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Republican and Democratic “Remedies” Ensure More Crises, but Alternatives That Work Are Taboo

Both Republican and Democratic plans for the economy leave the system that produced this crisis and will produce more crises unchanged. There IS an alternative, argues economist Rick Wolff.

Both Republican and Democratic plans for the economy leave the system that produced this crisis and will produce more crises unchanged. There IS an alternative, argues economist Rick Wolff.

Capitalism’s cyclical convulsions into recession/depression provoke three alternative government policy responses. The first, say Plan A, has the government do little or nothing. Corporations and the rich mostly prefer it. They believe government intervention to be counterproductive and unnecessary because private capitalism best heals itself. They also fear universal suffrage. Majorities might vote for politicians to undo the unequal income and wealth distributions produced by capitalist economies. By minimizing government interventions, Plan A protects private capitalist systems. Thus, Bush repeated in 2007-2008: The downturn was limited, would be shallow and short and would “self-correct.” European business and political leaders agreed. They were all wrong.

Capitalist self-healing is supposed to work in two steps. First, downturns generate falling sales, prices, profits, wages and employment – reinforcing one another in a recessionary spiral. Second, capitalists eventually take advantage of lower wages and input prices to resume investing and thereby reverse downturns into upturns. Government intervention – especially government spending – would just distort this “natural” process, cause deficits in government budgets and increase “dependent” populations living off government “gifts.” Plan A advises people to wait as capitalism self-heals.

When downward spirals persist, credit markets freeze and collapse looms – 2008’s second half – business and government leaders usually abandon Plan A for Plan B. Then, monetary authorities (Federal Reserve, other central banks) rescue the financial industry with massive loans, loan guarantees, and other supports to unfreeze credit in modern debt-dependent capitalism. Plan B also directly “stimulates” the flagging economy by a fiscal policy of tax cuts and government spending increases.

Plan B’s fiscal policy expands the demand for goods and services and thereby jobs and incomes. The goal is to stop economic decline and stimulate an upturn. Plan B also can focus some spending increases to offset the suffering from unemployment, home foreclosures, etc. Business and political leaders hope that may at least slow mounting opposition to capitalism provoked by its severe convulsions.

Like Plan A, Plan B is based on confidence in, and reaffirmation of, the capitalist system. It does not change who owns and runs private enterprises. It does not change the basic pattern of rewards, incentives, and strategies of private businesses. However, Plan B has its critics. Some think it should never have replaced Plan A, while others support a temporary Plan B followed quickly by reversion back to Plan A. Since Plan B’s tax cuts and/or spending increases mean bigger deficits, requiring governments to borrow more, critics often stress the burdens of rising government debt.

The “Fiscal Cliff” represents a victory for Plan B’s critics. It refers to a set of tax increases and spending cuts that take effect on January 1, 2013, unless Congress and the President agree otherwise before then. The Fiscal Cliff represents movement back from Plan B toward Plan A, a compromise that mixes them. Republican and Democratic proposals represent variations of the Fiscal Cliff. Plan B’s advocates (Keynesian economists) warn that movement back to Plan A is dangerously premature. Conservatives distrust Plan B, warn about deficits, and demand immediate return to Plan A.

The Fiscal Cliff and all its variations are called “austerity” in most countries. Austerity means raising taxes, burdening people and enterprises already hurt by years of crisis. Austerity likewise means cutting government spending that hurts those losing government jobs and business. Politicians now negotiating about the Fiscal Cliff are, in fact, dickering over the details of austerity for the US.

Whatever the outcome of that dickering, the economic crisis will continue. Neither the Democrats’ nor the Republicans’ proposals can overcome it anytime soon. They all remain strictly limited to mixtures of Plan A and Plan B. Thinking outside that little box is taboo.

People living through modern capitalist cycles are thus left to wait and bear their heavy costs as each country endures its mix of Plans A and B. Social tensions, conflicts, and resistance movements arise from deteriorating work and living conditions. When finally an upturn resumes, within a few years the next cyclical convulsion will arrive (as the two-hundred-year history of capitalist instability proves).

In all past and present capitalist crises, advocates of Plans A and B (and of their mixtures) promised that their policy would not only overcome the crisis then, but also prevent future crises. Those promises were never kept. Thus, adopting Plans A or B or mixtures of them has meant resignation to capitalism’s cyclical convulsions and their unjustly distributed social costs. Limiting debate over economic policy to various mixtures of Plans A and B (as in “Fiscal Cliff” discussions) is neither necessary nor sufficient. Staying within those limits is “realistic” only if we are resigned endlessly to imposing capitalism’s rising costs on society.

Plans A and B do not change the system. They leave in place the incentives for the business decisions that lead to crisis. They leave in place the key personnel who make those decisions – the major corporate shareholders and the boards of directors they select. They leave profits concentrated in the hands of those boards and shareholders. With basically unchanged rewards, punishments and decision-makers, no wonder capitalist economies generate recurring crises.

There is a Plan C: system change as the solution to capitalism’s crises. It means reorganizing the priorities, structure, and people governing economic decisions. One key new priority becomes sustainable social life (rather than private profits): producing a mix of goods, services, and “free time” (for creative recreation, leisure, education, etc.) required for social cohesion, environmental sustainability and personal fulfillment. Key structural change includes economic democracy: reorganizing enterprises so all employees decide democratically what, how and where to produce and how to use the enterprise’s profits. Finally, the codetermination of social decisions by democratically reorganized enterprises and democratically self-governing residential communities would complete the new system.

Pieces of such a new system have grown in corners of our old system. Workers’ cooperatives, ecological movements, diverse democratic initiatives and so on have accumulated a reservoir of trials, errors, successes and failures. Drawing on that reservoir, we can finally break out of capitalism’s instability and unsustainability.

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