Listen to my latest 2 short (15 min.) radio interviews on the recent debt ceiling deal, the continuing banking crisis, future Fed rate hikes, and latest inflation and jobs reports. GO TO:
1. CRITICAL HOUR Radio
https://drive.google.com/file/d/1mhytOM5p3Tn1oJ0LxqoFLTzr2Y83ir1G/view
2. BY ANY MEANS NECESSARY Radio
https://drive.google.com/file/d/1iq5bqipZBvbVYD1sIDTIqnCX1gT7C6y6/view
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Over the weekend, US House of Representatives speaker McCarthy and president Biden announced a tentative agreement on raising the debt ceiling. The deal—almost certain to pass Congress later this week—represents a typical Neoliberal fiscal policy deal.
Ever since neoliberal capitalism policies were introduced under president Carter in the late 1970s, and subsequently expanded dramatically under Reagan, Neoliberal fiscal policy has been characterized by accelerating Pentagon & war spending; simultaneous cutting of business-investor taxes; acceptance of consequent escalating budget deficits—and in turn US national debt levels; and the use deficit/debt to cap and reduce social program spending.
That Neoliberal fiscal policy mix of tax-spending-deficit policies mix clearly defines the recent McCarthy-Biden deal.
In the roughly two year agreement, extending from the present to the end of February 2025, Pentagon spending will rise by 11% in the 2024 fiscal year which begins October 1, 2023. That 11% is estimated at $885 billion. A further increase in Pentagon spending will certainly take place the following fiscal year, commencing October 1, 2024, but the deal doesn’t say how much further rise in Pentagon spending is projected for that second year.
Pentagon vs. Defense Spending
It’s important to understand that the $885 billion in Pentagon spending is not exactly the same as US defense spending. Around $200 billion more in defense related spending occurs in US government departments in addition to the Pentagon.
For example: all the oil costs for the US military (the largest single consumer of fossil fuels in the world) comes out of the Energy Dept. budget. Veterans benefits spending for past wars comes out of that dept. Then there’s CIA’s spending on mercenary and its own field forces. So too for the State Dept. which finances similar covert military activities. Part of Homeland Security costs can be considered defense. And then there’s the so-called ‘black budget’ of secret US military weapons development that never even gets reported in publications of the US budget or by the US press. That’s been estimated around $75 billion a year. So actual, total annual US Defense spending—in contrast to Pentagon spending alone—is probably around $1.1 trillion a year.
Taxation & the National Debt
Economists estimate that tax revenues, or lack thereof, are responsible for about 60% of deficits and therefore the debt (which is just the accumulation of annual deficits). Tax revenues are reduced as result of tax cutting and/or reduced revenues as a result of slow economic growth when recessions occur—or when post-recession recoveries are weak.
The McCarthy-Biden deal prohibits raising business-investor taxes the next two years. Businesses and investors will thus be assured that their Trump era $4.5 trillion in tax cuts, December 2018-28, will continue. Estimates of the cost of the lost tax revenues caused by the 2018 Trump tax cuts, from 2023 through 2028, will be about $2.7 trillion thus contributing significantly to a further rise in the national debt by 2025.
A Short History of US Debt Trajectory 1980-2025
That the McCarthy-Biden deal has nothing to do with the national debt is obvious from the fact two more years of US deficits, and thus the national debt, are expected to continue to rise by $4 trillion—up from the current $31.4 trillion level. US government debt levels will therefore exceed $35 trillion by the time the next ‘debt ceiling negotiations’ occur. However, neoliberal capitalism is not concerned about rising debt levels per se. (Which means it is not at all traditional ‘liberalism’ in the historical sense of that term).
During the era of US neoliberal capitalism, which extends from 1978-79 to the present, US national debt has accelerated. When Reagan took office in 1981 it was less than $1 trillion. By 2001 it had risen to approximately $6 trillion. Starting 2001 the national debt accelerated sharply under George W. Bush, as Mideast war spending escalated and Bush era taxes were cut by $3.8 trillion simultaneously.
The US national debt further accelerated under Obama. When the latter assumed office in January 2009, the national debt was around $10 trillion. Obama then cut taxes and introduced spending totaling around $787 billion in his 2009 fiscal stimulus program. He subsequently then extended the Bush tax cuts another two years in December 2010, to 2012, when they were to expire in December 2010 after their initial 10 year period. That two year extension cost another $803 billion. Then, outdoing himself, starting in 2013 Obama once again extended the Bush era tax cuts, permanently this time, at an estimated additional lost tax revenue cost of $5 trillion.
Obama thus cut taxes, composed about 80% of cuts for businesses and investors, more than $6 trillion. The tax cuts, the slow economic recovery from the great recession that also reduced US tax revenues, and the $787 billion (plus another $50 billion or so for ‘cash for clunkers autos’ and first time home buyers assistance) spending in his 2009-10 fiscal stimulus programs, resulted in the US debt rising to about $18 trillion when Obama left office in January 2017.
Then came Trump’s $4.5 trillion additional tax cuts passed in December 2017, followed by year one (2020) of the Covid economic shutdowns and spending all of which pushed the national debt level to about $22 trillion when Trump left office.
The collapse of the economy in 2020-21 driving down tax revenues, the further tax cuts in 2020 through 2022, the continuing of Trump’s 2018 tax cuts, the bailing out of businesses in the various Covid economic stimulus bills of 2020-21, the roughly $3 trillion spent on households’ assistance during Covid, the mere 1% GDP growth in 2022 (December 2021 to December 2022) that depressed tax revenues, the funding of the Ukraine war ($200 billion in 2022-23), and Biden’s roughly $1.65 trillion spending on three business investment stimulus bills of 2022 (Infrastructure, Semiconductor & Manufacturing subsidy, and the energy industry misnamed ‘Inflation Reduction Acts), and the steady rise in interest on the debt from less than $300 billion in 2019 to estimated $600 billion in 2023—all converged to accelerate the national debt to its $31.4 trillion current level.
It is perhaps not coincidental that the tentative debt ceiling agreement (the 79ths in US history by the way, extends only to 2025. That’s when the $4.5 trillion Trump tax cuts of 2018 come up for a vote in Congress on whether to make them permanent instead of expiring in 2028. So we can expect another even more contentious debt ceiling crisis déjà vu in about two years.
The McCarthy-Biden Social Program Spending Cuts
As with all neoliberal fiscal policy measures, the deal’s 11%+ Pentagon-Defense spending increase—combined with the absence of any tax hikes in the deal—has meant cuts to social program spending.
The main cut in discretionary social programs is the agreement to freeze all 2024 fiscal year spending at 2023 levels, and in 2025 to allow a mere 1% increase in such spending.
On Monday, May 30 House Speaker McCarthy publicly bragged, when measured in dollar terms, the deal results in $2.1 trillion in social program spending reduction. Biden says it’s ‘only’ $1 trillion. The New York Times estimates the two year deal amounts to a cut in total discretionary spending—defense and non-defense—is 18%. However, since the Pentagon gets a 11% (plus more in 2025) increase, the net discretionary non-defense spending cuts are likely in the 20%-25% range.
Total available funds for discretionary social program spending—like education, transport, health, etc.—in the 2024 fiscal year is capped at $704 billion. But it’s really only $583 billion after $121 billion spending on Veterans is taken out of the $704 billion total non-defense. The US considers Vet spending as spending on social programs but it should be considered Defense spending.
The $583 billion for discretionary non-defense spending contrasts with the $886 billion for the Pentagon alone. Or $1 trillion for Pentagon and Vets. (And still more for other ‘defense’ costs distributed in other departments of the US government).
In other terms of the deal involving discretionary social program/non-defense spending:
An estimated $30 billion in unspent Covid funds is cut. That’s another de facto $30 billion taken out of the economy.
In environment policy, fossil fuel companies are now able to expedite reviews and obtain licenses quicker. And West Virginia Senator, Joe Manchin, gets billions in funding for his gas pipeline in his state.
Republicans get an initial ‘bite of the apple’, as they say, in work requirements for single adults as a precondition for receiving food stamp benefits. The prior age rule for work requirement was raised from 50 to 54, with exemptions for veterans and the disabled. McCarthy did not get his additional work requirement rule for recipients of Medicaid.
Biden gets to keep his $60 of his $80 billion to hire IRS agents. $20B is redirected to other spending. That means only 7200 more agents will be hired during the deal’s two years. The research arm of Congress, the Congressional Budget Office, has estimated if more agents were not hired then continuing tax avoidance and tax fraud would reduce tax revenues by $204 billion. (The CBO has also estimated that failure to raise taxes by ending Trump’s 2018-28 $4.5T tax cuts for business and investors results in a loss of $2.7 trillion in US government tax revenues).
Biden compromised with McCarthy as well on the subject of student loan forgiveness. In addition to preventing any student loan forgiveness, McCarthy wanted immediate restoration of student loan payments plus retroactive back interest added to loans during the Covid period moratorium. In exchange for McCarthy dropping these draconian proposals, Biden agreed to resume student loan payments this August 2023.
Deficits and Debt Continue
Previously it was noted that Neoliberal fiscal policy is fundamentally unconcerned with annual deficits and a rising national debt. That’s no less true in the current debt ceiling deal.
McCarthy may brag that the agreement amounts to a $2.1 trillion reduction in non-defense spending over two years due to the freeze and 1% caps. But the truth is that the annual deficits will continue to rise in the $1.5T to $2T per year range. Independent estimates are the US debt will continue to rise by $4 trillion by the end of the deal. That’s more than $35 trillion by the end of fiscal year 2025. Interest on that debt this year will rise to approximately $600 billion, up from less than $300 billion in 2019.
The causes are obvious: No rescinding of Trump’s 2018 tax cuts (which the CBO estimates will add $2.7 trillion to the debt). Continued below historic average US GDP growth which reduces tax revenues as well. Third, an ever-rising Pentagon and Defense spending trajectory, as the US funds the Ukraine war while preparing for another, even bigger one in west Asia with China before the end of the decade.
Debt Ceiling As Political Theater
The US has raised the debt ceiling 78 times before the current negotiation. This writer has argued the recent negotiations are just a ‘debt ceiling dance’ and predicted it too will be raised, a 79th time. And it has.
It’s virtually certain the deal will be approved by both the US House and Senate and signed by Biden by next weekend at the latest. McCarthy’s margin in the House was a mere 217-215 vote in support of his initial proposals. By agreeing to a two year non-defense spending freeze and 1% caps—or in other words a $2.1 trillion and 18% discretionary spending cut—Biden clearly gave in far more than he needed to. One would have to conclude McCarthy and the Republicans came out ahead in the negotiations.
The House will vote on the deal on Wednesday, June 1, 2023 and will likely pass it. The Senate will take a little longer but will pass it as well by the weekend. Biden will sign by the weekend. Thereafter, both sides will ‘spin’ the deal and exaggerate their claims. They’ll both hide behind a claim that the economic sky would have fallen in had they not agreed. A dubious claim at best.
Then the real negotiations will begin. For the political theater surrounding the debt ceiling negotiations was in fact an attempt to renegotiate the Biden 2024 budget that commences next October 1, 2023. McCarthy simply used the debt ceiling issue to cut programs early. And he’ll come back for a second ‘bite of the apple’ at the end of this summer.
And if Biden’s negotiating performance during the debt ceiling negotiations is any indicator, he’ll get even more concessions from Biden
Jack Rasmus
Copyright 2023
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Interested in how the October 2013 debt ceiling crisis ‘came down’? How Obama agreed to massive spending cuts and extended George Bush’s tax cuts for another decade? Here’s some of my Alt Visions shows in October 2013 on the debt ceiling dance
1. https://jackrasmus.com/2013/10/14/the-coming-debt-ceiling-settlement-2-0/
2. https://jackrasmus.com/2013/10/17/my-radio-show-commentary-on-debt-ceiling-deal-2-0/
3. https://jackrasmus.com/2013/10/24/whats-happening-to-the-1-2-trillion-sequester-cuts/
And here’s my December 16, 2013 Summary of the Debt Ceiling fiscal-austerity deal agreed to by Obama and the Republican US House of Representatives’. DEJA VU anyone?
December 16, 2013 by jackrasmus
This past week the US House of Representatives voted 332 to 94 in favor of changes to the federal budget for 2014. The House vote in effect adopted the proposals of the ‘Joint Congressional Committee’, chaired by Teaparty House leader, Paul Ryan, and Senate Democrat, Patty Murray, set up in October as part of the interim agreement between the two parties to end the more than two week shutdown of the federal government that month.
The October interim agreement called for the Ryan-Murray committee to provide budget change proposals by December 2013 for a Congressional vote by December 13, 2013. Last week 169 Republicans and 163 Democrats in the House voted for the Ryan-Murray proposed changes to the 2014 budget; 62 Republicans voted no, as did 32 Democrats. The measure now goes to the Senate for what will likely be a formal vote of adoption, and then in January to a Congressional Appropriations committee in time for meeting the mid-January 2014 deadline date agreed to last October for changes to the federal budget.
The Official ‘Spin’
The deal agreed to this past week by both wings of the single Party of Corporate America (POCA)—aka Democrats and Republicans—has been hailed as a pragmatic, albeit ‘narrow’ agreement that shows the two wings can once again agree on fiscal changes and deficit cut matters, thus ending an era of dysfunction that has characterized US government since 2010. The narrow budget deal, amounting to only $85 billion over the next two fiscal years, 2014-2015, is also being defined as the end of efforts to reach a ‘grand bargain’ on taxes and deficit cutting, as well as the end of the Republican wing Teaparty faction’s ability to disrupt government to promote its own interests and Teaparty candidates in Republican primaries. However, none of these arguments ‘spinning’ the budget deal are accurate.
The disfunctionality may have ended for the interests of corporations, investors, and wealthy Americans, i.e. the 1%, but it hasn’t for the remainder of households, as the details of the recent deal below clearly illustrate. Last week’s Ryan-Murray deal clearly promotes the interests of defense corporations, the Pentagon, and the wealthy—at the direct expense of millions of US government workers, millions more unemployed, veterans, retirees, and tens of millions of Americans on food stamps.
The deal furthermore represents not the reversal of ‘austerity’, as is claimed, but rather a clever restructuring and continuing of austerity in new forms. It reflects a ‘grand bargain’, but a bargain achieved in stages, piecemeal, rather than in an ‘all in’ form that might generate more severe and resentful public political reaction.
Not least, the deal just concluded represents not the ‘taming’ of the Teaparty faction in the Republican wing, but instead the realization by the rest of the two traditional wings of POCA that, in the 2014 midterm Congressional election year about to begin, they had better go slower on austerity in 2014—as they had previously during the 2012 national elections year. The deal is thus a ‘politicians deal’, and neither a fiscal stimulus nor a deficit cutting exercise.
Restoring the Sequester Defense Cuts
In 2011 House Republicans and the Obama Administration agreed to cut $1 trillion in discretionary social spending programs, mostly education, plus another $1.2 trillion of discretionary cuts deferred until 2013 called the ‘sequester’, about half of which represented defense spending cuts.
The 2012 election year that followed was a hiatus in terms of austerity and new deficit cutting. However, once the November 2012 elections were over, both wings of the POCA immediately proceeded to the ‘fiscal cliff’ deal of January 2, 2013, which raised taxes on wage earners while allowing $4 trillion in Bush tax cuts to continue for another decade. However, the fiscal cliff deal of January 2013 conveniently left the matter of the ‘sequester’ spending cuts for a later date, including the $600 billion in defense cuts. That segmenting of tax issues from spending issues, and especially defense spending, was necessary to enable the full passage of the $4 trillion in tax cuts for the rich. A more complicated deal, including spending reductions, would have risked the passage of the tax cuts.
Beginning March 1, 2013, the $1.2 trillion ‘sequester’ spending cuts were allowed in 2013 to take full effect for non-defense spending, while defense spending cuts called for in the sequester were shielded and offset in various ways by the Obama administration, with the concurrence of Congress, during 2013. Pentagon spending this past year continued at the $518 billion level (not counting another $100 billion or so for ‘overseas contingency operations’—i.e. direct war spending). That both the House Republicans and Senate controlled Democrats had every intention throughout the past year to restore the Defense spending cuts called for in the sequester, was evident in the House Budget and Senate budget proposals, both of which called for increasing Pentagon spending to $552 billion in 2014, according to a New York Times front page article of December 11, 2013.
The just concluded Ryan-Murray budget deal is also primarily about addressing (and reversing) those defense spending cuts and continuing to shield defense from current and future spending reductions. Were the sequester defense spending cuts allowed to go into effect in 2014, Pentagon spending would have declined from current $518 billion in 2013 to $498 billion in 2014. The Ryan-Murray budget deal sets Pentagon spending for the coming year at $520.5 billion.
As the Washington Post indicated in a lead article on December 12, with the recent budget deal the US House has temporarily retreated from deficit cutting “in favor of Republican concerns about the Pentagon budget”, with the Wall St. Journal adding on December 13 that the budget deal is “nearly erasing the impact of sequestration on the military”.
That the budget deal is primarily about restoring defense cuts was further evident in that the same day the budget deal was passed by the House, it immediately voted to pass the National Defense Authorization Act, NDAA, thus locking in the restoration of Pentagon spending in 2014 at a level above 2013.
Domestic Non-Defense Spending: Smoke & Mirrors
While the proposed sequester defense cuts have been essentially restored for 2014-15, and effectively removed from further deficit spending cuts in the future (as had tax hikes on the rich with last year’s fiscal cliff deal), the cuts to discretionary non-military spending programs have not fared as well.
The budget deal calls for restoring $63 billion in total scheduled sequester cuts for the two years, 2014-15. Non-defense program spending restoration is reportedly $31 billion of that. It thus appears that a $31 billion increase in non-defense spending is part of the deal. But domestic spending the past two years, 2011-2013, has declined from a total of $514 billion to $469 billion, or $45 billion. The budget deal raises that to $492 billion. That’s $23 billion, not the reported $31 billion.
Moreover, the $31 billion restoration is predicated on the continuation in the budget of the reductions in payments to Medicare doctors and health providers. If the reductions in payments are rescinded, as they have been every consecutive year thus far for more than a decade, then the $31 billion non-defense spending restoration might very well also be taken away or significantly reduced. $31 billion may not in fact, in other words, actually occur.
Apart from the possible $31 billion reduction, what Congress and Obama appear to restore in in the $31 billion discretionary social spending on the one hand, they are taking away—plus more—with the other. This will occur two ways: first by raising $26 billion in fees (i.e. de facto taxes) on consumers and by taking money from federal workers and veterans pensions; second, by taking $25 billion from the unemployed. So the net effect is a reduction of -$20 billion, not a restoration of $31 billion.
The budget deal directly includes increasing ‘fees’ by $26 billion. $6 billion of that comes in the form of raising federal employees’ pension contributions and another $6 billion by cutting military cost of living increases for military pensions. Another $12.6 billion comes from raising government taxes on airline travel. Thus retirees, government workers, and middle class households will pay $26 billion more as part of the budget deal. But that’s not all.
The budget deal cleverly does not include the $25 billion in cuts to unemployment benefits in its calculation of spending $31 billion more in domestic spending. When deducted from the $31 billion, it’s only a net $6 billion in domestic spending. And when the $26 billion in fees (taxes) are added in, that’s a total of -$20 billion in domestic spending.
Another way of looking at it is that $25 billion in cuts to unemployment benefits is that the amount is just about the same amount of restored defense spending cuts. The unemployed are effectively paying for the defense corporations’ continuation of defense contracts at prior levels.
More than 1.3 million workers will immediately lose their unemployment benefits on December 28, 2013. Another 1.9 million who were projected to continue benefits in 2014 will also now lose them. Emergency benefits that up to now included extended benefits from 40-73 weeks, will now revert back to only 26 weeks. This occurs at a time when 4.1 million workers are considered long term unemployed, jobless for more than 26 weeks. Knocking millions off of benefits will likely result in 2014 in even more millions of workers leaving the labor force, which will technically also reduce the unemployment rate. That’s one way to manipulate statistics to formally reduce unemployment, but it’s not a true reduction of unemployment by actual jobs creation, the latter of which is increasingly a problem of the US economy for more than a decade now.
The budget deal conveniently disregards in its calculations the refusal to extend unemployment benefits. But it’s clearly part of the deal. The failure of the budget deal to extend unemployment benefits, and the net -$20 billion in unemployment benefit cuts plus fee hikes, is an indication of the budget deal’s continuing ‘austerity’ focus. But that’s not all.
Another ‘off track’ discretionary spending cuts about to occur involve cuts to food stamps for millions of recipients, scheduled to occur by February 2014. Today one in eight households now receive food stamps, the result of the deep decline in jobs since 2008, the failure to create jobs at a normal rate since then, and the fact that jobs that have been created since 2008 are predominantly low paid. The cost of the food stamp program, SNAP, has doubled to $80 billion during the so-called Obama economic recovery and the abysmal record of job creation the past five years. Both wings of the POCA are concurrently proposing cuts to SNAP, ranging from $24 billion for the Demo wing and $52 billion for the Teapublican (traditional republicans + Teaparty faction) wing. An increase in food stamps that was scheduled for November 1, 2013 has already been put aside. Further reductions are being negotiated that will conclude by February 2014 that will likely reduce food stamp spending by $8-$10 billion over the two year period, 2014-2015 of the recent budget deal period. As in the case of the $25 billion in cuts to unemployment benefits, the $8 billion more in food stamps spending cuts are conveniently ignored in the budget deal calculations.
The real budget deal thus amounts to $31 billion in domestic spending cuts restored from the sequester—offset by $26 billion paid for by government workers, retirees and vets, by another $25 billion paid for by the unemployed, and still another $8 billion by the poor and working poor in food stamp cuts. What the budget deal gives (+$31 billion) with one hand, it takes away double (-$59 billion) with the other. The net result is a -$28 billion reduction for workers, retirees, vets, and the unemployed, while the Pentagon and defense corporations get off free.
Strategic Significance of the 2013 Budget Deal
The budget deal just concluded fundamentally represents a continuation of deficit cutting for the rest of us, while letting defense corporations and spending off the sequester hook. The budget deal ‘narrowly defined’, at $63 billion restoration of sequester cuts, is misleading at best. While defense spending is restored in the budget deal, Republican and Democrat claims that domestic program spending is also restored is a cynical lie. The $31 billion in domestic spending does not include parallel cuts of $25 billion to unemployment benefits and an additional minimum of $8 billion to food stamps. And when the $26 billion in ‘fees’ are factored in—impacting retirees, vets, government workers, and consumers—the net effect is further spending reductions and continued austerity for the rest, while the Pentagon and corporate military contractors are now exempt.
Contrary to the media spin, there is a grand bargain in progress. It’s just dispersed, implemented over the course of several years since 2011 and in stages. It is being rolled out in segments and in phases. The August 2011 deal. The phony Fiscal Cliff deal. Now the budget deal of 2013, in which defense spending cuts area fully restored while a ‘smoke and mirrors’ game is being played with domestic discretionary spending.
With regard to the ‘smoke and mirrors’, politicians are using the ‘playbook’ of corporate management in union negotiations. They are simply ‘moving the money around’—i.e. restoring $31 billion, which is then taken away in other ways at the expense of government workers, vets, and unemployed.
In a broader strategic sense, what the recent December 2013 budget deal represents is that both wings of the single party of corporate interests (POCA) in the US have been pursuing a piecemeal grand bargain strategy. First $2.2 trillion in spending only cuts are enacted in 2011, leaving the issue of $4.6 trillion in Bush tax cuts to the ‘fiscal cliff’ tax deal of December 2012. Once the tax hikes on the rich were moved off the table with the fiscal cliff deal, the focus shifted to getting the defense spending cuts also ‘off the table’ and minimized. The rich got to keep $4 trillion of the $4.6 trillion with the fiscal cliff deal; the defense corporations and Pentagon now can avoid the $600 billion in previously scheduled defense spending cuts. In the meantime, $1 trillion in 2011 social program spending cuts went into effect and continue, the $500 billion in sequester defined social spending cuts also largely continue, and unemployment and food stamp cuts of hundreds of billions over the coming decade are also implemented. That all amounts to austerity continued via implementation of a grand bargain in stages.
And the game of smoke and mirrors is not over. More phases of the grand bargain in stages are yet to come. What remains is passage of a new tax code, which will include hundreds of billions more in corporate tax cuts. The fiscal cliff addressed tax cuts for wealthy individuals, not their corporations. Now the latter want their tax cuts as well. That potentially is on the agenda in 2014.
Then there’s the matter of ‘entitlements’ spending—i.e. social security and medicare. The official ‘spin’ of the current budget deal is that entitlements are not being touched and aren’t part of the deal. Republicans and the Teaparty faction have not demanded additional entitlement cuts in the current deal. That does not mean social security and medicare won’t be cut in 2014, however. Obama’s 2014 budget calls for no less than $620 billion in social security and medicare cuts over the coming decade. Apparently Republicans and Teapartyers considered that sufficient for a ‘first bite of the apple’. But they’ll be back for more in the final stage of the grand bargain by increments. But entitlement cuts will not be addressed further during an election year of 2014. That comes later, and after corporate tax cuts in 2014—which Obama and the Republicans have been both on record proposing for some time.
Jack Rasmus
Jack is the author of the 2013 book, ‘Obama’s Economy: Recovery for the Few’, Pluto Press, 2012, and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network online at PRN.FM. His website is, http://www.kyklosproductions.com, and his blog, jackrasmus.com. His twitter handle, @drjackrasmus.
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Listen to my May 19, 2023 Alternative Visions radio show for what’s really going on with the political theater called debt ceiling negotiations.
TO LISTEN TO GO:
https://alternativevisions.podbean.com/e/alternative-visions-the-debt-ceiling-negotiations-dance/
SHOW ANNOUNCEMENT
What’s behind the debt ceiling negotiations? Is June 1 the real deadline date? Dr. Rasmus describes what’s happened to the national debt since 2000 and the causes for its rise from $4T to $31.4T and why interest on the debt is projected to accelerate rapidly to nearly $1T/yr by end of this decade. How much have the declining share of tax revenue contributed to the annual US budget deficits and thus the national debt? War and Defense spending? Social program spending? Rasmus reviews the various fiscal policies since Covid—3 Covid relief spending plans in 2020-21 followed by 3 business subsidy and investment plans in 2021-22 by Biden. Why the debt ceiling negotiations are really a cover about how much social program spending to cut in the next federal budget beginning October 1, 2023. Once the debt ceiling is raised again, what’s the prospect for further budget deficits and still more increases in the US national debt?
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Watch my recent (May 14) presentation to the Niebyl Proctor library on the consequences for the working class of the current accelerating introduction of Artificial Intelligence applications: Topics include: What actually is AI? How AI means the loss of millions of simple decision making jobs and for millions more reduced hours of work, further compression of wages, and de-professionalization of work. Evidence from Goldman-Sach Bank’s May 2023 report predicting loss of 300m jobs from AI by 2030 and other business sources. What occupations most heavily impacted? How Neoliberal Capitalism since late 1970s has been steadily intensifying labor exploitation and why AI is the latest phase of Neoliberalism’s acceleration of exploitation. The presentation concludes with raising questions about how AI Technology poses important challenges to traditional Marxist analysis of labor exploitation.
To Watch the YouTube hour video + Q&A GO TO:
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Recent advancements with ‘Generative AI (e,g, ChatGPT) signify a qualitative leap in AI software machines that is about to radically change capitalist product and labor markets. Investors are now planning hundreds of billions of dollars in new investment in AI product applications. Goldman Sachs bank just predicted AI to impact 300 million jobs (wiping out some, changing others, reducing hours of work for many others and lowering wages). If interested in AI & its future impact on the working class, join my video presentation tomorrow to the Niebyl-Proctor Oakland, CA, library Sunday, May 14, 10:30am-11:30am (pst). Q&A follows at 11:30.
Link: https://us02web.zoom.us/j/81133350622?pwd=dUUyUWppbWt6djVTaElISUhocXpSUT09
Major Themes: How Neoliberalism has resulted in a constant intensification of exploitation of workers the past 4 decades. How AI tech change is about to accelerate labor exploitation further. (+ Implications of ubiquitous AI software machine technologies for Marx’s theory of exploitation, his key derivative concepts of ‘organic composition of capital and falling rate of profit tendency, and the 19th century labor theory of value).
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The dollar is one of the key lynchpins of the US economic empire. Since the advent of Covid, sanctions on Russia & China, the Ukraine war, and the growing bifurcation of the global economy, developments have intensified toward a shift from the US dollar as global reserve and trading currency. How much is hype, wishful thinking, and actual fact? Listen to my April 29, 2023 Alternative Visions radio show where I discuss this important topic. (Also latest developments in the crash of First Republic Bank as of April 29 and predictions)
TO LISTEN GO TO:
https://alternativevisions.podbean.com/e/alternative-visions-de-dollarization-continued-banking-crisis-updates/
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Watch my April 18, 2023 hour long YouTube interview on ‘What’s Next for the Economy’, with the ‘This is Revolution’ group, addressing topics of global ‘de-dollarization’, Fed interest rate monetary policy, inflation, growing US deficits & debt, sanctions and Ukraine war, US banking crisis, recession, US geopolitical strategy in Ukraine & Taiwan, and related topics.
TO WATCH: Go to https://www.youtube.com/watch?v=eokafbspLEI
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Watch my 90 minute April 3, 2023 YouTube Interview on the current state of the Banking Crisis presentation to the audience of the Niebyl Proctor Marxist Library in California.
To watch go to https://www.youtube.com/watch?v=ObHVDkkZ-84
AN ADDENDUM
In the Q&A session following my above presentation, a discussion among the attendees after I had to leave addressed the topic of the ‘falling rate of profit tendency’ by Marx. During my presentation I too briefly commented on this important topic. Basically, while I do not support the falling rate of profit idea as the cause of capitalist business cycle instability (or the idea that financial instability derives from real economic conditions created by the falling rate of profit, I do agree strongly with Marx’s assessment of how labor exploitation occurs by means of absolute and relative surplus value extraction.
I followed up my presentation a day later with the following letter to the audience that attended my presentation, which explains why I don’t adhere to the falling rate of profit tendency. That letter and explanation is as follows:
Hello Gene,
Thanks for the invitation to address your group on the banking crisis this past Sunday, April 2. My apologies for having to leave early and not stay for all the Q&A. I just watched the discussion after I left and have a few clarifications for Mehmet, Raj and others on what I said about AI, exploitation, and the falling rate of profit hypothesis that I’d like to offer by way of clarification to what I said on those topics. Please share these comments with others who may be interested.
For all the above reasons one cannot quantify capitalist profits in order to determine if its ‘rate’ is falling or not.
Which raises another technical issue. What does one mean by ‘rate’? A rate is the change in percent terms in a period compared to its base period. (example: inflation is the rate of price change over time, current compared to a base year). So when Marxist advocates of FRP say the ‘rate’ of profits is falling, what is the base year to which they are referring? They mostly never indicate one, which is another FRP computational issue.
One might add: why is the rate of profit important? Why is the level or magnitude of profit a better variable?
Marxists who support the FRP thesis (who, by the way, tend to be mostly anglo-american Marxists), argue that the financialization of the capitalist mode of production in the 21st century is all derived from the real, or productive, sector of the economy. Somehow the decline of profits in the real, productive labor economy is what is causing the financialization. But if so, what is the causal mechanism by which this is occurring. Describe it. They don’t.
Those who advocate the causal relationship between the real economy and the financial economy is one way, from the former to the latter, ignore the more likely relationship that is dialectical not mechanical causation that is one way.
FRP Marxists also don’t understand very well that profits of any kind are price variables as well as value variables. Price fluctuates around the core of value. Labor time is the concept marx ‘invented’ in order to quantify value so it could be measured. Labor time is thus the functional proxy concept for the labor theory of value. But there is no ‘time’ variable in the creation of financial asset securities. For example, tell me how much labor time went into creating the various financial derivatives? For example, in creating credit default swaps? Can’t be done. But, CDS are a financial market that produces immense financial profits for capitalists. Profits that get mixed into quantitative estimates of profits from production in most multinational corporations. That’s just one example.
Capitalists have been turning to creating financial asset profits increasingly in recent decades, especially since 2000. I’m saying this creation is destabilizing the capitalist system with bubbles and financial crises that in turn often cause a deep contraction of the real economy (which reduces the creation of commodities and profits from productive labor). Capitalists are turning toward this ‘fetish’ capital creation (to use Marx’s term) because the profits are realized faster, safer (it’s easier to exit a market than to sell a failing manufacturing company for instance), and greater. Put another way, fetish capital can create profits faster than capital can create commodities and realize profit from the sale of those commodities. So financialization expands exponentially almost, while traditional commodity creation and sales expand more slowly. The greater potential profitability from financial asset creation also ‘crowds’ out money capital flowing into real investment and production of commodities. Thus we get the trends toward greater wealth accumulation by capitalists from financial investment than we get from capitalists investing in real assets (that make things, require natural resources, human labor, etc.)
But the financialization of the capitalist mode in the 21st century is not adequately accounted for in Marx, who observed a world of mostly industrial capitalism. The idea that financial capital derives from industrial capital is mostly Lenin’s notion, although he correctly understood finance capital comes to dominant industrial capital. But what does ‘dominate’ mean?
If profits are a price variable, not just a value variable then we are mixing productive labor and exploitation with labor that is not productive and therefore no exploitation occurs. This raises questions of the labor theory of value as Marx created it. If we adhere to Marx’s concept of profits only created by productive labor and further assume financial wealth is in the end only the result of productive labor—then that means the 20 million of US workers employed in productive labor (manufacturing and construction and maybe some transport and communications) create all the wealth acceleration going on since 2000 and before that has been accumulating in the hands of the 1%. That seems illogical to me.
My comments on Artificial Intelligence suggested that traditional forms of labor exploitation in production, based on marx’s ideas of Absolute and Relative surplus value, are intensifying. Marx’s chapters on Relative and absolute value creation in Vol. 1 are his best chapters in my opinion. Every worker knows both are true. But AI, I argue elsewhere, raises important questions in the 21st century as to the argument by Marx that machinery simply represent labor time and labor value embodied in the machine; and that that embodied or ‘dead’ labor in the machine is ‘used up’ as the machine depreciates as it makes its contribution to transferring value into the commodity. My point re. AI, however, is does that ‘embodiment’ of labor time and its depreciation in the course of production apply the AI which is essentially software machinery? If AI is able to rewrite its own software code without human labor intervention, in order to make itself more efficient and productive, and even self-maintain itself (which it can), then there is no ‘using up’ of labor time involved. ChatGPT is what’s called ‘generative AI’. It can make itself more efficient and productive over time by upgrading its own software coding. And when the evolution of AI gets to what’s called ‘general AI’, then AI software machines will be able to rewrite its own coding in order to decide on attempting to solve new problems that were never programed into the machine initially by human labor.
In short, AI raised issues for the labor theory of value via Marx’s concept of the Organic Composition of Capital (OCC), which is the key concept for estimating the falling rate of profit tendency.
What I’m saying in summary is this: Marx’s traditional explanation of labor exploitation via the creation of Absolute and Relative surplus value is correct. New forms of both can be described and measured in the 21st century. Labor exploitation from productive labor is growing. (So is what Marx called ‘secondary exploitation’, whereby wages paid for labor time is clawed back by capitalists for productive and non-productive labor. So too is socially necessary labor time being manipulated by capitalists to expand surplus value. So you see I support Marx’s analysis in this fundamental way.
Marx is correct. But only half way so. Exploitation today must account for financialization and the rapid evolving of that key Force of Production called technology, the leading edge of which is now Artificial Intelligence.
Marxists should be focusing on understanding these developments of late capitalism and not keep trying to ‘prove’ the FRP based on capitalist state profits data that is corrupted and defined differently than Marx. They should stop trying to claim financialization and fetish capital is just a derivative of profits from productive labor, whether falling or rising. That’s ‘mechanical Marxism’ in my view.
Nor should Marxists insist that what Marx wrote in his unpublished notes is his own final view on the FRP or any other theory. Marx was just beginning in Vols 2 and 3 to explore how the capitalist banking and financial system worked (in the 19th century). He had not worked out all his views. And how could he see what finance capital would become 150 years later? (To answer Raj on this point: Marx did not publish Vols 2,3. Engels did and he selected from Marx’s total work to produce 2,3. There are many more volumes of Marx’s work that Engels never ‘selected’ that exist unpublished and untranslated in the Marx library in Amsterdam.
I am not very impressed with analyses that treat Marx’s Capital and other works as if they were inviolable canon. It seems a lot like how Christians treat the bible. Or Jews the Torah. Or Muslims the Koran. You can’t find answers to everything that is capitalism today in the ‘book’. Besides, Marx planned 8 volumes of Capital. He only published one plus 3 of notes. Like the approach to analysis by German thinkers of his day, he planned to proceed from the general to the particular, from the abstract to the more concrete. His work is largely unfinished. After Vol 1 he was too busy actually trying to create a party and a revolution to sit for more years once again in the British Museum doing research. We can’t fault him for that. But let’s not believe everything that could be said about capitalism he already said. And let’s not advocate theories like the FRP that can’t be tested or quantified even if we like the idea within it. (Btw, the FRP was never intended to explain capitalist cycles and crashes, as many Marxists try to assume it does. Marx’s ideas of crises were long run analyses not short run).
Let me finalize by saying to Raj that I don’t make up these views. They are the result of teaching a class every year for six years at St. Marys college in which the students and I read every page of Marx’s vol 1, along with every page of Keynes General Theory and Smith’s Wealth of Nations (abridged). However, I did not come to read Marx in the abstract, but only after having worked a dozen years in the union movement at the grass roots level as organizer, contract negotiator, strike coordinator and local union president. After that I read Marx and it therefore made much more sense to me, especially the chapters on how exploitation works.
I hope this foregoing explanation clarifies some of the all too brief passing comments I made during the Q&A on the implications of financialization and AI in late 21st century capitalism for the FRP hypothesis that Raj raised.
I would refer your audience if they want more of my views and analyses on these issues to listen to my last Friday, April 1, 2023 Alternative Visions radio show, the topic of which was “Artificial Intelligence vs. the Working Class” (accessible from my blog at http://jackrasmus.com) I also have a forthcoming print article by the same title which I’ll share if you like once it is published.
Yours,
Jack Rasmus
April 4, 2023
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Goldman Sachs bank research this past week published a report that 300,000,000 jobs worldwide will be impacted by the now accelerating introduction of Artificial Intelligence software (machines) that will either eliminate or sharply reduce the hours of work for workers involved in simple decision making tasks like customer service reps, paralegals, receptionists, retail services, human resources reps, copywriters, basic software coders, and countless other occupations. Its report updates that of five years ago by McKinsey Consultants that estimated 5 million jobs impacted.
Academics hail the news that it will mean a sharp increase in productivity (and therefore profits which they don’t say). But this comes at the expense of destroying jobs and lowering wages. Jobs that might be created by AI will be mostly highly skilled software jobs, many of which the multinational tech and other corporations will import from their foreign subsidiaries via H1-B and L-1 visas from the US government.
Few jobs and greater productivity also mean more intensive exploitation from those workers who will still have work. AI is the latest restructuring of capitalist labor markets in the past five decades that witnessed greater exploitation of labor as a result of expansion of ‘precarious’ work (involuntary part time and temp jobs) and gig work. AI represents the ‘third wave’ of intensification of exploitation of labor.
For my discussion of these trends, and explanation of exactly what is AI, how it works, and its consequences, listen to my Friday, April 1, Alternative Visions radio show (note: initial minutes of show discusses three other reports of importance recently issued, followed by discussion of the Goldman Sachs report predicting loss of 300 million jobs to AI
GO TO:
SHOW ANNOUNCEMENT
Today’s show begins with discussion of several reports issued this past week: first, evidence by the Wall St. Journal that the 11m open jobs reported by the US Labor Dept’s ‘JOLT’ statistic may be wrong; second, why widespread media reports that the banking crisis is now stabilized are wrong; and, third, why weekly unemployment benefit claims per a Bloomberg News report represent only 25% of workers actually newly unemployed each week. Dr Rasmus then discusses a fourth report this past week by Goldman Sachs bank research indicating that up to 300 million jobs will be negatively impacted (lost jobs or hours of work reduced) as a result of the accelerating implementation of Artificial Intelligence by businesses. Rasmus explains fundamentally what AI is, its enabling technologies, and how AI will destroy millions of simple decision making jobs by eliminating many occupations or sharply reducing hours of work in those occupations. Rasmus reports 1300 tech experts this past week (including Musk) issued a written warning calling for a moratorium on AI and ChaptGPT. But AI is too profitable and the AI tech train has left the station. The show concludes with discussing how AI is critical for advanced military weaponry and is much of the basis of US attack on China’s tech industry today
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While the capitalist system has undergone numerous restructurings throughout its history, capitalist elites purpose in restructuring has remained the same: to restore and/or extend their hegemony. The current restructuring, operative since 1978, is called Neoliberalism. The book examines Neoliberalism as both an Idea and an historical practice composed of a particular mix of fiscal-monetary-trade-industrial policies that began with the latest US capitalist restructuring in the late 1970s, continuing to evolve to this day. The book further explains the deeper material forces giving rise to - as well as now undermining - the Neoliberal policy regime, with special focus given to the crisis of Neoliberalism in the wake of the 2008-09 global crash, Obama's failure to resurrect it, and Trump's current doomed effort to restore it in a new, more aggressive form. Evidence why Neoliberalism is destroying US Democracy concludes the book's analysis.
Describes how US federal governments, often in cooperation with the largest US private banks, introduced and expanded central banking functions from 1781 through the creation of the Federal Reserve Act of 1913. Based on an analysis of the evolution of the US banking system - from pre-1781, through the 1787 US Constitutional Convention, Congressional debates on Hamilton's reports to Congress, the rise and fall of the 1st and 2nd Banks of the United States, and through the long period of the National Banking System form 1862-1913, the book shows how central banking in the US evolved out of the private banking system, and how following the financial crash of 1907 big New York banks pushed through Congress the Federal Reserve Act of 1913, creating a central bank which they then managed for their interests.
(Click on image) CENTRAL BANKERS is a comprehensive critique of central banks’ policies in the 21st century, explaining why the massive injections of free money to the banking system since the 1970s enabled the creation of excess corporate debt that has led to financial bubbles and repeated crises. The book addresses the growing contradictions of central banking, why they are failing in their functions, targets and tools, and proposes a radical democratization and restructuring to transform them to serve the public interest and not the private banks.
(Click on image) LOOTING GREECE, A New Financial Imperialism Emerges. This book - Reveals clearly who calls the shots in the Eurozone—the hardliners, not the remnants and political residue of what was once European social democracy, - Follows the negotiations in their excruciating detail as the Troika tightens the screws from 2009 to the present, - Shows how Europe’s financial elite enriches itself on Greek debt, privatizations and financial manipulations, turning Greece into an Economic Protectorate.
(Click on image): This book offers a new approach to explaining why mainstream economic analyses have repeatedly failed and why fiscal and monetary policies have been incapable of producing a sustained recovery. It explains why the global economy is slowing long term and becoming more unstable, why policies to date have largely failed the trend, and why the next crisis may therefore prove even worse than that of 2008-09.
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter. Includes the book, a video DVD presentation, and 66-slide PPT slideshow.
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter.
(Click on image) A theoretical analysis, with historical case examples, of origins, causes and future evolution of the recent--and continuing--economic crisis in the U.S. and global economy. Includes predictions in 2009 of the inevitable failure of Obama policies and more serious crisis to come, 2013-15.
(Click on image) Seven specific reasons why economic recovery under Obama since 2009 has failed for all but the wealthiest few and largest corporations. The book spells out eight specific areas as an Alternative Economic Recovery Program.
(Click on image) The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush, is a 534 page, extensively researched, nonfiction book that describes the evolution of corporate-government policies from 1980 to 2005 that have shifted more than a $1 trillion dollars a year, every year, from 90 million American middle and working class households to the wealthiest 10% and corporations.
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 