System in reverse
What does Joe Biden’s massive Covid relief package mean for ordinary working class people? Daniel Lazare looks behind the Keynesian promises of jam today and jam tomorrow
On March 5, America’s woefully unrepresentative Senate shot down a bid to more than double the minimum wage to $15 an hour by the year 2025. On March 6, however, it approved a Covid-relief bill worth $1.9 trillion, aimed at benefitting the country’s lowest-paid workers. From stinginess to generosity in a single day - what does it all mean?
The answer is that, instead of requiring America’s endlessly celebrated small-business class to pay their workers more, the Democrats - who now control America’s upper house by a razor-thin margin - decided it would be easier to shift the weight onto future generations, in the hope that they will be in a better position to pay the debt off by virtue of being richer and more productive. Rather than forcing employers to up the ante now, the idea is to grow the economy in the years to come, so that everyone winds up satisfied.
That is how things are supposed to work in the never-never land of Keynesian economics. But it is not how they work in the reality of late capitalism. On the contrary, deficit spending over the last half century has had a double-sided effect, resulting, on the one hand, in an ever more raucous party for a small sliver on top; and in growing distress, on the other hand, for those below. Adjusted for inflation, US government debt has more than tripled since the year 2000, more than doubled since the 2008 financial meltdown, and risen 27% in the last year alone due to Covid-19. At $27.76 trillion, it now stands at 111% of gross domestic product - a level that would have been unthinkable a generation ago, but which is now the norm among advanced industrial states.
For those at the upper end of the economic spectrum, the results have been pure delight: a 33% increase in wealth between 2001 and 2016. For the rest, it has been the opposite: a 20% decline for the middle tier and a 45% drop for the lower. In 1989, when US national debt amounted to a mere 51% of GDP, families in the top five percent had 114 times as much wealth as those in the second quintile - which is to say those with income of between 60% and 80% of the national median. But by 2016, with the debt load more than doubling, their margin of victory more than doubled as well, to 248 times.1 Between 2009 and 2013, the top one percent captured 85.1% of total US income growth, while, by 2019, they owned 40% of all US wealth.2
There is no reason to think those trends have gotten any better since the onset of the pandemic. Contrary to predictions, ‘quantitative easing’ - the name given to artificially low interest rates and endless capital injections - has not resulted in general commodity inflation, at least not yet. With only a couple of exceptions, annual price increases over the last decade or so have remained within a narrow band of 1.5% to 2.6%.
But the story is very different when it comes to another kind of inflation: that of financial assets. Stocks are the most dramatic example, rising a stunning 45%, since the US went into lockdown last March. America’s billionaire class has seen its wealth rise 37% over the same period, while the top five - Jeff Bezos, Elon Musk, Bill Gates, Mark Zuckerberg and Warren Buffett - have seen theirs go up a whopping 85%. Collectively, America’s 660 billionaires now have a net worth equal to 170% of that of the country’s lower half - more than 165 million people in all.3
This is not despite the orgy of debt creation, but because of it. With the Federal Reserve promising to keep lending rates at near zero until 2023, investors feel like they have entered a gambling casino, in which the rules have been reset in their favour. Losing has become all but impossible. An estimated 20% of America’s top 3,000 companies - primarily retailers, airlines and hotels - may now be classified as ‘zombies’, meaning that they take in less than they pay out in terms of debt service and therefore require more and more credit to stay afloat. Yet no-one cares. Air travel has plummeted, yet Boeing, American, Delta and United have all seen their stock values double or more. Carnival - the Anglo-American company that has cornered the market in cruise lines - has seen its stock values more than double as well.
Wall Streeters will reply that central bankers are doing society a favour by keeping such businesses afloat, since air and cruise lines will likely bounce back, once Covid-19 goes away. But this is a classic case of socialising risk, while privatising profit, since society will be stuck with the bill, if such projections prove wrong - as they likely will.
The same goes for commercial real estate. With 90% of office staff now working from home, the glass-and-steel towers that crowd midtown Manhattan and the Wall Street financial district stand eerily empty.4 The same goes for the ancillary businesses that once catered to them - everything from hotdog vendors and discount stores to high-end restaurants and hotels. Yet the sector has largely recovered from the 10% swoon it experienced at the start of the crisis and is up nearly 50% for the decade as a whole.5 The casual observer might assume that the Zoom revolution has rendered vast amounts of office space superfluous, by showing that employees can just as easily work from home. But what do commercial property-owners care, as long as the Federal Reserve is paying them to think otherwise?
With 55,000 people sleeping in New York City homeless shelters each night, the same contradiction is playing out with special force in the streets. The combination of debt-fuelled real-estate speculation, rising apartment prices and wage stagnation has resulted in a classic scissors effect, in which workers facing a diminishing supply of affordable housing are left with nowhere else to go. A generation of Manhattan apartment owners has gotten rich off government-subsidised real-estate inflation. But another generation has been left huddling in doorways and begging for handouts.
All of which is not despite the debt balloon, but because of it. Joe Biden’s $1.9 trillion programme comes on top of a $2.2 trillion relief bill in March 2020 and a $900 billion relief measure that the Trump administration squeezed through in its waning days in January. But, where the Trump measures largely bypassed low-paid workers, while showering hundreds of billions on corporations, the Biden plan claims to reverse priorities by providing unemployed workers with an extra $300 per week, plus a one-time $1,400 payment for all adults in low to middle-income households. In a country in which family subsidies were once scorned, it also provides annual subsidies of up to $8,000 for childcare expenses.
This is manna from heaven for a hard-pressed working class that has suffered disproportionately from both layoffs and the coronavirus. But debt is still debt, and there is no reason to think that such benefits will not be offset by the economic polarisation that is sure to follow.
For certain segments of America’s chattering classes, any suggestion along such lines is strictly verboten. When Lawrence Summers - treasury secretary under Bill Clinton and later president of Harvard - dared suggest in a February op-ed that “there is a chance that macroeconomic stimulus on a scale closer to World War II levels … will set off inflationary pressures of a kind we have not seen in a generation”,6 left liberals erupted in fury. The Nation dismissed Summers as “wrongheaded”, The New Republic announced that he was “finally, belatedly, irrelevant”, while liberal economist Robert Kuttner said he was “a lousy economist” and “a vindictive SOB”, who was only upset because the Biden administration had not offered him a job.7
All this sound and fury was merely an intra-Democratic factional dispute between neoliberal centrists and vaguely leftish Keynesians, whose faith in capitalism is such that they believe that, with sufficient amounts of federal lending, there is no problem it cannot overcome. This is not to say that neoliberals like Summers are correct. But left liberals are equally wrong in ignoring debt’s role in impoverishing the working class and compounding an underlying crisis of capitalist profitability.
As Marx put it in a well-known passage in Capital,
… the credit system accelerates the material development of the productive forces and the establishment of the world market. It is the historical mission of the capitalist system of production to raise these material foundations. At the same time, credit accelerates the violent eruption of this contradiction - crises - and thereby the elements of disintegration of the old mode of production.8
Credit, in other words, fuels capitalist growth in certain epochs. But, while pretending to smooth out capitalist crisis in others, all it does in the end is to prolong and intensify the process. The decennial crises of the 19th century thus gave way to the mega-crisis of the early to mid-20th century and then to a superstorm in the early 21st that - depending on how you measure it - may be 60, 70 or even 80 years in the making. Workers may feel better in the short run, but in the long run they will feel worse.
Marx waxed positively rhapsodic about all the things capitalism had led to by the mid-19th century - not only in terms of production, but of society as a whole. For example,
The exploration of the earth in all directions, to discover new things of use as well as new useful qualities of the old; such as new qualities of them as raw materials, etc; the development, hence, of the natural sciences to their highest point; likewise the discovery, creation and satisfaction of new needs arising from society itself; the cultivation of all the qualities of the social human being, production of the same in a form as rich as possible in needs, because rich in qualities and relations - production of this being as the most total and universal possible social product, for, in order to take gratification in a many-sided way, he must be capable of many pleasures, hence cultured to a high degree - is likewise a condition of production founded on capital.
This creation of new branches of production - ie, of qualitatively new surplus time - is not merely the division of labour, but is rather the creation, separate from a given production, of labour with a new use-value; the development of a constantly expanding and more comprehensive system of different kinds of labour, different kinds of production, to which a constantly expanding and constantly enriched system of needs corresponds.9
Now imagine the same ever more comprehensive system, as it seizes up and goes into reverse. If so, it is clear that rising levels of capitalist debt can only accentuate the process all the more.
Commercial Property Price Index, March 4: greenstreet.com/insights/CPPI.↩︎
prospect.org/blogs/tap/larry-summers-churlish-payback-to-biden; thenation.com/article/economy/larry-summers-stimulus-neoliberalism; newrepublic.com/article/161269/larry-summers-finally-belatedly-irrelevant.↩︎
K Marx Capital New York 1967, Vol 3, p441.↩︎
K Marx Grundrisse London 1996, p409.↩︎