The shutdown showdown and the crisis of US capitalism

Socialist Appeal - British section of the International Marxist Tendency: the Marxist voice of labour and youth.

In the final analysis, the US government shutdown over parts of the federal budget and Republican opposition to “Obamacare” is a reflection of the insoluble contradictions of capitalism. In a follow up to yesterday's article, we publish here an in depth analysis of the economic and political background to the current shutdown and potential default in the USA.

For over a week now, hundreds of thousands of federal employees have been furloughed [suspended] without pay, and hundreds of thousands of others are working with no guarantee of receiving a paycheck. While the Department of Defense may recall some 400,000 civilian workers, hundreds of thousands of others, deemed “nonessential,” will likely remain in limbo for many days or even weeks.

The Department of Labor’s Bureau of Labor Statistics is not releasing its usual weekly employment and unemployment reports. The Food and Drug Administration has sent most of its food inspectors home, which means there is no active oversight over much of the nation’s food chain. The Federal Emergency Management Agency (FEMA) has furloughed 86% of its employees, just as Tropical Storm Karen threatens the Florida panhandle and Louisiana. The Coast Guard has only one of its usual three radar satellites in operation, which means that its oceanic and atmospheric modeling and search-and-rescue capabilities are crippled. Meanwhile, congressmen and women continue to receive their $14,500 and $18,625 per month in salaries and other perks and benefits.

With the shutdown, those in favor of “fast track” austerity want to discredit a wide range of government services and programs deemed “nonessential.” If the country can more or less trundle along without these services for a few weeks, they will be easier targets for cuts in the future. Hundreds of thousands of these workers are in powerful public sector unions, and these unions are target number one for the capitalists.

With no end in sight, the crisis is careening dangerously out of control and threatens to crash headlong into the conflict over raising the debt ceiling—the dreaded “fiscal cliff”. This approaching “perfect storm” has rattled markets and is leading to a crisis of confidence in the US economy and its political system. Make no mistake about it: what we are witnessing is not the “normal” circus of American capitalist democracy. This crisis marks a new stage in the profound crisis of American capitalism itself.

American Democracy

The US is held up as the world’s most perfect democracy. It most certainly is that—if your understanding of “democracy” is that a handful of wealthy property owners should have all the political and economic power. But for the rest of us, the paeans to bourgeois democracy ring hollow. From the billions of corporate dollars and swarms of lobbyists that ultimately decide elections and policy; to the Electoral College, which elects the president (there is no direct vote for the highest office in the country); to the US Senate, which gives disproportionate power to smaller, more rural states; to the lifelong appointment of Supreme Court judges; the US is a democracy only for the rich and powerful.

On paper, the most democratic component of the US federal system is the House of Representatives, which along with the Senate, makes up Congress. Legislation must be approved by both houses of Congress and then be signed by the president in order to become a law. Representatives (known as “congressmen” and “congresswomen”) are allocated proportionally on the basis of a state’s population. With just two years per term of office (as compared to the Senate’s six), there is, at least in theory, the potential for more turnover and a more dynamic reflection of the changing electorate. But with such relatively short terms, congressional representatives are in constant campaign mode, always looking to appease the voters in their particular districts.

Through a process known as gerrymandering, the lines of these districts have been twisted and contorted over the past few decades to virtually guarantee the election of the incumbent, or of one or the other big business party. Very few congressional contests are even competitive. In many districts, Democrats run unopposed by Republicans, and in others, Republicans run unopposed by Democrats.

This set up ensures a razor-thin balance between the two main capitalist parties, and is weighted heavily toward the more conservative layers of society. Entire populations are left un- or underrepresented. Combined with the millions in campaign funds, this in turn means that the “popular will” allegedly expressed by the House of Representatives is in fact the will of a small proportion of the electorate. It also means that these representatives are essentially accountable only to a tiny minority in their own districts. There is therefore less and less incentive for them to compromise among themselves at the national scale “for the good of the nation.” They are only concerned with pleasing their biggest financial backers and their most rabid base of vote-mobilizing support.

In short, the executive, legislative, and judicial branches of government are all carefully balanced to ensure that ordinary Americans have a voice, but no real say. This gives the illusion of a broader democracy, but is in fact extremely limited. The delicate balance between the “good cop” and “bad cop” parties of capitalist austerity allows for constant “compromises” to the right and for continual attacks on the working class. It is intended to make Americans think that the cuts, furloughs, and concessions are inevitable, as the constant gridlock means no one can do much about it. This set up has worked admirably well for the ruling class for decades.

But what happens when the economic basis of that era of capitalist rule has been severely undermined by the crisis? What happens when the leadership of the working class—in the case of the US, the trade unions—gives no lead, either on the shop floor or by building a labor party? What happens when a small sector of the representatives of the ruling class decides to “go rogue,” and refuses to play by the carefully choreographed rules? What happens when the deluded partisans of the so-called “Tea Party” believe they truly have a “mandate” from the American people as a whole? The result is what we see in Washington today, and the fallout will be unpredictable and far-ranging.

Budget crisis

At root, the current showdown is a reflection of the crisis of capitalism and the inability of the US ruling class to rule in the old way. It is not a result of the “bad will” of the capitalists or their bought-and-paid-for politicians. The crisis is an objective fact. To surmount it and achieve a new equilibrium, the capitalists must roll back the gains won through struggle by the workers in the past. While they would prefer to be able to grant a few crumbs and give them the impression of general prosperity, as they were able to do as recently as the 1990s and early 2000s, the extreme imbalances of the system make this impossible. In order for US capitalists to remain competitive on a world scale, Americans’ wages and overall quality of life must be driven down. But every move they make to re-establish economic equilibrium will only lead to greater social and political disequilibrium. This is the nature of the period of capitalist crisis we have entered.

With an estimated annual federal budget deficit of $560 billion this year, accelerated austerity—innocently referred to as “balancing the budget”—is on the order of the day. How it will be imposed and at what rate is the only real question.

The government shutdown is the result of the Republican-controlled House of Representative’s refusal to pass a continuing resolution on the federal budget. Before going into the details of the current showdown, a brief explanation of how this is supposed to work may be useful.

Under US law, Congress must not only authorize money for each government department, program, and agency; it must also appropriate the money. If the money is not appropriated, the money cannot actually be spent, and those government functions that rely upon it cease to function. Given the prolonged deadlock in Washington, the last time a major spending package was approved by Congress was in 2009. And the last time a full budget was passed was way back in 1997. You read that right: the richest country on earth has operated without a proper budget for 16 years.

To fill the gaps between actual budgets and larger “omnibus spending bills,” a series of smaller bills appropriating money to this or that part of the government may be passed. At the end of the fiscal year (which runs from October 1 to September 30), if a major budgetary spending package has not been approved, a “continuing resolution” may be passed, which maintains appropriations at the previous level, until such time as a larger appropriation or budget is approved. If all of this sounds arcane and difficult to understand, you’re in good company. This is all part of the elaborate arrangement of smoke and mirrors used by the ruling class to keep most Americans in the dark as to how the government and finances of the country really operate. This is how big business is able get away with billions in public subsidies while basic programs that millions of ordinary Americans rely on are nickel-and-dimed out of existence.

With the October 1 deadline looming, the Republicans decided that, although there were enough votes in the House to pass a continuing resolution to keep spending at previous levels, they would use their leverage to yet again take on one of Obama’s biggest policy initiatives: the Affordable Care Act (ACA), commonly referred to as “Obamacare.” They refused to pass a “clean” continuing resolution, and instead insisted on attaching amendments that would either defund Obamacare altogether or delay some of its key components. Met with intransigence by the Democratic-controlled Senate and the White House (who feel they have the upper hand on this issue), a stalemate was reached, and “nonessential” services of the federal government were shut down due to lack of funding.

Obamacare

So just what is Obamacare? First of all, we must be clear: it has nothing in common with a socialized health care system. It does not abolish the for-profit insurance system, but rather, expands it and floods it with public dollars. It does not replace the current system with an efficient, federal government-run system offering universal coverage. It is not a “single payer” system and does not provide “Medicaid for all.” It is not like the British National Health Service or the Canadian health system. It does not even include a “public option” government corporation to compete with the private insurance companies on the market.

Contrary to what the Tea Party fanatics would have Americans believe, under the ACA, the government does not decide who your doctor is. Nor is the government setting up “death panels” to decide who lives and who dies. Quite the contrary. Put simply, Obamacare is an enormous government subsidy to the private, for-profit health insurance corporations (HMOs). It is in essence a continuation of the “free market” approach of the past few decades, with big handouts to corporate America at the ordinary taxpayer’s expense. There are a few regulations imposed on the insurance companies—for example, it extends coverage to the children of the insured up to age 26, and prevents companies from denying coverage for “previously existing conditions”—but in exchange they get a massively increased market and guaranteed payments from the government.

So how do these private corporations get their hands on government subsidies? As part of the ACA’s “health care reform,” there is an “individual mandate” requiring everyone in the country to purchase private health insurance, starting in 2014. If they do not purchase or otherwise receive coverage, they will be subject to a fine. According to the IRS rules on the implementation of the ACA: “Individuals choosing not to carry insurance are subject to a penalty of $95 per person each year, or 1% of household income, whichever is greater, beginning in 2014. Over time, the penalty increases, so that by 2016 the penalty is $695 per person, or 2.5% of household income.”

Many of those unable to afford the premiums on their own will have their payments to for-profit insurance companies subsidized by the government. Nonetheless, an estimated 25 million people will fall through the cracks and remain without coverage, as they earn “too much” to qualify for government support, but too little to be able to afford coverage on their own. Another 6 million stand to be left out because Republican governors in some states are refusing to implement the program. Some of these people may be exempt from the penalties, others may not. In addition, many corporations are eliminating their company health insurance programs and sending their employees into the “health exchange” marketplaces created by the ACA to purchase insurance on their own, much of it to be subsidized by the government.

With medical expenses skyrocketing, being uninsured can literally be a death sentence in the richest country on earth. In a country that spent 17.6% of GDP in 2010 on health care—2.5 times as much per citizen than countries like France, Sweden, and the UK—an estimated 26,000 people died that year as a result of not having health insurance. This is why there are understandable illusions in Obamacare among those who have no insurance or who have to choose between health insurance coverage, owning a car, or even eating every day. Even this slight relief from the crushing grind of the capitalist crisis is seen as better than no relief at all.

Incredibly enough, though not entirely surprising, is the fact that the idea of the “individual mandate” to purchase private health insurance was originally hatched by the conservative Heritage Foundation back in 1989, in order to counter growing support for a single-payer government-sponsored system. When Republican Mitt Romney presided over a virtually identical plan as governor of Massachusetts, it received bipartisan support, was seen as a model for the nation, and nicknamed “Romneycare.” Republican hardliner, former Senator Jim DeMint from South Carolina, had nothing but praise for Romney’s ability to "take some good conservative ideas, like private health insurance, and apply them to the need to have everyone insured.”

By 2009, the individual mandate was discovered to be the devil incarnate and declared “unconstitutional” by the right wing. According to Representative Paul Broun, a Georgia Republican and candidate for the Senate: “The greatest threat right now is Obamacare. It’s already destroyed jobs, it’s already destroyed our economy, and if it stays in place as it is now, it’s going to destroy America.”

Why the change of heart? One reason is obvious: the cynical reality of “politics” in Washington. In this amoral cesspool of back-room deals, false promises, lies, and betrayals, the facts never stop politicians from trying to make political gains by attacking their opponents, even if it means doing a political about-face. But there is more to it than that.

After all, there was already a long debate and vote on Obamacare and the law has survived the “constitutionality” scrutiny of the Supreme Court; it is now the law of the land. And yet, the Tea Party insists on defunding or otherwise crippling it after the fact. This calls into question the entire system of bourgeois “democracy,” in which the majority is supposed to rule. If a handful of well-financed politicians in the minority party can hold hostage the entire legislative process and even sabotage the normal functioning of the bourgeois state because they disagree with an already-approved piece of legislation, then the illusion of the “rule of law” begins to break down. But the stakes are so high that they have been forced to risk undermining the very legitimacy of their entire system.

The Republicans’ fear is that if Obamacare is even modestly successful, it will put the Democrats in a strong position heading into the 2016 presidential elections. But even more importantly, they understand that “hunger comes with eating.” That is, they fear that given the crisis and the need to pound through austerity, even this modest lifeline of support to those starved for access to health care (even though the profits are funneled to private companies), could awaken illusions among ordinary Americans that the government should have more, and not less to do with providing jobs and basic services such as health care, education, and more.

These are some of the reasons they have decided to make a stand on this issue. This is why they are refusing to play by their own rules. But these kinds of situations have a logic all their own, and things are starting to get out of hand. This is why the markets are so anxious and growing layers of the ruling class are getting so nervous. Could it be that these people are truly willing to drive the country off the “fiscal cliff?

The serious bourgeois must surely be applying enormous pressure behind the scenes for Boehner and co. to reach a deal. But their personal credibility, power, and positions are now at stake. More than that, the carefully constructed façade they have based the two party system on for decades could crumble if the Republican leadership caves and the party’s rabid electoral base is shattered. It will not be so easy to turn aside the brakeless train.

The possibility of a split in the Republican Party is now being openly discussed. If this were to happen, it would dramatically change the US political landscape in many unpredictable ways. Just 10 years ago, the Republicans seemed invincible; now they are in the midst of a vicious internal civil war, torn apart by the “moderates,” who understand that the party has swung so far to the right they are becoming unelectable as a national party, and the fanatical Tea Partiers, who have no sense of reality whatsoever.

The ruling class requires the services of both of these parties in order to alternate between them to carry out their anti-worker policies. However, they may not be able to contain the forces they themselves have unleashed, and may yet rue the day they trotted Sarah Palin onto the national stage. Such are the sharp twists and turns we can expect in this epoch of capitalist crisis.

The fiscal cliff

Now the question of the debt ceiling looms large and threatens to intersect with the government shutdown. The unthinkable may yet be avoidable; but then again, it may not be.

The conundrum of the debt ceiling, or “fiscal cliff” is quite straightforward. The US government has a self-imposed limit on the amount of national debt that the Treasury can issue. Although expenditures are authorized and appropriated through separate bills, whether or not the government can borrow beyond its means to pay the debts it has already incurred is determined by the borrowing limits imposed by Congress. By some estimates, as early as October 17, and almost certainly by November 1, the US will no longer be able to meet its debt obligations and will have to default on at least some of its obligations. This would have unimaginable consequences throughout the US economy, and could also unleash a global crisis.

US government debt is currently estimated at nearly $17 trillion, and is rising by roughly $2.7 billion every day. To put this into perspective, in 1980 the debt stood at less than $1 trillion. An enormous proportion of this increase can be traced to the wars in Iraq and Afghanistan and the bailout of the banking and insurance giants in 2008. But now that the government’s borrowing limit has been reached, those most gung-ho for austerity see it as an opportunity to stick in the knife. They have long targeted programs such as Social Security, Medicare, Medicaid, food stamps, education subsidies, and more. Their aim is to use their de facto veto power over whether or not the borrowing limit is raised to force through cuts at a more rapid pace. They seek to panic Americans into accepting such cuts as a “lesser evil” preferable to a total economic meltdown.

Many Republicans are now playing down the potential effects of a default. They believe that the US is in effect “too big to fail,” and that the rest of the world “knows they will be paid eventually, with interest.” Others cynically argue that the debt obligations can in the meantime be paid with the savings from the government shutdown—at the expense of hundreds of thousands of federal employees, including those at National Parks, memorials, veterans’ centers, military families, and many more!

But the consensus among those living on planet earth is that a default by the US federal government would be a catastrophe, as interest payments on bonds, payment for work contracted out by the government, and Social Security checks would cease to flow. Here are just a few examples of what the more serious bourgeois are saying:

  • The US Treasury Department: “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

  • Jim Grant, founder of Grant’s Interest Rate Observer: “Financial markets are all confidence-based. If that confidence is shaken, you have disaster.”

  • Goldman Sachs: “We estimate that the fiscal pull-back would amount to 9% of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly.”

  • Bloomberg: “Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A US government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.”

  • Simon Johnson, former chief economist for the IMF: “It would be insane to default, but it’s no longer a zero-percent probability.”

  • Warren Buffett: “It should be like nuclear bombs, basically too horrible to use.”

Never mind the market; millions of Americans would be directly affected, as Social Security and other payments people rely on to survive would dry up. The outrage would flow onto the streets, as Americans would no longer be willing to stand quietly by while a handful of people recklessly play “chicken” with their lives. If the default drags on, such social unrest could quickly get out of hand, giving rise to a movement far broader and clearer in its demands than Occupy.

Interestingly enough, however, the 14th Amendment to the US Constitution makes it explicitly clear that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” In other words, while there may not be enough money for baby formula for poor mothers or medicine for retirees, there is always enough money to put down internal dissent!

Big business is clearly concerned. Such uncertainty and volatility is the last thing the fragile economy needs at the present time. The US Chamber of Commerce and the National Association of Manufacturers sent letters to Congress urging action on the debt ceiling: “Our nation has never defaulted in the past, and failing to raise the debt limit in a timely fashion will seriously disrupt our fragile economy and have a ripple effect throughout the world.”

The Economist magazine, one of the most sober and serious mouthpieces for the worldwide ruling class chastised both Republicans and Democrats, saying “this is no way to govern a country.” It then elaborated further on what a default would mean: “It would threaten financial markets. Since American Treasuries are very liquid and safe, they are widely used as collateral. They are more than 30% of the collateral that financial institutions such as investment banks use to borrow in the $2 trillion ‘tri-party repo’ market, a source of overnight funding. A default could trigger demands by lenders for more or different collateral; that might cause a financial heart attack like the one prompted by the collapse of Lehman Brothers in 2008.”

Some in Europe imagine that a US default would be a boost for their economies, as investors would look to the euro and to German, Dutch, and other Northern European bond markets for safe havens. But others understand that if the US dollar is weakened by a default, it would make European goods more expensive, thus cutting into exports to the US and undermining the extremely precarious recovery. Chinese and Japanese bond holders in particular have been very vocal in demanding a resolution. Chinese vice finance minister Zhu Guangyao had this message for Washington: “The US is clearly aware of China’s concerns about the financial stalemate and China’s request for the US to ensure the safety of Chinese investments.”

Aside from shaking investor confidence, there are other international implications. For example, Obama was forced to cancel his planned appearance at this week’s Asia-Pacific Economic Cooperation (APEC) forum in Bali, Indonesia. At a time when the US seeks to project more of its economic and military force in the region, missing this key meeting as a result of the political mess in Washington has been deemed by many to be a “diplomatic disaster.” The leaders of Russia and China in particular were quick to take advantage of Obama’s absence. Countries such as Indonesia, Malaysia, and the Philippines are now left with doubts as to America’s ability to defend their interests against the encroachments of the Chinese and Japan’s resurgent presence.

All of this turmoil would have been unthinkable during the post-World War II economic upswing. For several decades, capitalism was able to give a few crumbs and concessions to the workers. Today there are no crumbs to give, as the rich insist on making the working class pay for the crisis.

The Republicans seek to use fear over a potential default to panic Americans into accepting a “compromise” that includes even more attacks on workers’ standards of living. If the recent past is any indication, Obama may well be willing to oblige them. In his own words earlier this week: “If there's a way to solve this, it has to include reopening the government and saying America's not going to default, it's going to pay our bills. They can attach some process to that that gives them some certainty that in fact the things they're concerned about will be topics of negotiation... If they want to specify all the items that they think need to be a topic of conversation, happy to do it.”

In response, Speaker of the House John Boehner had the following remarks: “What the president said today was if there's unconditional surrender by Republicans, he'll sit down and talk to us. That's not the way our government works. There's going to be a negotiation here. We can't raise the debt ceiling without doing something about what's driving it to borrow more money and live beyond our means."

There is a pattern of Obama allowing things to be taken to the brink, only to “negotiate” and “compromise” with the Republicans at the last minute. And by “compromise” we mean that he concedes to some of their more aggressively anti-worker proposals in the name of “national unity.” A resolution before the worst case scenario is therefore still possible.

But no matter what, the fact that things have gotten even this far is yet another indication that the ruling class of the world’s most powerful nation is divided and losing confidence in the methods of governing it has used in the past. The experience of the last few years has made it clear that with a capitalist economy comes capitalist economic crisis, which resonates at all levels of society. The political superstructure put in place to manage the interests of the ruling class is inevitably affected. In the final analysis, the dysfunction of Washington is an expression of the dysfunction of capitalism.

Fight for a labor party! FIght for socialism!

With a mere 10% approval rating, it is clear that Congress does not truly represent the American people. People are dissatisfied but see no viable alternative. If the labor leaders were worth their salt, they would use opportunities such as this to explain to American workers the need to break with the two parties of big business and build a labor party. Instead, as usual, they are meekly dragging behind the coattails of the Democrats, offering no independent way forward.

The formation of a labor party would completely transform the situation. No longer could the Republicans and Democrats pull the wool over workers’ eyes with the colosseum-like spectacle that passes for politics in Washington. Millions of former rank-and-file Democrats and not a few Republicans would jump ship and work to build a party that truly represents the interests of the working class. Add to that the millions more who currently have no illusions in either party, and the situation would be turned upside down. Combined with this struggle on the political front, a wave of strikes for better wages, new unionization drives, and the building of a powerful and militant left wing within the unions would attract millions into organized labor, especially in the South.

As for Obamacare, while it may represent a drop of water in a desert to those desperate for the slightest relief, it does not address the fundamental problem with health care in the US: private ownership of the means of health care production and the profit motive. The WIL program outlines the socialist approach to the health care crisis facing millions of Americans:

“For a socialized, national health care system. Free scientific research from the profit motive. Full access for all to the latest medical technology, treatments, and discoveries. Massively fund research for cures and treatment of AIDS, cancer and other diseases. Nationalize the health insurance companies, the medical equipment and pharmaceutical industries, the mega-hospital systems and related clinics, and integrate them into a single state-owned and democratically managed and administered health provider.”

However, none of this can be achieved without mobilizing the power of the working class. Without a labor party based on the unions, workers cannot confront the bosses and their legislative and judicial system of labor control. And if we do not fight for the socialist transformation of society as a whole, any gains we make will always be under threat. Only a workers’ government and workers’ democratic control over the means production, distribution, and exchange can end the chaos of capitalism once and for all. Join the International Marxist Tendency in the US and fight for a labor party! Fight for socialism!

Originally published on In Defence of Marxism

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