“The cut-taxes-and-spend Bush administration and Republican leaders in Congress are engaging in serious economic malpractice,” the NY Times editorialized on Jan. 28. Under Bush, the U.S. economy and the federal budget deficit are growing.
The former depends on the latter, as the federal government spends more than it collects in taxes. Three tax cuts have mainly slashed the amount of taxes that the rich pay, meaning a bigger tax burden for working people.
Meanwhile, job growth remains weak as the personal saving rate drops.
However, home and stock prices are rising, according to recent data from the Federal Reserve.
In 2004, the federal budget deficit will likely exceed $500 billion. It is an article of faith that such government borrowing can harm the economy.
On that note, editors at the NY Times sound like Senator John Kerry, the leading Democratic contender for the White House. His website says current federal spending may “dismantle the framework of budget discipline which enabled our economy to grow for a record 10 years, the longest expansion in history.”
The peril of deficit spending by the national government is a familiar tune for U.S. politicians. This can misdirect the attention of the nation’s working people.
Instead, they should focus on federal government borrowing, spending and taxing for what purpose -- to enhance their health, schools and over -- all welfare, or to build weapons of war and enrich the wealthy few. Much hangs in the balance.
It is worth noting that the annual percentage rate of military spending has tripled between 2001 and 2003, according to the Commerce Dept. The rate of non-military spending did not quite double during the same time.
On Feb. 2, Bush will propose his budget for the next fiscal year. Crucially, the president has been saying that he intends to keep non-military spending (excluding Medicare) to under one percent to cut the federal budget deficit in half by 2009.
In contrast, Bush wants military spending to grow by seven percent. He also backs a 13 percent increase in federal dollars for missile defense systems.
Meanwhile, state and local governments (SLG) are slashing health, schools and welfare spending to try and balance their budgets. A progressive use of the federal deficit would be the bailing out of the SLGs.
That would in part boost the buying power of working people who patronize small firms. However, they are not high priorities in Bush’s proposed budget.
In terms of federal spending, it is worth briefly reviewing what President Clinton did, besides bombing Serbia, ending welfare and ignoring the Rwandan genocide. Under Clinton, the U.S. economy grew as the federal budget moved into a surplus.
That expansion created new jobs, stock and house price increases, plus private-sector debt. The U.S. economy, the world’s biggest, helped to keep the global system on track as financial crises hit Mexico, Southeast Asia and Russia.
Playing no small part in this process was the borrowing of U.S. consumers.
They doubled their debt last decade, according to the Federal Reserve Board.
Some of the reason for this ballooning of private debt was that U.S. workers’ wages stood still for most of the 1990s. Their pay rose only at the end of the decade as the jobless rate fell.
Moreover, folks on Main Street hardly shared in the riches from the stock market bubbles of the Clinton era. The paper wealth of fictitious capital flowed mainly away from mid-and low-income Americans to the class above them on Wall Street.
In 2000 the financial bubbles began to deflate. And corporate America, which owns the nation’s productive capacity, responded.
“When the stock market bubble burst, corporate sector spending slowed significantly (particularly in “high tech”),” writes Minqi Li in the Jan. 2004, issue of Monthly Review.
That and three tax cuts for the wealthy under Bush have helped to usher in the current recovery of growth with few new jobs.
Li, a professor at York University in Toronto, continues: “To avoid a deep recession, the U.S. general government fiscal balance has moved from a surplus of 1.4 percent of GDP to a deficit of 4.6 percent of GDP between 2000 and 2003, or a swing of 6 percent of GDP, and the U.S. Federal Reserve has lowered the short-term interest rate from 6.5 percent to 1.25 percent.”
The federal government has made these fiscal and monetary moves to maintain the purchasing power of the U.S. economy. It is the “buyer of last resort” for other nations’ output.
To that end, China, the EU and Japan lend funds to the U.S. government and private sector.
Such national and global relations greatly affect the 2.5 billion people who work for a wage around the world.
U.S. federal deficit spending is a matter of economics and politics. There is no law of economics that compels the federal government to have a budget that puts the needs of the affluent and war machine before those of the domestic population.
It is a question of the class character of the federal budget. This year could be a political moment of awakening for more working people in the U.S.
Seth Sandronsky is a member of Peace Action and co-editor with
Because People Matter, Sacramento’s progressive paper. He can be reached at:
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