In These Times Article: Biting the Hand That Feeds

Biting the Hand That Feeds

Capitalist elites attack what saved them: government.

By DAVID MOBERG

Early last year, even free market fundamentalists confessed that capitalism was in crisis. ANewsweek cover trumpeted, “We are all socialists now.” Alas, the headline was mistaken: Government responses to the crisis did little to democratize economic power or challenge narrow market values, as socialism implies. The U.S. government had simply bailed out big finance with remarkably lenient conditions (and, even now, inadequate regulation) and had passed a large—but still insufficient—package of spending initiatives and tax cuts to keep the economy from collapsing.

This government intervention saved capitalism from itself. So one might expect some humility and gratitude for the public sector from the titans of finance. You would be wrong. Instead, those same financial elites, from Europe to the United States, now oppose deficit spending to stimulate the global economy—rejecting the thinking of British economist John Maynard Keynes, let alone Marx.

Capitalist elites are engaged in a frontal assault on government workers, on government regulation and on the social safety net. In other words, they are attacking social democratic institutions—the heart of the welfare state. In the United States they’re often joined by right-wingers, from the “Patriot movement” to Glenn Beck, who attack government itself.

The financial crisis has mutated into a fiscal crisis of governments, and the perpetrators of the economic crisis are back calling the tune. “A year ago, capitalism was wobbling,” says John Monks, general secretary of the European Trade Union Confederation. “It was saved by the taxpayer, saved by the public realm, saved by welfare spending and tax cuts. Banks were saved in particular, and now the private sector is headed back to business as usual. In the present circumstance, it’s almost, ‘Let’s get down to cutting back the role of the state and restore primacy of the market in as many places as we can.’ "

The ostensible problems are government deficits and accumulated debt, whether in countries like Greece or states like Illinois. But in their opportunistic attack on government, the business and politically center-right elites are taking advantage of the worst economic collapse since the Great Depression to push their long-term (and longstanding) political agenda to secure more wealth and power at the expense of working- and middle-class families. But with the notable exception of the global labor movement, even many political leaders of the mainstream left—from “new labor” in Britain to more conservative Democrats—are unwilling to adopt the full range of government policies needed to recover from the crisis or avoid a repeat.

Beyond their substantial political influence, the financial elite wields power through the bond market, where governments turn for deficit financing. Once the choice of conservative investors, since the 1980s bonds have become much more a means for speculation, more globalized, and more a tool of political influence, says University of Michigan economist Gerald F. Davis, author of Managed by the Markets: How Finance Re-Shaped America. Bond markets—in conjunction with bond-rating agencies—decide whether and at what cost governments can borrow. Governments now fear what bond markets might do as much as what they actually do.

At the moment, fear—used to bolster neoliberal political ideology—is driving conservatives’ demand for government austerity programs and deficit reduction, as well as general cutbacks in wages and worker protections (or, as mainstream economists say, labor market “rigidities”). First, the most vulnerable governments come under attack. Then even the more economically secure countries—like Britain, under a new Conservative government—cut budgets, workers, wages and services to reduce deficits and avoid a loss of investor “confidence.”

Yet government austerity and cuts in workers’ wages will simply reduce demand, slowing recovery from the Great Recession or even creating a second downturn. And weak recovery will bring lower tax revenues, continued pressure for austerity and difficulty repaying debts. In short, the medicine the financial markets and their political allies prescribe will make the global economy sicker.

Politicians now seem frightened of deficits, even though nearly all U.S. public opinion polls show voters are far less concerned about deficits than jobs and the economy. President Barack Obama has partly succumbed to this deficit hysteria, pumped up by conservative institutions like the Peterson Institute and some supposedly center-liberal forces like the Washington Post. After adopting a moderate Keynesian policy last year, in February he shifted course and created a conservative-dominated commission to propose how to reduce future deficits.

Yet even if Obama is not promoting another much-needed big stimulus, he is at least still committed to smaller stimulus policies, unlike Republicans and a growing number of conservative Democrats, most notably Sen. Ben Nelson (D-Neb.), who in early June killed a crucial bill that would have extended unemployment benefits, saved state and city jobs and created new jobs.

Obama has also challenged European leaders to maintain stimulus policies, but the euro crisis—starting in Greece—has spooked virtually all of them. In a dramatic shift from last fall, both conservatives holding power in the major economies and some social democratic leaders have proposed austerity plans. European labor unions have led the opposition. Monks, for example, shares other labor leaders’ “despair and alarm at the prospects of growth in Europe as all countries, not just those in distress, move to cut their budgets.”

Link: Biting the Hand That Feeds -- In These Times

FEATURES » JULY 28, 2010