"Living within Our Means" and Standard and Poor's Downgrade
The President, Senators, Congresspersons, media representatives, and many ordinary people speak often, these days, about Washington "learning to live within our means." Last Friday, the private rating company, Standard and Poor (S&P), said the riskiness of lending to the US had risen because the US was not living within its means (i.e. borrowing too much). Yet, the meanings of these two related acts are not what they seem.
"Living within our means," as a rule for the US government's budget, is dishonest, shameful, and hypocritical. First of all, where was concern about living within our means when taxes on corporations and the rich were cut especially since 2000? That cut massively reduced the government's "means" to the benefit of the richest few. Back then those same folks promised wonderful economic booms they said would result. In fact, we got a terrible global economic crisis and an ever-widening gap between rich and poor in the US. Yet "living within our means" was barely heard amid the cheers then for tax-cutting on business and the rich.
Second, where was that rule when Washington decided to spend on maintaining an immense military (even as the world's only remaining superpower) or on very expensive wars in Iraq, Afghanistan, Pakistan, and Libya? No, then the talk was only about national security and preventing attacks here.
Third, when banks, insurance companies, and large corporations led the economy into collapse in 2007, they wanted and got trillions in Washington spending to bail them out. No talk then about "living within our means" as federal policy. Saving the economy was all the rage as Republicans and Democrats fell over one another to spend on bailouts.
Only now are politicians concerned over "living within our means." How convenient a phrase to justify and rationalize cutting spending on the middle classes and the poor. How nice for corporations and the rich, and how totally phony. Shame is what belongs on those who use such phrases.
Finally, the phrase nicely evades defining what "our means" ought to include. For example, are the immense multi-million and multi-billion dollar incomes and wealth of the super rich part of the "means" the government ought to live "within?" The United States has more than enough wealth to allow the state to tax fairly and perform its proper functions without borrowing. The corporate and rich owners of most of that wealth deny it to the government when there is no direct profit to them. Our national problem is not insufficient means. It is rather a system that allows corporations and the rich to bankrupt the state and then arrange for politicians dependent on them to preach about the state "living within our means."
Hypocrite is the second word, after shameful, that belongs to people who say such things.
Much attention now focuses on last Friday's S&P's announcement that it downgraded US debts from AAA to AA+ because it has become riskier for creditors to lend to the US. Yet, it matters little that the two other giant rating companies did not do likewise. Nor is it important that all those rating companies deserve bad reputations because they rated AAA many of the securities that collapsed in 2007/2008 and took an already unbalanced economy into deep recession. Nor does the downgrade impose major cash costs anytime soon.
The S&P downgrade is important because it clarifies and underscores two key dimensions of today's economic reality that most commentators have ignored or downplayed. The first dimension concerns exactly why the US national debt is rising fast. There are three major reasons: (1) major tax cuts especially on corporations and the rich since the 1970s and especially since 2000 have reduced revenues flowing into Washington, (2) costly global wars especially since 2000 have increased government spending dramatically, and (3) costly bailouts of dysfunctional banks, insurance companies, large corporations, and the economic system generally since 2007 have likewise sharply expanded government spending. With less tax revenue coming in from corporations and the rich and more spending on defense/wars and bailouts, the government had to borrow the difference. Duh!
These are the same three reasons that expose the shame and hypocrisy of those telling the government now to "live within its means."
The second dimension concerns the "deal" just agreed between President Obama and the Republicans. That deal increases the national debt in the years ahead because it does not alter any of the three major debt causes listed above. The deal reflects the political clout of the corporations and the rich, keeping their tax cuts, subsidies, and main government orders untouched. While the two parties pretend concern about the debt, they debate only how much to cut government spending on the people.
S&P downgraded the US national debt because the government keeps borrowing huge sums. S&P sees a basically political problem looming for the US's creditors (i.e. owners of US Treasury securities). How long will the mass of Americans accept not only an economic crisis bringing unemployment, home foreclosures, reduced real wages and job benefits, but now also cutbacks in government supports? When will the political backlash explode and how badly may it impact the US's creditors?
Will the people demand that their taxes stop going to pay off creditors (corporations, the rich, and foreigners) and be used instead for public services that the people need? The exact same political danger prompted the same rating companies to downgrade the debts of Greece, Portugal, etc. What happened there has now reached our shores, too.
S&P's rating downgrade validated what reasonable observers already knew (given that political backlashes hurting creditors have often happened in recent history). Creditors need to worry about the combination of economic crisis, growing inequalities of wealth, income, and power, and political dysfunction that now defines the US. The risks of backlash against creditors rise with the national debt. Not to worry is irrational and dangerous for them. Opportunities for political change are mounting for us.
Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications. Check out Richard D. Wolff’s documentary film on the current economic crisis,Capitalism Hits the Fan, at www.capitalismhitsthefan.com. Visit Wolff's Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.