Monday, 25 July 2011

Right-Wing Nutters

On the BBC Andrew Marr Show, yesterday, Business Secretary, Vince Cable, said that the problems, over settling the issue of the US Debt Ceiling, were down to the actions of a few right-wing nutters. He is, of course right. The situation in the US is ridiculous. Unlike every other developed economy, where Governments decide on Budgets, which are then approved or rejected by Legislatures, but which then proceed to raise the necessary revenues through taxation or borrowing, the US has a law, which limits the amount of debt that the country can take on.

Given, the immensity of the Financial Crisis of 2008, and the expenditures that were undertaken first by Bush, and then by Obama to deal with it, and with the subsequent recession, that debt ceiling has now been reached, and it should have been a fairly straightforward matter of simply passing a resolution to increase it.

However, in the weird politics of the US, what we now have is a situation, that is not that uncommon, of a Republican dominated Congress holding a Democratic President and Senate to ransom.
In the past it has been vice versa with Democrats blocking proposals from Republican Presidents. Indeed, it is not the first time that such a financial stalemate has occurred. There have been previous occasions when the US Government has ground to a halt, because it had not passed a Budget, and had no legal authority to spend.

To be clear, this is not at all like the problems facing Greece, or other Eurozone economies, whose problem is that they simply cannot afford to pay their bills, and required bailing-out. The US can pay its bills, and is never likely not to be able to pay its bills - as in the past, it can, like Britain, or any other country that has control over its currency, simply print more of it. The problem is only that the Republicans have decided to risk the economy, not just of the US, but of the world, for purely party political reasons.
It is not even that they object to raising the debt ceiling, though some members of the Tea Party, do, but that they have decided to refuse to agree to it being raised, unless Obama, and the Democrats agree to Spending Cuts, and only limited tax rises. Meanwhile, Obama and the Democrats, having already agreed to most of the Spending Cuts the Republicans are demanding, also want to raise taxes on the rich, marginally, by removing some of the Tax concessions that Bush brought in. The Republicans are opposing any tax increases on the rich.

Last week it looked certain that a deal had been reached, based on the proposals of the so called Gang of Six. Now it looks like that has failed. In truth, the markets do not seem too troubled by these events. The dollar has continued to rise against most other currencies, as it has been doing for several months. Bond investors, who are keen to put their money where at least it will be safe, continue to see the US as a safe haven, which has resulted in the yield on the US 10 year Treasury falling way below 3%, and continuing to fall.
Whatever, the Credit Rating Agencies might threaten about reducing the US's AAA credit rating, it clear that the Bond Vigilantes, such as Ed Yardeni, are still not ready to stop buying US Bonds. That could change quickly if no deal is reached soon, and the US stops spending money, including its repayment of interest, resulting in a technical default. In reality that probably will not happen for several reasons. Firstly, its likely that the brinkmanship will see one side or the other blink - probably the Democrats. Secondly, even if the US did stop paying interest, the markets know that this would be only a temporary situation lasting maybe a few days, or at most weeks. It would then resume payment. This is not like Greece, where private Bondholders, have just seen on average 21% of their money disappear.

But, the arguments are not even over that much. The deficit reduction proposals amount to $4 trillion over 10 years, to be made up approximately of $3 trillion in spending cuts, and $1 trillion in tax rises. That might seem like an awful lot of money, but everything is relative. The US, even under Bush, engaged in a fiscal expansion of $750 billion, just in response to the Financial Crisis, that was used for bailing out the Banks. It engaged in further fiscal expansion to bail-out the big car companies. Last year, Obama introduced a fiscal expansion of $2 trillion just for this year, which went on tax cuts for low wage families, and in extending Unemployment and Welfare Benefits for the long-term unemployed.
Put in that context, and the context of the massive size of the US economy $4 trillion over 10 years, is pretty small potatoes. In fact, what has characterised the US completely, from the UK and other European states, in the last year or so, has been the extent to which it has continued to employ Keynesian fiscal stimulus, despite the massive size of its debt.

Its interesting then that Cable should depict the problem as one deriving from a few "right-wing nutters". He is absolutely correct to characterise it that way, but he seems to fail to recognise that these right-wing nutters are, in fact, pursuing precisely the same kind of economically illiterate policies that he and the Liberal-Tory Government are pursuing here!!!
Indeed, the Tea Partiers, and other right-wing Republicans in the US, use as their example in arguing for their policies, precisely the actions of Cable and his Government in the UK.

Here, those policies, as they have in Ireland, Greece, Portugal, Spain, Italy, and elsewhere they have been used, have tanked the economic recovery, sending economies back into a recession they may have difficulty recovering from. In the UK, its likely that the next GDP figures will show the UK having negative growth once again, or at best being stagnant. In the US, the Keynesian policies, of fiscal expansion, have dragged the economy out of recession. Prior to the election of a number of right-wing Republicans, the economy was, in fact, starting to grow quite strongly. But, those forces have undermined the expansion by cutting local and State budgets. The US continues to grow, but more slowly.

That is not to say that the implementation of Keynesian policies can always resolve the problems of a capitalist economy. It can't, Capitalism is a system in which crises are inherent. But, that is not to say that there are not times, like now, during a Long Wave Boom, when Keynesian stimulus CAN work to cut short recessions. As Mandel sets out in "The Second Slump", there were numerous such recessions during the previous Long Wave boom, and all of them were cut short by the use of Keyensian stimulus.
Now as then, there is, in fact, more than enough Surplus Value available within the global economy to finance such a solution. As Marxists, we do not advocate Keynesian solutions to the problems of Capitalism, but nor are we indifferent to the solutions that Governments choose to those problems. Governments are frequently driven by ideological dogma, based on the kinds of policies they think they need to adopt to be elected, or to satisfy their membership base, rather than on any rational policy designed to deal with the problem, or even to meet the needs of the dominant sections of Capital. We have to reserve the right to point out that such solutions are available even within the context of Capitalism.

No comments: