Obama’s Speaking Tour: More ‘Talk the Talk’ Again

This analysis of  President Obama’s current economic pivot was written before today’s Knox College speech. The author provides an update here.–Talking Union

by Jack Rasmus

Jack Rasmus

Jack Rasmus

This coming week and next, President Obama is reportedly planning to make a series of speeches on the economy. The deeper purpose of his coming speaking tour, however, is to stake out his position for the upcoming budget and deficit cutting battle that this writer has been predicting will occur within the next few months, as both the new budget year begins October 1 and a new ‘debt ceiling’ extension deadline concurrently approaches .

The hiatus in deficit cutting—aka ‘Austerity American Style’—that has characterized recent month is now coming to an end. A new round of austerity negotiations between the administration and radical conservatives in the US House of Representatives is about to begin. (For a deeper analysis, see this writer’s recent article entitled ‘Austerity American Style’ in the July issue of Against the Current magazine, as well as on the blog, jackrasmus.com).

Obama’s new Treasury Secretary, Jack Lew, provided the administration’s first ‘shot across the bow’ last week, announcing that the administration would not tolerate another ‘debt ceiling crisis’ in the coming months like that which occurred in August 2011. Once again, as in the past, House Republicans simply shrugged, having recently cut food stamps for millions and engineered a phony agreement on student debt interest payments.

In the first August 2011 debt ceiling fight, the crisis was ‘resolved’ by the Obama administration agreeing to cut $2.2 trillion in spending-only—$1 trillion of which took immediate effect and another $1.2 trillion implemented this past March 2013 in the form of the ‘sequester’ spending-only cuts. In between the two $1 trillion and $1.2 trillion in spending cut events, Obama agreed to raise personal income taxes a mere $.6 trillion on just the wealthiest 0.7% households instead of on the wealthiest 2% he promised during the 2012 elections.

As part of the token $.6 trillion in tax hikes for the wealthiest 0.7%, Obama agreed to eliminate the Alternative Minimum Tax altogether and to reduce the Inheritance Tax even more than under George W. Bush. The $.6 trillion, or $60 billion a year, tax hike on the super-wealthy will thus prove over the coming decade to be no more than a ‘smoke and mirrors’ increase in the personal income tax on the wealthy—with additional massive tax cuts still to come for the wealthy and their corporations forthcoming with the Tax Code overhaul now working its way through Congress.

To date the total deficit reduction therefore amounts to $2.8 trillion. That leaves a remaining $1.6 trillion in deficit reduction to go in order to reach Obama’s original Simpson-Bowles 2010 Deficit Commission’s recommendations of $4.4 trillion in deficit reduction for the next decade.

However, this past March Obama’s 2014 initial budget proposed to cut another $630 billion in Social Security and Medicare, thereby raising the total in deficit reduction enacted or conceded by the administration to $3.4 trillion. Safely assuming at least that much will occur in further social security and medicare spending reduction, that leaves about $1 trillion minimum in still further cuts to be negotiated in the renewed deficit debates that will soon unfold in the next few months.

As this writer argued in numerous blog entries the past seven months, the temporary hiatus in deficit cutting occurred as both parties—House Republican radicals and Obama and Senate Democrats—await the historic tax code change legislation now working its way on a fast track through the House Ways & Means Committee.

That tax code bill will include massive additional cuts in corporate income taxes, especially in the top corporate tax rate and in taxing of multinational corporations, who are currently hoarding $1.9 trillion in cash in their foreign subsidiaries in order to avoid paying corporate taxes. Corporations want—and Obama agreed during the recent national elections—to reduce their top corporate rate from 35% to 28% or less. They argue that the 35% rate is the highest among advanced economies. What they don’t say, and the press conveniently ignores repeatedly, is that US corporations’ actual effective rate is a mere 12% of total profits—i.e. the lowest among advanced economies. Or that that 12% rate is about half that which they previously annually paid between 1989-2008.

Notwithstanding all that, both Obama and the House radicals will agree on a massive tax code change in the coming months that will include hundreds of billions more in tax cuts for Corporate America. That in turn will mean that more than $1 trillion ($4.4 Simpson-Bowles target minus $3.4 spending cuts to date) will be demanded by House Republicans. That means more than Obama’s already proposed $630 billion in social security-medicare cuts will be on the bargaining table, and that significant middle class tax hikes will be as well.

More spending cuts and middle income tax hikes are thus on the agenda. They will come at a time that the US economy is clearly faltering once again and the global economy continues to weaken even more as well.

Contrary to the continuing media hype since the beginning of 2013, the US economy has been slowing significantly over the past year, growing on average less than 1% annually when special, one time effects like a pre-election defense spending surge last July-September, and a similar one time inventory spending blip January-March 2013, are backed out of US GDP results this past year.

In the next few weeks, 2nd Quarter GDP results will show an economy growing at less than 1%, as this writer forecast last May. (See ‘Predicting the US and Global Economy’, Z Magazine, July 2013, and in previous blog analyses of US GDP trends over the past year.)

US Federal Reserve missteps this past June 2013, attempting prematurely to reduce the $85 billion in monthly free money injections to banks, investors and stock-bond market speculators resulted in mortgage interest rates rising by more than 1% in just a matter of weeks, bringing the very fragile US housing sector recent recovery to a virtual halt. And despite the Fed turning on the free money spigot in July once again, banks will almost certainly keep mortgage interest rates at the higher rate, thus ensuring a further slowdown in residential housing that stalled last month and the continuing depression in commercial construction that has been the rule since 2009.

Meanwhile, US manufacturing and exports continue to follow the global downward trend, and household consumer income continues to decline in real terms, now showing up once more in stagnating retail sales. The much-hyped recent US job creation is, upon deeper inspection of trends, almost totally part time and temporary jobs since January 2013. Of the approximate 750,000 new jobs created, more than 550,000 were part time (and at least another 100,000 temp jobs)—all of which mean low paid and no benefits. Over the same period, more than 240,000 full time jobs were eliminated. Not surprising, recent studies show that 60% of jobs lost since the recession have been high paid (over $18hr) while 58% of the jobs created have been low paid (less than $13.hr.). No wonder union membership (higher paying jobs) fell by 500,000 the past year as several million low quality jobs have been created.

On the business front, as recent data shows, business spending on inventories continues to decline sharply, fixed investment is diverted to offshore or to financial securities speculation, and corporations’ multi-trillion dollar cash hoard is spent on dividend payouts to stockholders, stock buybacks to raise stock prices to still further record levels, or diverted to overseas subsidiaries to avoid paying US taxes.

In this context of slowing US economy across the board, the Obama administration and House Republican radicals again approach another round of deficit spending cuts and still more tax cuts for the rich and their corporations. Social Security, Medicare, Medicaid and Education cuts will be high on the agenda, as well as ‘broadening’ the tax base—i.e. tax hikes on middle class households. As Obamacare appears to encounter increasing problems of implementation, and the administration itself begins to retreat on its implementation, renewed efforts by House Radicals to dismantle it piece by piece will no doubt intensify and become a major item of further spending cuts as well in upcoming deficit negotiations.

As this writer has argued the past 18 months, another major round of deficit spending cuts in the US and/or banking crisis in Europe will all but ensure the US descent into a double dip recession in 2013-14. And as recent Federal Reserve attempts to ‘taper’ the $85 billion free money injection show, an emerging third factor potentially precipitating another recession could be a renewed effort by the Federal Reserve after September 2013 once again to try to withdraw the free money ‘cocaine’ to which bankers and investors appear now increasingly addicted.

Anyone who believes the US economy is about to enjoy a sustained recovery had better think again and look to the real details, and not the hype, about the US economy by media and politicians. They had better prepare for a deeper attack on social security, medicare, and education spending in the coming months. They had better resurrect the fight for ‘medicare for all’ as the only solution as Obamacare continues to unravel by 2016, or else accept the inevitability of Republican radicals’ drive for full privatization of healthcare, vouchers, and health services rationing for all but the wealthy. They had better make up their minds if they want a ‘new normal’ economy with only part time and temp low paid jobs and declining real incomes for the vast majority of households, while the wealthy continue to reap ever higher incomes from continuing record gains in stocks, bonds, and other financial investments.

In his forthcoming speeches and tour, Obama will talk in generalities about helping the middle class, inadequate incomes, hype up false job gains, refer to what is a fictitious housing recovery, brag about declining government deficits, and tell us how he won’t tolerate another debt ceiling debacle. But we’ve heard the same talk now for five years. Yes, the Republican House is much to blame for the continuing stagnation of the US economy and the falling incomes and wages for all but the wealthiest households. But so too is Obama and the Democrats, having backed off and conceded time and again to House Republicans’ retrograde demands and policies—too often making concessions unilaterally to appease conservatives and radicals. Expect more of the same, notwithstanding the optimistic ‘speech-talk’ that Obama will soon deliver yet again, as a prelude to his concessions once again that will undoubtedly follow.

We’ve seen his ‘talk and no walk’ scenario now several times since 2008. There’s no reason to assume the ‘leopard will change his spots’, so to speak. To continue the metaphor, the latest leap from his tree to snatch a small piece of political prey will result in abandoning the opportunity once again when challenged, scurrying back to a safe place out on some limb.

Meanwhile, the US economy slips slowly further toward the precipice of recession in 2013-14. Should that happen in 2014, another mid-term election fiasco for Democrats will likely follow next November 2014. It is quite possible, and increasingly so given that far more Democrats are up for election in the next round, that Democrats will lose control of the Senate. Then the real attack on the middle class, retirees, unions, healthcare, education, and workers in general will begin that will make recent events since 2010 pale in comparison.

As in the fall of 2010, this fall, 2013, represents a key juncture in economic and political events that will have implications for years to come. Obama’s adoption of corporate-driven policies in the summer of 2010, especially on the jobs and housing front, led to his major defeat in the 2010 midterms, resulting in losing control of the House of Representatives with consequences we have been experiencing ever since in terms of austerity for the majority in the US amidst record gains in incomes for the rich and corporate profits. A similar historical repeat may occur in the coming months, with a consequent loss of the Senate and even worse consequences.

If so, it will prove conclusively that the only way out of the continuing crisis is independent political action and new forms of national and local political organization.

UPDATE: Obama’s opening speaking tour speech delivered today, July 24, 2013 at KnoxCollege should have been given in November 2010, immediately after the midterm elections that month when he lost control of the US House of Representatives to House radical Republicans.  Today’s speech is analogous to taking a strike vote of the membership before going into negotiations,i.e. an attempt to strengthen one’s bargaining hand going into negotiations. But no such vote was taken in November 2010. Instead, the President signaled repeatedly his willingness to concede to House radicals’ proposals, which only emboldened their demands. The outcome of the extreme concessionary  position Obama undertook at the time was the December 2010 agreement with House Republicans to pass another $802 billion in further tax cuts, including the extension of the $4.6 trillion Bush tax cuts through 2012.

That set up a ‘fiscal cliff’ agreement at year end 2012 to extend $4 trillion of the Bush era tax cuts for another decade and beyond.  More spending cut concessions followed in 2011, with the $1 trillion in spending cuts in August 2011 and another $1.2 trillion in ‘sequester’ cuts this past March 2013.  The President’s track record on agreeing to tax cuts for the rich and corporations and spending cuts for the rest does not suggest his ‘new found populism’ in his Knox College speech is a hard and firm position.

Whether the President’s Knox College speech represents mere public posturing and a prelude to subsequent cave-in concessions remains to be seen. Republican radicals have little to convince them that he, the President,intends to really fight this time and much to suggest he won’t.  A possible indicator of the President’s new found intention to fight this time–i.e. to hard bargain this time–will be whether Obama takes independent executive action on behalf of the middle class before engaging in Congressional bargaining. Failing that, no one should hold their breath this round of deficit bargaining will prove different. What it all proves is that concession bargaining–whether at the union-management company level or at the political level–only emboldens the opposition to demand even more next time around and to harden their resolve. Obama may sense this may be his last opportunity to salvage his legacy, which appears in his second term to be unwinding instead of expanding.  It may all be too little, too late.

Jack Rasmus, is the author of Obama’s Economy: Recovery for the Few Pluto books, 2012, and host of the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network. He blogs at jackrasmus.com. His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

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7 Responses

  1. Well Jack. Your detailed analysis is helpful. Amidst the very helpful economics, you make some claims. ie. that he (Obama) lost the 2010 Congressional races. Did he lose, or did negative cynicism such as your post excels in, convince people to stay home? This election has been carefully analyzed in The White Working Class Today ( Levinson) 2013. This is an important issue since we will face a similar election in 2014. I agree that on the economy, the Obama team has been pro-banker, pro- corporate and destructive to the working class. We should tell the truth of economic policies such as your post does. However, there is room for more analysis of building alternatives in politics. And, hopefully all readers will join in the 50th. Anniversary March for Jobs and Justice in Washington August 24-26. Join DSA in building for this march. http://www.dsausa.org

    • In my most recent book, ‘Obama’s Economy: Recovery for the Few’, Pluto books, May 2012, I document in great detail the critical juncture economically and politically that occurred in the summer of 2010. (The chapter in the book is called ‘Obama as FDR or Jimmy Carter?’). At that time, summer 2010, Obama had a clear choice: He could turn to policies that would bail out mainstreet–as FDR did in the summer of 1934 after his initial pro-business program of 1933-34 (called the NRA) also started to fail and the brief recovery of 1933-34 began to falter–or he (Obama) could deepen his corporate ‘turn’. He chose the latter, putting GE CEO, Jeff Imelt, in charge of his jobs program and bringing on more corporate advisors. The result was a jobs program that focused on more free trade, more tax cuts for business, and other pro-business programs. He followed similar pro-business solutions for the housing crisis and let the banks write the programs. Jobs and housing got worse. In contrast to Obama in 2010, in the summer of 1934 FDR ‘turned’ toward mainstreet, began communicating his plans for the ‘New Deal’, got the public behind him despite the slowing recovery, and the Democrats gained even more seats in the 1934 midterm elections.

      Yes, the Republicans in the House bear major responsibility for the continuation of this crisis. But Obama’s strategic shift in 2010, a pro-business shift, is also responsible for the mess we are still in. After the 2010 midterms, it was but ‘over’ and nothing but a ‘rearguard action’ fight was left once the Teapublicans took the House. Since then it has been a step by step dismantling of the tepid stimulus program of 2009–another iteration of which is about to occur again this fall.

      History will show 2010 was the critical juncture of the Obama presidency. A potential repeat of the 2010 defeat is now in progress, and a continued slowing of the US economy could mean a loss of the Senate as well in 2014.

      Yes, by the way, I’m all for a march on Washington., and another..and another, as well as other local public actions and protests. But let’s look at the whole truth and the entire cause of our present condition: the legacy of both House radicals and Obama’s turn to corporate advisors and solutions throughout his presidency. Let’s stop apologizing, making excuses and soft-pedaling identifying who’s responsible for the mess. Responsibility lies with both Republicans in the House and Obama’s past strategic decisions and soft-ball negotiations with adversaries who have only wanted to destroy him from the beginning. Unfortunately, he let them achieve much of that objective himself.

      Jack Rasmus

  2. You are a liberal ass.

    • You can always count on the right to regress into its more barbaric habits of hate speech when it can’t think of anything better to say!

  3. It’s refreshing to hear a liberal berate our progressive liberal prez. Didn’t realize some of you libs were so bent out of shape about Obama. Gotta love it! And how brilliant of you to criticize Republicans for wanting to keep spending under control! Thank God for conservative Republican politicians. As a side note, the Tea Party is the salt of the Earth. I love those guys and gals.

    • And do you love the billionaires, like the Koch brothers, who are bankrolling and pulling the strings for the misled and ignorant (of the facts) Teaparty rank and file members? Or maybe you don’t mind that Koch and Teaparty types are fully in agreement with organizations like ALEC, where corporate hirlings write legislation in our state houses for the legislative staffs. No need to lobby any more when you can write the laws yourself directly, right? Is that the kind of democracy you Teapublicans want? Are you for ending social security, medicare, aid to education, etc.? That’s what the Teaparty stands for. I wonder if you ever collected unemployment benefits or receive social security now, or ever bought a house subsidized by the FHA, etc. etc. How about giving the money back?

  4. It may be that Obama will be less willing to compromise with the radical right in Congress now that he is in his second term and does not have to worry about being reelected but frankly, I’m not very optimistic that anything substantive in the way of economic policy will be introduced by this Administration. Obama missed his great opportunity to introduce a bold jobs bill based on infrastructure repair, new construction and public works when he had a Democratic majority in both houses of Congress. This would have married up well with the passage of the Affordable Care Act. While I think a single payer system would have been vastly better than the ACA, I don’t think it is a done deal that the healthcare law will “unravel” as you put it. I do however, think Obama has much to answer for helping to perpetuate a vast government surveillance systems and a secret government (driven largely by the profiteering giant corporations like Booz Allen), that sucks the life out of our democracy.

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