Michael Roberts: US economy in shutdown? So the US Congress has forced a shutdown in a portion of federal government services. From yesterday, 800,000 federal employees will be laid off without pay. This affects about one-third of federal government spending, the rest is actually exempt and, of course, Congress has agreed to ensure that American soldiers on ‘active service’ will continue to be paid, but not civilians. So far, after two days of shutdown, according some estimates, US real GDP growth will be reduced by about by 0.1 percentage points at an annualised rate in this quarter, while a week-long shutdown would cost 0.3 percentage points. And remember that, in the third quarter, the US economy was growing at just 1.7% (see my post, thenextrecession.wordpress/2013/07/31/the-us-economy-bigger-but-not-healthier/). So a continued shutdown would begin to have a significant effect on real GDP growth. The argument of some mainstream economists, no doubt easily seized upon by the tea party activists in the Republican party who are behind forcing this shutdown, is that smaller government and lower government spending is good news. After all, the loss in GDP will be really in unproductive government spending. Capitalist sector growth is unaffected. This is nonsense. Sure, overall government spending, whether financed by borrowing or taxes, is a negative to overall capitalist sector profits, but significant sections of the capitalist sector depend on government procurement of goods and services. This will now be suspended – they may be recovered later, but some losses for capitalist producers of government demand will endure. This leaves out, of course, the impact of the loss of government services on the poor and needy, namely the closure of federal health services and food stamps provision etc. But then that is just a ‘use value’ for people and not a reduction in ‘exchange value’ for capitalist production, which is all that matters. But that is not the end of the risk of a new downturn in US economic growth. There is the looming issue of the federal government debt ceiling. This is the annual limit placed by Congress on the amount that the US government can borrow. Ironically, the debt ceiling was introduced during the First World War to help the federal government pay for the war. Up to then, every new piece of borrowing had to approved by Congress laboriously. To speed things up, Congress dispensed with considering every government bond issuance and just set a limit on how much outstanding debt there could be each year. But now, with total US government debt over $22trn in gross amounts (including state-guaranteed mortgage or so-called agency debt) and federal debt at over $16trn, the ceiling limit has become just that – a limit not a help. As the government does not yet balance its books (although the deficit between revenues and spending is narrowing fast as spending has been held down and tax collection is rising, it is still about 4% of GDP), it must borrow the difference by issuing treasury securities (debt). Also the government must issue new debt to cover debt that is maturing and which must be repaid to those who bought its bonds. Well, the debt ceiling will be breached by 17 October at the latest and available cash for the federal government after that is estimated at $30bn, which would run out before the end of this month. And at the end of October, the government must repay about $70bn in maturing bonds or default on its debt. A debt default would be a disaster for the government’s standing in global bond markets and lead to a sharp downgrading of its credit rating and so force up interest rates. it would also spill over into the rest of world as holders of US government debt, which includes most of the world’s central banks, governments and banks, would find themselves short of cash receipts that they were expecting and some may be unable to meet their own obligations. In addition, the US government would be forced to balance its budget for 2014, which started in October, and thus would have to impose a 20% cut in spending immediately. That would push the US economy back into recession very quickly. Of course, this is not going to happen – I think. The Republican-controlled House of Representatives will have to agree with the Democrat-controlled Senate to raise the debt ceiling before Armageddon arrives. But the Republicans, controlled as they are by the tea-party crazies, may drag this right out to the edge of the cliff. What is behind this Republican intransigence to the point of closing down government services is partly a claim that the government is borrowing ‘too much’, partly a hatred of President Obama, but mostly a belief that Obama’s new healthcare reform is a move towards European-style ‘socialism’ and a welfare state. The tea party loonies thrive on the view of the petty bourgeois, small town suburban myth that the American dream is really about families working and doing things on their own without the ‘interference’ of big government. Even state-funded police forces and intelligence services against ‘terrorism’ are viewed with suspicion by some of the more extreme elements. A man and his gun (often illegal) is all that is needed. I am reminded of the new film, Prisoners, now out in the US, where our hero is a small self-employed craftsman who believes in protecting his family himself, trains his son at an early age to use guns and ‘be strong’. His daughter is kidnapped by some crazies. He has no faith in the ability of the police to solve the case and get his daughter back. He decides to take the law into his own hands. This is a typical plot in many US movies, where the hero solves the issue without the support and often the hindrance of the authorities. But in Prisoners, the opposite is the outcome. His ‘going it alone’ leads to disaster. The American dream of the individual overcoming all odds is, of course, an illusion. It is not ‘big government’ that is the problem of US capitalism, but ‘big business’. The banking crash, the Great Recession and the lack of jobs and investment is not the result of government but of the failure of the capitalist sector. Indeed, it is government and the ‘small’ people who have taken the burden of the crisis caused by banks and capital. And yet when the Democrats take a very small step in trying to alleviate one of those burdens on people, the lack of affordable ‘on demand’ healthcare, it is the Republicans, backed by big business, medical insurance and the big pharma companies, and driven on by the tea party crazies, who decide to block an agreement on the 2014 budget unless Obama backs down on implementing his healthcare reform. But Americans badly need a proper healthcare service. The US spends 18 per cent of its gross domestic product on health against 12 per cent by the next highest spender, France. The US public sector spends a higher share of GDP than those of Italy, the UK, Japan and Canada. US spending per head is almost 100 per cent more than in Canada and 150 per cent more than in the UK. But America’s mainly privately owned and funded healthcare sector is a miserable failure in terms of meeting people’s needs (although very profitable). US life expectancy at birth is the lowest of these countries, while infant mortality is the highest. Potential years of life lost by people under the age of 70 are also far higher. Under tremendous pressure from below, the Democrats finally got the nerve to push through Congress some limited reform of US healthcare. The Patient Protection and Affordable Care Act (dubbed ‘Obamacare’ by the Republicans) was signed into law back in March 2010, but is only now being implemented. It is not a universal healthcare service free at the point of demand and paid for out of taxation, as in the UK or in Europe. Instead, it is relies on providing government subsidies to existing private medical insurance schemes of employers alongside the government-provided Medicaid scheme for very poor. Obamacare will help about 20 percent of Americans who are either uninsured or get insurance on the individual (or “non-group”) market. The idea is that anybody who makes more than the federal poverty line, but less than four times the poverty line ($94,200 for a family of four), can buy subsidised insurance. Those making less than 133 percent of the poverty line and living in a state that has accepted the Medicaid expansion can get Medicaid. The Congressional Budget Office expects that the Affordable Care Act will cover about 14 million of the uninsured in 2014 and 25 million by the end of the decade...."
Posted on: Sat, 05 Oct 2013 10:24:06 +0000
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