MITT ROMNEY: a Remedy or a Diagnosis?

5

September 6, 2012 by J. Madson

Guest post from Boris Anisimov (original at his blog)

In November 2012 we are anticipating the sequel to the much-talked-about drama serial known as the US elections. The air is going to be filled with celebration:  flags, ribbons, ardent slogans from the pulpits and reciprocal exclamations from the crowd. Having completed the regular public debate ritual, US voters are going to line up in front of ballot boxes in order to entrust the urns with their most precious possession, namely their hopes for a brighter future. And judging by what is now happening to the American middle class, they hardly have anything else to entrust them with [1]. The danger of the middle class’ extinction is being seriously discussed in the US. One can think of some old truism about living in debt being fun until it is time to pay up. Households, corporations, banks, governments are all stepping up their debts while the resentment of the masses is growing bitter upon a realization at the outbreak of the on-going crisis that if there is a binge, there is going to be a hangover.

In times like this, the political farce gets unfurled in the most ruthless way. Any means which serves the purpose gets put to use. As highly-paid professional windbags publicly compete in slinging mud at one another, the voters, disunited into small interest groups, get distracted from the important matters and rail furiously for farfetched reasons.

I would probably say that the novelty of the current political season in the US is Mitt Romney, a well-to-do Mormon with experience of a businessman and a governor. The American political machine has once again demonstrated to the whole world its ability to come up with unexpected arrangements. The winner of the previous season, the African American under the non-Anglo-Saxon name of Obama, is no longer a thrill. He already acquired the status of a political old-timer and managed to lose some of his appeal. Now the public is presented with a new office-running novelty – a Mormon millionaire.

It is not his millions that became the talk of the town (well-to-do candidates for high political positions are common in the US), but his religion. Romney’s opponents did not miss the opportunity to ridicule his faith. However, any sound-minded individual understands that religion does not occupy the number-one position in a politician’s list of priorities – a politician is not paid for religious views but for protecting somebody’s interests.

It is also obvious that it is not theological preferences that will decide the outcome of the ultimate battle between Romney and Obama for the top position, but the future of the US economy. In crisis, this topic gets repeated more often thus implying that the number of economic promises pronounced from the lofty pulpits is going to increase. It would be interesting to count how many times during the debates each of the candidates will resort to some variation on the unofficial slogan of Bill Clinton’s campaign in 1992 – “It is the economy, stupid». [2]

Any unusual phenomenon, which disrupts the conventional order of things, is either a precursor of a change or an inertial consequence of existing problems. I am wondering what Mitt Romney is all about from this standpoint. Who is this Mr. Romney: a new remedy for the old ailment or a new symptom of the old diagnosis?

Mr. Romney’s official site will dazzle you with promises [3], the main one being a sharp turn away from the «current course», by which policies of the present occupant of the White House are implied. Romney recognizes the need to boost employment, and puts this issue as his number-one priority in his economic policy.

So what is he suggesting?

  1. Tax cuts;
  2. Further deregulation;
  3. Opening new external markets for US industries;
  4. Producing more domestic energy in order to cut costs;
  5. Greater “flexibility” of the labor market;
  6. Retraining workers;
  7. Government spending cuts.

Honestly, there is nothing new here – it is the “good” old neoliberalism, which is called neoconservatism in the US. It is all in line with the western economics manuals, which Mr. Gaidar and his bunch used for reforming us in the early 1990’s. That same economic policy with certain alterations is preserved in Russia until this day. The local “Chicago boys” – the Russian pro-western neoliberal monetarists, whose notorious heritage we can still see today – had quite a fancy for such a policy.

Interestingly enough, Romney and the Russian neoliberal reformers have the same flaws in their economic reasoning. Allowances must be obviously made to the United States’ position as the global hegemon. There is a growing suspicion that the program that Romney revealed only constitutes a portion of the real agenda because a set of mutually contradicting items in it make it unfeasible in its current form. What are the contradictions?

Taxes vs. Budget Deficits. Tax cuts for the sake of economic growth and lower unemployment make sense, but budget deficits due to tax cuts do not. Over the last decades, the US budget has been passed with a constant deficit, which gets monetized by the Fed. Many economists attribute the growing public debt in the US to the lack of funds due to tax cuts. The debt increment started accelerating astronomically in the early 1980’s, precisely when neoliberalism as politico-economic project came into existence. That very period was also marked by the advent of Republican Ronald Reagan at the White House where he convincingly played the role of a US president as he advocated tax cuts for the rich. And reaganomics – the economic constituent of the neoliberal theory – received this informal name after him.

In other words, upon taking office, Romney will be able to cut taxes only by increasing public debt, which contradicts his commitment to cut the latter and teach America to live within their means.

Austerity vs. Growth. Budget deficits can be lowered by cutting government spending. Romney’s reasoning that supports this initiative is based on the well-known maxim that one must live within one’s means. This very principle is noble and proper, but the way the Republicans are going to implement it does raise questions. Thus, Romney insists on cutting non-security spending while it is security spending, which takes up the largest portion of the budgetary expenditures. The second largest is the servicing of the government debt. In the US federal budget for the year 2012, the security expenditures planned at $881 billion make up 23.82% of the total expenditures, the deficit working out at $1,090 billion. We can hardly expect Romney to cut security spending at least because his promises to maintain the US geopolitical standing and thereby show the world an American equivalent of Kuzma’s mother are going to require significant financing. On the other hand, it is possible to cut the expenditures on the police, firemen and teachers as well as social programs like the recently adopted law on the mandatory medical insurance [4].

I agree that government spending does not automatically lead to economic growth. But the problem is much more profound than what we hear about it from the American establishment in general and Mr. Romney in particular. It is not a matter of whether to run into more debt or not – it is a matter of whether households’ aggregate solvent demand is sufficient to finance a way out of the economic impasse or else the government will have to make up for the deficiency. In this case, there are no other options but three: to raise taxes for the well-off, run into more debt or “print” more money. The last option does not only threaten to push up inflation but also increases the budgetary debt load since the Fed in actual fact issues money by monetizing the public debt. If national governments could do it without the involvement of their central banks, the currency issue would be quite a stimulus for the internal demand, but it does not mitigate the danger of inflation. So whether Romney likes it or not, the US public debt is going to grow bigger.

Internal growth vs. geopolitical expansion. In words, Romney believes that internal resources will make economic growth possible. In accordance with the neoliberal doctrine, the main task is to restore the functioning of business. It is believed that once supply is restored, demand will follow suit automatically. Encouraged by another tax cut, entrepreneurs should allegedly start hiring, and the country’s economic motor should kick start itself – this is the so-called “supply-side economics”, which currently holds sway over economists’ minds. But there is an alternative approach. The “demand-side economics”, represented by various schools, underlines the impossibility to boost the economy by stimulating supply unless the solvent demand is ready to foot the bill. Economists who share this viewpoint are speaking of a widening gap in the US between the growth of average wages and the growth of productivity, which has become evident since the mid-1970’s [5]. The old Karl Marx called this phenomenon a crisis of over-production, the essence of which is quite simple – wages grow more slowly than productivity and cannot pay for the ever-increasing supply of goods and services [6].  And the US households’ growing debt load only confirms this concept. As a result, we see sagging sales, falling revenues, lay-offs, bad debts, banks refusing to lend, and finally a depression.

One can draw the same conclusion about the falling solvent demand in the US economy by analyzing the statistics of income distribution among the population.

Income Distribution in the US from 1982 to 2006 [7]

Year

Top 1 percent

Next 19 percent

Bottom 80 percent

1982

12.8%

39.1%

48.1%

1988

16.6%

38.9%

44.5%

1991

15.7%

40.7%

43.7%

1994

14.4%

40.8%

44.9%

1997

16.6%

39.6%

43.8%

2000

20.0%

38.7%

41.4%

2003

17.0%

40.8%

42.2%

2006

21.3%

40.1%

38.6%

Interestingly, the lowest rates for the majority of the population occurred at the beginning of the Great Depression in the late 1920’s and before the on-going crisis in the early 2000’s. And it is not a coincidence. The recent drop started in the early 1980’s upon the emergence of neoliberalism and is still continuing.

Can we expect that American debt-ridden consumers will start spending their evaporating incomes with renewed energy in order to bring up sales to the pre-crisis levels? This is at least naïve. According to economist Mikhail Khazin, the US household expenditures over the last 30 years have exceeded household incomes by 20-25% [8]. And Romney also seems skeptical about the internal economic growth in the near future since expansion by American industries into foreign markets has been put on his economic agenda. In other words, does that imply that, should internal resources turn out to be insufficient for economic growth, we are going to see new geopolitical crusades to expand markets and boost sales? Do the American elite realize that otherwise it will be difficult to restore internal consumption pre-crisis levels? I think they do.

Reindustialization vs. outsourcing. As Boris Kagarlitsky writes in his book The Revolt of the Middle Class, the very notion of a middle class appeared in the middle of the 20th century as a result of the implementation of Keynesian prescriptions in the economic policies of the West. By redistributing a portion of incomes in the economy for the middle class’ benefit, the elite managed to ensure high consumption levels for various goods and services. The western ideologists did not miss the opportunity to demonstrate this achievement as evidence that the West was at a more advanced stage of socio-economic development in comparison with the Soviet “socialism” while, in essence, it was a left-center compromise caused by the fear of popular discontent following the Great Depression.

When the elite’s fears finally subsided, a gradual right turn started bringing about falling incomes and growing inequality among the American common folk. The «fattening» of the middle class was no longer in fashion. In order to cut costs, corporations began relocating production facilities to countries with low wages. This resulted in the United States’ love and hate relationship with China where millions of workers were ready to toil for peanuts while China’s internal solvent demand remained immensely low.

Now that the global demand is falling, China is trying to stimulate internal consumption, but this raises all production costs. So the US has already started talking about the production facilities moving back from China [9]. It is still too early to talk about the US reindustrialization. It is hard for me to imagine that the debt-ridden US middle class should consent to wages low enough to start attracting jobs in large numbers back from the third-world countries. Also, I cannot get rid of an impression that Romney’s initiatives to limit the clout of trade unions and improve workers’ re-training programs are all aimed specifically at labor cost reduction. The labor market’s “flexibility” – which, in essence, simplifies the hiring and firing of employees – can lower job security, intensify competition among the workforce and bring down wages as a result.

I think turning the US back into a leading industrial superpower in the near future will be quite problematic since a massive industrialization will require a significant reduction of the working population’s living standards. Is the American public ready for such a turn of events? Will they be able to increase spending and pay off their loans as their liabilities continue to rise merely because of accrued interest?

All initiatives aimed at reducing the middle class’ income in the US economy are likely to raise questions from the international community. As you know, the demand in the US is the largest in the world and “feeds” corporations in a lot of countries. Neither China alone nor all the BRIC countries put together have so far been able to offer the globalized transnational world consumption levels comparable with those of the US. If global consumption does not rise to the pre-crisis levels soon and continue to grow further, the danger of major financial meltdowns is going to remain acute because the world still has enormous amounts of debt previously extended in hopes that global demand should continue to expand.

When demand declines, books on economics manuals turn into worthless paper waste. The neoliberal economics deals mostly with the expansion of supply and believes that demand expands automatically. Our government and corporate strategies, educational programs, politics and ideology are all based on this view of the world. And Romney is one of the best representatives of this system. So, is Romney a remedy or a diagnosis? Alas, only a diagnosis. He is too symptomatic of his epoch to symbolize any kind of renewal. All his convictions on economics and foreign policies were voiced before. Carbon copied from previous republican candidates’ programs, they sound more like populist chants than a real action plan. Romney is obviously trying to win the favor of the American conservatives. You can hear him talk about “the American dream that built America” and “the spirit of entrepreneurship inherent in the American nation”, but all his talk of self-sufficiency is coupled with geopolitical rhetoric. Romney does raise the issue of the US public debt, which is now approaching $16 trillion, but fails to bring up the issue of the growing household debt, which financed the growth of corporate incomes over the last decades.

A politician who tells his or her voters that their incomes are going to decline does not stand a chance in politics. Instead, a politician must shine with optimism and make believe that he or she knows how to fix things. This is exactly Romney’s case. He is a slave to the American conservative ideology of success. In reality, he can offer even less than Obama, who is striving to pass some center-left initiatives. From the ideological stand point, Romney is hog-tied. The policies he was pursuing as Massachusetts governor were more socially oriented in comparison with what he is promising to implement if elected US president. He is now trying to prove his hawkishness, but is only turning the steadily impoverishing middle class away.

5 thoughts on “MITT ROMNEY: a Remedy or a Diagnosis?

  1. LDSDPer says:

    very interesting–

    I agree that he is a diagnosis, perhaps a symptom–

    I have also noticed that, for the last few decades, no matter what a president promises the trends continue as before–

  2. Brooks W. Wilson says:

    I can’t argue with a thing except the “neoliberal” label escapes me. I’ve never heard a Reaganomicist called a neoliberal. Looks like I have some work to do. Thanks for an excellent objective analysis.

  3. Brooks W. Wilson says:

    I just googled neoliberal and am embarrassed. Personally, I have another name for these economists.

  4. zouarvehat says:

    Ordinarily, I’d vote for Romney in a heartbeat on account of the “he can’t be as bad as Obama” factor – but I am progressively becoming more worried about Romney’s mental state. very worrying. Do we vote for the crazy guy or the guy who isn’t up to the job.

  5. In Europe, “neoliberal” means the same as “neoconservative” in the US. It is ironic that the word “liberal” came to mean different things on the opposite shores of the Atlantic.

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