[OPE-L:6114] Re: possible ways out of the 'crisis'?

["Patrick L. Mason" <pmason@xxxxxxxxxxxxxxxxxxx>]

Jerry:

Point a) is inaccurate. "Every taxpayer" did not receive
a nominal check. Thirty million low income households received absolutely
nothing - except a letter from the government rubbing their face in the
dirt, i.e., a letter stating that they would not receive a tax cut.

Current discussions call for these 30 million to get something. Had there
been a massive tax cut specifically aimed at middle and lower income
families, that is, everybody with a gross family income below (say)
$75,000 the tax cut might have worked.

Conservatives really aren't interested in whether tax cuts generate jobs.
The supply-side language accompanying these cuts is just political
filler, spin control, unadulterated garbage. Rather, the real objective
is the libertarian desire to reduce the size of government, to reduce
government spending and transfer payments purely for the sake of reducing
government spending and transfer payments. Lowering tax revenues creates
a budget deficit that conservatives then argue can only be solved by
lowering spending. The net impact is to redistribute income toward the
wealthy.

America has been Southernized. 

Point b) is correct. It also redistributes income to the rich.

On Point c), nominal interest rates cuts did work for a while. Until 911,
the housing market was doing quite well. With further cuts in the nominal
interest interest many households may refinance their mortgages, thus
lower monthly bills and probably lead to an increase in spending because
of greater discretionary income.

Cuts in the nominal interest rate have been accompanied by lowered
inflation. So, I'm not that real interest rates have fallen much. Real
interest rates during the 1980s and 1990s were very high in comparison to
the 1960s and 1970s when the Fed had a very different interest rate
policy.

On Point d), perhaps I should have said "fanatical right wing
military Keynesianism" in effect in many state governments. Florida
is now running a massive deficient, due in part to a large tax for the
wealthiest 1 percent of the population. The state had a mid-surplus
before Jeb Bush took over as governor. This was the GW's pattern in
Florida and in the white house. Anyway, he has encouraged state
universities to increase spending on buildings as a way to generate jobs.
Simultaneously, he is laying off state employees, cutting university
spending, providing only nominal wages to university personnel and other
state workers even as the State Troopers get huge increases in pay, and
privatizing my state services.

peace, patrick




At 08:40 AM 10/30/01 -0500, you wrote:
> In [6096] Antonio wrote:
>
> >  I am thinking that the answer to this question might be useful
> for how we
> >  think about the causes and the possible ways out-of/into the
> crisis.
>
> Well, let's begin by looking at what has been already tried to forestall
> and
> then recover from the crisis:
>
> a) 'tax cuts':  although every taxpayer received a nominal refund
> check from
> the US government, Bush's tax cut was explicitly motivated as a
> 'supply-side' tax cut with the intention of stimulating investment
> and
> aggregate supply. Only a few weeks ago, the administration was
> claiming
> that the 'jury is still out' on whether the tax cut promoted economic
> growth
> sufficiently. However, more recently even administration official
> are
> recognizing it has not had the desired affect.  Why didn't the tax
> cut work
> as planned? Perhaps it was due in part to the implicit assumption of
> Say's
> Law by the policy-makers. Yet, expect Bush to propose a new round
> of
> S-side tax cuts.
>
> b) in anticipation of what the crisis might mean to working-class
> households, Congress passed legislation preventing consumers from
> declaring
> bankruptcy as a way of evading credit card debt.  OTOH, Congress
> has
> passed legislation that offers large corporations in some key sectors
> (e.g.
> airlines) financial assistance to forestall the possibility of those
> firms
> 'going under'.
>
> c) Federal Reserve cuts in interest rates intended to stimulate
> borrowing,
> investment, and aggregate supply. Yet, even the Fed has noted
> repeatedly
> that the interest rate cuts have not worked in the manner
> anticipated.
> Why not?  Well ... why would firms increase borrowing even at
> lower
> interest rates if they already have unsold inventory, excess capacity,
> and
> poor expectations of profitability?  It appears that the Fed, like
> 'the
> classics', assumed Say's Law.
>
> d) More recently (post-9/11), we have seen the emergence of what
> some
> have called 'military Keynesianism'.  For firms which are
> defense
> contractors, this increase in government spending is good news. 
> Other firms
>
> could be expected to benefit by the 'multiplier effect'.  What
> effect this
> will have on levels of consumption spending, disposable income, and the
> size
> of the industrial reserve army is unclear (at least to me) at this
> point.
>
> It also appears that the US government (Democrats and Republicans
> alike)
> have recognized that d) will require a budget deficit. One thing is
> painfully obvious -- all talk about what to do with the budget 'surplus'
> has
> ended. What will be the consequences of a renewed budget deficit?
> Obviously,
> all those groups that could have benefited by 'the surplus' are
> negatively
> affected (when was the last time you heard discussion about health
> care
> reform?). How will this affect investment?  Recall the numbers that
> Fred
> cited about firm indebtedness. Yet, if there is increased borrowing
> by
> the government won't this lead to an increase in the demand for
> loanable
> funds and thereby increased interest rates? Yet, firms are ill able
> at
> present to handle a higher debt burden.
>
> OTOH, d) might lead to other benefits for US firms -- e.g. lower
> costs
> for raw materials.  Yet, even if that was to happen, it might very
> well
> take a long time before US capitalists could see these benefits.
>
> The expansion of the US economy in the 1990's was fueled, in part,
> by
> the expectation by US firms that new markets would be opened around
> the world.  Yet, even the most ardent fans of the 'failure of
> communism'
> must now admit that projections about demand in China, Eastern
> Europe and (especially!) the nations that were formerly part of the
> USSR were *greatly* exaggerated. Nor is there any indication that
> this
> situation will change any time soon. Nor is there any indication,
> given
> the world-wide nature of the crisis, to expect US-produced exports
> to increase rapidly. Indeed,  the strengthening of regional
> trade
> unions (e.g. the European Union) might make commodity exports
> more difficult and and the on-going shift towards 'outsourcing' by
> US-based corporations weaken domestic employment and lower GDP.
>
> To connect this to the issue that Fred raised: for firm profitability
> to
> increase, how will the state attempt to lower the debt burden of US
> firms?
> My guess is that the government will offer more and more 'bailouts'
> to
> US corporations and thereby transform private debt into public debt
> (recall the earlier discussion with Gary).
>
> Is it too early to believe that this will lead to a renewed round
> of
> austerity measures by the government? In New York, we have already
> been
> told by the Governor and Mayor to expect layoffs of government workers
> and
> cutbacks in government services. Yet, if this happens on the national
> level,
> won't this weaken employment, consumption, and demand? Again there
> is the issue of Say's Law.
>
> An additional strategy to overcome the crisis (that unfortunately we
> already
> observed in the 1980's) is a (renewed) 'concessions movement'. I.e.
> firms
> will plead poverty with their workers and unions (and if they are
> losing
> enough money might even be willing to 'open the books') and demand
> 'give-backs' (e.g. lower wages, decreased benefits, increased
> 'co-payment'
> by workers for benefits).  At present, the trade union movement is
> not in
> a very good position to fight these demands (especially given the
> upsurge
> in patriotism by their membership).
>
> De-regulation will, most assuredly, be part of Bush's plan to stimulate
> the
> economy (and the Democrats, I believe, will basically give him what
> he
> wants). This might mean, for instance, mining and oil drilling in
> national
> parks as a means of increasing national 'self-sufficiency'. I expect
> that
> there will also be a renewed push to open more nuclear power plants
> for the same reason.
>
> What can the working class do to effectively fight off these
> attacks?
> Unfortunately, working-class solidarity and militancy are in short
> supply
> these days. Indeed, the US working class seems in a more weakened
> and
> more divided position than at any time in recent memory (a major
> increased
> division is the increase in hostility towards foreign-born workers
> especially from the Middle East and Muslims in general). So long as that
> is
> the case, then the 'crisis' will be overcome in a manner dictated by
> capital
> and the state. Or have I missed something?
>
> In solidarity, Jerry