Forum Post: for mr r k gates

Obama, Austerity, and Change We Really Can Believe In

Jack Gerson

BARACK OBAMA TOOK OFFICE three years ago on a euphoric wave of aspirations. Tens of millions in the United States and around the world pinned their hopes on this brilliant campaigner who promised "Change we can believe in" and proclaimed, "Yes we can!" In "Where Will Obama Go?" (New Politics, January 2009), I argued that a cursory look at Obama’s economic and foreign policy transition teams should have been sufficient to dampen the euphoria, since he was relying on the same individuals who had presided over the neoliberal policies of the preceding three decades, policies designed to increase profitability at the expense of the standard of living and institutions of the working class. In the United States, these policies were jump-started in 1979 by Jimmy Carter’s Federal Reserve chair, Paul Volcker. In 1979 Volcker pronounced, "The American standard of living must decline" as he ordered the "Volcker shock," monetary policy designed to reduce inflation and restore corporate profitability. The result was a worldwide recession in the early 1980s, which did indeed hurt American workers, but had a far harsher effect on Mexico (where it led to the 1982 collapse of the peso) and elsewhere in the Third World. Life-long Democrat Volcker praised Ronald Reagan’s union-busting as key to restoring profitability: After Reagan broke the Professional Air Traffic Controllers union (PATCO) in 1981, Volcker said "The most important single action of the administration in helping the anti-inflation fight was defeating the air traffic controllers’ strike". In 2008, shortly after his election, Obama named Paul Volcker to his economic transition team. Leading that team were Bill Clinton’s two Treasury Secretaries, Robert Rubin and Lawrence Summers. This pair, along with then-Federal Reserve chair Alan Greenspan, were architects of the deregulation that eventually blew up the financial markets in fall, 2008. They supported the repeal of the Glass-Steagall Act and pushed through the Commodity Futures Modernization Act of 2000, which included a blanket ban on government regulation of derivatives (in the process they conspired to destroy the career of Commodities Futures Trading Commission head Brooksley Bourne for warning that unregulated derivatives speculation would blow up the world financial system). If there is anything remarkable about Obama’s economic policy of the past three years, it is how much in line it has been with his Democratic presidential predecessors of the past thirty years. Obama’s prioritization of the financial industry and corporate profitability did not break new ground, but rather was continuing on the path of Carter, Clinton, and the New Democratic Coalition. However, when he first took office, Obama promised to make good on his campaign pledges for sweeping change. In his inaugural address, Obama proclaimed, "The state of our economy calls for action, bold and swift. And we will act not only to create new jobs but also to lay a foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together." But Obama’s administration followed a far different path. Not long after taking office, he appointed a bipartisan deficit commission (the National Commission on Fiscal Responsibility) packed with deficit hawks and co-chaired by Social Security "reformers" Alan Simpson and Erskine Bowles. [This commission predictably issued a report in December 2010 calling for increasing the Social Security eligibility age, scaling back Social Security cost of living increases, and — less predictably but outrageously — reducing personal and corporate tax rates for the highest brackets.] Still more ominously, Obama appointed a protégé of Rubin and Summers, Timothy Geithner, to be Secretary of the Treasury. Geithner, president of the Federal Reserve Bank of New York, had done the bidding of the big Wall Street banks during the subprime crisis and financial market panic of 2008. As detailed in recent books by Robert Scheer[1] and on Ron Suskind[2], he has faithfully transmitted and lobbied for the financial industry’s directives inside the Obama Administration. And, with his help, the financial services industry has committed highway robbery. Three years ago, amid the near-meltdown of the world financial system following the collapse of the housing bubble, it was evident that the big banks and Wall Street brokerages were responsible for the crisis. Yet now, Wall Street, politicians, and the media insist that public workers and public services caused this debt, and that there’s just no alternative to harsh austerity cuts to public programs and to the jobs, wages, and benefits of public workers. Overall, the global financial services industry was handed a bailout exceeding $20 trillion.[3] The U.S. government alone disbursed $16 trillion of that amount.[4] Nearly $2 trillion has not been repaid. Two trillion dollars just happens to be the estimated cumulative total of all U.S state and municipal debts.[5] No wonder York University political economist David McNally says that Wall Street has taken its private debt and transformed it into public debt: In short, the bad bank debt that triggered the crisis in 2008 never went away — it was simply shifted on to governments. Private debt became public debt. And as the dimensions of that metamorphosis became apparent in 2010, the bank crisis morphed into a sovereign debt crisis. Put differently, the economic crisis of 2008-9 did not really end. It simply changed form. It mutated. With that mutation, the focus of ruling classes shifted toward a war against public services. Concerned to rein in government debts, they announced an age of austerity — of huge cuts to pensions, education budgets, social welfare programs, public sector wages, and jobs. In doing so, they effectively declared that working people and the poor would pay the cost of the global bank bailout.[6]