All around the country its the same story: state and local governments are short on cash and saying they have to cut spending on education, health care, and other social services. They have to lay off public employees or cut their wages and benefits. Devastating budget cuts are being implemented in almost all U.S. states, which are now running an estimated $375 billion combined deficit.
State tax revenue depends largely on wages and employment, both of which are depressed as a result of the recession, so the cuts are a direct result of the economic crisis. Government officials and the corporate media are now constantly targeting important public services, which are needed more than ever during this recession for workers who lose their jobs. They are also targeting public-sector workers, saying they should give up their ”cushy” salaries and benefits. This is nothing but an attempt to deflect the blame and pit working people, who rely on social services, against the workers that provide them.
Meanwhile, record Wall Street bonuses of over $140 billion were reported for 2009 by the very same banks which received hundreds of billions in taxpayer bailouts. This is a crisis they created, not us, but they want ordinary working people to pay for it.
Capitalism is to Blame
This economic crisis is rooted in a three-decade-long decline of U.S. capitalism. With the ending of the world economic expansion of capitalism between 1950-1975, U.S. big business faced increased competition on world markets. This led to the adoption of neo-liberal policies. The essence of these policies was to maintain the profitability of big business by cutting the share of wealth going to working-class people.
Driven by the desire for short-term profits, big business moved away from investing in crucial new productive industries in the U.S. in pursuit of a bigger and faster buck to be made by exploiting low-wage labor overseas and speculating in financial markets. This led to a hollowing out of the manufacturing base of the US economy and a reduction of well-paid manufacturing jobs.
Both Republican and Democratic administrations have aided big business in its unquenchable search for more profits. Reagan gave out tax cuts to the rich and gave us massive cuts to federal spending on crucial programs like housing, which was cut by over 80% by 1988. Under Clinton we got the ”end of welfare as we know it” and free trade agreements that allowed big corporations to exploit resources and cheap labor abroad while further undermining manufacturing at home. Bush, Jr. offered more tax cuts to the rich, privatization, and other handouts to big corporations. Despite his two-year stimulus package, Obama has not changed from this overall neo-liberal model.
The result has been a bonanza of profits for big businesses, and a massive increase in wealth for the richest 1% who own the majority of shares in them. According to IRS figures, while income of workers stagnated over the last 15 years, pre-tax income for the richest 400 families increased a staggering 409%, while after-tax income increased even more, by 476% (Economic Policy Institute).
The rich took the lion’s share of wealth created in the last the 35 years. From 1950 to the mid 1970s, average (median) family income grew at the same rate as the increase in productivity. But since then it has grown at less than one-third the rate of productivity (Economic Policy Institute).
Since consumers (i.e. working people) represent over 70% of demand in the U.S. economy, this lowering of their share of the wealth has led to lower demand. And shrinking demand leads to shrinking production. This sets up the vicious cycle we are now in. The logic of capitalism is driving the U.S. economy into becoming a low-wage economy.
The full effect of this deindustrialization of the U.S. economy was temporarily masked during the 1990s and 2000s largely by injecting massive amounts of cheap credit into the system. But piling debt – credit cards, mortgages, etc – can only last so long. It eventually reached a breaking point in the 2008 financial crisis. The speculative bubbles burst, first in housing, and then the whole system entered into a deep crisis.
Attacks on our living standards have now been taken to a whole new level with deep cuts and layoffs from state governments run by Republicans and Democrats. Obama’s federal stimulus provided some cushion to the worst effect of the crisis, but the stimulus money is now drying up. Also, faced with a massive federal deficit and debt, leaders of both corporate parties plan to follow the demand of their sponsors to continue to make working-class people and the poor pay the cost of balancing the budget and paying off the debt.
Instead of entering a period of robust growth, all the system is managing to do is a “job-loss” recovery with continuing mass unemployment and downward pressure on wages. Overburdened with debt and high unemployment, workers’ ability to consume – or demand – will remain low. Low demand means a weak economy and a weak economy means more cuts and layoffs.
Economist Carl Van Horn explains, “Millions of unemployed Americans are suffering economic and personal catastrophes . This is not your ordinary dip in the business cycle. Americans believe that this is the Katrina of recessions. Folks are on their rooftops without a boat. The water is rising, and many see no way out.” Saturated with debt, the economy is in a deep structural crisis of capitalism.
Former U.S. Secretary of Labor, Robert Reich, writes: ”The economy shows signs of improvement largely because the government is spending huge sums and the Fed is essentially printing even more money. But where will demand come from when the stimulus is over and the Fed tightens? That question hangs over the economy like a dense cloud. Until there is an answer, a sustainable recovery for any other than America’s largest corporations, Wall Street and the wealthy is a mirage” (Financial Times 24 Mar 2010).
A Way Out
Fifteen million are now officially unemployed – millions more are under-employed or considered ”discouraged” workers. The most urgent need is to provide them jobs. This could be done by a massive investment in public works programs for important projects like rebuilding our infrastructure and reorganizing production for renewable energy.
We need to demand a tax increase on the rich, big corporations, and the wealthiest income earners, as well as a federal bailout of the states and cities to prevent the cuts. This should be paid for by the people who have benefitted out of this speculation. A tax of only 0.5% on financial transactions, for example, would raise enough wealth to put 4.6 million back to work, according to the Economic Policy Institute.
Increased public spending on social programs and jobs could help stimulate the capitalist economy by putting more money in workers’ pockets and increasing demand. But the logic of capitalism is driven by the short-term maximization of profits. So, instead, the two corporate parties offer more cuts.
If we accept the cuts we accept the logic of capitalism, which only offers a bleak future of mass unemployment, further cuts, and increasing poverty. It’s time to organize the fightback, saying from the start that this is not our crisis and we shouldn’t pay for it. A recent campaign in Oregon backed by unions and community organizations won a referendum to increase taxes on the wealthy. It won’t solve all of Oregon’s problems, but it’s a start.
But, while this crisis-ridden capitalist system still exists and big-business political parties control the levers of power, any concessions they make today can be taken away tomorrow. As long as a ruling elite continues to own tremendous wealth and the big companies and banks which dominate the economy, they will be holding the reins. We can only rid ourselves of the cuts, mass unemployment, and increasing poverty if the system of capitalism itself is replaced by a more rational model which puts basic human needs before profits.
A Socialist Solution Needed
Socialist Alternative and the Committee for a Workers’ International see democratic socialism providing such an alternative. It is a fundamentally different way of organizing our economy and our society. Instead of private enterprise and fierce competition over profits we need an economy run on the basis of a clear plan to meet the needs of the majority.
Major banks, energy companies, auto manufactures, and health insurance companies could be brought into public ownership and run democratically by the workers themselves as part of a plan to ensure a high standard of living for all, instead of profits of the few.
If the banks were publicly owned and run democratically we could come up with a plan to ensure that homeowners could continue to pay mortgages without losing their homes. With the wealth of the banks and other major corporations we could launch massive public works programs to create millions of decent jobs while rebuilding our infrastructure, developing renewable energy technology and mass public transport.
A socialist planned economy would not only prevent the budget cuts but could provide a massive expansion of social programs to provide free, high-quality education for all, health care for all, housing, childcare, and much more.