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Obama's sugar hit « Previous | |Next »
February 9, 2009

Despite the political theatre an agreement has been reached in the US Senate on the modifications to Obama's stimulus package. The modifications include cutting $40 billion in state aid, another $20 billion in school construction, $2 billion for rural broadband access in favor of $30 billion in tax rebates for people who buy homes and cars. All in all the Republicans cut $100 billion from the stimulus package.

Kalbailout.jpg Kal

The Republicans basic argument is that Democrats are trying to spending and borrow their way to prosperity (borrow and spend). However, the historical role of a stimulus is to kick things off, to grease the wheels of credit, to get things "moving again." But the effect ends when the stimulus does, when the "sugar hit" wears off. Those who believe that an economic stimulus package will simply restore growth and get it up to its previous level are engaged in wishful thinking.What is also needed are recovery policies that will continue for years.

Another US banking bailout package is on the cards; one to buy the contaminating assets that wiped out the capital of many banks.The condition of severe stagnation following a stupendous financial crash (a dynamic which first resurfaced in the Japanese stagnation of the 1990s) is the situation in which we currently find ourselves.

Is there a limit to civilian government spending in the sense of a a political rather than an economic barrier? That is beyond some minimal level, real estate interests oppose public housing; private health care interests and medical professionals oppose public health care; insurance companies oppose public insurance programs; private education interests oppose public education; and so on.

In A New New Deal under Obama? John Bellamy Foster and Robert W. McChesney argue in Monthly Review that:

Given that a political ceiling on U.S. civilian government purchases as a percentage of GDP has persisted for more than seven decades, it is unlikely that this will change without a massive, indeed social-transformative, struggle, despite a relatively progressive administration and the worst economic crisis since the Great Depression. Even the greatest environmental crisis in the history of civilization, threatening life throughout the planet, is unlikely to result in a sufficiently massive response by government without the U.S. system first being turned upside down.

Consequently, civilian government spending increases in response to this crisis will:
initially, be dedicated primarily to salvage or bailout operations. These salvage efforts, so crucial to capital, will be legitimated by smaller public works programs directed at the underlying population. Government spending increases as a whole will in the main be conceived as temporary, pump-priming measures rather than permanent increases in the level of government. Although federal spending increases are likely to loom large in budgetary terms, they are unlikely to come anywhere near compensating for the declines in consumption, investment, and state and local government spending.

A return to the kind of social programs associated with the real or second New Deal can be expected to come, if at all, only later, after the initial salvage effort.

| Posted by Gary Sauer-Thompson at 6:18 AM | | Comments (4)
Comments

Comments

The Republican opposition to the stimulus package (faithfully parroted by the Libs here - shouldn't someone tell them that the Republicans aren't doing so well these days and maybe they should drop the John Howard strategy of hanging grimly to their coat-tails?) ... anyway the opposition consists largely of shrill warnings about how it will all have to be paid for some day. Will nobody think of the children?

This of course is arrant nonsense. The whole point of counter-cyclical fiscal policy is to even out the booms and busts, so that one year you get burned (i.e. the government runs a surplus) and another year you get a bonus (they run a deficit). I didn't hear any of this inter-generational inequality stuff coming from conservatives when Howard was doling out massive bribes to voters at the expense of investing in infrastructure for the future. It's hardly Labor's fault if Howard's mob failed to salt away the huge surpluses they should have during our unprecedented long boom.

The other point of course is that it's not 'our children and our grandchildren' who will be paying off the new debts; most of it will be paid off by the same people it is designed to help. It took Howard and Costello only a few years to turn Labor's infamous deficit into booming surpluses and it's safe to assume that the business hasn't died. The idea that we're all going to be dead and buried before public debt starts to reduce again is patently ridiculous. The only thing that might make it so is a series of Bush-style governments that insist cutting taxes is more important than reducing debt (cue Julie Bishop's mad staring eyes as she gives her Laffer Curve speech).

'... it's safe to assume that the business hasn't died.'

*business CYCLE hasn't died

re US Treasury secretary Timothy Geithner’s Bank Bailout Mark III bank bailout in the US:--will it guarantee the so-called "toxic" assets? Or will it buy either the assets or the banks that own them?

Ken,
it would seem that the the financial-services industry is broke. As Godfrey_Hodgson says on Open Democracy:

the losses already announced are only a fraction of the contingent liabilities resulting from years of error and excess: wild speculation, ludicrous debt-leveraging, reckless packaging of derivatives in an inverted pyramid that was crazily balanced on the point of mortgages that were never remotely likely to be paid out.The worst of the situation is that no one seems to have a clear idea what to do about the collapse of the credit system. The banks have balance-sheets stuffed with so-called "toxic securities" whose valuation is a timebomb. If the government buys these securities at the banks' valuation it will acquire an unbearable level of debt; if it takes them over at its own valuation, the banks' capital will be wiped out.

The Obama administration has got problems with Wall Street.