International Socialist Review Issue 11, Spring 2000
NOTES OF THE QUARTER
Election 2000: Money Wins Either Way
IN THE end, the flurry of excitement over the early primary elections amounted to very little. The one thing the primaries did register was an uneasiness among millions of registered voters with the limited choice on offer.
But despite all the talk, there is little of substance that divides the candidates. Howard Zinn nailed it in the March issue of The Progressive: Every day, as the soggy rhetoric of the Presidential candidates accumulates into an enormous pile of solid waste, we get more and more evidence of the failure of the American political system. The candidates for the job of leader of the most powerful country in the world have nothing important to say. On domestic issues, they offer platitudes about health care and Social Security and taxes, which are meaningless given the record of both political parties. And on foreign policy, utter silence.
Its now a dim memory, but George Bush began his race for the Republican Party nomination attempting to play to the center, calling himself a compassionate conservative who was concerned about education and the plight of the poor. It was hard to stomach, given that more than 120 death row inmates have been executed under Bushs watch as Texas governor. But then along came John McCain who stole his line, and played the part more effectively. Though a Goldwater conservative, hard on foreign policy and with a voting record that marks him as a staunch conservative on every major issue, McCain was able to sell himself as the Washington outsider committed to reform.
As McCain began to gain momentum, winning the New Hampshire primary, the Bush campaign swung hard to the right. In the South Carolina primary, Bush made a point of visiting the bigoted and racist Bob Jones Universitya school that prohibited interracial dating until Bushs visit exposed the policy to nationwide condemnation. The right wing of the Republican party began to tar McCain as, of all things, a liberal. Though McCain gained some successes by attempting to broaden his appeal, Bush was able to defeat him where it countedamong Republican voters who bought the argument that McCain was too liberal.
Though he has dipped into the till himself, McCains emphasis on campaign finance reform tapped into the disgust that millions feel at the way in which political positions in the United States are shamelessly bought and sold to the highest bidder. People are so hungry for something different that even a creep like McCainwho attacked Bush for pandering to the Christian right but refused to fire a South Carolina campaign adviser who supports Nazi David Dukewas able to get votes simply on the basis of presenting himself as an outsider and a reformer.
On the Democratic side, there was some pressure on the candidates to shift a little bit to their left. Bill Bradley positioned himself at least rhetoricallyto the left of Gore. He attacked Gore for his opposition to funding abortions for poor women and for once saying that abortion was arguably the taking of a human life. Many people on the leftincluding Black Harvard professor Cornel Westfervently backed Bradley, and a large number of young activists decided to campaign for him. But as former Bradley campaigner Ruth Conniff, writing for the March 2000 issue of The Progressive points out, Bradley was a pro-NAFTA, pro-Contra, Reagan-tax-cutter during his days in the Senate. His campaign has as much money as the Al Gore fundraising juggernautabout $20 million at last count, a big chunk of it from Bradleys buddies on Wall Street. But Bradleys rhetoric about economic inequality, the need to lift all people out of poverty, and for universal health care tapped into a real sentiment on the ground.
Gore was forced to respond. He emphasized that hed changed his views on abortion and that he, too, supported campaign finance reform. At a debate at Harlems Apollo theater, Gore and Bradley dueled all night to prove who was the more progressive candidate.
The primaries should not be completely dismissed. They were a pale reflection of a very real change in U.S. politics: a massive shift in working-class consciousness to the left. Polls show that ordinary Americans are consistently to the left of mainstream politicians on most issues and are tired of seeing a growing economy that always seems to benefit someone else, someone already rich.
For the first time in years, we are beginning to see some of the anger among ordinary people express itself in struggle: the anti-World Trade Organization Battle of Seattle, which targeted corporate greed; the demonstration of 46,000 in South Carolina against the confederate flag; and the protests against Florida Gov. Jeb Bushs efforts to gut affirmative action. That Gore festooned the podium at his victory speech after Super Tuesday with a banner that read Join the Fight, is a reflection of a real mood for change.
But all campaign rhetoric aside, the only fight Gore will be conducting will be on behalf of his most important constituents: the corporations and banks. Gore is a well-groomed son of the ruling class, and it is this class that he and his party represent.
It should not be forgotten that Gore is vice president in an administration that has been, for all intents and purposes, Republican Lite. Clinton signed a tough on crime bill in 1996 that significantly expanded the number of crimes punishable by death and limited habeas corpus appeals by death row inmates in order to speed up the execution process. He supported legislation that has gutted welfare provisions, and he has jacked up military spending to almost $300 billion. Clintons proposals have often been just one notch less conservative than his Republican rivalsfor example, backing a one dollar per hour increase in the minimum wage over two years rather than three. This has allowed him to maintain liberal rhetoric while pursuing conservative policies. It was this program theft, not Clintons alleged liberalism, that provoked the ire of conservatives more than anything else.
Gore has backed every Clinton initiative. He supports the sanctions that have killed hundreds of thousands of children in Iraq, and he backed the indiscriminate bombing of Serbia last year. And even though he now claims to be pro-choice, talk is cheap. Gore has been part of an administration that promised to pass the Freedom of Choice Actonly to scrap it once in office. He and Clinton promised to guarantee health care for all. But under pressure from the insurance industry, they quietly dropped it, even as the number of people without health insurance continues to grow.
Also, Gore is every bit as much as Bush a hard supporter of the death penalty. And as an advocate for the pharmaceutical companies, Gore lobbied South Africa to stop its production of cheaper, generic AIDS drugsin a country where tens of thousands are dying of AIDS because they are unable to afford treatment.
Now that the primaries are over, the candidates of the two bosses parties hope to settle more comfortably into a routine that consists of platitudes and more platitudes with even fewer issues of substance discussed. Bush is hitting on the theme that Gore is untruthful and will say anything to get electedan attribute that Bush has himself exhibited. Gore can use the issue of gun controla minor reform which costs nothing economically or politicallyto tar the fanatics in Bushs party who argue that gun control advocates want more gun-related deaths in order to push through legislation.
It is estimated that $3 billion will be spent on the elections. As usualbut more glaringly as each election approachesthe wealth of a handful of billionaires and multimillionaires will speak the loudest. Gore will take his left flank for granted, assuming that simply tarring Bush with his marriage to the Christian right will be enough to scare voters into the Democratic campthough he wont be averse, depending on his audience, to tossing around some radical-sounding rhetoric. Bush will have difficulty putting the hard right genie back in the bottle.
Activists, trade unionistsanyone who is fed up at the growing inequality amid plenty, with police brutality, with fraud and corruptionwill be pressured to vote for the lesser evil, Al Gore, however dismal his record may be. But at bottom, this race will not be about anything fundamental. The fundamentals will be decided much more by how class struggle shapes up outside the Washington beltway in the months and years to come.
ECONOMY
Ingredients for a Market-Led Downturn
MEDIA PUNDITS and mainstream economists waxed euphoric last month as the current U.S. economic expansion became the longest in history. February marked the 107th month of expansion, surpassing the record set in the 1960s. A cover article in Business Week announced, Prosperity Is Reshaping the American Economy. GDP grew 6.9 percent in the last quarter of 1999, the federal budget has moved from deficit to surplus and unemployment is at a 30-year low.
According to Business Week, the expansion can continue indefinitely: The U.S. economy is stableand poised for more years of healthy growth. Financial advisor Christopher Farrell agrees, arguing that a recession...isnt on the horizon with entrepreneurship flourishing, employment growing, and incomes rising. Above all, the boosters argue that the revolution in information technology and the rise of the Internet have transformed the economic landscape, creating a new economy of unprecedented growth and unimagined prosperity.
While recent innovations in computer, communications and information technologies have certainly been important, they are scarcely unprecedented. As Marx pointed out more than a century ago, capitalism is a competitive system that cannot exist without cnstantly revolutionizing the instruments of production. The whole history of capitalism has been characterized by technological revolutions. The 1920s, for example, saw innovationsfrom the spread of the automobile to the development of electronicsatÇleast as profound as those of the 1990s, none of which prevented capitalism from entering its worst crisis to date in the 1930s.
In any case, the rosy economic predictions ignore the fact that by historical standards the current expansion is hardly impressive and is increasingly based on shaky foundations. Indeed, even some establishment voices have begun to recognize that all is not well. In a dissent to his own magazines cover story, Business Weeks economics editor Michael Mandel warned, Sooner, rather than later, the New Economy boom is likely to be followed by a New Economy busta recession and stock market decline that could be much deeper than most people expect.
Compared to the other postwar expansions, the present boom is by far the most lackluster. Growth averaged less than 3 percent in the first half of the 1990s, and while it has picked up since then, it is still well below the level of the 1950s and 1960s. Between 1961 and 1969, GDP grew by more than 52 percent, while in the current expansion it has grown less than 30 percent.
Moreover, the growth that has taken place has benefited only a few. Most working people have spent much of the past decade simply recovering income that they lost in the early 1990s. Median household income today is only slightly higher than its 1989 pre-recession level. For the poorest households, it is not even at that point. Meanwhile, incomes for the richest 5 percent are up 22 percent since 1989, and income inequality is at its highest level since the 1930s.
In the past few years, the median wage has increased slightly, but it is still lower in real terms than it was 30 years ago. In order to keep their heads above water, American workers are working longer and harder. According to one recent report, mothers in two-parent families increased their average annual paid work by 223 hoursnearly six weeksbetween 1983 and 1997. Fathers increased their work by 158 hours or four weeks in the same period. It is this huge increase in the level of exploitation that underlies the recovery of the U.S. economy in the past ten years, allowing profit rates to return to the level of the early 1970s.
Increased corporate profits have in turn helped to fuel the huge increase in stock values since 1995. Last year, the Dow Jones average gained more than 25 percent, while the Nasdaq composite indexrepresenting the countrys most prominent high-tech and Ànternet companiesrose by an astonishing 86 percent. But it is becoming increasingly clear that stocks are grossly overvalued and the current market boom is nothing more than a huge speculative bubble.
For most of the twentieth century, the average price/earnings (P/E) ratio for stocks was 14. Today, the P/E ratio for the S&P 500 is more than twice this number, while the P/E for the Nasdaq is a phenomenal 200. For some Internet companies, the figures are unbelievable. Yahoo!, for instance, has a P/E of more than 2,000. As Doug Henwood, editor of Left Business Observer, notes, Most Internet firms have no earnings, so their P/Es are infinite. Amazon.com, a familiar example, has lost more than $600 million, but its share prices continue to go up.
The plain fact is that the profits needed to justify these extravagant numbers are unlikely to materialize. According to a study by Federal Reserve economists, stock prices have been inflated by as much as 50 percent as a result of U.S. companies buying back their own shares. In 1998, for example, the companies in the S&P 500 spent $148 billion buying back shares, often with borrowed money. Corporate executives with generous stock-option deals have profited enormously from this process. But the borrowing cannot go on indefinitely. Eventually the mania will turn to panic and the bubble will burst.
Yet even this possibility doesnt worry Business WeekThe U.S. economy is so vibrant, it writes, that even a big tumble in the stock market might not be enough to knock it off-kilter. But this sanguine assessment must be taken with a very large grain of salt. First, a sharp market decline is likely to have a major impact on consumer spending, which has been driving the expansion in recent years. According to Federal Reserve Chair Alan Greenspan, one-quarter of economic growth since 1996 has been due to wealthy consumers spending more because the value of their investment portfolios has increased.
Meanwhile, the rest of us have been accumulating debt at a record level. American households are spending more than they earn, the ratio of household debt to income is higher than its ever been and the personal savings rate is at an all-time low. Total outstanding consumer debt reached $1.38 trillion last November, up 79 percent from 10 years earlier. Non-business bankruptcies increased 60 percent between 1991 and 1998. When the American consumer reaches the point where they cant borrow any more, warns Bill Fruth, president of the research firm Policom Corp., consumption will come to a grinding halt, then jobs will be eliminated and peoples ability to pay off the debt will be diminished. If this coincides with a stock market decline that leads to large numbers of layoffs, the effect could be devastating.
The second reason that a market crash is likely to impact the wider economy has to do with the growing U.S. trade deficitthe amount by which imports exceed exports. One reason that high levels of consumer spending have not pushed up inflation is that much of the rest of the world is in recession, which has allowed the U.S. to rely on a steady flow of cheap imports over the past few years. As a consequence, however, the trade deficit has ballooned. Last year it reached a record $271.3 billion, 65 percent higher than in 1998. This year, it may reach $400 billion, almost 4 percent of GDP.
In order to finance this massive shortfall, the U.S. has to attract an equally large quantity of foreign capital, making the economy highly dependent on outside investors. Up to now, foreign investors have been more than happy to oblige. But if the stock market crashes and they lose confidence in the U.S. economy, they will attempt to unload their unwanted dollars. Interest rates would shoot up to protect the dollars value, and the economy could once again be thrown into recession.
No one can say for sure when or how the boom will end, but the weaknesses of the U.S. economyan unsustainable stock market bubble, massive levels of private debt and the huge trade deficitmean that it cannot go on forever. There are strong parallels [with the 1920s], all of which make me worry, says University of California economist Barry Eichengreen, an expert on the Great Depression. If you believe history repeats itself, all the ingredients are there for a stock market-led downturn.