The Republicrats’ Phony Budget War

Against the Current, No. 69, July/August 1997

The Editors

IN JANUARY 1996, Bill Clinton virtually assured himself re-election when he “stood up” to what he termed “right-wing extremist” Republican proposals to balance the budget.  These drastic measures would have financed tax cuts for the rich worth about $200 billion by reducing expenditures for Medicare and Medicaid by about the same amount.

At the same time, presumably to make sure that no one would mistake him for a left-wing extremist, Clinton advanced his own proposal to balance the budget, which called for both tax and Medicare-Medicaid cuts of about half of what the Republicans were demanding.

Whoever said that Clinton fails to keep his promises?  As we go to press Clinton, the Congressional Republicans, and a majority of Congressional Democrats are proposing to “balance the budget” by cutting tax revenues from the rich and the middle class by “only” $85 billion between now and the year 2002, and making more than compensating reductions in Medicare and Medicaid appropriations of about $115 billion.

In fact, the tax cut is $30 billion greater than admitted by its proponents, since Clinton and company gave themselves credit for a tax increase of this amount when they decided to renew the airline surcharge.  But if the tax cut had been announced as the $115 billion it actually is, people might have noticed that it was exactly the same size as the Medicare and Medicaid cuts-and leaped to the conclusion that Clinton and his friends are financing the former with the latter.

In any case, as the Washington-based Citizens for Tax Justice has explained, the tax cuts will actually be several times their announced value when they fully kick in after the year 2002.

Afflict the Afflicted, Comfort the Comfortable

Clinton’s struggles in the interest of the poor have shown equal consistency.  Witness his unyielding fight to allocate $16 billion for health insurance for children low-income families .  .  .  and his heroic demand to cover the cost for so doing by cutting Medicaid money for children’s hospitals by the same amount.  Who could forget, moreover, how Clinton hung tough under fire to defend NAFTA, GATT and the Telecommunications deregulation bill, not to mention his “not illegal” practice of renting out the Lincoln Bedroom?

There could hardly be a better example of how Clinton “stands up” to the Republicans, or of his integrity when it comes to keeping his pledges to capitalist interests, than his balanced budget plan. This is “not” mainly concerned with seeing to it that government expenditures don’t outrun income.  The fact that such a large reduction of revenue is at the core of the effort to balance the budget should give the lie to that idea-if anyone believed it in the first place.

What the Clinton/Gingrich/Republicrats are really about, of course, is playing Robin Hood in reverse, making sure that the process of redistributing income from the poor to rich, begun with a vengeance under Reagan and maintained under Bush and Clinton, is institutionally guaranteed into the twenty-first century.

Given the economic context, this bipartisan budget-balancing fraud is even more obscene than most soak-the-poor-schemes.  The U.S. economy in the 1990s, despite the hallelujah chorus to the contrary, has performed worse than during the 1980s, and the great majority of Americans have been forced to pay the price.  As the Financial Times put it in a major editorial (1/9/97):

Conventional wisdom is that the U.S. economy has been motoring along in the 1990s, while Europe and Japan have been left behind in its dust. Not so. U.S. performance has been mediocre at best, while the difference between it and the other two has been largely cyclical.

As the Financial Times points out, from its cyclical peak in the first quarter of 1990 until the end of 1996, the U.S. economy expanded at an average annual growth rate of less than 2% per year. This is about a third less rapidly than in the 1979-1989 cycle, which was itself somewhat worse than was the comparable cycle of the 1970s.

Dismal productivity growth remains the key expression (not cause) of the long economic stagnation which, from the late 1960s until the present, has plagued the world economy in general and the U.S. economy in particular.  During the long boom between the late 1940s and the mid-1960s, productivity in the U.S. private business economy grew at an average annual rate of around 3%.  Between 1973 and 1990, productivity growth averaged little more than 1%, and in the 1990s (1990-6), under 1%.

Of course, just because the pie is barely growing doesn’t mean that no one is doing well. Profits are at record highs, and the rate of profit has clearly been creeping up slowly during the 1990s, though still well below the levels of the 1960s boom. Even more directly to the point, the very rich have had a field day.

Those who already have money are not only profiting handsomely from the Reagan era tax cuts. They also enjoy the opportunity to fund the government debt at record high real interest rates, while exploiting access to low short run interest rates to pay for their investments in the stock market.  The government’s bailouts of their banks, S&Ls, and the stock market itself in the early 1990s guaranteed the security of their “innovative” financial wheeling and dealing.

Of the total growth in average family income that occurred between 1977 and 1989, the top 1% of all families (by income) received no less than 70%, the top 10% virtually all. Nor has the trend toward growing inequality abated in the 1990s.  It became worse under Clinton between 1992 and 1994 (the last years for which there is data).

Official Celebration, Stagnant Incomes

The media keep talking about rising workers’ incomes, but with output per person growing so slowly for such an extended period, and with profits rising, it’s hardly surprising that incomes for most people have stagnated for a quarter century.  By the end of 1996, after five years of the Clinton “boom,” hourly real wages (i.e. salaries alone) were no higher than they had been in 1992, lower than in 1989, and 12% lower than they had been in 1973.

If benefits are taken into account the story is only slightly less dismal, with total hourly compensation roughly stagnant between 1973 and the present.  The bottom line is that at the end of 1996, the median household income for a family of four was about the same as it had been in 1973, and still below its peak of 1989.

Nor has improved job security compensated for lower wages.  True, the unemployment rate has fallen to 4.8%.  The fact remains that the proportion of workers losing their jobs during the first half of the 1990s has been even greater than during the first half of the 1980s, when deep recession and a high dollar ravaged the economy.  Moreover, the jobs secured by job losers continue to pay 5-10% less than did their former employment.

The political establishment has placed such high priority on preventing wage growth and loosening the labor market, despite the secular wage stagnation, because capital has become so dependent on low- and slow-growing wages.  The Clinton-backed welfare bill of 1996 was not merely an important ideological shot in the ongoing war against the poor; it was also an effort to increase the surplus army of unemployed.

The Federal Reserve’s seemingly fanatical tight money policy has precisely the same goal. Fed Chairman Alan Greenspan has finally admitted that inflation-i.e. rising prices-is not a problem in today’s economy and now openly justifies his slow- growth policies as necessary to prevent wage growth from squeezing profits.

Be Happy

How then does Clinton’s mainstream Republican regime hope to get away with the new slap in the face to working people represented by the “balanced budget”?  We learn the answer from Robert Reich’s recently published memoir on his term as Secretary of Labor.

At the start of the 1996 Presidential campaign, Bill Clinton (following in the footsteps of “the Great Communicator” Ronald Reagan) decided to ignore the bad news for the great majority of the population that was reflected in the ongoing flow of data on the economy.  He would run for re-election by simply proclaiming how well good things are. Once again we’re being told, in Reagan’s words, “It’s Morning in America.”

Clinton apparently believes that the tens of millions of people who are doing poorly are so isolated from one another that they can be convinced that they do not represent the population.  He also seems to have concluded that those who have been hurt by the economy have no choice but to vote Democratic (since they can’t rationally vote Republican), while enough of the minority who have prospered from it will vote Democrat to give the party a majority.

Not incidentally, Slick Willy’s virulently probusiness politics insure that he and his followers will secure sufficient campaign funds to make well-financed runs for office in 1998, 2000 and beyond.  Clinton’s propaganda campaign has obviously won the support of his big business associates.  MCI’s celebratory TV ads now ask, “Is this a great time, or what?”, apparently figuring that the best way to answer a question is to appear to ask it.

It is easy to see why MCI and most other great corporations believe this question is rhetorical.  But they can believe their audiences will hold the same opinion only because they think that there is no limit to the degree that they can brainwash the public.

Lessons from France

In the wake of their victory on the budget, Clinton, along with his Democratic and Republican partners in crime, feel they are finally ready to go after the greatest prize of all: truly major cuts in entitlements, especially on Medicare-Medicaid, but probably social security as well.

But the French elections, in which the conservative parliamentary majority was massively defeated, have shown that the neoliberal, free market vision of the economy need not be accepted as the natural order.  It is important, however, that French workers were able to build the power, self-confidence and political consciousness necessary to defeat the right at the ballot box only by first striking in massive numbers, on a whole series of occasions during the previous year.

The defeat of the Alain Juppe government’s austerity measures in the street made possible its defeat at the polls.  Learning their French lessons must become mandatory for the U.S. working class .  .  .  and workers throughout the world.

ATC 69, July-August 1997