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Main Street Moves Against Wall Street

Thursday, 31 March 2011 15:03 By Richard D Wolff, Richard D. Wolff's Blog | News Analysis

When the current economic crisis hit, the Obama campaign blew away Bush and McCain by promising hope, change and a solution that would overcome this crisis and prevent future crises. Likewise, some governments in Europe came to power based on public fear reacting to the global meltdown. Ongoing crisis, mass economic pain and deepening public anger keep shifting political winds.

Within six months of Barrack Obama's election, those winds had changed again. His liberal campaign rhetoric had hit a wall. What humbled Obama was the determination of business interests to shift onto others the costs of the crisis and of the government's response, namely its hugely expensive bailout of major corporations especially in finance. We watched and learned who was really in charge of how this economic crisis would be "managed".

There would not be a 2011 rise in the federal income tax rate from 35 to 39% for the richest Americans (even though it had been 91% in the 1960s). There would be no legal or other requirement that corporate beneficiaries use their bailout billions in economically and socially useful ways (rather than only for their private profits). There would be no federal employment programme, no matter how high the US unemployment rate went, nor how long workers remained unemployed. There would be no real programme to lift wages or otherwise offset millions of homeowners' inability to make mortgage payments even if that omission meant that the housing market would tank again – the double dip downward in that crucial industry is now under way.

US governments at all levels (city, state and federal) dared not raise taxes on businesses or the rich – even as their general tax revenues fell because of unemployment and consequent reductions in incomes and consumers' expenditures. The federal government also slowed its borrowing. Reduced taxes plus reduced borrowings cut the funds all governments had to spend. Political leaders mostly responded by curtailing employees (worsening unemployment) and social services. Federal officials justified no more borrowing by pointing to the trillions added to the national debt since 2007 to finance Washington's "crisis response" programme. State and local officials just restated the usual homilies about "living within our means" – as if doing so would alleviate the problems caused by the economic crisis.

The truth is that business interests prefer cuts in social programmes over further government borrowing. They fear public resentment over paying higher taxes in order that governments can pay more interest to the owners of government bonds. Resentment can grow into active political resistance. After all, the public wants its taxes to fund programmes that help people rather than flow to government creditors. And there's the problem. Uncle Sam's creditors include US businesses and the richest US citizens who used the money they did not pay in taxes to lend to the government instead.

So the US economy continues to impose crisis conditions on the mass of citizens. The "recovery" is limited to banks, larger corporations and those with significant holdings of stocks and bonds. The latter recovered as banks and larger corporations parked their bailout moneys in stock markets (rather than investing them in production, since mass purchasing power in the US remained hobbled and looks likely to remain so indefinitely). Rage at continued economic suffering (high unemployment, home foreclosures, etc), mass exclusion from "recovery" and the spectacle of the US's richest citizens resuming huge salaries and bonuses brought public anger to the boiling point. Its target was especially whoever was in office: Obama, associated Democrats and many incumbent politicians suffered the consequences in the 2010 elections.

In Europe, too, the costs of capitalism's crisis and corporate bailouts by governments have been shifted onto the general population, where they, too, have "austerity" now. Just as business demands for that shift bent Obama to their will here, they bent prime ministers there, including ostensibly socialist politicians such as Papandreou in Greece and Socrates in Portugal. It seemed everywhere that business and the rich would be able to achieve stunning results. Their 30-year profit binge (1977-2007) and mixtures of tax cuts, low taxes and state subsidies for corporations and the rich would remain unquestioned and untapped. Their disastrous speculations with those profits, the gross irresponsibility in how banks invested depositors' money, and the widening gaps between the very rich and everyone else would fade from public awareness and from most politicians' concerns.

But now, as the economic crisis continues for majorities in the US and Europe, current office-holders are held accountable for government layoffs and service reductions. As those austerity policies further damage standards of living and fail to overcome economic suffering, public anger refocuses upon the current incumbents. Political leaders executing the business strategy of socialising the costs of the crisis find themselves in trouble. Governor Walker in Wisconsin faces a far stronger opposition than anyone foresaw. Ohio conservative Republican state senator, Bill Seitz, mobilises fellow Republicans to shrink the state's austerity programme fearing "voter backlash".

Portugal's socialist government collapsed last week. All other political parties refused to support its latest instalment of the austerity programme imposed on the Portuguese people. Recent massive protests against austerity and strikes for higher wages made their points. Continued association with business's austerity strategy is becoming too costly for more and more politicians. They must find new faces, forms or excuses to continue austerity; otherwise, they will suffer or be forced to defect as public opinion swings behind very different anti-crisis policies.

Such policies could shift the burden and costs of overcoming the economic crisis onto the larger corporations and the richest citizens. Indeed, such policies might well go further and change the system that keeps bringing us these crises and breaking its defenders' promises to prevent more crises. To the extent that they significantly alleviate the burdens of austerity, such policies might win the time and political space to achieve those larger goals.

Appeared in the Guardian "Comment is Free" on March 28th, 2011.

Richard D Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.


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Main Street Moves Against Wall Street

Thursday, 31 March 2011 15:03 By Richard D Wolff, Richard D. Wolff's Blog | News Analysis

When the current economic crisis hit, the Obama campaign blew away Bush and McCain by promising hope, change and a solution that would overcome this crisis and prevent future crises. Likewise, some governments in Europe came to power based on public fear reacting to the global meltdown. Ongoing crisis, mass economic pain and deepening public anger keep shifting political winds.

Within six months of Barrack Obama's election, those winds had changed again. His liberal campaign rhetoric had hit a wall. What humbled Obama was the determination of business interests to shift onto others the costs of the crisis and of the government's response, namely its hugely expensive bailout of major corporations especially in finance. We watched and learned who was really in charge of how this economic crisis would be "managed".

There would not be a 2011 rise in the federal income tax rate from 35 to 39% for the richest Americans (even though it had been 91% in the 1960s). There would be no legal or other requirement that corporate beneficiaries use their bailout billions in economically and socially useful ways (rather than only for their private profits). There would be no federal employment programme, no matter how high the US unemployment rate went, nor how long workers remained unemployed. There would be no real programme to lift wages or otherwise offset millions of homeowners' inability to make mortgage payments even if that omission meant that the housing market would tank again – the double dip downward in that crucial industry is now under way.

US governments at all levels (city, state and federal) dared not raise taxes on businesses or the rich – even as their general tax revenues fell because of unemployment and consequent reductions in incomes and consumers' expenditures. The federal government also slowed its borrowing. Reduced taxes plus reduced borrowings cut the funds all governments had to spend. Political leaders mostly responded by curtailing employees (worsening unemployment) and social services. Federal officials justified no more borrowing by pointing to the trillions added to the national debt since 2007 to finance Washington's "crisis response" programme. State and local officials just restated the usual homilies about "living within our means" – as if doing so would alleviate the problems caused by the economic crisis.

The truth is that business interests prefer cuts in social programmes over further government borrowing. They fear public resentment over paying higher taxes in order that governments can pay more interest to the owners of government bonds. Resentment can grow into active political resistance. After all, the public wants its taxes to fund programmes that help people rather than flow to government creditors. And there's the problem. Uncle Sam's creditors include US businesses and the richest US citizens who used the money they did not pay in taxes to lend to the government instead.

So the US economy continues to impose crisis conditions on the mass of citizens. The "recovery" is limited to banks, larger corporations and those with significant holdings of stocks and bonds. The latter recovered as banks and larger corporations parked their bailout moneys in stock markets (rather than investing them in production, since mass purchasing power in the US remained hobbled and looks likely to remain so indefinitely). Rage at continued economic suffering (high unemployment, home foreclosures, etc), mass exclusion from "recovery" and the spectacle of the US's richest citizens resuming huge salaries and bonuses brought public anger to the boiling point. Its target was especially whoever was in office: Obama, associated Democrats and many incumbent politicians suffered the consequences in the 2010 elections.

In Europe, too, the costs of capitalism's crisis and corporate bailouts by governments have been shifted onto the general population, where they, too, have "austerity" now. Just as business demands for that shift bent Obama to their will here, they bent prime ministers there, including ostensibly socialist politicians such as Papandreou in Greece and Socrates in Portugal. It seemed everywhere that business and the rich would be able to achieve stunning results. Their 30-year profit binge (1977-2007) and mixtures of tax cuts, low taxes and state subsidies for corporations and the rich would remain unquestioned and untapped. Their disastrous speculations with those profits, the gross irresponsibility in how banks invested depositors' money, and the widening gaps between the very rich and everyone else would fade from public awareness and from most politicians' concerns.

But now, as the economic crisis continues for majorities in the US and Europe, current office-holders are held accountable for government layoffs and service reductions. As those austerity policies further damage standards of living and fail to overcome economic suffering, public anger refocuses upon the current incumbents. Political leaders executing the business strategy of socialising the costs of the crisis find themselves in trouble. Governor Walker in Wisconsin faces a far stronger opposition than anyone foresaw. Ohio conservative Republican state senator, Bill Seitz, mobilises fellow Republicans to shrink the state's austerity programme fearing "voter backlash".

Portugal's socialist government collapsed last week. All other political parties refused to support its latest instalment of the austerity programme imposed on the Portuguese people. Recent massive protests against austerity and strikes for higher wages made their points. Continued association with business's austerity strategy is becoming too costly for more and more politicians. They must find new faces, forms or excuses to continue austerity; otherwise, they will suffer or be forced to defect as public opinion swings behind very different anti-crisis policies.

Such policies could shift the burden and costs of overcoming the economic crisis onto the larger corporations and the richest citizens. Indeed, such policies might well go further and change the system that keeps bringing us these crises and breaking its defenders' promises to prevent more crises. To the extent that they significantly alleviate the burdens of austerity, such policies might win the time and political space to achieve those larger goals.

Appeared in the Guardian "Comment is Free" on March 28th, 2011.

Richard D Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.


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