Riding Capitalism to the Bottom:
Why Republicans Gain as the Economy Falters
by Steve Max
OVERLOOKED IN THE recent rise of the Tea Party and the Republican
Right is the way these groups have learned how to grow and thrive on
the failures of capitalism. The Democrats, in contrast, remain tied
to its successes. With capitalism performing particularly poorly at
present, it is no wonder that the Right is gaining momentum while the
Democrats and their labor and progressive allies are often on the
Consider this: To implement traditional Democratic values and
programs, elected officials from the President to the smallest town
council member need to operate in a well-functioning economy.
Employment must be high, the number of people dependent on the safety
net must be low, and tax revenue must be rising to keep pace with
government costs. Nowhere is this happening today. The Republicans
now, on the other hand, do not have to govern at the national level
(nor in twenty-six states) and are therefore free to obstruct,
criticize, and attack without producing any improvement or having any
plan at all. They are growing in strength on the basis of fear,
insecurity, and social dislocation generated by the failing economy.
If crime rises, Republicans gain. If American workers compete for
jobs with undocumented immigrants, Republicans gain. If teachers
oppose layoffs, Republicans gain. If Democrats suggest halting steps
to slow global warming, Republicans shout "job killers."
Even when and where they do actually have to govern, Republicans
continue to build strength as capitalism falters. They simply deflect
anger to the Democrats for obstructing the (crackpot) Republican
program: privatize everything, deregulate everything, eliminate social
programs, end collective bargaining, destroy the public sector, and
cut taxes. Because, up to a point, Democrats often do obstruct such
plans -- and rightly so -- it is easy to claim that the Republican
program for prosperity is not getting a chance to work its magic.
The Democratic response is usually to take the bait and rush into the
trap. For example, in New York State, the Democratic candidate for
governor, Andrew Cuomo, is running ads promising to fire 20 percent,
or roughly 26,000, of our state employees. Meanwhile, ads sponsored
by our junior senator Kirsten Gillibrand say that she "took on" her
own party to block congressional pay increases. Her ads, which also
reach parts of Connecticut and New Jersey, are not exactly a gift to
embattled Democratic congressional candidates.
Behind this dilemma is a basic ideological problem. There is a common
perception among Democrats, Republicans, and the general public that
the natural tendency of capitalism is toward ever increasing growth
rates, except for occasional periods when that doesn't happen. In
such down times, Democrats believe that a little spending and
tinkering with the financial system will get growth back on track.
Republicans believe that the system isn't working because someone
messed it up and they know who. Both views are totally wrong.
The natural tendency of mature capitalist economies is not toward
increasing growth rates, but toward stagnation as the chart below
shows. The dynamic growth that once characterized the American
economy is now taking place in countries such as India and China where
industrial capitalism and manufacturing is still in its youth. Given
this tendency toward stagnation, only the most massive government
intervention can change the outcome -- as many economists, including
Paul Krugman, have consistently argued. For example, rebuilding our
entire infrastructure on a green energy basis would not only save the
planet, but also save the economy for many decades to come. While
such a level of intervention is economically possible and
environmentally necessary, the Republican onslaught has so intimidated
the Democrats that it is politically highly unlikely to happen.
Another approach to the jobs problem, reducing the size of the work
force through four years of free compulsory college, lowering the
retirement age to sixty and shortening the workweek, seems equally
unlikely. In fact, the Administration may be heading toward raising
the Social Security retirement age, thus increasing unemployment and
boosting Republican prospects ever further. To make matters worse,
the President and Democratic candidates at every level are promising
to improve the economy and create jobs, something no party can deliver
under current economic/political conditions. This sets them up for
What must the Democrats do now? Tell the truth. Tell the truth about
capitalism and the economy. It has never worked particularly well and
it is worse now. (There will be a small improvement in the next few
years as the recession cycle goes round again, but we have seen that
the recovery after each recession rarely reaches the level of the
previous recovery and jobs continue to disappear.) The Democrats need
to say that they are the party that believes in protecting people from
the outcome of the free market while the Republicans believe that
suffering is good for you and everyone else but the wealthiest. The
Democrats need proposals that will bring security to all working
people, those with jobs and those without, such as a job loss
protection program that provides several years of unemployment
benefits, medical care, retraining, and, if required, mortgage or rent
subsidies to prevent loss of home. Make Republicans campaign against
that. Democrats need to popularize big programs to restart American
manufacturing. The massive solar energy plants to be built on federal
land in California and the GM Volt electric car being built in a
nationalized plant are only two examples of what can be done.
Given the tendency toward stagnant growth rates, there is not likely
to be any dramatic improvement in federal and state tax revenues.
Democrats are increasingly unable to govern in the face of rising
deficits that serve as another point of Republican attack. Taxes on
the rich must be raised, but that requires fighting another
ideological battle. Wealthy investors, the right-wing narrative has
it, are the engine of economic growth. If their wealth is taxed away
and wasted by government, we will all suffer the consequences of
falling employment and income. The truth is that, as of the end of
March 2010, U.S. venture capital firms were sitting on $81.6 billion
of uninvested cash. Private equity funds were holding $485 billion in
uninvested cash. Indeed, 2009 saw the lowest investment in the past
ten years, showing that in recessions when investment is most needed,
the rich quite logically hoard their cash.
Corporations are doing something similar. The New York Times
(10/3/10) reports that companies such as Johnson & Johnson, PepsiCo,
and IBM, have been borrowing huge amounts of cash at low interest
rates but not spending it:
Corporations now sit atop a combined $1.6 trillion of cash. . . .
When will they start spending that money -- in particular, by hiring?
That is part of what has become the great question of this long,
jobless recovery: When will corporate America start to feel confident
enough to put its cash to work, building factories and putting some of
the nation's 14.9 million unemployed to work?
It is simply untrue that super-rich individuals and corporations are
starved for cash and that public policy should be aimed at enriching
them still further. Indeed, government has an obligation to tax away
not only this inactive wealth, but also wealth tied up in financial
speculation that adds nothing to the economy. Government has the
absolute obligation to use these taxes to pay for schools, hospitals,
transportation, infrastructure, public health, and all the necessary
things that serve each and every one of us while putting money in the
pockets of working people and growing our economy.
Steve Max may be contacted at email@example.com .