Reflections on the debt debate

By Lynn Koh
Sep 11, 2011

Hi friends, I'm offering this long-ish essay -- written a few weeks ago -- on the heels of both Obama's announcement to forego regulation of ozone-destroying pollutants as well as his call for a second stimulus package. It will be properly footnoted/hyperlinked in a week or so (please ignore the # signs in the meantime).


I’m tempted to call the debt-ceiling debacle a train-wreck, but only provided we keep in mind that the instant of catastrophic collision is prelude to a much longer, drawn-out misery, settling gradually over the country like layers of ash. Social programs will be bled to death, but by committee. Political debate within the mainstream media assumed only two options: spending cuts, either with or without modest revenue increases. What explains the willingness of political elites to unite around a program of austerity, despite its obvious consequences in the short and medium term, less than 3 years after the brief Keynesian moment of early 2009?

At first glance, the retrenchment of neoliberalism seems to run counter to the interests of the capitalist class. As economist Brad DeLong explained on an interview with Doug Henwood1, the portfolios of the super-rich include assets such as real estate that depend on a return to economic growth and somewhat-full employment. DeLong concludes that the politics of austerity cannot be attributed simply to the material interests of the U.S. economic elite.

In fact, during the first few years of the Great Recession, corporations were able to increase profits despite decreasing sales -- a 4o percent jump from the beginning of 2008 to 2010. The precarious state of the economy handed bosses a weapon against their workforce; cuts to jobs, wages, and benefits and rollbacks in R+D and investment allowed corporations to claim huge profit margins.2 Of course, such tactics are neither coincidental nor a total break with past practices. Many commentators have pointed out how the structuring of CEO pay around stock options have created incentives to prioritize short-term profits over longer-term concerns. As John Grahl writes:

Of course, employers were always concerned to reduce wage costs; in the past, however, this goal was balanced by the attempt to increase market share and expand their enterprises. Shareholder pressures now tended to subordinate expansion to profitability”3

But whereas neoliberalism had contributed to the dynamism, however meager, of post-1973 capitalism, its current reincarnation seems a very different thing. Neoliberalism has always been concerned first and foremost with redistributing wealth and income upwards, but it could also claim to have brought global capitalism from a period of stagflation to one of volatile expansion.4 But an expansion that depended on intensified exploitation of labor and the flight of manufacturing to sweatshop zones also required asset bubbles and record levels of indebtedness. Presently those props are lacking. It’s conceivable that we are witnessing a transition to an economic order which is coldly indifferent to economic stagnation and permanently high unemployment, as long as there is further looting to be done.

Conceivable, yes. But in the interests of the economic elites? Whether sustained unemployment, reductions in government spending, and sluggish economic growth will lead to another economic collapse or explosive social unrest remains to be seen, but it is a real possibility; in the meantime, the economy balances on a tightrope -- generating enormous profits for the rich using means which are obviously unsustainable. Even the head of the IMF, Christine Lagarde, stated that a “lengthy stagnation with prolonged unemployment and social dissatisfaction” would undermine the pursuit of long-term spending cuts.5

Austerity from right to left.

Lagarde was criticizing the world’s ruling classes for failing to implement a rational economic policy. Indeed, to many observers the Tea Party’s role in setting the terms of political debate seems like an instance of Frankenstein’s monster turning against his creator.6 It’s true that the Tea Party movement was largely funded and promoted by sections of the elite as a bludgeon against the Democratic Party and even the faintest move towards the left; its version of right-wing populism, which amplified anti-tax sentiment by breeding resentment towards the very notion of government7, then became the ruling class’ iron cage, limiting its room for any tactical manuever.

This explanation has the merit of foregrounding the political dynamics at work. But it must be supplemented by attention to the ideological stakes in austerity politics.8 While most on the left, including this author, were largely critical of the Obama administration’s health care and financial industry reform bills, it’s important to acknowledge that they also represented important assertions of state power over key economic sectors -- in the case of financial reform, over the most powerful section of capital. Likely to be practical failures, they were nevertheless symbolic victories.

So on the one hand, we can see austerity politics as a short-termist attack on government spending and social programs, deemed to be redistributive in the wrong direction, in order to avoid increasing taxes on corporations and the wealthy. But, more fundamentally, we should also see this as a political strategy which advances the notion that the public sector in all forms -- revenue-raising, regulatory agencies, social programs, not to mention government employees -- is opposed to, rather than supports, the public good. As such it intervenes on the key question which the Obama administration had raised -- the question of whether state power could be used in some small measure for popular purposes rather than the naked interest of specific industries. Undoubtedly, the administration intended to re-establish the legitimacy of regulations in order to stabilize capitalism. But it would be a mistake to assume that we can remain indifferent to how this question will be answered in the next period, regardless of whether the pendulum may swing temporarily back towards Keynesian stimulus.

Perhaps this only raises again the original issue of why our economic elites would turn hard against even the mild reform agenda advanced by the Obama administration. Part of the answer undoubtedly lies in financial capital’s move back into the Republican camp. While executives and employees in the financial sector were heavy backers of Obama in 2008, by 2010 they had deserted.9 For thirty years, the rise of financial capital to its dominant position within the US -- and global -- economy has required the progressive dismantling of industry regulation,10 while the spectacular Wall Street salaries and bonuses rhetorically criticized by the Democratic Party was responsible for the industry’s cultural cachet. The smart kids no longer went into physics or engineering; they did finance. We are likely dealing with a dominant fraction of the capitalist class that will be intensely hostile to any reform program, insofar as it curbs the very excesses and structural insanities that led to the Great Recession.

What of the other major sectors of capital? In his book The Prisoners of the American Dream, Mike Davis described the industries most closely associated with the insurgent right: “an alliance of entrepreneurial rather than corporate capitalists, centered for the most part in primary [resource extraction] and tertiary [service] sectors, with vested interests in regional land/resource speculation, hyper-militarization, and a filibustering attitude towards the Third World.”11 A look at the corporate board members of ALEC, the organization that hands prewritten reactionary legislation to politicians across the US, tells us that Davis’ picture remains mostly accurate, with some modifications: coal/oil/energy and pharma/health care predominate, alongside other well-known powerhouses such as AT&T, Kraft, and Koch Industries. These firms regard austerity as one front in an all-out assault on democratic rights and our social infrastructure.12

Decades after Prisoners of the American Dream, Davis theorized that “only the tech industries, with their captive universities and vast internet fandoms, still retain enough public legitimacy…and internal self-confidence hypothetically to act as a constructive hegemonic bloc.”13 Furthermore, Davis claimed, Silicon Valley stood against the occupation of Iraq, extreme xenophobia and know-nothing climate change denial. The political imagination of the center-left fastened on a vision of green capitalism, driven by technologies that were supposed to revitalize domestic manufacturing while pulling us back from the ecological abyss.14

Instead of a period of transition towards an economic order slightly more sustainable and equitable, however, we’ve found ourselves in a kind of purgatory. The program of tax credits and federal loan guarantees failed to birth a new and dynamic renewable-energy industry. The problem was that Obama’s vision of a government that nudges the market in the right direction simply was not adequate to the historic task of shifting the US economy onto an entirely different footing. Fossil fuels remain cheaper energy sources for consumers and businesses, while international competition creates significant pressures for solar panel and wind turbine manufacturers. (Solyndra, the much-hyped producer of solar power cells, will be closing its doors in California’s Bay Area and laying of its 1000 employees. They were the recipient of a $500 million federal loan guarantee.)

Within this global economic context, the promise of a green economy likely requires intensive government involvement, along the lines of James Galbraith’s call for a return to national-level planning.15 Of course, smaller but significant steps are possible -- harnessing the government’s purchasing power to fabricate a market16 or passing a climate change bill that would advance “carbon regulation and significant investment”17, which are undoubtedly preconditions for progress. But even these are, for the moment, beyond the political pale.

Significantly, even the high-tech sector has not mobilized large resources around a viable economic program along these lines. The Silicon Valley Leadership Group -- founded in 1977 to bring together Valley CEO’s, and which currently defines itself as against the ’policies of the extreme right and the extreme left’ -- places tax reform and dealing with the federal deficit ahead of climate change legislation and other tepidly liberal reforms. In other words, it has bought into the politics of austerity, but with a contradictory interest in fostering green-tech industry and support for affordable housing, health care rates, and infrastructural development . A look at the Leadership Group’s board of directors indicates that, far from hi-tech constructing a hegemonic bloc within capital, its political goals are still imbricated with those of the financial industry -- the Board’s officers are representatives of green tech (SunPower), IT (Brocade), and finance (CitiBank).

Those contradictions -- which probably also exist within the domestic manufacturing sector -- may allow for tactical alliances18, but my overall impression is that even a center-left program opposing austerity and credibly advancing a regulated capitalism remains anathema to even the supposed ‘progressive’ bourgeoisie. If this revives the debate around Poulantzas’ thesis -- that the ruling class maintains a kind of autonomy from the various fractions of capital in order to better rule in its interest, it perhaps signifies the slow disintegration of a society in which the dominant sector of capital has become decadent rather than productive.

But while the War on Taxes has replaced the War on Terror19 as the central political axis, it’s one which is less stable in consolidating support for elite imperatives. For a time, the War on Terror was able to convince most in the U.S. that it was a war against the Other. Not so with austerity; communities keenly register the sting of cut services and lost jobs. Now that we know the enemy, it’s time to gather our forces.

3 Grahl, John. “A Capitalist Contrarian” New Left Review II, #69.

4 This is a controversial claim; check out In and Out of Crisis by Albo et al. pages 31-37 for an overview of debates.

5 See also Calmes, Jackie “GOP on Defensive as Analysts Question Party’s Fiscal Policy.” New York Times. 12 Aug 2011.

7 Sarah Posner on Democracy Now explains this in the context of the religious right

8 Seymour, Richard. “How Can the Left Win” Jacobin. Summer 2011.

9 For instance, see “Wall Street Donates Twice as Much to Republican Campaigns”

10 Albo et al., In and Out of Crisis, 50 - 54/

11 brackets are not in the original. Pp. 171-174

12 ALEC’s task forces advance a political program of: eliminating voting rights, reducing environmental protections, privatizing education, imprisoning more people, etc. See

13 “Obama at Manassas”, New Left Review II 56, p. 38-9

14 See the excellently titled interview of Doug Henwood “Ka-Pow! Bang! Crash!”

15 Galbraith, James K. The Predator State. Also, “Plan” Harper’s Magazine. November 2008.

16 Parenti, Christian. “The Big Green Buy” The Nation. Aug 2 - 9 2010.

17 “Green Job Search” The American Prospect, Nov 8 2010

18 See, for instance, “Rockwell calls for national industrial policy.” Of course, here the contradictions and imbalances of the global economy, not to mention the specter of US decline, return as problems.

19 Robin, Corey. “The War on Taxes” London Review Of Books.

The views expressed here are those of the author and do not necessarily represent those of the entire War Times project

Lynn Koh is a long-time activist in the anti-war movement, and is a labor organizer in the Bay Area.

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