Paul Krugman’s commentary on the Republican debate where some in the audience cheered the possibility that an uninsured person might be left to die makes a point that I think deserves some reflection. He says that “the right’s embrace of that notion signals an important shift in the nature of American politics. … modern conservatism is actually a deeply radical movement, one that is hostile to the kind of society we’ve had for the past three generations — that is, a society that, acting through the government, tries to mitigate some of the ‘common hazards of life’ through such programs as Social Security, unemployment insurance, Medicare and Medicaid.”
The politicians on stage did their best to avoid the implication that the audience responded to. No wonder: poverty in this country, the richest in the world, is growing rapidly. The Census Bureau reported on Tuesday that the 46.2 million Americans living below the poverty line was the highest level they had ever recorded. “Joblessness was the main culprit pushing more Americans into poverty, economists said.” For the same reason, there is a marked increase in those without medical insurance.
Government anti-poverty plans are about the last thing holding many of the poor from starvation. Krugman’s point is that these programs were legislated when there was a social consensus that the poor should be helped. Now that consensus has ended as the Republicans have moved sharply to the right. Boehner’s intransigence over taxes on the wealthy, rejection of infrastructure spending, and insistence on entitlement cuts will inevitably drive up unemployment and plunge people into further poverty without state assistance. Essentially Boehner agrees with the conservative audience in the debate that the poor should be left to fend for themselves and if they fall sick, die as quickly as possible.
From Krugman’s point of view, this is immoral and irrational. He asks why Republicans won’t listen to reason, to informed experts like himself or the director of the Congressional Budget Office, who told the debt-reduction super-committee that they couldn’t sustain both low taxes and the federal safety net. Plunging many more into poverty will destabilize society by creating a huge underclass and undermining the legitimacy of the state. That’s why Krugman and the more progressive Democrats want to return to pre-Bush social norms.
But the shift in the Republicans’ attitude to the poor mirrors their approval of the accumulation of enormous wealth by the super-rich, which was compounded by relieving them of capital gains taxes. According to a special investigation by the Washington Post, “As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. … The 400 richest taxpayers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary.”
This has created a powerful political constituency, with close connections to Republican and Democratic legislators, which wants to preserve the Bush-era capital gains tax rate of 15%. It is embodied in conservative think-tanks which are thinly-disguised vehicles for billionaires to exert political control of the legislature. The Post quotes a former head of tax analysis at the Treasury that the effect of the low tax rate has been to create “huge opportunities for tax shelters aimed at converting ordinary income to capital gains.” Some investment managers get special benefits from the tax rate on investment profits because “their income, known as ‘carried interest,’ is counted not as wages but as capital gains. Instead of paying a 35 percent rate, these executives pay 15 percent. Private-equity managers from firms such as Apollo, Blackstone and the Carlyle Group save billions of dollars every year in this way — and lobby fiercely to keep it that way.”
Can this shift in morality be accounted for by plain greed? Keynesian economists like Krugman argue that some of the social surplus should be diverted to fund the safety net for the majority of the population and thus stabilize society. In other words, the crisis is policy-driven, caused by the relaxation of regulations on industry and finance from the time of Reagan on. Keynesian policies of state spending, like Roosevelt’s New Deal, could lead to higher employment and theoretically overcome the contraction of aggregate demand, thus lifting the economy. This is why Krugman is so frustrated with the political stalemate the Republicans have manufactured in Washington.
However, in Marxist terms, the surplus value currently being created worldwide (although large in absolute terms) is a diminishing proportion of the total capital that exists. There is a huge amount of capital chasing around the world looking for ways to reproduce and increase itself, but there is not a big enough market to realize the value of all the commodities that could be produced by employing labor. That is, there is a crisis of overcapacity stemming from overaccumulation of capital, which pushes the overall rate of profit downwards, however high it may be in certain industries.
This total capital was built up in the steady, relatively crisis-free period from the end of the Second World War. So the capitalist world is a victim of its success in the sense that a variety of strategies have been employed to avert various crises and achieve a relative stabilization of capital accumulation. Now, however, these postponed crises are coming together and compounding each other.
All manner of dodges have been employed to increase apparent profits on balance sheets – from creative accounting to outright fraud – and offset the declining rate of profit. Pushing up house prices was one way of extracting more wealth from society and privatizing it; mortgage revenue streams were capitalized by lending banks and bundled to be sold off to investors; investing in overvalued mortgage bundles despite the known risks stemmed from the lack of other opportunities to invest. Outsourcing production to lower-wage countries doesn’t really save much money in terms of commodity prices, but serves to inch up the rate of profit by reducing the sum of variable capital (wages) and fixed capital employed. It’s not that wages are high, but the surplus value created is too low compared to the amount of capitalization required in a high-tech economy.
From this point of view, all state spending represents a deduction from the total surplus value created and so further reduces the rate of profit. It is this logic, however expressed, that lies behind the consistent resistance of the super-rich and their political representatives to the restoration of tax levels and state welfare expenditure. This is why the Republicans won’t listen when economists warn them that their policies will result in disaster.