The aim of the $3.5 trillion budget submitted by President Barack Obama is to slow down the massive income inequality in the country and deal with multiple crises which have accumulated for years and are now in the acute stage, such as health care, global warming and education.

The budget is a reversal of a 30-year trend in which the capitalist budget was used as a blunt instrument to carry out blatant transfers of wealth from the masses to the rich, while cutting back on every form of social spending. Its aim is to carry out long-term reforms of a progressive but limited character that include, among other things, taxing the rich, cutting taxes on the workers and the middle class, aiding students, establishing a fund to improve the health-care system and taxing polluters.

Just days after the administration presented the budget, the capitalist economic crisis showed in various ways that it is deepening dramatically. The giant insurance company AIG announced the biggest quarterly loss in corporate history: $61.7 billion. Washington had to come up with another $30 billion in bailout money for AIG, bringing the total to $180 billion. The world’s biggest insurer, AIG is in crisis because it insured so much of the bad mortgages and other bad debt floating around the globe.

A few days prior to the AIG announcement, General Motors announced it had lost $30.9 billion in 2008. The Big Three auto bosses went into negotiations with the White House to get $20 billion more in bailout money. Together, GM, Ford and Chrysler lost $53.4 billion in 2008. Meanwhile, U.S. demand for vehicles fell to its lowest level in 25 years.

Citigroup, the largest private bank in the U.S., had to come to Washington for its third bailout. This time the government had to buy a 36 percent stake in the bank to keep it afloat.

Profits and production swoon

On March 2, the Dow Jones average on the stock market hit its lowest point since 1997, dropping below 6,800. This drop directly reflected the economic situation. Profits are sinking. Profits in the fourth quarter of 2008 fell 37 percent at the 457 companies in the S&P 500 that have reported quarterly results. The 74 financial companies reporting lost a combined $50.5 billion. Business investment in equipment and software fell 28 percent in the fourth quarter and exports declined. Manufacturing declined for the 13th month in a row in February.

The government also revised its estimate of how steep the downturn was in the fourth quarter of 2008. It now estimates that the gross domestic product (GDP) dropped 6.2 percent, rather than the 3.8 percent originally stated. This was the biggest drop in any quarter since the fall of 1982, when a drastic downturn saw unemployment rise to more than 10 percent. Although the total number of jobless for February has not yet been announced, there was a sharp rise in weekly unemployment claims to 600,000 new claims each week. This indicates that the overall figure will rise by even more than the half-million-plus jobless added in each of the previous three months. (Wall Street Journal, Feb. 28)

The U.S. numbers were in synch with the global picture. The big capitalist powers in Europe and Japan are all in crisis and their economic decline is steeper than that of the U.S. To make the crisis of the European capitalists even worse, their governments cannot agree on measures to fight the downturn.

The capitalist economy worldwide is clearly out of control, not only of the bosses but of all their financial officials and government institutions. It is no wonder that the word “depression” is creeping into the descriptive terminology more and more.

Obstacles to even limited reform

The Obama reform plan, limited as it is, is up against the economic crisis, which threatens to overwhelm it. But it is also up against the right-wing opposition led by Rush Limbaugh and Newt Gingrich, which is openly trying to sink the Obama program. Sections of the Republican Party have called it “class warfare,” which means instead of giving every nickel to the rich while trying to get the capitalist economy back on its feet, it contains programs that may reduce some misery for the workers.

The budget calls for a rise in taxes for those making over $250,000 a year—the top 5 percent of the population. The Bush tax cuts for the wealthy would be allowed to expire next year. The plan would raise taxes on the super-rich who run the private equity funds and hedge funds. Right now much of their profit is taxed at 15 percent, which is lower than the tax rates for their employees.

The budget, if passed as is, would wipe out $4 billion in subsidies to banks that give student loans. These funds instead would go to bolster Pell grants for students. In addition, Pell grants would be indexed for inflation and the maximum would be raised on July 1 to $5,350.

There would be increased money to detect, prevent and treat HIV-AIDS. There is $4 billion to expand health care for Native people and for the Indigenous of Alaska. There are also funds to provide food stamps to low-income elderly, to rehabilitate low-income housing, to increase allocations for Head Start and Early Head Start, and to improve health care in rural communities. (New York Times, Feb. 27)

Restores family planning funds

This budget would restore money for family planning for low-income women through Medicaid, which was removed from the stimulus package earlier under right-wing pressure.

Health-care reform is predicated on savings and on squeezing money out of the medical-industrial complex—the HMOs, insurance companies and hospitals—to create a $634 billion fund over 10 years to finance various measures. It envisages savings based on improved preventive care and a number of other measures, such as common computerized data bases for medical records.

Obama’s attack on global warming is based on forcing polluters to pay for permits giving them permission to pollute up to a given amount. These payments would fund weatherizing housing, green construction and many other projects.

But the budget, despite its reversal of the Reagan-Clinton-Bush emphasis on taking from the masses, is cautious and minimal, given the magnitude of the problems it seeks to address.

The working class, especially its most oppressed sections, and the middle class need universal, affordable, quality health care now. The trillions going to the banks in bailouts instead could be used to fund the system. The cost could be drastically reduced by cutting out the pharmaceutical industry, the insurance industry, the for-profit hospitals, the HMOs, and all the parasites that use health care as a way to line their pockets.

Setting up a 10-year fund or convening a health-care council that leaves the private capitalists in place guarantees that the health-care crisis will drag on and will result in a rotten compromise. Health care for all should be a right.

There are millions of homeless people, millions more who must live crowded together, often two or three generations in one unit, and millions who are in danger of losing their homes. To overcome this housing crisis requires the investment of hundreds of billions of dollars to insure everyone’s basic right to a livable, affordable space for themselves and their families. Housing should be a right.

Gives more money to Pentagon

One outright reactionary provision of the budget is a 4 percent increase in the Pentagon budget with new emphasis on weapons to counteract resistance movements. The military budget would rise to $534 billion from $513 billion. That would be enough to put millions of workers back to work, millions of people back in their homes, or to serve as the beginning of a national health plan.

In the midst of this terrible economic crisis, Washington is planning to keep 50,000 troops in Iraq while it escalates the war in Afghanistan and spreads it to Pakistan.

But most telling about the Obama budget are its projections regarding the tax increases for the rich and its economic predictions. The tax cuts for the rich are not scheduled to go into effect until 2011. The reason, according to the administration, is that this is when the economy will recover.

The two-year wait is bad enough. But even more important is the definition of “recovery” in the budget. It projects that the capitalist economy will grow by 3.4 percent in 2010. Most experts consider this a wildly optimistic estimate. But even if that were to come true, the budget forecasts that after the recovery there will still be 7.9 percent unemployment–higher unemployment than during the present crisis.

No recovery foreseen for workers

In short, the budget is looking to bring about a recovery for the capitalist class. It expects an increase in production and in profits, but leaves the working class with massive unemployment, which is especially severe in the Black, Latin/o, Asian and Native communities. Right now a total of 24 million people are either unemployed or underemployed, according to the Center for Labor Market Studies and Northeastern University. Official unemployment was 7.6 percent as January ended, and is expected to reach 8 percent at the next announcement. So this budget means that a “recovery” of the capitalist economy in terms of economic growth could leave more than 20 million workers unemployed or underemployed.

This is a recovery strictly for the bosses. The multinational working class should take a look at these projections and see what the government and the financial experts have in store. The only way to get a working class recovery is to open up a mass struggle for jobs—not in 2010 or 2011, but right now.

Labels: aig, Citigroup, Dow Jones, economic crisis, General Motors, obama, pentagon

It is becoming clearer every day that the capitalist class has no solution to the present crisis, either short term or long term. The short-term stimulus will not work and the long-term forces that have in the past pushed capitalism forward are exhausted.

It is clear from this that the multinational working class, through independent mass action, is the only force that can intervene to stop the layoffs, foreclosures and evictions and that the workers must do so in order to save themselves from being driven deeper into poverty.

Right now the mood of the capitalist class and its advisers and commentators has gone from panic and shock to gloom and despair.

Just as in the Great Depression, the financial system—the heart of capitalism, which pumps money through its arteries—has seized up in bankruptcy. When it is working normally, this heart pumps money into the system of industry, services and commerce to finance the exploitation of the workers and the sale of the products of their labor. From this exploitation profits flow back in the form of money into the treasuries of finance capital, and from there the money recirculates in order to finance more exploitation and bring in more profits.

The crisis of overproduction has slowed the normal circulation of profits back to the financial heart, leaving the system in desperate need of sustenance to keep functioning. To make matters worse, not only has this normal flow of the profits from exploitation back into the coffers of the banks dwindled, but their arteries are clogged with undetermined trillions of dollars of bad debts acquired in wildly excessive lending and secured by fictitious paper assets—fictitious because they have no underlying real value.

The financial authorities have tried with all their might to get this heart running again through bailouts—injections of money, loan guarantees, forced mergers—but the vital organ of banking still shows only a faint sign of life.

Why ‘nationalization’ is on the table

Both major schools of capitalist economic practitioners and advisers, including liberal neo-Keynesians like Paul Krugman and reactionary, supply-side Milton Friedmanites like Alan Greenspan, are now converging, under the pressure of the crisis, toward concluding that there is a need to “nationalize” the biggest banks, which everyone knows are insolvent. Nationalization, in the version being proposed, amounts to the seizure of the banks by the government, the nationalization of their bad debts, and then the return of the debt-free banks back to the hands of the parasitic financial swindlers.

But even if this could be agreed upon and carried out, the ruling class fears, correctly, that lending during a capitalist depression is like “pushing on a string.” Lending to companies that have no markets for their products brings no profit. Lending to workers who have lost their jobs or are surviving on low pay brings no profit. Lending to students who won’t have a job when they graduate will bring no profit. So the “nationalization” of the banks is an attempt to treat a financial symptom when the disease itself is overproduction as a result of the system of production for profit.

It is beginning to dawn on the bankers, brokers and bosses that they are staring into the void of an economic crisis in which, more and more each day, the protracted forces of economic downturn seem to completely overwhelm the prospects for recovery. Each economic stimulus or bailout measure announced by the Obama administration seems to be immediately dwarfed by announcements on the growing magnitude of the crisis.

Can’t find an engine for recovery

Pessimism is mounting because none of the experts can discern an engine for a recovery, even three or four years in the future. By April, this will be the longest continuous downturn since the Great Depression, surpassing the recessions of 1973 to 1975 and 1980 to 1982, and there is no real end in sight.

Those who predict that growth will return at a given time—say the end of 2010 or the end of 2011—are whistling in the dark and they know it. They have had to change their predictions downward over and over again since the crisis started in December 2007. They cannot see into the next quarter, let alone two years hence.

This is because the system of private property is anarchic and unplanned, based on corporate secrecy and the unbridled rivalry for profits.

The ruling class, government officials and bourgeois economic “experts” have endured so many sudden catastrophic drops in the stock market, so many mortgage company failures, so many reports of the biggest banks asking for and getting untold sums of money, so many profit declines, so many grave unemployment reports, so many foreclosure reports, etc., that they seem to alternate between panic over what’s happening at the moment and a state of long-term gloom and despair over the future.

Take this article in the Washington Post datelined Feb. 18:

“Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.

“Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years. Meanwhile the job market in the United States, at the epicenter of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had predicted just months ago. ...

“The sharpness of the global slowdown has alarmed economists, who see no obvious engine for recovery.” Absolutely nothing to drive a recovery!

Paul Krugman’s column published Feb. 19 in the New York Times was tellingly entitled “Who’ll Stop the Pain?” Referring to the minutes of a recent meeting of the Federal Reserve Board, he wrote that his eye was caught “by the following chilling passage. ... ‘All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment.’”

Krugman is a Nobel Prize winner in economics and a neo-Keynesian advocate of even greater government stimulus spending and nationalization of the banks. He said he has been obsessing lately over “What’s supposed to end this slump? No doubt this too will pass—but how, when?”

To find a model that he hoped would eventually work to get U.S. capitalism out of the crisis, Krugman had to go back to the recovery from the crash of 1873. That was in the era of competitive capitalism, before the dominance of monopoly and finance capital.

Another comment in the Federal Reserve minutes that bears noting is that once the economy starts expanding again, it will be an “unusually gradual and prolonged” recovery.

This gloom is based upon the mounting figures surrounding the crisis. The International Labor Organization based in Geneva said that if unemployment continues at its present rate of growth, 18 million to 30 million workers worldwide could lose their jobs in 2009. But if the situation deteriorates, the number could rise to 50 million. The IMF has predicted that world output will fall in 2009 for the first time since World War II.

The ruling class concern over the economic crisis has nothing to do with sympathy for the workers and oppressed who suffer the pain. A protracted depression means a decline in production, which means a decline in profits, a rise in unemployment and the prospect of eventual working-class rebellion. This is the double nightmare that haunts them about the future.

Comparisons to Great Depression

Many comparisons are made with the Great Depression. The pundits console themselves with the drastic number of 25 percent unemployed at the depths of the depression in 1933 and an average of 17 percent for the decade. Compared to those numbers, they say, we are a long way from the Great Depression.

But a numerical comparison cannot be made at this point. The major financial authorities, including the Federal Reserve Board, the IMF and, recently, the attendees at the elite World Economic Forum in Davos, are coming to agree that this is still the early stage of the crisis.

Another comparison can be made that comes closer to the essence of the present crisis and the prospects for recovery.

The Great Depression came three decades after U.S. capitalism had first entered a period of crisis, inaugurated by the depression of 1893 to 1897. Long-term growth factors consisting of the building of the railroads, the brutal removal of the Native people in order to expropriate the land, the annexation of half of Mexico and the conquest of the so-called “frontier,” among other things, had exhausted themselves. Capitalism was unable to regenerate through the normal cycle of boom-bust-recovery. It took the rise of U.S. imperialism, signified by the Spanish-American War, to rescue the system.

The war brought a surge in the export of capital and in imperialist superprofits extracted from the superexploited people in the colonies: Cuba, Puerto Rico, Central and Latin America, the Philippines, Guam, Samoa, Hawaii, China and elsewhere. Imperialist expansion was the underlying factor that gave U.S. capitalism restored profitability and the material basis for recovery. This is what allowed a new surge in the development of technology and the productive forces.

The development of the assembly line, standardization and interchangeability of parts, and further electrification of the country gave rise to mass production industries. Automobiles, radios, refrigerators and other appliances were produced in the U.S. alongside a growing export of capital.

World War I and U.S. loans to Europe after the war brought in profits. A postwar slowdown was overcome by the brief but wild prosperity of 1923 to 1929, fostered by credit and speculation in land and stocks. But the long-term factors of development were exhausted when the worldwide crisis of overproduction finally brought the system down in 1929. The ruling class was never able to mount a sustainable capitalist recovery.

The bourgeoisie now senses, although they cannot precisely articulate it, that the present crisis resembles the Great Depression not just in the growing unemployment, the financial crisis of the banks and the bursting of the speculative bubbles, but in the fact that both crises came as all the driving forces of capitalist recovery had exhausted themselves. Therein lies the fundamental similarity.

Next: The Great Depression and World War II.

Labels: economic crisis, Federal Reserve System, Great Depression, imf, nationalization