USA: THE «STATE OF THE UNION»; OR, WAITING FOR THE SECOND SHOE TO DROP
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U.S.A.: The «state of the union»; or, waiting for the second shoe to drop
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With the new year, self-congratulatory statements by politicians are the order of the day - a ritualistic rite of passage in any class-dominated society that helps calm fears, blunt criticism, and puts a spin on reality that shades, when it does not hide, the very exploitive nature of social relations behind public politics. This message is then magnified through the corporate controlled media, which becomes another obstacle to seeing what is so it is in the USA.
Hence, turning to the States first, but not before an explanatory note. The American governmental structure is federal, meaning that there is one central government at Washington, D.C., and fifty local state governments, with the latter playing a significant role in governance and in all domestic American developments. In the State of New York which notwithstanding California's greater population remains in the upper tier of the 50 States, the Republican governor George Pataki boasts of the economic performance of New York, when in reality the state lost well-paying manufacturing jobs and ranks amongst the lowest in new job creation (46th). With a state fiscal «prosperity» largely funded by a tax surplus ($1.8 billion) coming from the continuing speculative boom on Wall Street located in New York City on the state's small ocean front tip, half the state remains mired in economic stagnation. An example of what is going on is the city of Rochester in western New York. A remaining industrial center, it awaits further downsizing by its chief employer, Eastman Kodak, an anticipation sending seismic terrors through the community and especially amongst working and lower middle classes. Between 1982 and 1997, the company work force dropped from 60,400 to 34,400, and now more cuts are on the way.
Unmentioned by the governor are the dilapidated conditions of many of the urban public schools, a problem not created by him but worsened by the cuts he made in education during the earlier three years of his administration; conditions so bad that the universal reaction of students entering these schools from Western Europe is one of shock. Then there are the dangers posed by the rundown infrastructure (1) - roads, bridges, sewage systems, etc. Just during the Christmas Week, the rupturing of an antiquated waterline on New York City's lower Fifth Avenue, once the showcase of the wealthiest American families, left a hole so wide and deep that it recalled the craters of thousand pound bombs dropped in W.W.II.
Moreover. At a time when crime has been falling for the entire 1990s, Pataki offers new prison employment to the job-depressed northern areas of the state. This growing relationship between domestic capitalism and the politics of imprisonment, often espoused by the more openly right-wing Republicans, has begun to draw attention. On the one hand, there is the growing prison-for-hire industry, where convicts are farmed out to privately-owned facilities, which turns incarcerated human beings into money-making commodities On the other, the growing use of cheap prison labor to manufacture commodities that are then sold on the market. Both activities lend themselves to corruption, often function poorly - although not without profit for the enterprise - and involve the debasing of human values. If one adds to the national unemployment the large mostly male prison population, the American unemployment rate rises by 1 percent (2).
One gets an idea of what is going on from the following statistics. Between 1990 and 1995, the numbers in state and federal prisons passed the one million, up 30 percent (3). Seen most dramatically in the most populous state: in the last 20 years, California has built I new university and 21 new prisons, fired 10,000 from the state university system, including many professors, and hired 10,000 new guards (4); more money is spent on prisons than for education. From first in the nation in higher education, California is now near the bottom.
Returning to New York State, another matter merits attention. For the uninitiated reader, particularly if not American, a short disquisition on US tax policies is needed. One of the much trumpeted characteristics of the «conservative revolution» beginning in the US with the Reagan years of the 1980s has been the cutting of taxes. Abroad, these tax cuts are cited as a contributive reason for the success of the market economy and the impressive creation of new jobs. The Reagan tax cuts of 1981 and 1986 are good examples of how they actually worked. The principal change consisted of cutting the top federal income tax from 70 (1980) to 28 percent (1986). Fiscally, this led to the huge ballooning in the national debt: from less than $1 trillion accumulated between 1976 nd 1980 to $4 trillion by 1988. Socially, these huge tax cuts, given principally to upper incomes, dramatically widened the gap between the richest and the poorest, between the top five and one percent and the rest. What had been a chasm became a Grand Canyon. Taxes actually were raised on incomes, say, between $30 and $100 thousand, the so-called «middle class,» even as they were cut above. The huge pools of new money helped spark the enormous growth of financial speculation and other financial services that have characterised this recent period of capitalism; much less was invested domestically in new productive facilities There is no doubt that this boon for the well-to-do helped set off a wave of economic activity, but it came with various costs, rarely identified.
One is seen more clearly today. Distribution of wealth in the US is inordinately concentrated around the apex of a triangle reaching beyond the stratosphere, whereas the population is found mostly near or along the base at sea level; hence without progressivity, income taxes cannot raise adequate revenues. As taxes were cut on the income of the rich, to make up for lost funds the government borrowed, thereby increasing the national debt, interest to pay the debt (a debt largely concentrated in the hands of institutions or wealthy purchasers thus becoming another source of new income for the few) is drawn mainly from taxes on the incomes of the many, the 80 percent below the top 1, 5, or 20 percent of society, the gainers from the tax cuts. Thus, those tax changes were less a tax cut than a tax shift, from the few to the many, from the top to the middle and below. Roughly speaking, the rise in national debt just about equated the new money left in the pockets of the rich as a result of those tax cuts - Reagan's multi-trillion dollar gift to the class he served foremost. Commenting at the time, Felix Rohatyn, himself a corporate banker, noted,
«What is occurring is a huge transfer of wealth from lower skilled, middle-class American workers to the owners of capital assets and to the new technical aristocracy with a large element of compensation tied to stock values» (5).
Another study by Edward N. Wolff complemented Rohatyn's observation: 37 percent of total income gains between 1983 and 1989 went to the top 1 percent of income recipients, 39 to the next 19, and 24 to the bottom 80 percent (6).
The federal tax cuts had another deleterious side effect. With less coming into the treasury, Republican and Democratic conservatives could now cry «poverty». With the treasury in deficit, they proclaimed the need for «fiscal responsibility», the necessity to cut social programs - welfare, education, aid to the disabled, and Medicare, the not too generous but popular medical coverage of the 65 and older.
Coming back to New York of the 1997-1998 fiscal year in particular, the Republican governor and the Republican and Democratic legislature introduced a new wrinkle: they back-loaded increasingly larger tax cuts over the next five years and simultaneously assumed large, new fiscal obligations That is, they introduced a tax-cutting program that will increase during each of the next 5 years, reaching $5 billion annually in the last year (2001-2002), while agreeing to finance expensive new programs. This is a form of having your cake and eating it too. Two additional facts should be noted about these tax changes. One, since the cuts fall heavily on income taxes, they unproportionately benefit higher incomes. Two, in the past, to make up for similar income-tax losses, the state drastically cut social benefits and aid to communities, forcing the latter to raise sharply property taxes that hit mostly the domiciles of working families (7). Hence, those tax changes were also less tax cuts than tax shifts. Under the present 5-year tax-cutting program, the state has no guarantee that 5 years hence the economy will provide the income now generated by a flourishing Wall Street, even as the state shoulders greater fiscal commitments - commitments, observers point out, that are truly populist for the first time, probably because this is an election year and the governor is known to have presidential pretensions. The precariousness of New York's newly found fiscal responsibility was underscored by this observation by the federal Department of Labor:
«New York's unemployment insurance fund ranks dead last among the States, with a balance large enough to cover just one month's of claims» (8).
The very sober Moody's and Standard and Poor's, two major bond raters,
«give New York the second lowest credit rating, ahead [only] of Louisiana» (9). Thus, should tax income drop, the potential for a fiscal fire crisis has been laid, one that could easily turn into a social problem of uncertain dimensions, depending on the severity of the fall.
As the States, so the federal government of Washington. President Clinton, who under constitutional obligation delivered an annual State-of-the-Nation address in January, spoke of the accomplishments of his administration. One, the deficit reduced to a mere $10 billion, the near «balancing of the annual fiscal budget», in sharp contrast to the gargantuan deficits characterizing the Reagan and Bush years (1981-1992). Two, the creation of enormous numbers of domestic jobs, making the US the «envy» of those Western nations that have large pools of unemployed. Three, a large number of small-step reforms, proposed for the first time or already passed under pressure of his administration. (So many that critics began to wonder if this extra long step toward meeting what the populace wants was not a means of limiting the damage raised by the brouhaha over Monica Lewinsky, his latest sex scandal; that would seem to be the case with his sudden call in the speech for a new minimum wage increase without specifics of time or amount, which could be nothing more than a distracting flash in the pan.) These reforms include tax credits for primary, secondary and higher education; a proposed federal Consumer Bill of Rights for participants in managed care, largely HMOs, to assure that the company does not profit at the expense of members; a suggestion that Medicare be extended to the 62-64 age category, and to the 55 if unemployed, provided that they pay for their own premiums before reaching 65; federal aid in establishing better day-care facilities for working parents; and, not least, the use of future federal tax surpluses to «guarantee» the solvency of the Social Security fund, a meager but immensely popular federal-pension system beginning at 62 (reduced rate) or 65. One can get some idea of why working Americans clutch at Social Security, if one knows that half have no other pension systems (10) However, if the New York State budget tops $71 billions, the federal budget will reach $1.7 trillion. Thus, with the latter we are really dealing with a horse of a very different magnitude.
In addition, were he challenged, Clinton could point easily to data confirming that in the last few years a new «Era of Good Feeling» has descended on the American scene. By year's end (1997), the unemployment rate had dropped to 4.7 percent, with the creation of 404,000 jobs in November alone, and over 14 million since 1991. For the third year in a row, the Dow Jones average on Wall Street climbed over 30 percent in 1997, thus magically creating immense mountains of new wealth. Even after the October, 1997, gyration of stock prices, in November a research group at the University of Michigan found that the
«nations consumers had grown more confident»;
illustrative of this, house ownership is at an all time high. These statistics are so commonly bandied about on the domestic scene that no providence for the above data need be named.
«We're in the best of all possible worlds»,
exulted Clinton's chief economic adviser, Janet L Yellen, and her Commander in Chief, William Jefferson Clinton, may well spend additional days tranquilly playing at his golf, musing that like the pagan gods of Mt. Olympus he stands above the fray of mere mortals, that is, if this national spokesman of «family values» can successfully disentangle and clear himself from the latest charges of «improper sex». «For Many Americans, Nothing but Blue Skies», summarized a headline in probably the world's most authoritative newspaper, often described as the fourth pillar of American government (11).
Still, there is a down side, a nether world, to the shining Clintonian mansion on the hill, and a substantial one at that. Playing the stock market is in for many, and over 60 million Americans have money in stocks or mutual funds (12), but the hard rock reality is that stock ownership is highly concentrated: in 1992, the richest one percent of households (some 2 million adults) owned 39 percent of stock and 42 percent of bonds owned by individuals; the top 5 percent held 94.5 percent of public stock (13).
As for those jobs, so many millions! Undoubtedly there were a good many high paying amongst them, but in aggregate?
«All the net new jobs created in the United States during the current expansion have been in the service sector of the economy. Most gains have been in the low level retail trade and consumer service sectors, where, relative to manufacturing US workers are paid much less than in Europe» (14).
The characterization appears overstated, except that a seeming confirmation arrived from another source.
In New York City, the Controller Alan Havesi announced that 54,000 private-sector jobs had been created last year . 50,ó00 in service, retail and wholesale, all low paying; 3,600 in finance and real estate, which could range from good to exceptionally good-paying; lastly, 2500 in construction, also good-paying; in addition, the city lost 3,000 manufacturing positions (15). The prevalence of low wages amongst the new jobs -93 percent - coupled with the loss in manufacturing suggests an extension of poverty, not a growth of affluence. The universal proliferation of low wage and poverty incomes helps explain why on the average the German work year is 1,582 hours and the American 1950 (16). If assuming a 40-hour workweek, the American works 48.75 weeks a year, the German 39.55; since the German workweek is less than 40 hours, the discrepancy is even greater, to the disadvantage of the American. Americans work longer and harder (the second or third job) than many Western counterparts because they have to, and this has been widely noted in domestic commentary. Moreover, when unemployment in Western Europe and the US is adjusted for differences in defining what is «unemployed», the rate of unemployment in Germany was 7.2 percent last year, the US 5.4, rising to 6.4 percent with the imprisoned, rendering the difference not significant (17).
And then, another dark aspect. Every serious commentator on economic developments agrees that American wages have fallen behind the past. A recent publication of the Jerome Levy Institute of Baird College put it these way
«Adjusted by inflation, the median income of American employees in the mid 1990s is some 5 percent lower than what it was in the late 1970» (18).
No wonder home mortgage defaults are growing in the New York metropolitan region. With the state of California leading the nation in this category, Connecticut (with the second highest per capita income of any state) is second, and New York and New Jersey third and fourth (19). The last three States are in the northeast, which includes New York City, the site of a rich and most important financial center in the world, and the home to one of the poles of earthly wealth. These indices are a simple further indication pointing to the extreme maldistribution of these riches in the US. In the words of Robert Reich, former Labor Secretary in the first Clinton administration,
«If $30,000 is set as the minimum middle-class income, fewer than a third of all employed Americans can be considered middle class. Even at $20,009, only half make it» (20).
Roughly half of all households have a total annual income of less than $30,000 (21).
Matters are even darkest when one compares the top and bottom of society. At the top, CEO salaries and income in 1995 were 212 times workers' salaries, up from 44 times in 1965. Why is this imbalance tolerated? Tout court,
«They are paid that because they can get away with it» (22).
And then more. The great «balancing of the annual fiscal budget» mentioned above rests on a spiny underside: the cutting of federal aid to Medicare; tax cuts that will benefit a person in direct proportion to his personal wealth - the greater the wealth the greater the benefit - and based on a drop in the capital gains tax (gains largely gotten from speculation and property appreciation), cuts in inheritance taxes, and cuts in taxes on sales of higher priced homes. Along with these goes the «ending of welfare as we know it», that is, the removal of a federal safety net from the most needy, deserving and undeserving. As a result, all over the nation soup-kitchen and charitable distributions are up, and no longer satisfy the want found on the American streets, as seen in the following.
«As Idaho's [a western state] new welfare law nears the five month mark, the number of people on welfare has fallen sharply, but the lines at soup-kitchens are stretching into the streets» (23).
In the East, in the Bronx of NYC, the opposite side from Idaho, a 40-year old woman, Rosa Doloné from Peru, rides the subways from food pantry to food pantry pleading for food.
«I'll keep looking», she said wearily, «my children have to eat».
In the Flatbush area of the same city, Nicole Joseph goes to bed some nights with a cup of Maxwell House coffee and a growling stomach as her boys dine on
«leftover chicken». «It makes the food last a couple days longer», she remarks (24).
A September 1997 report from the Department of Agriculture found 11 million Americans, 4 million being children, living
«in households categorized as moderately or severely hungry» (25).
How fortunate for the US lawmakers that there is no living Jonathan Swift, whose savage 18th-century satire «A Modest Proposal» suggesting that the poor self-feed themselves with the flesh of their own children brought shame to aristocratic England.
A second largely unmentioned feature of the «balanced» budget is that... it is not balanced! Amongst the unholiest of deeds, every year some $75 to 150 billion dollars are taken out of the Social Security Fund and used by the treasury to cover its deficits! That is, funds collected from the heavily regressive social security deduction (26), contributed in equal amounts by working millions and their employers, are used, deceptively, to fill in the budget. The present «balanced», 1998-1999 federal budget remains actually in hidden deficit to the tune of $100 billion dollars drained from social security (27). The practice to use social security to cover budgetary needs was begun by President Johnson during the Vietnamese War to avoid new taxes, thereby revealing the real cost of the war, and it has never ceased. A rounded-out confirmation of all of the above is the figure that total household debt in the US has reached $5.4 trillion, suggesting how thin may be much of the prosperity if it is propped up by this mass of personal obligation. The policies of Alan Greenspan and the Federal Reserve Board macro-manage the US economy for the interests of the top 1-2 percent of the American wealth and rentier class, writes economist Douglas Henwood, and have led, concludes Maria Fiorini Ramirez, to the transformation of American society «into a class of well endowed 'haves' and a larger class of 'have nots'» (28). This process of class-based segregation began before the founding of the republic, but let us end this matter at that.
Lastly, a few words about the President's proposals to improve medical coverage. The US, alone amongst the Western nations, has no national system of medical coverage. The best of what it has is Medicare for oldsters 65 and above; it covers, along with patient co-payment, a substantial portion of doctors' bills, and hospital stays after the infamous «medi-gap», the initial portion of hospital costs that must be assumed by the patient, if he/she has no supplemental insurance, before Medicare steps in; Medicare does not pay for the ever-increasing costs of over-the-counter drugs, and presently provides a cap on what doctors may charge. Beyond Medicare, most other medical coverage is either based on workplace health insurance, paid for by the employer and employee (the co-payment) or on a private insurance paid by the individual. For the really desperately poor, there are state- and federally-funded Medicaid programs. With all this, the numbers without any medical insurance have been rising, from 38 to 41 or 43 millions (depending on source) in the last 4 years.
Such a system is more chaotic than rational, and is increasingly expensive as it delivers less effective medical help amidst rising difficulties. The situation was not improved with the introduction of «managed care», the euphemism for market-driven «for-profit» corporations generally known by the acronym HMO, which are supposed to use market competition to provide less expensive and better health care. In practice, HMOs have proven long on striving for profit and short on granting good care, thus prompting the need for the above mentioned national Consumer Bill of Rights.
At this moment, the American health scene is subjected to additional pressures: a smaller Medicare funding of hospitals, announced HMO intentions to limit coverage of seniors, signs that the HMOs will shortly introduce sharp premium increases, a rapid loss of public trust in the performance of the HMOs; surreptitious policies by HMOs to avoid or refusing to care for the sicker population («cherry picking», in the American lingo); and an elimination or reduction by employers of workplace health insurance, often accompanied by higher co-payments. The infamous practice of discharging a woman from a hospital twenty four hours after giving birth, exemplifies the practices used in managed care to keep profit margins satisfactory, seemingly even at the cost of endangering the patient.
Hence, a study of renal (kidney) treatment comparing the US, Canada, and Japan, found that mortality rates in the US were twice (22%) those of Canada (10%) and Japan (9.7%), where longer treatment was the norm for weekly dialyses (29).
Against this background, Clinton's proposal to extend self paid Medicare to those 62 and 55 is based on the tacit acknowledgment that private for-profit medical insurance is unwilling to assume older members, and the federal government remains the sole agency of last resort. Even if these proposals were to pass over the opposition of the majoritarian Republicans in Congress, the president knows beforehand that of the 3 million within the 62-64 age-group without insurance, only 10 percent are able to meet the out-of-pocket premium cost. Hardly a satisfactory arrangement were all 10 percent covered, since 90 percent would remain out in the cold. All in all, health coverage in the US is a hodgepodge patchwork. If the term crisis applies to a system that is increasingly ad hoc, is rapidly rising in costs even as it provides less people with the means to live healthy lives and has reached I trillion dollars in costs, then the American medical system is in deep crisis.
The stark reality is that the market economy, i.e., the wealthy ruling class Who own or work as management of that economy and control public policies through the political minions they buy openly in the public arena, is unwilling to give the American people at large the health protection they need at the end of the 20th century. It is not that national health care is too expensive or the money not being there; the trillions of tax dollars cut from the taxes of the upper-income minority would have been enough to pay, and still leaving trillions of undeserving tax cuts for that group. (Parenthetically, an example of undeserving, lawful tax avoidance based on laws favoring large investor speculators illustrate this: when the very wealthy Ronald Lauder sold his stock in 1996, he used a system of borrowing to legally eliminate the $90 million capital gains taxes he would have paid on $400 millions of stock gains!) (30). Moreover, such a national medical plan in the present circumstances would be less wasteful, deliver better care, and would remove an enormous psychological and financial burden from the population and the business community (31).
What is happening with health care is symbolic of a general trend in public policies, one of the most heinous developments since the Reagan years has been the use of fiscal policies on both the state and national levels to weaken or strip away the measures of public safety established over the decades to assure a modicum of assurance and well being to the underling population. These are class policies often presented under the rationale of «tax cutting», or «getting the government off our backs», or giving the hardworking taxpayer «a break», and invariably end up benefiting the upper and penalizing the lower classes. Conservatives and ideologues on the right have learned that attacking such popular measures as Medicare, Social Security and progressive taxation cannot be done frontally; hence the need to accomplish the same under a different guise, under a mantra of «helping» the general public. In this vaudeville act, the Republican party functions no less than the fifth column of great wealth, the new Scarlet Pimpernel of the Republican «bad cop» versus the «good cop» of the Democratic party, with both serving the dominant class élite, one arrogantly, the other more intelligently. As with the State of New York the assumption is that the «good times» will continue and that in the endless summer there is no need to fear, as one strips away fatty social protections from the underling classes, the Arctic winter that would come with an economic downturn. And in his spoken and televised address to the Union and its people Clinton did not mention what came out only after the publication of his budget, that the funding of his «small-step» reforms is heavily dependent on an agreement with the tobacco companies to provide the $65 billion needed to fund his programs (32). A very iffy possibility with a Republican Congress that opposes his reforms and will be on the prowl to scalp him (and help the tobacco companies). Mesdames et Messieurs, keep your eye on the rabbit! It is in these conditions that the crisis in the «Asian miracle» burst upon the American scene, and with it the dropping of the first shoe. What emerges from preliminary accounts of that crisis is that much of that «miracle» rested on incautious investments by Western bankers seeking supernumerary profits from the raw exploitation of cheap, unprotected labor and the plundering of resources without regard to environmental and human damage. The miracle may be over, but the rescue plans proposed and backed by the IMF and American government have as principal concern the salvaging of the bankers' investment, not the fate the populations involved or even of lesser Western investors (33). This is a crisis involving nigh $300 billions of Western investment. As with the Savings and Loan bailout in the late 1980s and early 1990s, the American «free marketeers» have no objection to getting the government on their back, when it comes to rescuing their capital from their own follies. Control of government and the use of government, the state, to openly or surreptitiously champion its needs has always accompanied bourgeois rule from the beginning. This crisis even has a brighter side. In supplicating the West for funds, these stricken Asian economies must now open themselves to Western, largely American, penetration; given the devaluation, the hope is that whole industries may be purchased at «fire sale» prices (34).
This is a defining moment for the Western capitalism. One should not underestimate the power and resources at its command in the US; nor deny to that capitalism its accomplishments. Without the creation of huge wealth and its ability to reach and establish a relative well-being in enough lives, however crass and commercial the values, in combination with the lack of any creditable alternative, it is impossible to explain the longevity of a system that has injured, and injures, so many. And rests on human' exploitation and planetary degradation. Yet beneath the surface civility, and on the side p streets away from Broadway's glitter, one meets hunger, poverty, uncertainty, despair, and the suffering of working masses not knowing what to do. It is quite in keeping with the exceptional history of this nation that a few years ago the sense of loss of control over their own lives led to the formation of a widespread militia movement drawn from the working and lower middle classes. More recently, the strivings of this class united a substantial number of trade unions in a common effort to bring a labor party into the American political scene. But what is really missing is a revolutionary, class party.
Will the US and the IMF succeed in building a firewall and contain the crisis, as they did with the earlier Mexican collapse? The capitalists' fear is that the crisis could spread to the entire southeastern Asian region, from Indonesia through China to Japan, a region with more than 1.6 billion people, and bring on what is euphemistically termed «deflation», simply another way of avoiding using the dreaded word depression, the vertiginous fall arising from anarchistic overproduction. Or will the crisis spread into the American hinterland, and with it the dropping of the second shoe, leading to unimaginable social and economic consequences? Unfactored, also, is what the «natives» will do.
Will the new working classes of Asia simply accept their fate, gather their few belongings and return to the village life of underemployment, hunger, and despair? Or the Chinese bourgeoisie, young, hungry, and not to be intimidated: will it be satisfied to return to a comprador status?? Time will tell. Meanwhile, the political bacchanalia continues in Washington. Let us also raise a glass and join in an Evviva!!
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Source: «Internationalist Papers», N.7, May 1998
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