issue. More important than the individual details of these components is how they fit together, a preliminary analysis of which we will attempt here.

Why Stimulus? Why Now?

A targeted program, albeit modest of government spending for job creation and infrastructure is an obvious break from the right-wing Republican religion of the Reagan-Bush era, which claimed that simply cutting taxes for corporate and affluent America would free up new money for job creation. It is this feature of Clinton’s policy which has attracted enthusiastic applause from the liberal-to-left end of the political spectrum, and given rise to a media-driven atmosphere of a “new day” in the country, reflecting capital’s own feeling that such a program was necessary.

As we stated in a previous editorial (ATC 42), we’re glad to see the idea that the state can play a role in the economy made legitimate once more. It is crucial, however, to understand exactly which class interests actually guide the role of a capitalist state in a capitalist economy! First and foremost among these is the need to ensure profits in order to promote capital accumulation. We can by asking why the new administration is pursuing a modestly simulative course. The simple answer, not hard to discover since Clinton stated it himself, is the specter of a jobless recovery.

It’s about one year since Los Angeles was lit up by the social explosion which Mike Davis, in these pages, described partly as “the first postmodern bread riot” (ATC 39), triggered by the acquittal of the cops but fueled above all by the economic devastation of African American and Latino LA during the 1980s. The rebellion brought home, even to some of the privileged who prospered in that decade, the dangers of genocide–the main danger being that they might refuse to simply die quietly.

A year later the much-touted local corporate/“weed and seed” renovation of South Central is  perfect joke; but part of the role of a national capitalist state is precisely to call the capitalist class to order when this becomes necessary for the system as a whole. (That’s what the New Deal was all about.) And the problem extends beyond the Black and Brown ghettos and barrios: throughout manufacturing and industry, the end of the U.S. recession is not bringing about new hiring but rather intensification of work and streamlining in the name of competitiveness. A recent study concluded that if overtime was eliminated, three million more jobs would be needed to take up the slack. But huge firms like IBM and the airlines are massively cutting jobs; small businesses, which created the new jobs during the 1980s, are not hiring as they did then.

People who voted for Clinton on his promise to make the system work more fairly are in for disappointment. His proposed change in the income tax structure is technically progressive, but only mildly so–a slight increase in the marginal rates on highest incomes, plus a surcharge on incomes over$250,000. Yet notwithstanding the deep erosion of working class real incomes, much “revenue enhancement” will come from that sector: Ordinary people will be paying higher energy taxes as our patriotic contribution to the national effort.

The fear of explosive social consequences of a jobless recovery is Clinton’s  veiled argument, against rather feeble Republican opposition, that the beneficiaries of the Reagan-Bush fat years have to pick up part of the tab for creating (on his official estimate) half a million or so new jobs. It amounts to very little, really: In proportion to the size of the economy, Clinton’s proposed expenditures on infrastructure repair and research-and-development amounts to around ten percent of analogous government spending in Japan and Germany. It only begins to reverse the enormous public-sector decay of the 1980s, which saw a 71% reduction in federal aid to the cities and left 38% of all U.S. working people in the category of “working poor.” Still, there is the consensus that “something must be done” by the state to stimulate the economy.

The Deficit: Menace or Obsession?

The holy-of-holies of the present capitalist economic consensus is reducing the deficit. Indeed, there is reason to ask whether the Clinton/Democratic budget contains any real stimulus at all: The claim that it will reduce the budget deficit means that Clinton will more than counterbalance the small increases he proposes in state spending projects by spending cuts and tax increases. The universal wisdom points to the government deficit as the high blood pressure of the economy, a silent killer that drives up interest rates, absorbs the available funds for investment, starves the productive sector and carries the ultimate threat of collapse. Now government policy faces a double bind. If it tries to stimulate the economy, by increasing demand through deficit spending, it will likely force up interest rates and further stifle investment. Yet failure to stimulate the economy may force those corporations now on the edge to go bankrupt.

Generally ignored is where the deficit came from: the enormous payout in the 1980s to the rich and the military-industrial complex. In the early 1980s, with the economy already well into a long downturn—the postwar boom having ended around 1970—a severe recession was threatening to turn into a depression.

 Bankruptcies were at their highest point since the 1930s, unemployment over twelve percent. The Reagan-Bush administrations became the greatest Keynesians in history, creating record annual budget deficits and bringing the U.S. national debt to world leadership. They did this by handing literally half a trillion dollars in tax breaks to the very rich (top five percent) and raising the military budget by similar amounts.

The huge growth in government—along with corporate and consumer—debt did stimulate the economy, but in fact exacerbated the underlying problem of the present capitalist economy, low corporate profitability. Clinton’s much-praised “courage in tackling the deficit” actually amounts to making working people pay for the enormous bill run up in the 1980s. We need to reject this in the strongest terms, and instead demand that the hundreds of billions still being wasted on “defense” be returned to people’s needs, and that the hundreds of billions handed to the rich in tax breaks are reappropriated in tax increases. A “wealth tax of four percent on income above $500,000, proposed by tax analyst Ralph Estes, by itself would raise $225 billion!

We must reject deficit-reduction arguments that promote a kind of hegemonic discipline binding the majority of ordinary working people to the corporate and financial elites. Whether or not the deficit is actually reduced, those arguments are intended to instruct the people “who do the work, pay the taxes and play by the rules” that they must not expect much in the way in better lives from the higher taxes they will pay.

The Secret of “Competitiveness”

Deficit reduction also opens the window of opportunity to the vicious underside of Clinton’s social policy. Real welfare reform, like much else that is desperately needed in this crumbling capitalist society, depends crucially on creating vast numbers of new real jobs—on a scale that is ultimately possible only in a democratically controlled socialist economy, committed to human needs from universal education and health and child care to mass transit and environmental justice. For its part, capitalism cannot conceivably create productive activity on this scale without a massive New Deal project, orders of magnitude beyond Clinton’s dreams, and perhaps not even then.

Short of this, what does it really mean to make welfare depend on work? It can mean little more than pushing welfare recipients into unskilled and semi-skilled public service jobs—with supervisory slots, perhaps, filled by college graduates working off their loans in Clinton’s shiny new “national service” program!

“Competition in the global economy” means cutting costs—the costs of welfare and, of course, the cost of health, now skyrocketing at 12-15% per year, a rate that all by itself will wipe out all attempts at government deficit reduction and productive investment if not addressed. Here, the utter irrationality of the health system forces the state to step in. But the state’s first imperative is to save money—not to provide better or fairer access to services, which only becomes a priority only to the extent that grassroots mobilization forces it onto the political agenda.

This rather grim scenario has its counterpart in the manufacturing and industrial sectors of the economy. Lurking in the shadows is the plan for a Clintonesque labor law reform—partly analyzed by Kim Moody in our previous issue (ATC 43)—which aims at nothing less than removing “adversarial” employer-union relations. (For example, hiring permanent replacement workers in strikes would be outlawed in exchange for binding arbitration of contracts, along lines pioneered in the 1926 Railway Act.) The fact that the AFL-CIO leadership applauds Clinton with his advocacy of labor-management “cooperation” indicates this leadership’s blindness, its demoralization in the face of the Reagan-Bush era’s anti-union offensive, and—above all—its interest in saving its own positions, at the expense of workers’ most basic needs.

What then remains valid in the hopes generated by Clinton’s election? To reiterate a point we have made before, it is now evident to all that the state can be (in point of fact, it always is) an actor in the economy. The existing state, the capitalists’ state, can and does act as an engine for their economic recovery. Working people and the oppressed derive at best some marginal benefits from this process; they can, and they should, organize to fight for more. The best first step in this fight would be to combine an upsurge in resistance to concessions and the fight for single-payer national health insurance, with a powerful movement for independent political action, the beginning of a class movement pointing toward the struggle for a transformed society.

May-June 1993, ATC 44