LENIN'S TOMB: Obama's deficit deal

Monday, August 01, 2011

Obama's deficit deal posted by Richard Seymour

The outlines of the deal between the White House and Congressional Republicans on the debt ceiling are now becoming clear. The White House, of course, celebrates it as a victory for bipartisanship, compromise, economic prudence, and - but what else? - "the American people". Ask not for whom the ticker tape falls... The deal is simply this. The government will get its debt ceiling increase, so there will be no default. The matter will not return to debate until after 2012, meaning that Obama doesn't have to go to the polls with this potential for sabotage hanging over his campaign. And in return, he will fund repayment of the deficit almost entirely from spending cuts. This will mean deep cuts to medicare and social security. Obama is colluding with the Republicans to attack his base. This is Jared Bernstein's account:

As I understand it, the first tranche of cuts—about $1 trillion in discretionary spending—occurs soon after passage.
Then, by the end of this year, a committee of 6 R’s and 6 D’s comes up with a proposal for about $2 trillion in round two cuts. If the committee fails to do so, or Congress fails to enact, then an across-the-board spending-cut-only trigger takes over.
Especially after the first round of cuts went exclusively at discretionary programs, this means round two will go hard after entitlements.
That sounds a lot like what Speaker Boehner proposed last week. Here’s what my CBPP colleague Bob Greenstein had to say about that proposal :

The first round of cuts under the Boehner plan would hit discretionary programs hard through austere discretionary caps that Congress will struggle to meet; discretionary cuts thus will largely or entirely be off the table when it comes to achieving the further $1.8 trillion in budget reductions. As Speaker Boehner’s documents make clear, virtually all of the $1.8 trillion would need to come from cuts in entitlement programs. (Cuts in entitlement spending totaling more than $1.5 trillion would produce sufficient interest savings to achieve $1.8 trillion in total savings.)

To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties…have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years.

If it’s true that the trigger in the deal is spending-only, no revenues, then the American people are about to end up with a very tough deal indeed.

Of course, the centre-left commentators and economists are angry. Paul Krugman and Robert Reich are typically nonplussed. How could the president be so stupid? How could he surrender? He had alternatives to force through an increase in the debt ceiling. He had legal manouevres, political manouevres. He has thrown away the Democrats' advantage on medicare, caved in to blackmail from right-wing extremists, systematically refused to make the argument for protecting jobs and stimulus. It's a comprehensive victory for the radical right.

Well, all this is true. But Obama isn't stupid, and he didn't surrender. As Krugman has himself suggested, Obama has ideological (and as he did not suggest, strategic) reasons to embrace cuts. He never subscribed to the Keynesian revival that intellectuals did - that was just emergency management. He's a committed neoliberal, heading a neoliberal bloc within the Democrats. He has demonstrated from the start that his major duty is to the banks, to finance. Their hegemony the alliance of capitalist class fractions condensed within the Democratic leadership ensured that whatever took place, Obama would find a way to eviscerate public spending programmes. And above all, he would eventually find his way to approaching, by some sleight of hand, the road to social security privatization - which I would predict will soon be on the agenda.

Recall that Bush attempted to attack social security in 2005, and was defeated by an impressive union-led campaign. Obama was happy to capitalise on this, attacking McCain for favouring the privatization of social security. He has continued to position the Democrats as defenders of social security and medicare. Yet, things were never as rosy. His cabinet was filled with Clinton-era retreads, and officials who had been complicit in the very neoliberal policies that brought about the crash. His economic advisors were, from the start, neoliberals. His strategically important debt commission was filled with apologists for spending cuts and privatization. He consistently sends right-wing advocates of cuts and privatization to his commissions. The leading Democratic opinion formers in the elite media, such as the Washington Post, and in think-tanks such as the Brookings Institute, have been pushing for social security 'reform' for some time. Former president Clinton is himself a leading advocate of privatization who plotted with Newt Gingrich to try to bring it about, as are most of his former officials now recycled in the Obama administration. The administration is studded with leading personnel from finance, and the banks are desperate to get their hands on social security. And despite Obama's rhetoric, he and his Congressional allies have signalled a willingness to arrive at a more gradual, gentle and bipartisan route to social security privatization. In short, there is every reason to believe that the Democrats will take any opportunity, particularly those presented by the blackmail of the Republican Right, to push for privatization. These cuts, savage as they are, will almost certainly be used to demand privatization on the grounds that the economy can't sustain a publicly owned model.

Of course, this isn't the end of the matter. There is some Democratic opposition to the deal. But more important, perhaps, is the intransigence of the 'tea partiers' (actually, just the Republican right) who think they can hold out for more. Now, you may say this is insanity on their part. You may say it is impolitic, especially if it inflicts embarrassing defeats on the GOP leadership just at their moment of apparent triumph. But they have their uses, providing a suitable contrast to the apparently sober and rational Obama administration - in contrast to their 'ideological' and 'sectional' lobbying, the executive takes on the mantle of the nation, the blessed American people, on whose behalf he tries to negotiate a route out of catastrophe and national suicide. It isn't quite correct that the 'tea party' movement can be reduced to a corporate astroturfing operation. It resembles classical anticommunist networks in many respects, a movement with some (petty bourgeois) civil society roots enjoying the support of the most reactionary sectors of the ruling class. So it is somewhat autonomous. What it presently lacks is the support of the state, which made past anticommunist networks so deadly. It has not occupied the Justice Department and is unlikely to take the executive or any such directive position, short of a major crisis and decomposition of the state apparatus. So, though having some autonomy, it is subordinate. It is a supporting player in the delicate choreography that has shifted the US from stimulus to austerity. One would therefore expect the leadership to discipline them rather harshly as soon as this is all over, just to avoid any further embarrassments.

Labels: barack obama, class struggle, clinton, democratic party, finance capital, neoliberalism, republicans, social security, tea party, us capitalism, us ruling class