With the world’s biggest economy teetering over a ‘fiscal cliff’, Sean Ledwith explains the current anxieties in the American ruling class

Fiscal Cliff graph

If some economists are to be believed, the Mayan prophecy about the end of the world on 21 December of this year may only be a few weeks off the mark. Just over a month later, the US economy is pre-set to plunge over what mainstream commentators are calling the ‘fiscal cliff’ – an automated set of tax rises and spending cuts that some argue could send capitalism’s most powerful state into a tailspin, dragging the rest of the global economy down with it.

Larry Summers, a former White House economic advisor, warns:

“The overwhelming likelihood is that damage will be done to our national security because of the cuts in the defence budget. The overwhelming likelihood is that America’s legitimacy as a wise, powerful well-governed nation in world affairs would be called into question……it would be a catastrophe if nothing was done, a catastrophe.”

New York Times columnist David Brookes shares the apocalyptic mood:

“The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff”.

A ‘grand bargain’

Newly re-elected President Obama is currently engaged in behind-closed-doors negotiations in Washington with congressional leaders in an effort to avert the impending crisis on 1 January 2013. He has spoken of the urgent need for a ‘grand bargain’ between Democrats and Republicans that will provide a budgetary framework that satisfies the public sector platform of the former with the tax cuts for the rich agenda of the latter.

Both sides are telling their electoral bases they are on course to take a painful hit unless the situation is resolved by the beginning of 2013. That date will see the expiration of a tranche of temporary tax cuts from the George W Bush era, alongside the automated activation of public spending caused by previous set of failed negotiations between Obama and his congressional opponents.

The American working class is consequently being threatened with a perfect storm of $607 billion of welfare cuts and tax rises. According to the Fitch ratings agency, ‘going over the cliff’ would trigger hundreds of billions of dollars being ‘sucked out’ of the US economy, the annual tax bill for the average American tax-payer increasing by $3500 and global growth shrinking in 2013. The situation is therefore also being anxiously monitored by other ruling classes around the world, including those in Beijing and the Eurozone capitals.

The beginning of next year was established as the putative ‘fiscal cliff’ when a previous set of negotiations stalled in 2011. At that point, Obama revealed the cold reality behind his ‘Change We Can Believe In’ rhetoric of the 2008 election by proposing $1 trillion cuts in Medicare (health insurance for senior citizens) and a $360 million reduction in Medicaid(a poverty relief programme). Alongside other cuts in Social Security, Obama’s 2011 plan would have slashed $4 trillion off the US deficit-the bulk of it coming from the welfare budget.

The only reason this particular scythe did not cut through the US working class at the time was that these proposals were – unbelievably – not savage enough for the Tea Party-dominated Republican Party in Congress. Apart from devising his own fiscal chainsaw, Obama had also expressed his approval for the Simpson-Bowles plan, a similar scheme to impose austerity through measures such as a 10% reduction in the federal workforce, raising the retirement age to 67 and eliminating mortgage tax relief for home owners.

The president was forced to prolong the fiscal impasse to the new deadline of January 1st next year. That date cynically suited both sides as it meant they would both be able to hide the true impact of their plans from the American electorate during the November elections.

Slashing welfare

The postponement gave Obama the opportunity to tack left during the campaign and try to revive his tainted image as a progressive liberal among his core constituencies in the working class. He swapped his suit and tie for a bomber jacket – and hit the stump to re-deploy his 2008 image as a transformative candidate. That tactic was also facilitated by Mitt Romney’s utterly unconvincing attempt to portray himself as anything other than an opportunistic candidate for the 1%. Obama was able to spin himself as a candidate for the ‘middle class’, tapping into the residual resentment of the elite that has not dissipated among many Americans voters since the 2008 crash and was best articulated by the Occupy movement of last year.

Since his emphatic re-election he has been able to feed off the hopes of the 62 million who voted for him and maintain his verbal commitment to no tax cuts for families making over $250 thousand per year or individuals on more than $200 thousand. Despite their electoral humiliation, however, Republicans in the Senate retain their filibuster-an undemocratic device of America’s archaic constitution that allows the minority party to talk out a proposal from its rival.

Obama’s’grand bargain’ to secure some moderately progressive hits on the super rich will be to offer in return a re-heated version of his willingness to slash the welfare budget in 2011. Bob Woodward, one of the journalists who uncovered the Watergate scandal of the 1970s, told American TV last month he had obtained leaked information about a stalled deal between Obama and his Republican counterparts last year to implement a Medicare reduction of $250 billion over ten years, $112 billion in Social Security over the same period and cutting university funding by $10 billion. Something similar is the most likely outcome of the current negotiations.

In a pre-election interview Obama boasted:

“I’ve already cut a trillion dollars’ worth of spending. I’m willing to do more. I’m willing to cut more, and I’m willing to work with Democrats and Republicans when it comes to making some adjustments that bring down the cost of our health care programs, which obviously are the biggest drivers of our deficit.”

It is unlikely the millions who went to the polls for him in November shared Obama’s pride in his axe-wilding credentials or his apparent belief that they are primarily responsible for the recession.

Obama’s two-faced strategy is symptomatic of how the Democratic Party machine cynically plays on the hopes of American workers every four years. In his re-election victory rally in Chicago he pressed the button marked ‘progressive rhetoric’ and started speechifying about the American Dream:

“It doesn’t matter whether you’re black or white or Hispanic or Asian or Native American or young or old or rich or poor, abled, disabled, gay or straight. You can make it here in America if you’re willing to.”

A few weeks later he is holed-up with unreconstructed neo-liberals plotting the dismemberment of the already flimsy welfare state that most of these people depend on. The contrast between Obama’s rhetoric before and after the election exposes the myth peddled by the Democrats that voters were being genuinely offered two contrasting visions of America’s future.

As Columbia University economist Jeffrey Sachs observes:

“Mr Obama’s overall discretionary spending targets are essentially the same as Mr Ryan’s. Whether Mr Obama or Mr Romney wins, the ‘non-security’ discretionary budget – for education, job skills, infrastructure, science and technology, space, environmental protection, alternative energy and climate change adaptation – is on the chopping block. Mr Obama’s budget would shrink non-security discretionary programmes from an already insufficient 3.1 per cent of GDP in 2011 to 1.8 per cent in 2020. That is the “liberal” alternative…….the sad truth is that the Democrats offer no progressive alternative. Both parties are accomplices to the premeditated asphyxiation of the state.”

Obama’s betrayal of the working class

The tragedy for the US working class is the election results provided compelling evidence of a rising progressive zeitgeist in American society that Obama has shrewdly exploited for electoral advantage but will soon cynically betray in his ‘grand bargain’ One British newspaper labelled it the victory of the ‘Rainbow nation over the Mad Men’-a reference to the conspicuous contrast between the demographic profile of the two major parties.

72% of voters on less than $100 000 per year voted for Obama, despite unemployment nudging 8% on election day. Mainstream commentators had been predicting for months it would be impossible for an incumbent to be re-elected with that statistic hanging over him.

Obama’s victory indicates American workers were more afraid of what Romney might do in the next four years than what Obama had failed to do in the previous four. Obama’s campaign maintained the support of American trade unionists-despite his pro-Wall Street record of bank bailouts and failure to advance a scheme to facilitate union membership. In two of the crucial swing states-Ohio and Wisconsin-unions have been active over the past few years in resisting Republican attacks on the labour movement.

The latter was the scene of a massive uprising against a neoliberal Governor in early 2011 which inspired the Occupy movement later that year. Obama predictably failed to intervene on their behalf but many workers and activists would have seen the presidential vote as an opportunity to exact revenge on their Republican tormentors. The latter would have been particularly horrified to see that state elect the first lesbian senator in US history.

Obama was also overwhelmingly supported by black and Latino voters, a section of the electorate that is growing by 2% every four years-in inverse proportion to the size of the white vote. “We’re not generating enough angry white guys to stay in business for the long-term“, noted a dejected Republican Senator.

Outside the presidential election, there was further evidence of many Americans moving further left than the prevailing ideologies of both major parties. Two notable casualties of the centre-left shift were Senate candidates Todd Akin and Richard Murdouck, whose idiotic comments about rape during the campaign were barely believable. Three states voted to legalise marijuana and two voted to legalise gay marriage.

America’s remote ruling class

The right wing attack dogs at Fox News struggled to contain their shock. Bill O’ Reilly’s laughable election analysis was “Obama wins because it’s not a traditional America anymore. The white establishment is the minority. People want things.”

The delusions of the US right are partly a product of the increasingly remote and detached existence of some of its most affluent members. Michael Gross’ documentary, Park Avenue, recently shown on BBC4 exposed the stunningly extravagant lifestyles of some of America’s super rich.

The title refers to the New York address of an elite group of plutocrats who occupy an exclusive set of apartments in the same building. The list of previous residents reads like a rogues gallery of the elite: the Rockefellers, the Chryslers, Bouviers and the Vanderbilts. Current occupants include the Koch brothers (financial puppet masters of the Tea Party) and billionaire equity manager Steven Schwarzman who once compared a proposed crackdown on tax avoidance to “when Hitler invaded Poland in 1939”. Casually dismissing criticism of his egregious wealth, he volunteered himself as founder member of the ‘Occupy Waldorf’ movement.

According to Michael Gross, a typical apartment in this building contains “37 rooms, 14 bathrooms, 43 closets, 11 working fireplaces, a private elevator and his-and-hers saunas, another at one time had a live-in service staff of 16”.

Descriptions of the pampered existence of these members of the 1% are astonishingly reminiscent of the accounts of the eighteenth century French aristocracy après le deluge .Yet it is not these people who are likely to take the bulk of the hit of Obama’s grand bargain. As in other capitalist economies around the world it is the working class that will be expected to bear the brunt of austerity.

Dismantling social security

Marxist economist, Michael Roberts wrote of the 2011 deadlock deal in Washington:

“….this crisis is fraudulent. Its was simply an attempt to force people to accept moves to dismantle social insurance and swallow the extension of Bush’s aggressive tax cuts and even more regressive tax cuts to come.

But, in reality, there was no chance of a default on the interest or debt repayments which the US federal government owes its capitalist creditors. As was inevitable from the start, when the ‘crisis’ came to a head, the Obama administration, the Democrats and the Republicans agreed to make drastic cuts, but they couldn’t agree on the details.”

The same analysis can be applied to the myth of the fiscal cliff in 2012. Like its international counterparts the US ruling class intends to use the recession as a pretext for rolling back the advances made by American workers in welfare, education and healthcare over the course of the twentieth century.

The bad news for Obama and the Republicans is that his first term was marked by upsurges in class struggle such as the Wisconsin uprising, the Occupy movement and a massive teachers strike in Chicago. Now that the balloons and bunting of election politics have been chucked away it is to be hoped the US working class will resume unfinished business.

Sean Ledwith

Sean Ledwith is a Counterfire member and Lecturer in History at York College, where he is also UCU branch negotiator. Sean is also a regular contributor to Marx and Philosophy Review of Books and Culture Matters