Going for broke

Published : Aug 26, 2011 00:00 IST

THE NATIONAL DEBT Clock on the side of a building in New York on July 29. - SCOTT EELLS/BLOOMBERG

THE NATIONAL DEBT Clock on the side of a building in New York on July 29. - SCOTT EELLS/BLOOMBERG

With no sign of new revenues and very little to cut in the way of social services, any deal on the debt ceiling is a band-aid solution.

FOR months, the two main political parties of the United States had refused to budge over the budget. The U.S.' debt is now upwards of $14.5 trillion and is growing each day. The Republican Party refused to allow the Treasury Department to raise the debt ceiling so that the country could borrow more money to cover its mounting obligations. Their Tea Party caucus was adamant that no deal should be cut unless the Democratic President slashed the social side of the budget, including what are called entitlements (pensions and health care for the indigent and elderly). The Democratic lawmakers, on the other hand, wanted to cut the budget through the revenue side.

U.S.-based corporations barely pay taxes, and, scandalously, General Electric (GE) did not pay taxes in 2010. GE made $14.2 billion in 2010 (it claimed to have made $9 billion offshore). Remarkably, it got a tax benefit of $3.2 billion. It is a sign of how poor things are that President Barack Obama chose GE's head Jeffrey Immelt to chair his Council on Jobs and Competitiveness. GE remains competitive not by creating jobs in the U.S. but by tax shelters and production in places where wage rates are lower. With no sign of new revenues and very little to cut in the way of social services, the deadlock continued. Any deal on the debt ceiling is simply a band-aid solution. The structural problem for the U.S. accountants remains: the Treasury simply has access to too little revenue compared with the bills it must pay.

The Tea Party is obdurate. It emerged in the throes of the credit crunch of 2007 as an anti-tax, anti-government bloc within the Republican Party. Very quickly the grass-roots anger against the government was swept into the halls of Republican operatives in Washington, D.C. In the 2010 elections, the Tea Party had a modest but important success: 40 new Representatives and five Senators who pledged themselves to the Tea Party agenda went to Congress. Its entire agenda is rooted in a simple philosophical assumption: it opposes the role of government in society and wants to shrink the government by denying its agencies funds to conduct any social policy.

Matt Taibbi, a contributing editor of Rolling Stone, studied the Tea Party's personnel and agenda closely and concluded: The Tea Party is a movement that purports to be furious about government spending only the reality is that the vast majority of its members are former Bush supporters who yawned through two terms of record deficits. Fortified with their illusions about the accuracy of the free market, the Tea Party delegates despise governmental intervention of all forms except military spending, whose enormous hold on the U.S. Treasury can only be whittled, not even dented. The cost of the security state (including the wars) since 9/11 has been $7.6 trillion. The Tea Party is patriotic towards its guns rather than its own population.

The official organisations of the Tea Party are largely financed by the Koch brothers and Americans for Prosperity, the organisation funded by them. The brothers, David and Charles, own the second largest private corporation in the U.S. Their businesses run from ethanol production to cattle, from spandex to financial products, and they conduct their businesses in France and Trinidad, China and the U.S. In 2009, Koch had revenues totalling $100 billion. Much of their income comes from tax breaks and tax subsidies, and yet they are fervent believers in the power of a smaller government.

Paul Harris wrote in The Guardian: When fighting government regulation helps [the Koch brothers] maximise profits even by putting the rest of us at risk from cancer-causing chemicals they are all about libertarianism. Yet when government rules or subsidies provide an opportunity to make some money, that free-market ideology is quietly shelved. It is this kind of opportunism that is rife among both corporations and the Tea Party, and yet they are applauded for standing on principle.

The Democratic Party is enfeebled by its own close affiliation with the corporations, as Obama's choice of Immelt as his jobs tsar indicates. The weakened labour unions and the consumer rights activists remain in the camp of the Democrats, even as the party largely takes its left flank for granted. Obama's former Press Secretary Robert Gates moaned that the progressives ought to be drug-tested and that they would not be happy until we have Canadian health care and we've eliminated the Pentagon. In fact, that is about right. There is a strong sentiment in the narrow confines of the Left and in the progressive caucuses of the Democratic Party to do just this. That it will not be entertained by the President is a sign of how politics in the U.S. has edged closer and closer to the Tea Party's obsessions. With the progressive wing given short shrift, and in a culture predisposed to the illusion of balance, Obama's centrism has taken seriously what should have been rejected roundly, namely, the idea that government should essentially be dissolved.

On this idea of balance, The New York Times columnist Paul Krugman recently wrote in a searing essay: Some of us have long complained about the cult of balance', the insistence on portraying both parties as equally wrong and equally at fault on any issue, never mind the facts. I joked long ago that if one party declared that the earth was flat, the headlines would read Views Differ on Shape of Planet'. But would that cult still rule in a situation as stark as the one we now face, in which one party is clearly engaged in blackmail and the other is dickering over the size of the ransom? Absent the views of the trade unions and the consumer groups, the civil rights organisations and the urban service organisations, the pendulum of the debate is exactly where the Tea Party wants it: in the realm of the absurd.

The Race from Equality

As the Republicans and the Democrats debated the merits of the debt ceiling, reports came from the Pew Research Centre and the National Urban League that documented the social costs of this economic malaise. The Pew report shows that between 2005 and 2009 every racial group lost wealth, but the losses were largest amongst Hispanics and blacks. Inflation-adjusted median wealth of white households fell by 16 per cent, but Hispanic households lost 66 per cent and black households lost 53 per cent. As of 2009, the typical white household had wealth (assets minus debts) worth $113,149, while black households had only $5,677 and Hispanic households $6,325. The myth of the post-racial society should be buried under these data.

The most dazzling fact is not this decline. It is what is to come. The National Urban League Policy Institute's latest study finds that unemployment among blacks with four-year college degrees has tripled since 1992, and overall unemployment is near 1982 levels, namely 20 per cent. Such numbers have not been seen since the Depression. The poet Langston Hughes wrote that the 1930s brought everybody down a peg or two, but that those on the darker side of the Colour Curtain had not much to lose. That is no longer the case.

The 30 years since 1965 had provided a boost to the black and Latino middle class, largely thanks to employment at the various levels of government. With unemployment on the rise, it will be difficult to build back those assets.

The shuttering of the U.S. industrial sector and the attack on public sector jobs hit black and Latino workers very hard.

Rather than tax the rich and use these public funds to build up a different kind of economy (such as to make public rail networks), the Bill Clinton administration in the 1990s harshly developed a massive prison archipelago and hacked at the modest social welfare system in the country. In the name of balanced budgets and supply side economics, a generation of young people of colour lost access to decent education. It is difficult to try and get a job if your resume includes a stint in prison, often for non-violent economic crimes (such as employment in the drug economy, one of the few places to get a job in neighbourhoods of the disposable class). The other place for employment, of course, was the military.

The proximate reason for this catastrophic loss of wealth is the housing crisis and the racial impact of the foreclosure epidemic. The Centre for Responsible Lending shows that 8 per cent of blacks who bought homes between 2005 and 2008 lost them to foreclosure, whereas only 4.5 per cent of whites who bought in the same period lost their homes. A look back to the 1990s confirms these statistics: blacks and Latinos are hit disproportionately hard by foreclosure.

None of this is at the centre of the debates in Washington, where the politicians played a game of high-stakes poker, unconcerned about their populations and their bond-holders. Among these latter are a nervous group of sovereign fund managers in China. They have poor choices: a besieged dollar or a euro flabby with the Greek and southern European crisis nibbling at its edges. For now, the Chinese have no choice but to park their considerable assets in dollars, a compulsion that pleases the Tea Party.

The Tea Party members smirk and swagger, and the progressives flinch at the sound of Obama's promised compromises. There is an agenda on the table to please the Koch brothers, but nothing to assist those Americans who are increasingly disposable, economically, politically and socially.

Sign in to Unlock member-only benefits!
  • Bookmark stories to read later.
  • Comment on stories to start conversations.
  • Subscribe to our newsletters.
  • Get notified about discounts and offers to our products.
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide to our community guidelines for posting your comment