SRA Commentary: Nasty Economics
By Chris Sanders
January 19, 2004
"These people are nasty…"
Former Treasury Secretary Paul O’Neill describing his former colleagues in the Bush administration
He's A Nasty Piece Of Work
A year ago at this time Commentary was writing about the departure of Paul O’Neill and Larry Lindsay from the Bush administration. Twelve months on and
Mr. O’Neill is back in the news, this time because he has finally broken silence and given us his opinion of Bush et.
al. in an interview with Ron Suskind which formed the basis for a book called The Price of Loyalty. We have been interested to learn that contrary to our opinion at the time, O’Neill was actually fired, just as the
White House said he was. We had thought that he had quit and that the administration was trying to make it seem a matter
of choice, to retain at least the appearance of order and discipline. We just did not think that they could be so stupid
as to fire O’Neill and Lindsay. O’Neill and Lindsay lent them some credibility. Now we know the truth: they are that
stupid.
From what we have seen so far, Suskind’s book is primarily interesting for one reason. As Treasury secretary, O’Neill
was one of the most powerful men in Washington. He was brought onto the Bush team by Dick Cheney, who he counted as a
friend. His professional credentials are unimpeachable. And we learn from his mouth that what we at SRA and many others
have been saying all along is right: that the Bush administration is full of neo conservative ideologues whose
objectives are partisan to a fault, motivated by ideology, superstition, greed, and vindictiveness.
Good governance is not a matter of convenience. It is a matter of survival. The intelligent rich stay rich because they
understand, as Howard Dean apparently does and JP Morgan certainly did, that appearances count. In a political economy
in which the top 1% already controls virtually everything, the style of the Bush administration not only calls attention
to this most uncomfortable of political facts, but rubs everyone’s nose in it. It is the style of those whose only
motive for action is that that they can do something, rather than that they should do something, as the president
himself has confessed to Bob Woodward. The great thing about being president, as he put it, is that he doesn’t have to
listen to anyone, but everyone has to listen to him. This style is not just short-sighted and puerile, it invites
examination of the underlying premises upon which the status quo rests; premises which will not stand up to much
observation under the cold light of law, ethics or even reason. That makes it dangerous to the people who pay the bills.
Which One Is A Republican In Drag?
You would think that the current resident of the White House, a third generation retainer from a family of retainers to
the people who do pay the bills, would know this. But then the best butlers are trained in Britain, not West Texas.
Perhaps the president thinks that because he is president that he cannot be fired. That is a mistake as others have
found out, notably Richard Nixon.
The Bush administration is now taking a great deal of incoming political fire. O’Neill’s criticism notwithstanding,
former Treasury Secretary Robert Rubin has weighed in as well, focusing his attention on the increasingly dire state of
the nation’s finances. Rubin is absolutely right of course, and he has considerable institutional backing for his
criticism, with the IMF in its last World Economic Outlook worrying about the threat to international stability inherent in America’s rapidly growing net foreign debt.
Having done so much himself to create the problem, Rubin ought to know. He left a political and economic time bomb for
the Republicans to defuse when they came to Washington. Not only did they lack the intelligence to start defusing it by
laying the blame on the Democrats where it could plausibly be laid, they have added to it the equivalent of a
bunker-busting nuke that we reckon is going to blow Dick Cheney out of his hole under the peaceful Pennsylvania
countryside. In one of the more delightful of O’Neill’s revelations, we learn that Cheney dismissed his concerns about
the deficit curtly and shortly thereafter O’Neill was fired. According to Cheney, Reagan proved that deficits don’t
matter. Of course Reagan proved no such thing. All he proved is that you can get away with mistakes for a long time as
long as the consequences don’t come due inside the time frame of the relevant political cycle.
It looks to us as though the frontrunner for the Democratic Party’s presidential candidate nomination, Howard Dean,
understands this. Dean may try to run as an outsider but he is no outsider nor is he a bomb thrower. He clearly knows a
liability when he sees one however, and he has correctly seen the Bush administration’s biggest vulnerability: itself.
All he has to do to win the election, we reckon, is to just let Bush and Cheney be themselves. He has also, and
correctly I think, seen that the best way to secure the Democratic nomination is to attack the Clinton wing of the
party. The dominance of that wing over the last decade has been first due to its willingness to betray the class, race
and intellectual bases of the party’s support. Related to that is his ability to raise money. These two strengths over
time have become a liability just begging to be exploited. Dean is doing so now. The Democratic Leadership Council is
just the Republican wing of the Democratic Party, says Dean. People gasped when he said that, but nothing happened. Not
only did he get away with it, his support has multiplied.
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All the more reason to pay attention to the employment numbers in the US. In spite of the fantastic amount of both
monetary and fiscal stimulus applied by the Bush White House, job creation remains moribund. The reason for this is
simple enough. Most of the stimulus has benefited those who didn’t need more money, and too little of it has gone to
those who do. In economic terms it is simply that most of the tax breaks have gone to those with the smallest marginal
propensity to consume and too little to those with the highest marginal propensity to consume. The latter have been
encouraged to consume by taking on more debt, not by putting more earnings in their pockets. Christmas sales last year
told the story: luxury goods sales were very strong; everyone else was discounting like crazy. This is two economies,
not one.
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Soaring corporate profits sit uneasily alongside declining wages and salaries. With rapidly rising crude materials
prices pushing up manufacturing costs, it seems clear that companies are successfully demanding that labour absorb the
cost increases. And the borrowing that is fuelling the rise in manufacturing output is ultimately underwritten by that
same labour. And although benefits are rising, all this amounts to is paying with promises instead of money. These are
the same tactics used by early twentieth century companies such as the Pullman Company against their workers: pay them
less than they need to get by, lend them the cash that they need to do so, and force them to shop at the company store.
It was not unheard of for Pullman workers to discover at the end of a month’s work that they owed the company money.
Judging from the personal bankruptcy statistics of the last decade, more and more Americans find themselves in the same
situation.
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President Bush’s expedient answer to this widely shared problem is to announce his intention to grant amnesty to illegal
immigrants. This is a tactic time-tested and true in America, where immigration has from the early colonial days always
proven an effective means of blunting the organisational impulse of labour. In the early colonies, a shortage of workers
proved the spur not to the higher wages that neo-liberal economic theory might have suggested should have been the case,
but to the rapid development of the trans-Atlantic trade in black slaves and to the sentencing of criminals to lengthy
periods of indentured labour in the colonies.
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Today there are estimated to be 7 to 11 million illegal immigrants in the United States. This is a staggering number
when measured alongside a legal non-farm labour force of 130 million. When the prison population of 2 million is added
to the illegals the miracle of labour “productivity” is considerably demystified. Here is a combined labour pool of up
to 10% of the legal work force without the right to vote and without any legal status or rights. Not only is this a
heavy stick with which to hit the unions in an election year, but it is also a sure way of seeing that the
administration enjoys sizeable campaign contributions from the companies that exploit those people.
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There is thus a curious juxtaposition of economic factors going into this election year. On the one hand, the economy as
measured conventionally is performing rather well, and the Bush administration’s core constituency, the corporate sector
has never had it so good. The people who do the work in those corporations are not seeing much of the benefits, however,
and to judge from the administration’s belligerence have already been written out of the election playbook by the White
House. What this means in practical terms is that the Republican Party will benefit as usual from a low turnout in
November, the lower the better.
One last point: record corporate profits, lower inventories, and falling wages and salaries are making it possible are
making it possible for corporations to pay down bank debt. This is undoubtedly contributing to the drop in the monetary
growth rate that has been of concern to some observers of the economy. In a way, it is a worry, because it is
symptomatic of the unbalanced nature of the rewards that this expansion is generating. However, when inventories start
to rebuild, when interest rates finally start to climb again, and god forbid, corporations start paying more to their
workers; the money supply is likely to grow sharply.
There is a limit to how much workers can be squeezed, isn’t there?
- Chris Sanders
© Sanders Research Associates 2003
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