The fiscal cliff, and what to do about it

To: Detroit Workers' Voice mailing list
January 9, 2013
[Invitation to discussion group meeting]

Join us this Sunday, January 13, 2013 to discuss the fiscal cliff, and how it is being used to impose austerity and "entitlement reform".

The capitalist economic crisis has given rise to political crisis in Congress, which in turn threatens to deepen the ongoing economic crisis. Congress can't agree on the federal budget, and it set a deadline to make some decisions by the end of 2012. If no agreement was to be had, a series of major cuts in government programs combined with heavy increases in taxes on everyone were to have taken place automatically on January 2. All these steps together would have constituted the so-called fiscal cliff; going over this cliff would threaten to throw the economy even deeper into depression than it already is, and to make life harder for millions upon millions of people.

In a last-minute vote on January 1, Congress postponed the crisis with a series of half measures. As a result, the threat remains of imminent major cuts in government services and deep disruption in the economy:

So the threat of a new economic disaster continues. And with this threat, the ruling class and its politicians continue the demand that the pensions and health care and living standards of the working class should be cut. This is the so-called "entitlement reform". It is what was proposed by the bipartisan Simpson-Bowles Commission of 2010. And the next year, in the bipartisan Budget Control Act of 2011, Congress embraced the idea of a fiscal cliff as a way to give itself a deadline for "entitlement reform". and that deadline was January 1, 2013. Now "reform" sounds nice, as if the intention were to improve the government programs that provide needed services to the people. Actually, "entitlement reform" means cutting Social Security, Medicare, Medicaid, and other needed programs; it's as if a band of assassins described their business as "longevity reform".

But is it true that there aren't the resources to provide health care, pensions, relief for the poor, and schooling for the youth? Is it true that the working people, who grow the food, teach the children, nurse the sick, and staff the factories and stores and offices of this country have been living too high on the hog?

Not at all! Both total production and per worker productivity in the US has increased dramatically over the last few decades. It should be easier than ever, not harder, to provide the needed benefits. And how dare Congress and the economists and the politicians pretend that there is a shortage of resources while millions of people are begging for jobs and the chance to produce more! No, the problem is that the capitalists have been monopolizing the resources, giving more and more of the national income to a relative handful of executives, managers, bankers, and parasites at the top. Inequality has been growing rapidly. It has reached the point that the richest 400 moneyed aristocrats in this country have a net worth of $1.7 trillion: this means that a mere 400 people have wealth equal to one-eighth the gross domestic product of this entire country of over 300 million people. Last year alone the wealth of these 400 grew by 13%. Now, how can their wealth continue to grow by leaps and bounds except by taking away the resources of the majority of the population?

The economic crisis isn't the result of excessive "entitlements", but of the capitalist business cycle. The threat of the fiscal cliff shows that the capitalists have no idea what to do about the ongoing depression except make it worse. The problems facing the social programs are largely the result of several decades of market-fundamentalism, with its program of privatization, deregulation, wage and benefit-cutting, and shifting the expense for everything onto the working class, but these programs are to be cut in the name of economic necessity. The meeting on Sunday will discuss the threat of the fiscal cliff, "entitlement reform", and deeper depression, and what to do about it. <>

On the continuing threat of the fiscal cliff

To: Detroit Workers' Voice mailing list
January 18, 2013
[From the text of the talk on the fiscal cliff, January 13, 2013, polished for publication]

Today I will talk about the so-called fiscal cliff that was threatened for the beginning of this year.

I'll try to avoid a lot of the technical details about the myriad of different programs affected by the cuts, and look instead at the big picture about what s going on. What's going on is that we're in the middle of a depression that is lasting for years, and in which no end is in sight. People have lost homes, jobs, seen their wages cut if they still have a job, and -- especially in Detroit and Hamtramck and other poor cities -- seen one house after another simply torn down. But the fiscal cliff is another type of problem. This is a government crisis. Instead of dealing with the problems of the working people, Congress and the President had developed a deadline for coming to an agreement on, not helping people survive the crisis, but cutbacks to government programs, or else there would be a dramatic rise in taxes and across-the-board cutting of many government programs at the beginning of this year. This deadline has now been postponed by a last-minute congressional agreement on January 1, but we still face additional deadlines in the next two months. In late February or early March, the federal debt limit will be reached, and if there is no agreement, the federal government has to start drastic cutbacks. And on March 27, the temporary authority for federal spending lapses altogether. So if there is no agreement, well, there s the threat of a federal shutdown.

What is this all about? First I will deal with the creation of the threat of the fiscal cliff, in part as a conscious plan to enforce cutbacks and austerity. Then I will deal with that the fiscal cliff also shows that we are in a period of crisis, in which the masses are suffering, but also the political parties can't come to an agreement, and have no idea of how to get out of the depression, and not much of a plan except to just keep squeezing the working people. Then I will deal with whether this austerity, or squeezing of the working class, is really necessary -- is it really true that there aren't the resources to provide for people. And then I will discuss what we should do about it, because we can't rely on the Democrats or Republicans, the parties which have brought us to the fiscal cliff.

To begin with, the roots of the fiscal cliff go back to 2010, when President Obama appointed the bipartisan Simpson-Bowles Commission, officially known as the National Commission on Fiscal Responsibility and Reform. The point of this commission was to give political cover to the politicians to cut Social Security, Medicare, and other so-called "entitlements". Neither Democrats or the Republicans wanted to take the outright responsibility for it. But it was the logical next step in the program of market-fundamentalism that had been pursued for years, both by the Republican administrations of Reagan and the Bushes, and the Democratic administrations of Clinton and Obama. Market fundamentalism is a program of privatization, of cutting back on social services, of eliminating "welfare are we know it", and of ensuring that the remaining government services were run by contracting them out to private firms. The pretext for further cutbacks is dealing with the federal deficit. It isn't that US government expenditures are out of line with what one would expect in a major industrial country, but that market fundamentalism has led to the view that the government revenue should be held down. In particular, taxes on corporations have been repeatedly cut, so that some of the richest corporations pay nothing in income tax, taxes on rich individuals have been repeatedly cut, and the tax burden shifted to the rest of the population, which has the least ability to pay. This helps create a deficit, and some of this was done intentionally with the idea that having a deficit would create pressure to cut government social programs. The idea of the Simpson-Bowles Commission was that market fundamentalism is sacred, and the deficit should be used as an excuse to cut major "entitlements", that is, social services like Social Security, Medicare, and Medicaid.

The Simpson-Bowles Commission was supposed to pass its recommendations by a super-majority, so these recommendations could then serve as political cover for Congress to immediately make cutbacks. But the Commission's Report didn't get a supermajority, so the plan didn't work out, although the Commission's recommendations have been cited ever since as being supposedly what the country needs.

This leads us to the Budget Control Act of 2011, which established the bipartisan Joint Select Committee on Deficit Reduction, the so-called "supercommittee", to take up where Simpson-Bowles left off. The Act was passed during a crisis over raising the federal debt ceiling. In fact it is a deal to raise the federal debt limit. But the limit was raised only a little bit, ensuring that there would be more debt limit crises fairly soon -- just as the January 1 deal this year ensures that another debt limit crisis will come within two months.

Now, the Budget Control Act specified that the "supercommittee" should come to an agreement, and, in line with the supercommittee's recommendations,  Congress should pass a plan to make cutbacks of sufficient size, or else there would be across-the-board cutbacks as of January 2 this year. These automatic cutbacks were not supposed to apply to certain programs such as Social Security, so those who voted for the Budget Control Act wouldn't have to say they had voted for such cuts. But the intent was the  "supercommittee" would prepare a plan that did include such cutbacks, and the idea was that when the supercommittee made its recommendations, then Congress as a whole would have cover to vote for  cutbacks on Social Security and other social programs.

But the "supercommittee" failed to reach agreement, and this helped set up the threat of a fiscal cliff. As of January 2, unless Congress acted, there was to be across-the-board cuts in most programs. Moreover, a series of other things, such as the Bush tax cuts, also were to expire -- if there was no Congressional action -- at the end of last year. So as of January 1st and 2nd, a series of major tax increases and government program cuts would start to take place. This would be a major drag on the economy and threaten to bring a sharp downturn; it would also cut military spending, which would horrify those conservatives who might not otherwise mind a government shutdown; it would increase taxes on everyone; and so forth. Indeed, the federal debt ceiling was also reached again at the end of last year, and failure for Congress to increase it would by itself start a government shut-down.

In the last-minute negotiations, President Obama and the Congressional democrats felt buoyed up by the election results, and made a show of being in a more of a fighting mood than usual. So let's see what happened. Some things were dealt with. But overall, the crisis was simply postponed, and not for very long. The debt ceiling was raised so little that there will be another fight in a couple of months. The Bush tax cuts were rescinded only for individuals with income above $400,000 (or couples with joint income above $450,000), rather than those with income above $250,000 as Obama originally proposed. But this still leaves the tax rates of the very rich at historically low levels. At the same time, taxes were increased on all workers. Part of the Obama stimulus plan included a reduction in the payroll taxes withheld from checks for Social Security and Medicare. This is rescinded, so all workers will see 2% more of their pay withheld immediately.

But the main point is that there was no overall agreement on the budget. The crisis started by the threat of the fiscal cliff remains. And the atmosphere of crisis will be still be used to provide political cover for the parties to cut Social Security, Medicare, and other programs, both by cutting the premiums and increasing the enrollment age.

Nevertheless, the fiscal cliff and these deadlocked budget negotiations aren't simply a plot to reduce entitlements. They also show that the economic depression has brought a crisis that not only affects the masses, but has divided the bourgeois politicians. They are split on what to do. This isn't a split between good and bad, but between two miserable alternatives, but it is still a split. This isn't a split over whether to keep privatizing public services, cutting union protections for teachers and others, and giving more and more subsidies to business. Both Democrats and Republicans agree on this market fundamentalist course. But it is a difference that shows that neither Democrat or Republican has a way out of the depression and the suffering it is causing.

The conservatives, both the Tea Party and the moderates, agree on austerity for the working masses. They insist that lower taxes for the rich, less regulation, and less social programs are the answer for the depression. This is the same program that is being carried out in one country in Europe after another with devastating results -- when the economy starts to go down, precisely at the moment when the masses need social programs the most, the governments cut back on social programs. The bourgeoisie is using the crisis in Europe as an opportunity to cut wages, working conditions, and social programs, and the result is that the economy gets worse, unemployment gets higher, reaching 25% or beyond in some countries, government deficits get worse, and then the bourgeoisie, and the International Monetary Fund, the World Bank and the European Union's banks, demand more austerity. The conservatives here want the same program.

The Democratic liberals want the same basic program, but with milder cuts to the social programs, and perhaps with a federal stimulus. Obama had a small stimulus at the beginning of the recession, and wanted another one in the negotiations at the end of this last year. The stimulus is based on the idea that if the government puts more money into the economy during slowdowns, it will spur the economy; and then if the economy ever starts to overheat, one slows the economy down by cutting spending and increasing taxes. In fact, until recently, this idea was held by conservatives as well, perhaps in a slightly different form -- they hold that tax cuts on business and millionaires are the preferable stimulus.

Now, one might ask, how can the Democrats back both entitlement reform, which means cutbacks on necessary programs like Medicare and Social Security, and having a stimulus? Well, that's a sign that their program is half-hearted and deceptive at best. It s not going to go very far. But it's what the Obama administration and various politicians are doing. They cut from the programs that they boast of saving, and they claim that their cuts don't really hurt recipients. Or they say that raising the retirement age isn't really a cut, because it will let those currently on Social Security stay there. Or they say they aren't cutting the benefits --, they're supposedly just changing how the adjustment for inflation is made. Meanwhile they tell the masses to have faith that, if the stimulus helps the economy, then jobs and benefits will trickle down to the workers.

It can also be recalled that Obama's stimulus program was itself carried out in a market-fundamentalist way. The auto bailout was accompanied by cutting the wages of new hires in auto in half. The attack on teachers' unions continued. The health care plan preserves the role of the big medical insurers, and devised in consultation with them.

So we have the Democrats and Republicans in bitter conflict, but neither of them has a program that can either bring the country out of the depression or shield the masses from the growing misery. They both still agree with market fundamentalism. The Tea Party program may lead to disaster faster, but the Democrats will continue the water torture of the working class. The disagreements between the two parties does, however, reflect the state of mind of the capitalist ruling class which is the real base of both parties. The ruling class is concerned by the depth of the crisis, but it doesn't see the need to do anything but step up its pressure on the working class.

The bourgeois economists, the talking heads on the news, and the supposedly responsible politicians who fill up the chairs of supercommittees and Simpson-Bowles-type commissions, all assure us, however, that the problem is that the people of this country have lived beyond our means. We supposedly have to have austerity and cutbacks, because there is no money to feed us, clothe us, provide pensions in old age, and so forth.

For example, some capitalist economists say that presently there is an unfunded $45 trillion dollar shortfall in the backing for Social Security and Medicare. $45 trillion is three times the size of the entire economy, the GDP (gross domestic product) being about $15 trillion. If the government really needed $45 trillion more to fund these programs, then they are unaffordable. But if that were so, then how could the workers afford to retire or imagine that they would have medical care when aged? How could this cost be transferred to the workers themselves? Surely it is ridiculous to assume that the working class has private savings of $45 trillion that could be tapped. So what these economists are really arguing, but won't openly say, is that workers should simply have the good grace to die after they retire.

But let's look a little more closely. The question, from the point of view of the working class, not the economists, is whether there are the resources in this country to provide pensions and health care for the aged, and indeed health care for everyone, and schooling for children, and housing. And indeed, we have an excess of houses, not a shortage. We have sufficient food and clothes and goods to feed and clothe and provide a good life for everyone in the country. And if we had a shortage, hey, we have 12 million unemployed workers, plus millions more part-time workers who want full-time jobs. If there really was a shortage, why are so many workers and youth unemployed? Why can't we simply go to work and produce what's needed?

There is no shortage of resources. What there is, is an economic system, capitalism, based on inequality and exploitation where the capitalists are never reconciled to seeing the workers having any security. They want workers to be as insecure as possible, so they can be forced to work at the lowest wages and the worst conditions.

There is no shortage of resources; there isn't even really a financial crisis for such programs as Social Security and Medicare. Until recently, the federal government has been financing other programs through borrowing money taxed for the purpose of Social Security and Medicare. And with minor changes in the financing for these programs, they would remain solvent as far as one can see.

But if there were a financial shortfall, it would be because capitalism is unable to allocate fairly the resources that exist. If there were a financial shortfall for these programs, at a time when workers are producing abundant goods, it would be the most clear sign that it's time for capitalism to go. It would mean that the workers produce abundant goods, but that capitalism can't even set aside a proper amount for their livelihood. And that's in fact what's happening.

If there really were a financial shortfall, it would be a devastating verdict on the lies of the economists who told us for decades that market reforms, and bigger and bigger banks, and fancier financial products like derivatives, would allocate the economy's resources so much better, ensuring financing for the best projects, and providing higher growth. What could be a greater condemnation, both of capitalism in general and of bourgeois economists in particular, then that after several decades of this supposed higher efficiency in allocating resources, there isn't money for pensions and health care and schooling.

The capitalists says that, hey, there are fewer active workers for each retiree than in the past. And that's true. But they forget to add that active workers are far more productive than in the past, and that while wages may have been stagnant for the last several decades, even before the wage-cutting during the present depression,  for year after year productivity has steadily increased. And this increase in productivity has exceeded what's needed to make up for the fact that the population is aging.

So when the two parties say that "entitlement reform" is necessary, they're simply parroting the lies which sound good to the ears of the bourgeoisie. And they put emphasis on austerity plus, maybe, a stimulus, because they are fully committed to the program of market fundamentalism, sometimes called the "Washington consensus", because it is held not only by American politicians and capitalists, but by the world financial agencies with their headquarters in Washington.

This brings us to the question of what then we should do, if neither of the two parties is on our side? Well, we need a program to protect ourselves from the ravages of the depression. No one can devise a program that will keep capitalism from having crises and depressions -- they're inherent in the anarchic, dog-eat-dog system of capitalism. But one can have a program to defend the masses from their worst consequences.

We need to demand, not "entitlement reform", but programs for the direct relief of the millions of distressed people. It s a fraud when the politicians say that programs to give subsidies to business are "jobs programs"; that's trickle-down economics. We need better relief for those who are unemployed: it is an inhuman scandal how few are covered by unemployment insurance and how low the benefits have become. There also needs to be real jobs programs, better than those of the 1930s, to provide work on needed projects for the millions of the unemployed. And there should be an end to the increasingly punitive measures that penalize the poor, the unemployed, and the disadvantaged -- from sadistic relief requirements to laws criminalizing being poor in public.

There should be an end to market fundamentalism, which has shown itself to be a sadistic and incompetent system. There should be an end to the deregulation and privatization of the government. Years of this deregulation has left us with government regulatory agencies that are obedient servants of the industries they supposedly regulate, and with government services that are largely cash cows for private contractors.

The banking and financial system should be taken over and turned into a public service. The growth of huge banks and fancy so-called derivatives -- or financial deals that are so complex that no one really understands them -- has done nothing but provide spectacular profit to speculators and bankers, while cheating millions of people out of their homes and helping impoverish whole countries, like Greece. While the underlying cause of the present depression isn't simply financial -- it's the usual capitalist economic cycle -- the power of the financiers has made the situation infinitely worse for millions of people and blocked steps for reform.

We need to see that measures are taken in the defense of the environment as well as that of the workers. The same capitalists who are taking away our pensions and health care, are destroying the environment. This is no longer a future worry. The climate has already started deteriorating from decade to decade. A serious environmental program should combine defense of the environment and concern for mass welfare.  It should not penalize the workers for the crimes of the capitalist polluters and alienate the masses, but bring workers into the enforcement of environmental regulations in the workplaces and communities. The economy and infrastructure should be rebuilt in an environmentally-friendly way, and this should be carried out in a way that helps provide jobs and training and inspiration for as many people as possible.

Indeed, it would be best if we could just replace the capitalist system by socialism, where the working people, not the capitalist elite, ran the economy. But right now even most workers aren't ready for that. If they support parties called socialist, it's what the politicians call socialism -- as in Europe, where the socialist parties aren't much different from the Democrats. So what is needed is for the working class to transform itself in the process of fighting for relief from the crisis and for an end to the ravages of market-fundamentalism. In the course of fighting for measures which are desperately needed now, the working class can learn that the problem isn't simply individual abuses, but the rule of the capitalists as a class. The workers can start to learn whether the Democrats really are on our side, and why the union bureaucrats never want to really fight the corporations. And they can start to consider what socialism, as a true alternative to capitalism, should really be.

So even if socialism is not close, it is important for working class to revive the revolutionary goal of overthrowing capitalist rule. This is part of what's needed to build a movement in the spirit of class struggle. <>

Back to main page, how to order CV, write us!

Last changed on February 24, 2013.