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Obama is pissing me off, so I need to rant!

The recent cover of Newsweek magazine shows a blue ballon with a title saying that the recession is over, not so fast. The "green-shoots" in the economy, like those that Obama is talking about, higher stock market valuations, higher house prices, etc., suggest, at least superficially that the recssion is over; however, it is not. The recession is not solved because the fundamental problem underlying the recession has not been solved, primarily that workers are not making enough to consume what they consume. The problem is summed up by liberal economist Nouriel Roubini:

"Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically...falling labor income implies falling consumption for households, which have already been hard hit by a massive loss of wealth (as the value of equities and homes has fallen) and a sharp rise in their debt ratios. With consumption accounting for 70% of US GDP in the US, and a similarly high percent in other advanced economies, this implies that the recession will last longer, and that economic recovery next year will be anemic (less than 1% growth in the US and even lower growth rates in Europe and Japan)."

The problem then, as Roubini sees it will be how the government will manage to contain the crisis of underconsumption, with rapidly deteriorating fiscal accounts and high debt loads the government will be under pressure from capital for higher interest rates that will choke off any recovery. As Roubini states:

"the higher the unemployment rate goes, the wider budget deficits will become, as automatic stabilizers reduce revenue and increase spending (for example, on unemployment benefits). Thus, an already unsustainable US fiscal path, with budget deficits above 10% of GDP and public debt expected to double as a share of GDP by 2014, becomes even worse."

However, Roubini sees the problem yet ignores it at the same time. As Louis Althusser states about any "theory", particularly in reference to economics:

"They [e.g. exploitation, surplus, class, etc] are invisible because they are rejected in principle, repressed from the field of the visible: and that is why their fleeting presence in the field when it does occur (in very peculiar and symptomatic circumstances) goes unperceived, and becomes literally an undivulgeable absence -- since the whole function of the field is not to see them, to forbid any sighting of them"

The crux of the problem--something that Roubini refuses to see or is unable to see because his theoretical lens denies that visibility of the problem--is that workers are not being compensated in accordance with their productivity and the implications that holds. Therefore, we have an imbalance in the economy, where the surplus is going disproportionately to the rich and finance; this led to the speculation that lead us to this crisis in first place. This is known as "financialization" of the economy and this has been happening since the 1980s when the collapse of the labour movement and globalization led to a structural readjustment of incomes to the rich. Globalization did not just emerge, it is a consequence of the strengthening of the labour movement in teh West during the Keynesian era. As Giovanni Arrighi notes,

"For what could more effectively restore company profit margins, lowered by the unruliness of the labour force, than the decentralization of production?...a company can only re-establish the internal hierarchial order so necessary for its functioning by organizing its productive and distributive operations at a work order to escape the decline of the rate of profit in teh 'mother-country' " (Geometry of Imeperialism, 144).

The objective, therefore, was to undermine high-income labour that was undermining accumulation in the West. This was not hidden by politicians or economists, it was proclaimed with pride as "supply-side economics"--neoliberalism. The new saviours of the economy were the rich. The logic went, give the money to those who invest, cut their taxes and let the free market flourish. We now are living with the consequences of that logic, the 'rich' have not invested more than before Reagan in fixed investment (productive investment); indeed, they have invested less, ergo less employment and lower incomes. The money that they have retained through the tax cuts have increasingly gone to the stock market, bond markets, etc., where speculation and higher profits reign. Employment has, in turn, become increasingly service based with low wages and precariousness as the rule.

What has been occurring in the US is that workers are making less in real terms than they were 30 years ago and the share of national income going to wages is at near, if not, historic lows. Workers are being "exploited" more than they were since at least the 1920s. Ergo, we have a crisis of under-consumption, although this crisis took a while to materialize and as a result the crisis is embedded very deep into the heart of the economy. The consumption of workers has been propped up through the credit mechanism and for 30 years it has worked at preventing the crisis from occurring, as long as the credit loop remained stable, but it was not going to and it set up, from the very beginning its own demise. This is how:

Workers are paid less, more money goes into profits and therefore investment in financial instruments. Finance capital gives back to the workers incomes through the debt mechanism, with interest, sucking more income out of the working classes. Finance gave consumers increasing larger and larger amounts of credit with lower and lower standards as the limits of the system began to show, e.g. NINJA loans. Then finance bundled these debts as securities selling them off for profit. This reduced individual risk for the firm, leading to riskier and riskier loans, but this increased systemic risk. Since the credit agencies were paid by the banks, they made these inherently unstable securities Triple-A, the highest rating you can get. The assumption was that workers would do everything in their power not to default on their homes and other assets. Eventually, workers could no longer sustain the debt payments as interest rates went up in 2007, the bet of the financial industry failed. Defaults occurred, especially with 'sub-prime' mortgages leading to the foreclosure crisis and erasing hundreds of billions worth of wealth and due to the downward pressure on house prices, home owners could no longer depend on their houses to pay for their consumption. Eventually, those Tripe-A securities became junk and the system almost collapsed; because no one knew the actual value of those securities, the assets of firms were under scrutiny and therefore the firms became insolvent. The government stepped in to re-capitalize the firms and take the "bad assets" off the books to make the firms solvent again.

Therefore, what Obama sees as green shoots signaling a revival of the economy is really just the rehashing of the old economy. As Paul Krugman states about the recent mega-profits of Goldman Sachs:

"The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us? shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely...What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong...You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole."

Firstly, what this crisis amounts to then is the effective privatization of state coffers by finance capital. The thing is now that the banks are now, as Krugman states, are implicitly covered by the tax payer. This is akin to what happened in Argentina when the state was captured by finance capital and socialized private debt--otherwise known as 'right-wing populism'.

So what Obama is bleating on about is not a recovery, but the stage for a even greater crisis in the future. Obama has NOT fundamentally changed the structural problem at the heart of the American economy, instead he has PRESERVED the same system that got us into the crisis in the first place. Ultimately, workers are not being paid enough. The solution is to emphasize consumption, to redistribute wealth to workers, to increase government spending on social programs and to tax the rich to pay for it; otherwise that excess income will go into speculation and we have this problem all over again. Indeed, the crisis that Roubini talks about, that the country is on the precipice of a financial collapse is true if you assume that tax rates are immutable. Its time to come to grip with reality, the rich have not lived up to their share of the social contract and have caused immense damage to the general economy for their own parochial interests. There has to be a strengthened union movement to reverse the 'taproot' of the problem, which is underconsumption. Otherwise, we will be in the same boat again very soon. As Roubini warns:

"The irrational exuberance that drove a three-month bear-market rally in the spring is now giving way to a sober realization among investors that the global recession will not be over until year end, that the recovery will be weak and well below trend, and that the risks of a double-dip W-shaped recession are rising."


The lessons from Honduras

Over the past month I have been reading Hayek's works, and I am noticing how pervasive his ideology is. The recent coup d'etat in Honduras compounded that view. The rhetoric used by the supporters of the regime is starkly reminiscent of Hayek. When they claim that the coup d'etat in Honduras is actually protecting democracy, it might seem contradictory, but thanks to the logic of Hayek, it does make sense; of course, I do not agree with his arguments. The basic premise is that democracy can only exist within liberal society where the free market; the rule of law that is applicable to everyone equally--the 'false universalism' of liberal-capitalism--; and limited popular democracy. Any attempt to regulate the economy and to massify the political will inevitably lead to tyranny of the majority and eventually to authoritarianism; therefore, a strong constitution that brackets off 'substantive' issues is needed to protect 'liberty' from the tyranny of the majority. Due to the political impossibility of agreeing on what the 'public good' is, within a democratic framework, will lead to the political system investing its decisions to a strong-man who has total control of the economy, thus, people's lives. Thus, the overt class politics of Zelaya, wanting to redistribute income and power under the 'guise' of democracy is an unacceptable encroachment on liberty, and goes against the 'laws of the market' leading Honduras to a 'Road to Serfdom'. As Hayek states:

In this sense an act of the duly authorized legislature might be as arbitrary as an act of an autocrat, indeed any command or prohibition directed to particular persons or groups, and not following from a rule of universal applicability, would be regarded as arbitrary. What thus makes an act of coercion arbitrary, in the sense in which the term is used in the old liberal tradition, is that it serves a particular end of government, is determined by a specific act of will and not by a universal rule needed for the maintenance of that self-generating overall order of actions, which is served by all the other enforced rules of just conduct. (Libearlism, Hayek)

Thus, since the policies and objectives of Zelaya were particular and not universally applicable, meaning it recognizes inherent asymmetries in power, it is autocratic even if under the rule of the demos. The implicit assumption in Hayek, and the junta is that they are not exercising their own form of serfdom on the majority of the people. The superficiality of liberalism's formal equality, focusing on negative rights that are easily applied universally to all, condemns millions of people to a very real life of 'serfdom'. Zelaya's politics are more overtly classist, but that does not mean that the normal operations of the liberal-capitalist state isn't classist. Particularly under the neoliberal frame, the state as Marx suggested is ultimately the 'executive committee' of the bourgeoisie; however, because these operations are considered 'normal', and 'rational' they are not considered classist.

Liberal democracy obfuscates, through the democratic franchise, and legalistic process the power of the ruling classes that define what those 'universal' laws are. Perry Anderson's elucidation of Gramsci's thoughts in this work, The Antinomies of Antonio Gramsci is instructive. In it, he argues that the enfranchised masses believe that, "they exercise an ultimate self-determination within the existing social order...[that due to] the democratic equality of all citizens in the government of the nation—in other words, [a] disbelief in the existence of any ruling class” (Anderson 30). What Zelaya, Chavez, etc., are doing with their referendums is challenging liberal democracy on its own terms. The elites in these societies know that they the lack critical mass of support among the population and what the new left in Latin America is doing is--within the pluralistic, liberal democratic framework--using the liberal notion of consent=legitimacy, and changing the hegemonic system of oppression. They are exposing to the world the ruling classes that bely liberal-capitalism's 'democracy', that it is a rational and neutral plane from which all interests are equally considered and is ruled by laws and not power/politics. It is no wonder that Allende, Chavez, and Zelaya were overthrown, eventhough they worked within the paradigm of liberal democracy. As Perry Anderson's elucidation of Gramsci's thoughts in this work, The Antinomies of Antonio Gramsci, reminds us that:

To forget the ‘fundamental’ or determinant role of violence within the power structure of contemporary capitalism in the final instance is to regress to reformism...Deprived of this, the system of cultural control would be instantly fragile, since the limits of possible actions against it would disappear...[therefore] the ultimate determinant of the power system: force. This is a law of capitalism, which it cannot violate, on pain of death. It is the rule of the end-game situation (Anderson 43).

Indeed, this is what occurred in Honduras, existing capitalist relations were under threat in the country and therefore, the ruling classes had to react at pain of death, or so their pathologies told them. The greatest fear of capital is exactly what Zelaya, and Chavez are doing, mobilizing the subaltern in a counter-hegemonic discourse. Liberal democracy according to Hayek means that, "Democracy is concerned with the question of who is to direct government. Liberalism requires that all power, and therefore also that of the majority, be limited" (Liberalism). The issue, that is not addressed by Hayek, is who is doing the articulation of how government is to be limited. Where does it say that the elite of the society are the sole arbiters of defining what the limits of the state should be? Herein lies the challenge by the left in Latin America to existing liberal-capitalism, as the subaltern are being mobilized against the parasitic elites of their societies who would rather invest their money in condos along Miami beach than reinvesting the profits at home. The subaltern are exacting their democratic prerogative to challenge existing relations, so they are in essence democratizing liberalism. What the proto-revolutionary left in Latin America is doing is challenging and keeping liberal-democracy up to its suppsoed core ideological justification, which is premised on, as elucidated by Abraham Lincoln's famous dictum that the state is ‘of the people, by the people, for the people’.

Zelaya was overthrown, not because he broke the constitution--many presidents do that all the time, and there are legal mechanisms to depose of a leader who is charged of breaking the constitution. The real reason for his sudden, violent overthrow was because his referendum was too much of a immediate, and legitimate threat to existing power relations in the country. If Zelaya was a demagogue as they claim, and if he was unpopular as they claim he was, why overthrow him? If the referendum was going to fail, wouldn't that signal the end of the reformist project, and his political career? It is important to remember, as Anderson points out, proving Gramsci right, that, “it is in the nature of the bourgeois State [and system] that, in any final contest, the armed apparatus of repression inexorably displaces the ideological apparatuses of parliamentary representation [and the judiciary]” (Anderson 76).

Gramsci's analytical framework's predictive powers are reinforced by the difference between the coup d'etat engineered against Chavez in 2002, and Zelaya in 2009. In 2002, when Chavez was overthrown, the subaltern masses poured in from the ghettos that surround Caracas like water into a bowl, culminating in front of Miraflores to demand the return of Chavez. The subaltern in Honduras, in contradiction to The Economist propaganda, have also taken to the streets in the major urban centres of Honduras. Chavez was back in Miraflores three days after his ouster, yet Zelaya remains in limbo, why? The reason is that, as Anderson pointed out earlier, the foundation of the state is force, not ideological power. Ideological power is essential to the long-run viability any hegemonic order, by definition, but once that ideological facade collapses, force and dominance is the end game. In order for Zelaya to have a triumphant return to power like Chavez the military has to be on his side and they are clearly not. Chavez was brought back because there were serious splits within the military. People power alone is not sufficient, people power--the notion of people power is always partial and particular due to 'class conflict'--has to be able transcend its own corporatist interests to convince the members of the armed apparatus that this is the end game and that they are fighting for the losing side of history.

The lessons for progressives should be clear from what is occurring in Honduras. Some racists or ignorant persons may argue that what is happening in Honduras is because it is a 'banana republic' and simply cannot happen here. However, it certainly has been attempted 'here', for example the attempted coup against FDR in 1933-34 by big business. What is happening in Latin America is what a real left should look like, a left that does not accept the naturalization of existing capitalism as is. As Chantal Mouffe, and Ernesto Laclau argue about the sad state of ersatz leftism in the West:

We never thought, through, that discarding the Jacobin friend/enemy model of politics as an adequate paradigm for democratic politics should lead to the adoption of the liberal one, which envisages democracy as a simple competition among interests taking place in a neutral terrain--even if the accent is put on the 'dialogic' dimension. This, however, is precisely the way in which many left-wing parties are now visualizing the democratic process. This is why they are unable to grasp the structure of power relations, and even begin to imagine the possibility of establishing a new hegemony. As a consequence, the anti-capitalist element which had always been present in social democracy...has now been eradicated from its supposedly modernized version...This argument takes from granted the ideological terrain which has been created as a result of years of neo-liberal hegemony, and transforms what is conjunctural state of affairs into a historical necessity. Presented as driven exclusively by the information revolution, the forces of globalization are detached from their political dimensions and appear as fate to which we all have to submit. So we are told that there are no more left-wing or right-wing economic policies only good and bad ones! To think in terms of hegemonic relations is to break with such fallacies. (16).

I hope we can break with such fallacies, and Latin America is providing the light by which we can. However, we must remember that we live in a society of power not of reason.

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