Obama's deficit wars posted by Richard Seymour

Labels: austerity, barack obama, borrowing, cuts, deficit, democrats, public spending, republicans, spending cuts, us economy, US imperialism, us politics, us ruling class

Why the Democrats will lose posted by Richard Seymour

It's the economy [class struggle], stupid!:

Labels: 'obamamania', barack obama, capitalism, class struggle, democratic party, us economy, us politics

Crisis and recovery: myths about China posted by Richard Seymour

Labels: capitalism, china, depression, obama, recession, us economy, wall street

Another Wall Street bubble, thanks to the bailout posted by Richard Seymour

Labels: banks, bubble, capitalism, federal bail-out, profits, recession, us economy, wall street

The only way is down posted by Richard Seymour

Labels: depression, gdp, profits, recession, trade unions, uk, unemployment, us economy, working class

Obama: wise potentate? posted by Richard Seymour

Glenn Greenwald points out that Obama's position on state secrecy and torture not only adopts the most authoritarian and extreme positions of the Bush administration, but goes farther by claiming a radical kind of 'sovereign immunity' to ensure that torture victims get no redress and no one ever finds out about it. He also notes that the Department of Justice under Eric Holder now wants total immunity from wiretapping prosecutions. (Greenwald is, though, unduly pleased by the criticisms of Obama that are coming from his 'progressive' supporters. Leave it to Dennis Perrin to notice the cravenness of liberal opinion when it comes to his Highness.) In a typical irony, as Bruce Fein points out, Obama's quest for "czarlike powers" in the 'war on terror' is being resisted legally by a judicial appointee of the Bush administration. So, the Obama doctrine is coming into full focus: no one would want such powers if they didn't intend perpetual war. The administration has taken some constructive positions on Cuba, pledged to close Guantanamo (not Bagram or the secret prisons, obviously), and been slightly less eager to bait Iran than the Bush administration. Reports of differences with Israel are probably exaggerated, but among Obama's advisors are realpolitikers who think it high time the nutty little client-state had its wings clipped, so I wouldn't rule out some change there. However, the administration is doing all this because it is intent on freeing up its hand for a more aggressive policy in southern and central Asia.

For some liberals, social democrats and Greens, Afghanistan was always the 'good war'. It was the good war because it overthrew a hated dictatorship, because it deposed sectarian religious rule, because it liberated women from misogynistic terror, and because it was the proper war of revenge against 'Al Qaeda'. Of course, these excuses for imperial violence are outrageous and ignorant, hedged by simplistic notions about the sociological potency of overwhelming violence, and rooted in uninterrogated assumptions about America as a force for good in the world. Alongside the ersatz emancipationism is an eliminationist approach to designated foes: 'Al Qaeda' are 'evil' and thus must be physically destroyed, (along with tens of thousands of people who are either bombed, shot, starved to death, tortured to a pain-wracked end, or poisoned by Dyncorps). This is mindless of the way in which enemies are created when you start bombing from 20,000 feet. After all, it isn't as if this war has escalated because the Taliban has a huge standing army, or even much social weight. What is called the Taliban is a loose network of groups that are galvanising substantial sectors of the population and, as a result, making military gains. Nonetheless, this perpetual war machine has been mantled in doctrines of 'civilization' (and clashes thereof), which have experienced renewed intellectual glamour in the aughties. Even the most violent exterminationist actions are deemed plausible if what is at stake is nothing less than the future of a 'civilization'.

Today, many pro-Obama liberals are still up for it, despite the fact that the previously low-level battle for control of Afghanistan has morphed into a regional war that could take the US into direct conflict with Pakistan. Obama is dropping the handsome puppet Karzai like so much worthless stock and preparing opinion for a security-state in Afghanistan, the better to deepen the war in the south and east of the country (more US troops are being sent to these regions) and intensify the onslaught in Pakistan. Already, Obama's drones are outkilling Bush's drones, with a reported ratio of fifty dead civilians for every one dead 'Al Qaeda' target. The idea that this is just a war against some small bands of Islamist fighters is nonsense. The main social forces in the Northwest Frontier Province (NWFP), the Federally Administered Tribal Areas (FATA) and Balochistan’s provincial capital, Quetta, are hostile to the quasi-colonial rule of the Punjab elite, and to its supplications on America's behalf. The NWFP and FATA are ethnic Pashtun, largely, like much of the population across the barely existing border, in southern Afghanistan. The vast majority of those who suffered from Pakistan's own 'war on terror' were non-combatants. Still, Pakistan's elected crime families show no sign of being able to deliver what Obama wants. They cut a deal with its foes a long time ago for fear of losing much of the country, and the government is now embroiled in a bitter row that has seen Nawaz Sharif expelled from the goverment and try to place himself as a figurehead of the lawyers' movement - Sharif, of all people, who has no reason to support a genuinely independent judiciary. Now, since the US military leadership is raising hellfire about some kind of 'Al Qaeda'-led nuclear-tipped state of supreme evil emerging if things continue as they are (a complete fantasy), one expects a US-backed military coup any month now.

And why not? The US has depended on the Pakistani army for fifty years and isn't about to stop now. Ironically, it is the army and its Inter-Services Intelligence Directorate (ISI) that has historically built up the jihadi networks that it has recently been battling, and which remains the main source of institutional support for these outfits. It was the army that protected its Taliban clients by facilitating the US invasion of Afghanistan in 2001, while allowing the Talibs to retreat to its north-western territories. It is also alleged that the army has maintained and protected groups like Lashkar-e-Toiba (LeT) long after their legal sell-by date in 2002. True, the Pakistani ruling class has been in a bind since 2001. Prior to that eventful year, the traditional backing for reactionary Islamist groups was highly congruent with its status as a US ally. It has been a dilemma ever since, in which billions of US dollars are at stake. The army has twice struck against the Islamists, once with the Musharraf-ordered attack on the Red Mosque, and again under US pressure with the failed 'Operation Lion Heart'. Each time it has done so, it has damaged its relationship with those jihadi groups and stimulated the insurgency. So, the army's usefulness to the US is severely compromised by its need to retain good relations with America's erstwhile foes. On the other hand, who else could the US turn to? The army remains the most powerful social force in Pakistan. It is not just a powerful security and intelligence apparatus but, as Justin Podur points out in the latest issue of Radical Philosophy, a potent capitalist in its own right with control over corn flakes, real estate, cement, mineral mining, etc. The corrupt political class is no match for the military, and the civil society has only periodically been able to challenge its dominance. Short of an invasion, the Pakistani army are the only game in town.

An invasion of Pakistan, though, is not out of the question. While Obama has discounted such an approach for now, he did indicate his willingness to countenance an invasion in 2007, and he has already embraced the Bush strategy of 'preemptive warfare'. All dynamics in the present war would tend to indicate US boots on Pakistani soil and, according to the Pakistani government, unofficial incursions have already taken place. Given intense competition with Russia over those central Asian energy supplies, given the possible break-up of the NATO alliance if this war fails, and given the need for the US ruling class to shore up its global dominance as its financial system collapses and economic competitiveness takes a dive, the further militarisation of American power seems inevitable. The accumulation of executive power could be a prelude to a more ambitious phase of American expansionism than we have yet seen.

Labels: 'war on terror', afghanistan, barack obama, executive power, liberals, pakistan, torture, us economy, US imperialism

Centrism and bipartisanship can, in extreme cases, lead to social catastrophe and mass murder posted by Richard Seymour

Notwithstanding the chorus of disappointed tuts and boos from Obama's liberal supporters regarding the pared down 'stimulus' package, some - such as the genuinely endearing Michael Tomasky - are in a mood to celebrate. A hammering victory over the Republicans, he cheers, a decisive sea-change in American politics, the return of big government liberalism! And hell, even if we have to make the odd concession, liberals are still getting 80% of what they wanted. Eighty percent! It's time for another street parade, already. Bring out the banners: "Yes, He can".

Tomasky, to be fair, has a niche role to fulfil. He apologises to the world for his fellow liberals, and their odd ideas, and then patiently explains to them why they should support the Democratic centre in all its wisdom. Thus, he spent much of the war on terror resisting the twin threats of Cheney and Chomsky, while explaining that liberals needed to be as tough and hawkish in foreign policy as the GOP. Adopting the politics of Richard Perle (with added incoherence and a frontispiece of selective multilateralism) was at the time the Democratic mainstream, and Tomasky was its avid advocate. Today, in a similar role, he explains that liberals are too used to being negative ninnies and, for this reason alone, fail to savour the taste of victory - in the jaws of defeat? (Luckily, Newsweek doesn't fall for any of that liberal nonsense, and has determined the real story: We Are All Socialists Now.)

What if one were to start from different assumptions? Perhaps, following Paul Krugman, one should start by being as radical as reality itself. Rather than tail the Republicans, American liberals should gauge the scale of the challenges they face and measure any putative successes against that. To be sure, if McCain had won, the bill before the House of Representatives and Senate would probably have much more emphasis on upper class tax cuts and fewer concessions to what are invariably called 'middle class' interests. Liberal activists can take their share of credit for the defeat of the Republican electoral machine, and the pressure this momentum brought to bear on Washington - so there is something for them to be cheerful about. However, it has to be said that even this would have been impossible had Obama's supporters all been as timid as Tomasky. And if they now adjust their expectations to accord with Obama's agenda, they will get even less than they presently think they are settling for. First of all, it is important to note that American liberals aren't getting 80% of what they asked for: they are, if the bill passes, getting some reduced version of what Obama proposed, which is not the same. Secondly, Obama's proposals were horribly inadequate. Here is Krugman:

Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Yet the centrists did their best to make the plan weaker and worse.

One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.

The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care — cut. Food stamps — cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the “flip your house to your brother” provision: it will cost a lot of money while doing nothing to help the economy.

All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

This is the trouble with apple pie sentimentality about bipartisanship, and all of the usual "neither Republican nor Democratic, but American" garbage. It is harmful to your jobs, to your healthcare, to your food cupboard. And it can, as in the case of Iraq, lead to mass murder.

Labels: bipartisanship, centrism, cruise missile liberals, iraq, liberalism, us economy

To earth with a crash posted by Richard Seymour

You may have noticed the world's media creaming its collective pants over the Obama inauguration yesterday, with superlatives every bit as hyperbolic as Obama's speech was bland. Gullible liberal columnists couldn't get over the "magic" - it was like being five again, and Santa Claus was coming. Everyone, it seems, got the chance to cry again, and to tell everyone else about how they cried, as well as where they were when they cried. All of that stuff about Obama's disappointing appointments, his bellicose language, the support for TARP and his Wall Street backers, and the silence over Gaza, was forgotten for one spellbound day, sprinkled with fairy dust and dubya pee. Today, it's back to the bad news.

The "trillion dollar crash" is fast becoming the multi-trillion dollar crash. The US economy has continued to slump, despite the immense capital resources injected into the financial system. As Doug Henwood points out, the statistics for December were horrendous. Employment fell by over half a million, and the official unemployment rate is now 7.2% (sure to be a substantial underestimate). Retail sales took a record dive of 10% last year. Almost one in four US banks was unprofitable in the third quarter of 2008 and things can only get worse. The outgoing Bush regime estimated that the US economy would lose close to 3 million jobs over the next year. As incomes plummet, the number of unpaid or 'troubled' loans will increase. TARP will soon have more sequels than Police Academy.

Obama's elite supporters are sanguine about his ability to sort out the crisis. Indeed, Obama would probably not have won had he not benefited from a surge in support after the collapse of Lehman Brothers. Yet,the new Treasury Secretary (and known tax-dodger), Timothy Geithner, collaborated with Hank Paulson's disastrous decision to let Lehman Brothers go bust when he was chair of the New York Federal Reserve. The incoming Obama administration promises a fiscal stimulus, which is vital, but it is not likely to be more interventionist than the Bush administration has been over the last few months. On New Years Day alone, they threw $10bn at the Bank of America. It now seems that the incoming admin is intent on rehabilitating the failed TARP strategy of buying up 'toxic stock', removing it from bank balance sheets and supposedly leaving a healthy, profit-making institution in its place. This policy of socialising the losses while privatising the profits was exactly what made 'TARP I' so unpopular. Paulson actually abandoned the idea of buying toxic assets some time ago in favour of direct capital injections (though with only nebulous commitments from the institutions receiving such funds), but Geithner is now pushing the strategy quite forcefully, while blunting the edge with a promise to help small businesses and 'working families'. No member of the incoming administration shows any signs of wanting to reverse the Bush administration's pattern of buying non-voting stock in failing banks and allowing existing management to stick around with little or no alteration in their generous payments. This means that the same people who helped bring us to this impasse continue to be rewarded, maintain their power, and have no incentive to act in a more accountable way.

More bad news. The UK banking system is close to terminal. Contrary to the insistence of the Treasury that we are better placed than other economies to weather the storm, New Labour have encouraged a disproportionately huge and powerful financial sector while allowing the manufacturing sector to slowly bleed to death. Not only that, but the UK economy is uniquely reliant on overseas investment, which supports a third of all UK lending according to Will Hutton. As the world banking system collapses and neighbouring economies shrink, we are unusually exposed. As a result, unemployment is soaring - hitting just under 2 million by November (earlier than even David Blanchflower predicted). Current predictions are for unemployment to reach 3 million by 2010. Corporate profitability in the non-financial sector is sliding, which means that the resources for new investment are diminishing. Consumers, lacking income and with a tightened credit market, are increasingly forced to rely on pawnbrokers and short-term moneylenders. That will restrict their future spending even more.

Now, even the strongest City institutions, such as HSBC, are the subject of reports suggesting they need urgent recapitalisation. They continue to insist that this isn't so, and that they won't be going crying to the government any time soon, but the stock markets appear not to believe them. And as Lloyds-HBOS and RBS shares slide, the chair of the Treasury select committee is demanding their full nationalisation. If things continue as they are, the result may be a protracted and reluctant take-over of the entire UK banking system. The government's proposed new bank bail-out was received poorly by financial markets, probably because they know it doesn't go anywhere near far enough. Darling, like his new trans-Atlantic colleagues, is committed to buying up 'toxic securities' to help the banks stay afloat as private entities. Now, if we are going to pay for the banks' losses, we should own them and as owners we should protect jobs, and ameliorate conditions for borrowers and home owners. If the government is going to rehabilitate Keynesian demand-side economics, as it noisily announced in November, this would be a very moderate demand at the moment. As it is, we have a situation where banks are being given big rate cuts by the Monetary Policy Committee, but are refusing (with the exception of HSBC and Lloyds) to pass it on to consumers. True, the Chancellor has pledged that he won't let a single bank go down, but he has yet to be open about what this means. Leaving these institutions under private control while accepting the liabilities means that the government budget has to effectively bear trillions of pounds in liabilities. This could literally lead to the UK going bankrupt, Reykjavik-style.

The timidity of the Brown government is odd. It can't be explained by its relationship to big business. British capital is obviously divided over this, but when the Financial Times calls only half-jokingly for the government to shoot the bankers and nationalise the banks, it is obvious that a profound shift is taking place. Nor can it be about the polls. New Labour has never hesitated to impose unpopular policies, and it is right now implementing welfare cuts that are sure to further alienate its voting base. The government's proposed tax increase on higher income earners was popular, but it will raise little toward the costs now being racked up. The Fabian-funded research suggests that most people would support much higher taxes on upper incomes - but polls have often found much stronger public support for wealth redistribution than exists in the parliamentary Labour Party. My vague intuition is that, for all the bravado of the pre-Budget report, and for all the hints that Brown and Darling were dusting off the Keynesian texts, the government's reflex position is decidedly neoliberal. Neither the Labour Party, nor its parliamentary representatives, nor the cabinet, possesses a left-wing force substantial enough to force a different direction. Moreover, I think that both the Blairites and the Brownites, for all the petty wrangling between them, are keen to avoid anything that encourages the Left. Their psephological analysis continues to tell them that to win an election they must build an electoral coalition that includes pro-business, pro-family middle class voters in marginal constituencies, and they are determined to resist anything that looks like burying that New Labour project.

The political fall-out from this, even if we don't go bankrupt, is potentially explosive. Even on the overly optimistic assumptions of the government's last pre-budget statement, the Treasury expects to slash public spending in a disastrous way by 2011. Now, with a new bail-out weighing heavily on the public purse, and more surely to be expected, the only way to balance the budget will be to have serious tax rises, and a sustained and vicious attack on public services and welfare far more extreme than anything we have seen so far. Even before we get to that stage, millions of people are already being pushed to the edge by the job losses and pay cuts. Partly because of the government's weakness in the polls and the threat of a Tory government, most of the trade union bureaucracy is resistant to giving any expression to those grievances. This appears to be what is happening with the Chemilines dispute, for example. Moreover, the fear of losing a struggle in the current climate, where people are frightened of losing mortgages and so on, is likely to countervail against any tendencies toward militancy. If that pessimism and lack of confidence prevailed, then the initial stimulus for any widespread revolt might well originate from outside the institutions of organised labour, in the form of mass protests and riots (Reykjavik-style). Such a combustion has the virtue of gaining momentum rapidly and giving people confidence, but it also has the disadvantage that, unless it feeds into union resistance and lays deep roots in society, it will lose that momentum just as quickly, and hit the earth with a crash.

Labels: economy, financial sector, great depression, rate of profit, recession, uk, us economy

Gilding the lily posted by Richard Seymour

The rich are beautiful people. They never set a foot wrong, and yet everyone is constantly out to get them: the haters, the whiners, the terrorists, the jealous, the hippies, the lefties, the liberals, the protesters, the welfare queens, the quakers, the bakers, the candlestick makers etc. You, hypocrite lecteur, have never actually tried to live their lives, yet you persist in finding them at fault for some putative flaws. You're just jealous of their freedom. The latest challenge faced by the rich is that their mega-welfare-handout might not be processed through the system as rapidly as they had anticipated. The reason is that there might actually be some slight reflex in the state that still demands legislative review and judicial oversight.

Apparently, there are some little flaws to the proposed bail-out that cynics might carp about. For one thing it really does look like a parachute for the empire, in that it will bail out any global financial institution that happens to have what Paulson deems 'significant' investments in the US economy, whether they are in deep trouble already or not. This looks like a move to consolidate America's faltering command of the financial system and to ensure that the global appropriation of labour continues to operate overwhelmingly in the interests of US capital. Secondly, there are no protections for homeowners or taxpayers, no limits on executive remuneration, no plans to stimulate the economy, and no demands for reciprocity (ie, we give you $700bn, you give us...). This is just throwing money at the ruling class. So, as one might have predicted, the crisis is being used to shore up the class power of the rich through a massive act of expropriation. Thirdly, so it seems, the legislation includes a clause ruling out executive or judicial oversight of any part of this wealth transfer. So, the state is taking the opportunity to enhance its ability to act on behalf of capital without accountability.

Obama initially backed the Bush administration, but is offering some opposition to the current plans. A slew of right-wing commentators are also opposed, on the grounds that they thought all this bullshit about the 'free market' and 'moral hazard' and 'accountability' was in some sense meaningful. Only the reactionary statists of the Bush administration could force 'fiscal conservatives' into the same corner as liberals and leftists. No wonder the markets rallied on hearing of the Bush administration's plans: the owners saw a naked attempt to restore profitability by jacking the taxpayer further, thus ensuring a future 'belt-tightening' period of restricted income for Americans workers. And now we have an interesting bit of blackmail to deal with: if the legislation doesn't pass very quickly and without amendment, the markets may tumble again, thus threatening jobs, growth and trade.

Labels: 'free markets', financial sector, george w bush, neoliberalism, us economy

Interventionism of a different kind. posted by Richard Seymour

After the big market melt-down on Friday, oweing to massive job losses in the US, the American government has just formally nationalised the two biggest mortgage firms in the US. Yes, Freddie and Fannie are owned by nanny. In light of this kind of drastic intervention, Gordon Brown's miniature bribe to would-be home-buyers is pretty pathetic. But, of course, that reflects the different magnitudes of the problem as perceived by policymakers. Apart from American homeowners, who were drawn into unprecedented debt by a Federal Reserve policy of driving down interest rates and allowing house prices to soar (thus decreasing the cost of debt and increasing the collateral available to homeowners), much of the world's financial system depends on these two companies staying afloat. Almost half of America's deficit is contained in those two firms. Much of its banking system is heavily exposed to the housing market. In other words, the stability of the empire is at risk. It has nothing to do with protecting vulnerable homeowners, since the government is quite ready to see them expropriated both legally and - as in New Orleans - illegally. But it just goes to illustrate one of the profound paradoxes of American politics, namely the coexistence ultra-free-market ideologies among the political and economic elites with a constant orientation toward heavy state intervention to protect corporate interests.

Britain's housing market slump doesn't have anything like the same significance. While it is clearly a problem for mainly City-based firms, the government prefers to manage bail-outs in a protracted, piecemeal fashion that satisfies no one, so as not to produce a ruling class panic about the crypto-socialism of the administration. The UK housing market is a peculiarity, in that the stimulation of mass home ownership was intended by its authors in the Thatcher administration in part to create a big declassed layer among workers, and hopefully retain their loyalty at elections. It was to create a "homeowners' democracy", much as the liberalisation of the stock exchange was to create a "shareholders' democracy". In fact, what it did was to create a perpetual housing crisis, as high prices and the lack of affordable council houses meant that the mere business of having somewhere to live consumed more and more of people's income. It also contributed to the creation of a chronic homelessness problem, with approximately 79,000 households officially acknowledged to be homeless and about 400,000 people estimated to be 'hidden homeless'. In addition, the shortfall has been exacerbated because high prices encourage property speculators to buy up homes in the hope of making a huge fuck-off fortune. And, as we learned at the beginning of the year, a big part of the housing boom of late has been sustained by rank fraudulence. Now that house prices are plummeting, would-be homeowners don't stand to benefit, because it comes with contracting credit and falling incomes, and is itself the result of a slump in effective demand. The only realistic policy, if the concern is to ensure that people can have affordable housing, is to reverse the marketisation of housing, stop the 'right-to-buy' schemes which are contributing to the shortage, and introduce a big campaign of home-building. Some of this happens to be official government policy north of the border. However, New Labour is committed to making a market-driven housing system work while avoiding scaring business with big public expenditure commitments, which is why we're being offered peanuts. And business opinion would seem to approve. The Economist, just before the latest bad news struck, expressed some relief about the fact that Brown's measures were so piddling, and assured readers that this whole 'crisis' business was being massively inflated, and that America was already bouncing back.

Amid all this economic grimness, the only possible good news is when working people organise to stop the government and business from making them pay for the crisis. In light of which, this is excellent news. Mark Serwotka of the PCS is pledging a far more sustained and intensive battery of strikes than the one-day actions that we've seen to date. It should be pointed out that the CWU has already voted unanimously for further strike action at its conference, although I'm pretty sure the bulk of the union leadership doesn't want to confront Gordon Brown at this point. After all, it's an item of faith among the TUC's best and brightest that the argument is close to being won, the Labour Party is going to be reclaimed, that Brown is basically sympathetic, that if we can only somehow shore up the government enough to keep the Tories out, all will be well...

Labels: empire, gordon brown, housing, recession, trade unions, uk, us economy

American depression posted by Richard Seymour

The latest statistics suggest that unemployment in the US has risen to 5.7%. But that is the official, joke figure. At the height of the Clinton boom in 1997, unemployment was estimated by the Council on International and Public Affairs to be around 11.4% - more than double the official figure at the time. Almost ten years later, in early 2007 and before the housing crisis started to hammer the stock market, the official US unemployment rate was 4.5%, but the real figure was closer to 13%, nearly three times the official figure. So, when you hear that today it is around 5.7%, you have to think that the real figure is close to 15%, which is about 23 million people.

The official poverty rate in America is 11-12%. About 40% of Americans fall below the federal poverty level at some point in a given ten year period. But that is the official figure, an 'absolute' poverty threshold based on an absolute minimum income that would be required to meet the basic material needs. At present, it is set at $10,400 (£5,570) for a single person. Most anti-poverty campaigns use a relative measure, and for good reason. Poverty is a matter of social justice, not of charity - it has to be considered in light of the society's capacity to produce wealth, which is why one doesn't expect Sudan to meet the same criteria as the United States. The UNDP estimated that relative poverty, defined as 50% of median income, was 17% in the US, as of 2006. Today, amid record foreclosures (17% of all homes for sale in the US are repossessed) and as the credit crunch bites, even the absolute poverty figures will be soaring. Bear in mind that the trend has been for deep poverty to rise most significantly. Even in periods of growth, a third of US jobs pay low wages, and almost 1.5m workers receive less than the minimum wage (again, by official statistics that are certain to be an underestimate). The use of soup kitchens - corporate America's preferred response to poverty - has been rising for some years. In 2003, 31 million Americans didn't know where their next meal was coming from. Given the spate of news items detailing a recent rise in demand on the food lines and the disproportionate impact of food price rises on the poor, you can judge for yourself how much that figure must rise by. As you would expect, all of this has been taking place against a background of soaring inequality, so that during the Katrina crisis it was disclosed that the total number of millionaires in America had reached 8.9 million.

I just raise all this because, as the recession bites, there is some predictably callow commentary from American opinionators, generally of the variety that it isn't all that bad and the country is full of whiners. And, of course, for said opinionators, it probably isn't all that bad. For those who have little to complain about it, all this talk of depression probably does look like whining. One cannot help but recall the infamous Newsweek frontpage bemoaning "The Whine of '99: 'Everyone's Getting Rich But Me!'" What will "The Whine of '09" look like, I wonder? "Everyone's Getting Fed But Me"?

Labels: poverty, recession, unemployment, us economy

Is Neoliberalism Finished? posted by Richard Seymour

According to Alexander Cockburn, citing the Financial Times' Martin Wolf, "neoliberalism has collapsed". The Telegraph reports that the Federal Reserve is considering Nordic-style nationalisations. Even New Labour is touting "socialism", albeit north of the border. The Wall Street Journal says:

On the Richter scale of government activism, the government's recent actions don't (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn't cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

Are the GOP really getting all Kremlinesque? Leave that to one side for a second. It seems self-evident that the whole mythology has collapsed. Neoliberalism has just not delivered the dynamism that it promised: economic growth, labour productivity and wage growth are all down on the statist-corporatist era of 1945-1970. The 'liberalisation' of financial markets has changed the property structure and increased risks while increasing global turbulence. The growing profile of the financial markets has produced record debt, insane stock market bubbles, and fraud on a massive scale, all adding to the risk in the system. (One market that has benefited dramatically from such turbulence has been securities and post-trade markets, the latter dealing with the clearing and settlement of transactions - one European settlement firm, Euroclear, had an annual turnover of $450 trillion in 2006 alone). Like previous crises such as the 1987 crash that followed swiftly from London's 1986 'Big Bang' of deregulation, there are now widespread calls for tougher regulation. Unlike in previous crises, these could be enduring. Capital and its ideologues are seriously worried.

The US economy is not only tanking, but it is dragging down the dynamic East Asian economy with it. (Although the World Bank expects China and other 'developing' countries to soften the global economic landing). The UK economy is showing worrying signs of turning purple, despite the happy face put on by the Office for National Statistics in its most recent profitability report (pdf). It looks as if the only reason for a slight rise in profit rates recently is that the figures exclude financial corporations from the accounting and include the UK Continental Shelf, which is basically the hydrocarbons producers in the North Sea. High oil prices have dramatically increased profitability in that sector to 49.8% from a mere 25% (approx) in the second quarter of last year. On the other hand, non-UKCS companies have actually experienced a decline. Overall, the combination of high energy profits and lower profits elsewhere has resulted in a slight increase in profitability of 0.1% on the last quarter. That's the happy face. Meanwhile, profits in the financial sector are falling at their fastest rate for five years. The financial services sector could slash 11,000 jobs in response to the credit crunch, the CBI says. Annual house prices are expected to fall for the first time in years, which you could argue is good from the perspective of those who haven't got a lot of money to buy a house - the trouble is that mortgage access is being drastically restricted as well: no more 100% mortgages, not for a long time. The European banking system is being seriously squeezed as the giant Union Bank of Switzerland (UBS) and Deutsche Bank announce huge write-downs of debt.

Given all this, is there any sign that the political classes are making a drastic turnaround? Not really. It is true that central bankers are considering strong interventionist measures to bail out the banking system, but this just means socialising the costs and losses incurred by the system while keeping it in private hands or restoring it to the private sector when it gets profitable again. It is exactly what they have always done. I seem to recall a financial columnist claiming to be a free marketeer during the boom and a socialist when things go bust. That about sums up the attitude of the average investor. No long term transformations of orthodoxy are in evidence. For example, this is the Treasury Department's recommendations for a new regulatory system for US finance (pdf). There is noticeably no break with neoliberal orthodoxy, and in some ways it promotes further deregulation for example by reducing the power of the SEC. It seems to be intended to deal with alleged competitive disadvantages faced by Wall Street. For example, the calls for reform in settlement and clearing are obviously a response to the growing consolidation in European settlement and clearing in which the United States is purchasing a growing interest, especially since the New York Stock Exchange acquired the pan-European stock exchange Euronext. And - I simply assume - these proposals have been written in cooperation and following extensive consultation with 'industry leaders'. It has certainly been welcomed by America's leading capitalists. There is zero probability that the regulatory framework of the Glass-Steagall Act, repealed by the Clinton administration in 1999, will be resuscitated in any form; there is no plan for improved welfare or reversing long term privatisation trends; and Bush's stimulus package was "too little, too late" according to Joseph Stiglitz.

The European Union, for its part, is still pushing the agenda it decided upon in Lisbon in 2000 at the height of the dot.com boom, when it declared that thriving financial markets were the best source of a dynamic knowledge-based economy, the best way to allocate resources efficiently and thus the best way to promote the entrepreneurial spirit. Rapid deregulation was accompanied by reduced labour productivity for several years, but recent improvements are now being cited as the basis for continuing the reforms, even though it isn't evident that these have anything to do with what are temporary gains. The EU's internal competitiveness rules continue to be used to erode workers' protections and welfare systems, and the European Commission under the influence of right-wing Irish Fianna Fail politician and internal markets commissioner Charlie McCreevy - a lover of horses, markets, and all things American - is sticking to a 'non-interventionist' orthodoxy (which means intervening on behalf of investors). McCreevy's response to the Northern Rock disaster was to blame excessive transparency in the banking industry. The commissioner is currently considering a complaint by the postal firm TNT against Germany's minimum wage laws, which the company says violates fair competition rules, and at the same time lodging complaints with six EU states over the lack of competition (ie, efficient public sector monopolies) in postal services. There is of course a cleavage in European finance-capital between those who seek to create a pan-European economy with a Franco-German hub, and those Atlanticists who want to gravitate toward Washington via London. This was given recent expression by the announcement that Deutsche Boerse (the operator of the Frankfurt Stock Exchange, and providor of transaction services) and six other European companies that handle post-trade transactions will be setting up a joint exchange, which will exclude NYSE Euronext and the London Stock Exchange. But they all agree on the need to continue the 'liberalisation' process.

Even if the crisis deepens radically, we will not see any fundamental departures from the orthodoxy unless there is a concomitant rise in class struggle and a rapid revival in the fortunes of the global Left. Those would in principle be likely outcomes. At the moment, however, the big hope for the American liberal-left is a candidate who has done many favours for Wall Street, including voting to limit class action suits against corporations. And the other two candidates are just as bad, and nuts to boot.

Labels: financial sector, neoliberalism, recession, ruling class, us economy, wall street

US Declares War on Iran posted by Yoshie

Washington is now making the most ruthless use of its dollar hegemony against Iran. It just declared war on the entirety of Iran's banking system and will blackmail China, Europe, Japan, et al. to cut off Iran financially.

(1) the March 20 advisory [of the Financial Crimes Enforcement Network, a unit within the US Treasury Department] represents a US declaration of war by sanctions on Iran and a sanctions threat to the international banking community, (2) the US has various unilateral financial sanctions measures at its command in the form of executive orders and Patriot Act Section 311 and (3) the BDA-North Korea sanctions were, at least in retrospect, a test run for Iran.

If the US succeeds, an international quarantine on Iran's banks would disrupt Iran's financial linkages with the world by blocking its ability to process cross-border payments for goods and services exported and imported. Without those linkages Iran is unlikely to be able to engage in global trade and commerce. As 30% of Iran's GDP in 2005 was imports of goods and services and 20% was non-oil exports (World Bank and other data), a large chunk of Iran's economy would shrivel up. The repercussions will be painful and extend well beyond lost business and profits. For example, treating curable illnesses will become difficult. According to an Iranian health ministry official, Iran produces 95% of its own medicines but most pharmaceutical-related raw materials are imported. (John McGlynn, "The March 20, 2008 US Declaration of War on Iran," MRZine, 24 March 2008)

Make no mistake: this economic war is a strategy pursued by both Democrats and Republicans, realists and adventurists alike: Daniel Dombey, "Senators Urge Formal Sanctions," Financial Times, 6 March 2008.

The dollar hegemony is declining (cf. Jeffrey Frankel, "The Euro Could Surpass the Dollar within Ten Years," Vox, 18 March 2008; Wolfgang Münchau, "This Crisis Could Bring the Euro Centre-stage," Financial Times, 23 March 2008), but will it decline fast enough for the Iranians?

The ruling clerics of Iran are able leaders who have run their country with a surer hand than leftists would have, but this presents them with the greatest challenge since Saddam Hussein, backed by the West, invaded Iran -- perhaps even a greater challenge, since at least the richest third of Iranians are not made of the same stuff as those who made the revolution and defended Iran's sovereignty in the eight-year-long war.

Labels: class, iran, us economy, US imperialism

Auguring Armageddon posted by Richard Seymour

By now, the panic quotes are flying in thick and fast. You can see a sample of them here. Big investors, and big capital, are saying that this could be the big one, a collapse of a kind we haven't seen since - well, take your pick between World War II, or 1929. The federal reserve has slashed interest rates as it always does when recession starts to bite, and organised a huge bailout operation to save Bear Sterns, but no one is kidding themselves that this is going to solve the problem. There is talk about the financial crisis spilling over into the 'real economy', as if this was a problem that started with some bad loans. Will Hutton told Observer readers on Sunday that American industry was doing perfectly swell, thanks in part to something he chose to call 'free trade' (doesn't exist, never will), and was being put at risk by a greedy and arrogant financial class. It's a tempting idea, and it's an analysis that I suspect much of the soft Labour left and many union leaders support, since the upshot is that we should rein in finance capital and invest heavily in manufacturing: quite the opposite of the strategy adopted by Brown and Darling, who have based their recent bland budget and broader economic strategy on the most benign possible forecast. In fact, their only recent intervention of any kind was the horribly belated nationalisation of Northern Rock, and they are now taking the opportunity to shed jobs rather than protect them, so that it can be returned to the private sector on profitable terms. That's a measure of the cravenness of our government's pursuit of neoliberalism: at all costs, the City must be appeased, because it is Gordon Brown's most cherished source of growth. Of course it is right that the running down of manufacturing and the financialisation of the economy has done us no favours, producing some of the lowest growth in post-war history. And it has certainly weakened the bargaining power of labour, while bringing immense rewards to the ascendant rentiers, not just in Britain but globally - Fortune's recent ecstatic fawning over the accomplishments of a tiny billionaire class making the point. However, bad loans are an artefact of deeper structural problems in the global economy, and the problem isn't reducible to the 'subprime' market either.

Take a sojourn, if you will, in that mad, hedonistic, irresponsible decade known as the 1990s, in that mad, hedonistic, irresponsible, incontinent continent known as North America. How louche we all were, how flush with cash and ebullient with it. Well, not all of us. Not the majority who actually weren't flush with cash and netting big rewards on the stock market. Not those whose incomes froze for most of the period laughably known as the 'new economic paradigm' or just the 'New Economy' (a marketing gimmick as sickly sweet as New Coke, and every bit as durable). Not those for whom benefit cuts and welfare-to-work programmes left them poorer and more exploited than ever before. And not those who had to work three or four jobs to keep the family eating. But if the 1980s saw Wall Street assume a commanding position in the US economy, by the 1990s it was a major cultural fetish as well. Everybody who was anybody came to know the thrill of combining technophilia with the bull market swagger: you could not only buy shares, but do so online. In fact, approximately 80% of the increase in financial net worth was accounted for by the top 20% of the population. Most who tried dabbling in shares lost money, but they weren't the ones on the news or selling books. Dude, made a cool two mil: easy bucks, money coming from nowhere, now I got a botox smile and rims. Anyone can do it. It was as if God had blessed America (by the way, I'm surprised that Obama doesn't see the virtues of a slogan like "God damn America"). The Clinton administration, having abandoned its reformist programme, was bigging up the bond market. With wages low, and labour conditions deteriorating, some profitability was restored to capital. The stock market was flooded with cash, and IPOs (in which investors plough money into an upstart entity in exchange for a share of future profits) were bankrolling a wave of flimsy new ventures that would mostly go under by the turn of the millenium. Take a look at Doug Henwood's The New Economy - the ratio of financial assets to GDP shot up in the mid-1990s to close to 950%. The Bubba bubble was only briefly interrupted by the threat of the South-East Asian financial crisis spreading, but with the bailout of Long Term Capital Management, the survival of the US economy compounded the consensus: the American model was working, while the old corporatist dinosaurs of Asia and the Rhineland were floundering.

However, one consequence of basing a boom on low wage growth and poor productivity growth is that consumption had to be supported by debt. So, by 2000, households' outstanding debt as a proportion of personal disposable income reached 97%: an all-time high, and higher than the 80% during the second half of the 1980s (see Brenner's The Boom and the Bubble). By 2000, over 40% of new-home mortgages were financed with down payments of less than 10% of the value of the home, while it was estimated that a quarter of new mortgages were being issued to people who were broke. (Robert Brenner's The Economics of Global Turbulence). Household savings also declined drastically in the US during the 1980s and the 1990s. From 1950-1980, household savings were at a ratio of 8-9%. In the 1990s, they averaged 5.2%, and in the years 2000-3, 1.9%. People have been spending more and more of their available income, and without this change, it is estimated that household consumption would have grown 1% slower in the years 1992-2000. In other words, to even get the modest rates of growth attained through the 1990s, which averaged 3.4% per year, the American economy had to be systematically leveraged so that the effects of upswings and downswings were magnified. (Henwood's After the New Economy; Andrew Glyn's Capitalism Unleashed).

Corporate debt also soared, so that interest payments actually wiped out a great deal of the profits that were being made: between 1997 and 2001, the ratio of manufacturing net interest to manufacturing net profits rose to 40.5%, a postwar record (Brenner's The Economics of Global Turbulence). Even after a slump in 2000-1, the credit bubble continued to swell. More intricate forms of structured credit were devised to spin out more value from less 'real' input. Investors sought to maximise returns through high-risk derivatives, the credit default swap market (in which more secure institutions such as hedge funds are paid to guarantee a creditor against losses in the event that the debtor defaults), total return swaps (in which investors accept the costs of holding an asset, such as depreciation, but gets the full return from it), and collateralised debt obligations (a form of mortgage securitisation). With techniques of labyrinthine complexity, they sliced, diced and tranched debts, distributing risks and rewards across portfolios, with the effect of increasing the chances of both gains and losses given any credit event. When the market booms, all seems to be going splendidly. Debts seem to be being paid - and if individuals or companies lack the funds to make the payments, they can always borrow more money to keep up the payments in the existing debt, on the assumption that future growth will sustain them. Amazingly, it did not. Manufacturing died on its arse, wages froze, job growth was slow, and eventually both individuals and corporations were defaulting on their debts. The underlying structural imbalances in the US economy brought this about. The crisis of profitability that struck all advanced capitalist countries in the 1970s was managed in the US by financial liberalisation, which gave the US ruling class wider opportunities for extraction across the world, but which also led to slower growth rates; busted labour unions, which reduced labour costs for employers, but also led to higher borrowing, with the savings and loans crisis prefiguring the current credit crunch; reduced taxes for corporations and profits, which meant both a transfer of the tax burden to the poorest, and also a reduction in welfare as a supporter of consumption. The financialisation policy put a premium on shareholder value, adding pressure to the drive for short-term profits rather than sustainable growth. It also exaggerated the value of executives who could deliver such profits, so executive pay soared, especially in the form of stock options in which executives were encouraged to share in the value created under their management. This partially accounts for the wave of corporate scandals - fictitious accounting, rigging information, concealing operating expenses. It wasn't just a boon for executives: companies that succeeded in inflating their value could acquire competitors and run them into the ground. (Glyn, Capitalism Unleashed). Huge costs are incurred, of course, but mainly by employees and customers. The criminal justice system doesn't take corporate crime very seriously, and well-placed executives and owners can usually protect themselves from the worst effects of a crisis. Concurrent with all this is the growing centralisation and concentration of capital. Mergers and acquisitions followed by rationalisation and downsizing has meant that most Americans are employed not by the biggest owners, but by small employers who are themselves highly leveraged and exposed to the deep insecurity built into a neoliberal economy.

In short, it will not do to speak of a small class of arrogant financiers causing all these problems. If it really was as simple as that, then the rest of the capitalist class would be beating down the doors of power to demand reform, and plead for restraints to be applied to the ostentatious upstarts. And they would get it.

Coda: One of the major global banks to have suffered least so far from this collapse has been HSBC, one of Britain's 'big five'. It did have substantial exposure in the 'subprime' market. It did experience considerable losses. Yet, its profits increased quite substantially on last year: know why? Because they had shifted a huge amount of their investment from the United States to Asia, particularly China. After recent losses, they seem to have cut investments in the US drastically. Although those economies are hardly insulated from any crash in the US, consumer spending has been rising for years in China, and the country is about to open up its financial sector even further. Further, it looks set to invest more overseas. So far Chinese growth has been a huge boost to US capitalism, but it seems clear that any major crisis in the US will redound to the benefit of China in particular. China is the fourth largest economy in the world by nominal GDP, just above the United Kingdom. It is the second largest economy in the world by the arguably more accurate measure of purchasing power parity, just below the United States, and not very far below either (see the IMF's figures). China is one of the few countries in the world, alongside India, to have experienced a higher growth in capital accumulation during the 1990s than in previous decades - almost everywhere else, capital accumulation was much slower, including in the United States. (Glyn, Capitalism Unleashed). Of course, what China doesn't have, and can't possibly compete in, is an empire. To be sure, it does occupy Tibet - as we see, in a quite repressive fashion - and Taiwan would like its independence. Yet, compared to America's awesome global dominion, this is a handful of beans. Parenthetically, one has always hoped for a more radical Tibetan liberation movement to emerge, something with enough blood in it to put Richard Gere off his soy beans. Yet, one can't help but marvel at the hypocrisy of liberal critics such as Steven Spielberg and Mia Farrow banging on about the fucking 'genocide Olympics', as if they didn't live in a country that was not merely investing in another country whose elite is waging a vicious counterinsurgency war but actually prosecuting a far more vicious one in several countries that they don't even own yet. The main point I would make, however, is that while policymakers will attempt various means including protectionist ones to defend the economy, this whole situation is likely to make the US ruling class far more reliant on its military power. The grab for Iraq was a crucial part of the intense competition with China, and winning that competition - frustrating the rise of a major geopolitical rival, as the PNACers insist - is probably going to involve more assertiveness in South Asia. They'll need to control Pakistan as well as Afghanistan. They'll want their military bases back in Uzbekistan. They'll want to control as much of the oil and gas reserves near the Caspian sea as they can keep out of Russia's hands. And they'll have to do something about Latin America, where growing moves toward independence are undermining US capitalist interests and letting China in on the action. A crisis doesn't just mean economic turmoil; it means a more deadly and fraught world system.

Labels: capitalism, financial sector, imperialism, ruling class, us economy