The Socialist Party Debates: The Tendency For The Rate Of Profit To Fall Vs Underconsumptionism.

The VOAG can’t help but notice the growing debate inside the Socialist Party (SP). The VOAG’s inbox had just quietened down following an avalanche of emails during the recent SWP splits. Now it seems it’s the Socialist Party’s turn to spam the living daylights out of us all.

The VOAG has already heard rumours of people being banned from the Socialist Party’s International Summer School, now I understand the SP’s NC is removing members from the SP Facebook group and banning all discussion relating to Marxist economics. (1)

As Bruce Wallace, one of the leading dissidents put it: “Under the pretext of agreeing to comradely debate, the critical material of oppositionists is being censored and repressed while public attacks on us are made by the leadership”. How SWP. (2)

And just like the SWP debacle, the argument is being conflated with a general dissatisfaction with internal party democracy. One dissident quotes Lenin: “Criticism within the limits of the principles of the Party Programme must be quite free, not only at Party meetings, but also at public meetings. Such criticism, or such “agitation” (for criticism is inseparable from agitation) cannot be prohibited”

What’s it all about.
 At the root of the argument are different perspectives regarding the relative importance in Crisis Theory (why capitalism goes into cyclical recessions) of “The Tendancy For The Rate Of Profit To Fall” (TRPF) and “Overacculation /Underconsumption”. Another SP dissident, calling himself Crucial Steve, writes on his blog:

“According to Lyn Walsh [editor of the SP’s monthly Socialism Today], the current crisis is one of over accumulation and lack of demand. Peter Taaffe writes in issue number 157 “The capitalists refuse to invest because there is no ‘profitable outlet’. In this sense, it is a crisis of ‘profitability’. Not because profits have dropped or there is a ‘tendency’ for the rate of profit to decline. Both the rate and the absolute amount of profit have increased it seems, even during this terrible crisis”.” (3)

Crucial Steve (Steve Dobbs) counters: “Marx was very clear that the accumulation of capital and the Tendency of the Rate of Profit to Fall were in fact “two expressions of the same process”. As capital accumulates, the organic composition [fixed capital over variable capital] rises and the rate of profit tends to fall. Thus to speak of over accumulation without reference to the rate of profit is somewhat “one-sided”, shall we say.

Cde. Crucial sets out his stall: “According to the statistics, the rate and the absolute amount of profit have not increased as the SP would have it. As anyone who has worked with management in the private sector will tell you, capitalists are concerned with the rate of return. So naturally, the projected rate of profit will determine investment. A fall in return and a subsequent fall in investment can also lead to a drop in the mass of profits. We can see empirically that the fall in the mass of profits precedes a fall in investment prior to a recession”.

Crucial quotes Walsh in Socialism Today No.161: “How, as socialists, should we regard a stimulus package or programme of public works? In the face of mass unemployment and the prospect of prolonged economic stagnation, the leaders of workers’ organisations should indeed be calling for a massive programme of public works to provide jobs and stimulate growth. Effective economic stimulus would require a big increase in social spending, increasing pensions and other benefits. Tax rates for the wealthy and big corporations should be substantially increased, with a levy on the uninvested cash piles of big companies. Effective measures should be taken against tax evasion and avoidance”. (4)

The SP’s official position, that the current crisis is one of over accumulation and lack of demand, implies that the answer is to inflate the economy by increasing salaries and public spending, in order to spend ones way out of crises. In other words, classic Keynesianism. We at The VOAG reject this approach and agree with Marx, that capitalism has structural contradictions that cannot be resolved by keynesian economics or reformism.

Socialist Fight breaks it down.
To get some help understanding this argument, let’s visit the pages of this month’s Socialist Fight:
Let us first of all set out the proposition according to Marx: “The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline as compared to the mass of materialised labour set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labour, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must constantly fall”. Karl Marx, Capital vol. 3, chapter 13.

TFRP is the central plank of Marx’s revolutionary economic theories. He formed his theory in opposition to the closely related theories of the so-called “iron law of wages” and underconsumptionism, and sharply counter-posed TFRP to them. The Iron Law of Wages is a proposed law of economics that asserts that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. Karl Marx attribute the doctrine to Lassalle (notably in his Critique of the Gotha Programme, 1875), but credited the idea to Thomas Malthus in his work, An Essay on the Principle of Population.

Marx did not have several theories of capitalist crisis, he had one: TFRP. Marx attacked the “iron law of wages” in two lectures to the international Working Men’s Association in 1865. The argument was that the “iron law” meant the absolute immiseration of the working class which led to a lack of demand for commodities and hence a crisis pushing prices below the value of commodities finally squeezing profits.

This is closely allied to underconsumptionism. Of course it has an immediate reformist implication; there is a Keynesian solution to the crisis of capitalism. All we need to do is raise wages and pump more money into the economy and the crisis will be solved. The underconsumptionist tells us there is plenty of money available but the capitalists just won’t invest. So implicitly all we have to do is force them to do so or get the government to do so on their behalf. It is this reformist conclusion that Bruce Wallace has correctly identified in the line of both the CWI and the CPGB. The notion that they won’t invest because the rate of profit is too low is beyond them.

The point about TFRP is that it is a revolutionary theory; capitalism is in crisis because it has these fatal structural flaws; private ownership of the means of production and a system of production for individual profit which has this inescapable tendency to fall and halt production through lack of investment. Only a rationally planned socialised economy based on production for need will overcome the ever recurring [and increasing] crises of capitalism. War on a global scale is the only thing that will temporarily solve this crisis for the capitalists; a much smaller group of monopoly capitalists will now have their profits rates restored before they fall again and the next conflagration is prepared. That is the history of the twentieth century. The same iron laws apply to the twenty-first. (6)

Notes
1. http://howiescorner.blogspot.co.uk/2013/07/is-shttp://howiescorner.blogspot.ocialist-party-heading-fo-split.html
2. http://69.195.124.91/~brucieba/2013/08/01/what-exactly-did-marx-and-engels-get-wrong-a-la-nial-mulholland/
3. http://socialismiscrucial.wordpress.com/2013/07/15/ted-grants-notes-on-marxist-economics/
4. Ibid
5. https://suacs.files.wordpress.com/2013/08/socialistfightno14.pdf
6. Ibid

Acknowledgements and Thanks
Many thanks to Ray Rising for providing a selection of print-outs regarding the Tendency for the Rate of Profit to Fall.

The VOAG would like to acknowledge Socialist Fight for their article “Ticktin, Taaffe and Underconsumption” in Socialist Fight No.14 some of which is reproduced here.

Thanks also go out to Socialist Fight for their excellent Open Meeting on the “Tendency for the Rate of Profit to Fall” which The VOAG attended. For details of future Socialist Fight meetings contact: Socialist_Fight@yahoo.co.uk.

Workers Power Conference 2012: Divisions, Expulsions, Appeals And Split – The VOAG Investigates.

Workers Power Conference 2012: Divisions, Expulsions, & Appeals – The VOAG Investigates. 

Workers Power, a small communist group had its conference over the weekend. The conference was dominated be factionalism and division. Two people were expelled, and although as yet there have been no formal splits, resignations from the National and Political Committees surely herald one in the coming days.

The conference began on Saturday 24th, March with two members formally appealing against their expulsions. In true Weekly Worker style, the VOAG (Voice Of Anti-Capitalism in Guildford) publishes the first of the two expulsion appeals – Delivered to the conference as a speech.    

Bureaucrat Expulsion
I went to two meetings in Manchester where I met with half a dozen people from the RSO, Socialist Fight and others. There were two subsequent meetings in Manchester, but neither I nor Cde B. attended them.

Like all members of Workers Power, I attend meetings organised by a number of different groups. I didn’t consider my attendance at this meeting any different than attending an SWP or SP meeting or indeed holding discussions with local Anarchists or anti-cuts campaigners.

There was a variety of attitudes regarding what might be achieved by the discussions. Opinions ranged from formalising a new group to continued informal discussions. I made it clear that my interest in the meetings was from within the framework of an Anti-Capitalist project

I recall prior to joining Workers Power, speaking to the 2009 Anti-Capitalist event. I told the conference:”What we really want is local groups, we have to come together at a local level because we don’t believe that political groups are capable of achieving a meaningful unity on a National basis”. “An Anti-Capitalist Party must be built from below, as an umbrella organisation connecting local Anti-Capitalist groups with the flexibility and freedom to react and adapt to local conditions”.

“However “, I added: “The Anti-Capitalist Party was not a replacement for existing groups, but a way for existing groups – along with non-aligned activists and anti-cuts campaigners – to work together” It was the feeling of the Surrey United Anti-Capitalists, “that a federal approach to a new Anti-Capitalist Party may provide the break-through to a successful ‘unity project”. This continues to be my belief. It is surely imperative to maintain ideological coherence by struggling for a clear programme via democratic centralism, a paper and our identity.

Late in the evening before the NC meeting in January, I received a phone call from Cde B. He told me he had received an email from the NC regarding the meetings inManchester. He forwarded an email to me, which had been sent from Simon Hardy to the members of the NC. The email contained correspondence between Cde B. and Gerry Downing. The emails addressed issues that arose out of the Manchester meetings and included a discussion about what kind of an organisation, if any, might arise out of them.

I too have had similar discussions. If the Anti-Capitalist Party is to be a Party of the working class, it must encourage the entire labour movement to sign up- and be a forum where theories and practices are put to the test. As Richard Brenner asked rhetorically in Workers Power 341, (Winter 2009): “Do we say that we want it to be a pluralist party? We want a democratic party in which everyone can say what they think. But another feature is that we want to win the argument in the party for revolution”.

It should be obvious that winning the argument for revolution requires a functioning group, faction or caucus to consistently argue for revolutionary Trotskyist politics inside the Anti-Capitalist project. Only Trotskyism has the programme that can defeat and replace the existing leadership of the working class by the method of the transitional programme. Bringing down the government and leading the working class to a socialist future.

I was aware that discussions were continuing between the participants of the Manchester meetings. Naturally, I too discussed these meetings. However, neither I nor Cde B. participated in the e-group where the emails Simon presented to the NC originated. Indeed, I didn’t know of the existence of the e-group.

Simon Hardy was leading the proposal for my expulsion. No accusations regarding a breach of discipline were leveled against me. Simon’s sole charge was that I “attended a meeting of a group hostile to Workers Power and the Anti-Capitalist project”.

My answer to Simon was, and still is: “that we all attend meetings with groups hostile to Workers Power. However, I didn’t discuss or impart any privileged information regarding Workers Power and I don’t believe Cde B. did either”.

I must add to this now, that Simon is wrong regarding the caucus’ hostility to “Anti Capitalism”. It is my understanding that Socialist Fight, and the other participants in Manchester, with the exception of the RSO, were in favour of joining an Anti-Capitalist project.

Cde B. may have made references to divisions in Workers Power, but I do not believe any details beyond what was in the public domain, were ever discussed. I do not accept Cde B. or I broke discipline or any democratic-centralist principle.

Cde B. has consistently been one of the most active members of Workers Power inLondon. He is well known and respected for his work within the GRL. He has been involved in numerous campaigns, the electricians and bus drivers’ disputes being recent examples. Billy is also the most consistent recruiter. There are people in this conference today that Billy either recruited or introduced to Workers Power. Indeed, I believe it would be foolish for any rump that may continue after this conference not to actively recruit Billy to it.

No, I think it is obvious to us all that the real splitters are those who have finally broken cover at this conference to propose liquidation. It is they who have been undermining Workers Power, and as we shall see – in their rush to promote their vision of an Anti-Capitalist formation – have already broken from democratic centralist methodology. Far from seeking to split Workers Power, Cde B. was looking for ways to save its politics and programme, the very reason Cde B. and I joined the group in the first place.

Libya
The first major retreat from the programme was over Libya. Unlike the majority of Workers Power, I saw no basis to believe that a popular or progressive uprising was unfolding. Indeed, behind the headlines there was plenty of reason to assume the opposite. Whilst Workers Power rapped their support for the NTC in the flag of Permanent Revolution, I felt those same arguments correctly applied to the forces supporting Gadaffi.

The most disturbing aspect of Workers Power’s support for the NTC was that the NTC was openly courting the patronage of the imperialist powers. It even promised western companies “preferential treatment” in what amounted to another arms for oil deal.

Leon Trotsky, “On the Sino-Japanese War”, wrote: “The Trotskyists, they say, ‘want to serve Chiang Kai-shek in action and the proletariat in words’. To participate actively and consciously in the war does not mean ‘to serve Chiang Kai-shek’ but to serve the independence of a colonial country in spite of Chiang Kai-shek. And the words directed against the Kuomintang are the means of educating the masses for the overthrow of Chiang Kai-shek”. “You cannot advance Imperialism’s victory and the victory of the working class at the same time”.

The leadership’s justification for their Libyan position was in the name of democracy and abstract liberal freedoms. In the early days of the conflict, I questioned the leadership about the lack of reliable evidence substantiating claims that it was a genuine popular uprising. Where was the general strike? Where were the mass demonstrations? In terms of numbers, it appeared that the rallies in support of Gadaffi were always larger than NTC organised events. Indeed, apart from a couple of small demonstrations, the only forces that the NTC commanded were rag-tag militias backed up by a few tribes and foreign interventionists”.

I find it Ironic that I’m appealing my expulsion, when those that are most keen on it are seeking to dissolve Workers Power anyway. It appears I am accused of breaking democratic centralism. However, it is my feeling that democratic centralist discipline broke down in WP some months ago.

The paper has ceased to be a coherent representation of the group. Under Simon Hardy’s editorship the paper has become the arena for internal differences between an old guard, and a middle class clique, running to the right and away from the working class. Their duplicity and dishonesty is exposed by their inconsistent and ever rightward stances in the paper.

Occupy – The 99%
With regards to the Occupy movement: Sceptical comments such as “the 1% as they have been called by the occupiers”. Criticisms such as “[occupy’s] limitation of always talking about “the people”. And calls for “discussions as to who constitutes the main agency of change”. (November’s issue of WP) have disappeared from the pages of WP.

Such comments and criticisms have been gradually replaced by a populist, un-critical support for the Occupy movement. And has led to a banner reading “We are the 99%” on the top of the South London Anti- Capitalist Network blog.

In contrast, on the WP blog last week, Dave Stockton, referring to ‘Occupy’ notes the: “necessity of working class direct action –that is, strikes – seemed to escape the more doctrinaire horizontals”…”In fact horizontalism- is an expression of layers and classes whose position in capitalist society gives them no natural unity: the lower middle classes, students, long term unemployed and intellectuals, who seek to escape cut-throat capitalist competition but at the same time feel collectivity, especially discipline imposed by a majority, an intolerable violation of their freedom”.

Compare that to March’s Workers Power, ‘Next steps for the Occupy movement’ in which Anton Solka writes “We are the 99% has brought the issue of class to the fore, there really is an us and them.”

Personally, I consider myself to be working class and not one of the 99%. My interests run contrary to many of the 99%. – And I would expect Workers Power to argue for class politics; warn of the dangers and Stalinist origin of popular frontism, and expose the contradictions within the 99% movement.

As with Libya, elements of Workers Power, with scant sources of information provided by the bourgeois media, has jumped on to the populist bandwagon of democracy and freedom. Support for the autonomist, environmentalist and horizontalist forces – those that are described by the clique struggling to break up our group as ‘New Left’ – may have temporarily grown, but there is nothing qualitatively new in Occupy. This ideology and methodology has been part of the political scenery for decades. The leaders of London’s Occupy are not just of the same milieu, but in many cases are the very same people that were on the peace camps and convoys of the eighties, on the road protests of the 90’s, and on the occupations and climate camps of the naughties.

Anti-Capitalism
As far as the Anti-Capitalist project goes; the Workers Power paper rarely repeats the same line twice. In February’s Workers Power article, “Labour in the Unions” Dave Stockton appeals to the unions to “put their money behind building a new fighting, Socialist Party”…”It must be a party whose aim is not to court the selfish individualism of the middle classes, but to lead the working class in a struggle for power”.

Simon Hardy writes in February’s paper “It is the battle to unite the anti–cuts movement, to create a new sense of energy and activism that UKUncut and Occupy exemplified. Although in the Editorial of the same month he writes: “In Britain, too, after an initial breakthrough, Occupy has reached a dead end”. Such is the retreat to the right, that even the name Anti-Capitalist is too radical for some in Workers Power. The group set up in Brighton is called the New Left Initiative.

In Conclusion
In conclusion, there are several common threads running through Workers Power at present.
In Libya WP elevated bourgeois democratic demands over the economic needs of the working class. With little information to support the position, WP opportunistically rode the wave of populism and supported the NTC. Its position sacrificed the security of the Libyan people, its welfare state, and its resources for democratic freedoms that will never be achieved and for the illusion of parliamentarianism.    

Again in the paper’s coverage of the Occupy movement and its 99% slogan, a faction of WP showed itself to be impressionistic. With little first-hand experience of the occupations, WP used second hand reports to analyse occupy. Here again elements in WP bent to populist sentiment and degenerated into uncritical support for the occupy movement. They sacrificed class analysis for democratic demands, popular frontism and horizontalism. As Dave Stockton said above: “These are the politics of the petit-bourgeois”.

It seems to me that the reason for the inconsistencies in the paper of late is not just the result of arguments on the PC, largely hidden from the membership. It is the result of a middle class clique in Workers Power looking for a way out and using Anti-Capitalism as their vehicle. Why else are they suddenly so enthusiastic about a project that’s been talked about for years. Why else would they be rushing headlong in to forming Anti-Capitalist groups before WP has decided the nature of this Anti-Capitalist project?

The rub, the elephant in the room, is finally exposed on paragraphs 20 and 21 of the draft proposal to the NC (included in the pre-conference IB.). Regarding Anti-Capitalism it says: “We will not declare a formal tendency or platform” – [But somehow] “will remain members of the League”. I don’t really think these people have thought this thing through. Does this clique really expect to reconcile plurality and democratic centralism within the same organisation? Or indeed, expect to remain members of the League, whose rules of affiliation insist on a regular paper. Read the rules of the League! You’re so gone. It’s these inconsistencies, and there are many, many, more, that make me realise the clique’s sudden enthusiasm for Anti-Capitalism is an unprincipled retreat into petite-bourgeois acceptability. We’re lefties, but harmless, and oh so intellectual they tell their peers. After-all, they’re reaching that age.

A post-script: Today – 9th April
It’s just two weeks after the above speech was delivered to the WP Annual Conference. News is reaching the VOAG that Workers Power is splitting. The VOAG believes that it totally vindicates everything that the two comrades who were expelled told the conference.  It follows a complete breakdown in the democratic centralist principles professed by Workers Power, mentioned above. Those of the ‘central tendency’ who claim to remain Leninists, saying they want to continue to build WP as a tendency in the worker’s movement, could have and should have put a stop to the machinations of the right-wing splitters long ago. Their refusal to do so shows their opportunism, and has led to this unnecessary impasse.  The right-wing, liquidationist splitters should have been expelled long ago for breaches of discipline and democratic centralism. The fact that they were not proves the degeneration and right-wing, petite-bourgeois trajectory of the entire group.    

Three Short Essays On The Crises

Three Short Essays On The Crises

The Voag was checking out the news today and came across these three articles, which we figured were worth reposting. 

These essays have been republished without permission. 

Bond Markets Have The United States In Their Sights

Gerry Gold, 20 April 2011
Assessing the significance of credit rating agency Standard & Poor’s historic decision to downgrade the debt outlook for the USA is complex. But significant it definitely is. S&P and Moody’s, which between them control 80% of the rating market, act as intelligence gatherers and forecasters on behalf of capitalist investors. They examine relevant aspects of an institutional issuer of debt – usually a corporate entity or a state body – and assess the risk to an investor of placing their money with that institution.

The higher the risk, the more the issuer of debt has to pay to the investor in interest or “yield”, and consequently, the more the corporation has to make from its operations, or in the case of a state, the more it has to extract from its citizens in taxes. So, you might say, the increasing burden being placed on the populations of effectively bankrupt countries like Ireland and Greece is largely on the say-so of these agencies.

Like all these agencies, S&P is a competitive, for-profit operation. In order to keep its customers paying their fees – and that is mostly the corporations whose performance is being assessed – it needs to show that it is getting its assessments right, more than it gets them wrong.

In the run-up to the 2007-8 global crash, S&P was itself mesmerised by the hysterical expansion of fantasy finance in which products derived from the issue of traditional forms of credit and debt based on real value multiplied the amount in circulation many times over. The big players issued monumental quantities of derivatives and they paid the ratings agencies huge fees to provide the market with favourable assessments. Money talks. So the agencies failed to provide any warning about the impossible state of Lehman Brothers which crashed out of existence in 2008.

Governments, on the other hand, don’t pay the agencies to assess the health of their economies, or to assess the risk that they might default on interest payments to the investors who lend them money through the bonds they purchase.

The rating agencies make their assessments as part of the fees paid by corporations who want to know whether the state’s debt is more or less risky. The big, or even only question at stake is: will the government act sufficiently strongly to provide the conditions for the corporations to intensify the extraction of profit from their population?

So when S&P decides to downgrade the outlook for US debt, it is taking into account many factors. These days the judgement is more political than it is economic. The on-going Punch & Judy style shadow-play between Obama and the Republicans over the $4-5 trillion programme of cuts to be visited upon the American people is one aspect of the analysis.

As one economist observed: “The key question is whether the gridlocked US political system can respond in time to avert a bond market revolt.” Some commentators say that S&P’s action is a warning to Obama from the world of finance. If they don’t crack down hard enough, investment money will go elsewhere and interest rates will rise. But they’ll also be assessing the likely contagion effect of the wildfire of revolt spreading outwards from Tahrir Square throughout the Middle East, North Africa and taking in Gabon in Central Africa.

They’ll be weighing up the likely outcome of the political struggle against the regimes that have ensured the supply of cheap oil to fuel growth over the last forty years. They’ll be closely examining the protest movement in Europe for signs that it is moving beyond resistance. And they’ll be studying developments like the People’s Assembly arising from the occupation of the State Capitol in Wisconsin. It’s no wonder S&P has downgraded the US government’s prospects for paying back its loans.
Gerry Gold, 20 April 2011

 

The S&P Debt Warning: Wall Street Extortionists Demand
Savage Cuts

WSWS, 20 April 2011
Five days after the US Senate Permanent Subcommittee on Investigations released a voluminous report detailing the criminal activities of the banks and credit rating firms that precipitated the 2008 Wall Street crash and global recession, one of the named culprits, Standard & Poor’s Credit Ratings Services, issued an ultimatum to the White House and Congress demanding an agreement on savage austerity measures ahead of the 2012 elections.

In lowering its outlook from “stable” to “negative” on the top AAA rating for US Treasury bonds, S&P spoke Monday for the entire financial mafia that is headquartered on Wall Street. The ratings firm declared in a press release that failure to reach an agreement in the coming months to reduce the federal deficit by at least $4 trillion over the next decade “could lead us to lower the rating.”

This amounts to a threat to crash the US and global economy and undermine the status of the dollar as the world reserve currency. The move is part of an internationally orchestrated drive by the major banks and speculators to push through devastating attacks on the living standards of the American working class.

They are applying to the United States the extortionate methods used previously to stoke up speculative attacks on the sovereign debt of a number of European countries, including Greece, Ireland, Portugal and Spain. S&P and its major ratings rivals Moody’s and Fitch have issued strategically timed credit warnings and downgrades to create a crisis atmosphere, which governments have then utilized to override popular opposition and impose mass layoffs and wage cuts and shred social programs.

John Chambers, chairman of the sovereign ratings committee at S&P, virtually admitted as much, according to a report in Tuesday’s Wall Street Journal. The Journal wrote: “If the US reaches a British-style resolution, S&P will restore the US outlook to stable, Mr. Chambers said.”

In May of 2009, S&P lowered Britain’s credit outlook. It reversed the action 17 months later after the newly elected Conservative-Liberal Democrat coalition government announced a program of draconian cuts that will shatter the country’s social safety net.

Readers can make their own judgment as to S&P’s standing to be issuing such ultimatums. The Senate report on the Wall Street crash describes the corrupt process by which S&P routinely slapped AAA ratings on worthless securities marketed by the banks as follows: “Credit rating agencies were paid by Wall Street firms that sought their ratings and profited from the financial products being rated… The ratings agencies weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom.” Senator Carl Levin, the chairman of the subcommittee, described what the investigation uncovered as “a financial snake pit rife with greed, conflicts of interest and wrongdoing.”

By rights, the top S&P executives who presided over this fraud and pocketed multi-million-dollar salaries in the process should be sitting in prison. Instead, still at their posts and having suffered no consequences, they are using the disaster of their own making to gut bedrock social programs such as Medicare, Medicaid and Social Security upon which tens of millions of people depend.

The statement issued by S&P on Monday described both the Republican fiscal year 2012 budget plan and that outlined by President Obama last week as a basis for cutting the federal deficit by $4 trillion. However, the two sides had to come to an agreement before the national election in 2012, the company insisted.

This demand underscores the anti-democratic character of the so-called budget debate. It is an elaborate charade, behind which stands the dictatorship of the banks. The deal to eviscerate what is left of the social reforms of the 20th century has to be sealed before the elections to make sure that the vote in no way becomes a referendum on austerity and the electorate has absolutely no say in the matter.

The mass opposition to the measures being proposed by both parties is well known to Wall Street and its political servants in Washington. On Monday, the same day as the S&P announcement, McClatchy Newspapers published the results of a McClatchy-Marist poll showing that voters by a margin of 2-to-1 support raising taxes on incomes above $250,000, with 64 percent in favor and 33 percent opposed. They oppose cutting Medicare and Medicaid by 80-18 percent.

S&P intervened at the behest of the banks to shift the phony budget debate even further to the right and create the conditions for even deeper cuts than those being currently proposed. Interviewed Monday on Bloomberg Television, David Beers, S&P’s global head of sovereign finance ratings, said the $4 trillion deficit-cutting target was “not enough to ultimately halt the rising trajectory of US debt.” It was, he said, merely “a useful starting point.”

The establishment media immediately signaled that it had gotten the message. The Los Angeles Times editorialized that “Congress and the White House can’t afford to ignore this warning shot.” The Financial Times of London published an editorial that declared, “S&P’s warning shot should galvanise America’s leaders.”

Democratic leaders rushed to reassure Wall Street that they were on board. Speaking at a community college in Virginia Tuesday, Obama said, “I believe that Democrats and Republicans can come together to get this done.”
Steny Hoyer of Maryland, the No. 2 Democrat in the House of Representative, said Monday, “Today’s revised outlook shows the urgent, bipartisan action needed to put our nation on a serious path to reduce deficits.”

Erskine Bowles, a former White House chief of staff for Bill Clinton and co-chair of last year’s bipartisan fiscal commission, was even more emphatic. Speaking to the Financial Times, he said S&P had been “absolutely right” in lowering it outlook on US debt. “If anything, they understate the extent of the problem,” he said.

Only a mass, independent movement of implacable opposition by the working class can defeat this criminal conspiracy. The World Socialist Web Site and the Socialist Equality Party urge workers and young people to reject the entire framework of the so-called budget debate. There must be uncompromising opposition to any cuts in jobs, wages or social programs and services. The working class bears no responsibility for the crisis of the capitalist system.

We propose an alternate policy. As a down payment, to begin to recoup the wealth plundered by the financial elite, we propose a 50 percent tax surcharge on all household wealth over $5 million. This should be supplemented by raising the income tax on households taking in more than $500,000 a year to 90 percent. These measures will not only generate hundreds of billions of dollars for jobs, schools, health care, housing and pensions, they will attack the profligate squandering of resources and contribute mightily to the moral as well as the economic health of society.

These initial steps lead inexorably to the nationalization of the banks and major corporations and their transformation into public utilities under the democratic control of the working population. This is a socialist program. It requires that the working class break politically from the two parties of big business and build a mass movement to fight for a workers’ government.
Barry Grey, 20 April 2011

Portugal: Another Triumph For The Bond Dealers

Paul Feldman, 8 April 2011
As Portugal declares state bankruptcy, after its Socialist Party government failed to get an austerity package through parliament, it’s another triumph for the dictatorship of the money markets and bond dealers. Now, even though Portugal is without a government, the price demanded by Germany and the richer EU countries for an €80 billion bail-out is even deeper cuts in public spending than were first proposed. The upcoming general election is definitely one to lose.

Portugal’s finances collapsed because its budget deficit grew rapidly following the onset of the global recession. But the money markets drove up interest rates until Portugal was borrowing at over 8.5%, adding to the total deficit at a rate which made it impossible to repay.

In the last year, Greece – which still has a ‘socialist’ government and Ireland, which saw the ruling party wiped out at the recent general election, have suffered the same fate. Does the ‘contagion’ stop at Lisbon, or is Madrid next?

Spain’s government – yet another one that claims the rubric ‘socialist’ – is confident it can avoid Portugal’s fate – because it says it’s already making deep cuts in public spending! Youth unemployment is running at over 40% as a consequence. Meanwhile, Spanish bank assets are worth far less than before because of the collapse in property values and refinancing is increasingly expensive and hard to come by.

You can cut – as the Coalition is doing in Britain – to avoid higher borrowing rates but that only deepens the recession. Spending more would leader to higher borrowing rates, which the banks won’t like. Why? Because in the perverse world of capitalist finance, the value of the government bonds, which they hold as assets, depreciates as rates rise.

At the same time, British banks are steadfastly refusing to resume rates of lending last seen before the credit crunch of 2007. That’s because their balance sheets remain toxic and full of bad debt. Even the right-wing press is fed up with the banks.

On Monday, the Independent Commission on Banking set up by the government reports, and no one expects it to suggest any fundamental changes. The Daily Telegraph’s Jeff Randall reported: “The banks have captured our money twice over: as cash in their vaults and investments in their shares. We own all of Northern Rock, most of Royal Bank of Scotland and nearly half of Lloyds Banking Group. We rescued them – and in so doing became their prisoners.

But this is not a new problem. By the outbreak of World War One, the banks and the monopolies had formed an unholy alliance against ordinary working people and elected governments alike. After creating the Federal Reserve – America’s central bank – President Woodrow Wilson declared:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilised world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men”.

In the recent period of corporate-driven globalisation, the tensions and contradictions between the capitalist state and capitalist finance have deepened to the point where governments tread warily. The only way to sort that out is to put an end to the power of the bond dealers, banks and money markets and create a new, socially-driven financial system. It doesn’t need me to tell you that bourgeois governments are not capable of such a revolutionary change.
Paul Feldman, 8 April 2011