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Obama's Budget Deal: Neoliberal March in the US

What should be the state's role in the future? What values and priorities should be set in a time when public resources become scarcer under the pressure of state indebtedness?..Less state, less support for the unemployed, poor and sick will occur along with a free ride for billionaires and big corporations. Neoliberalism is applied under the mantle of austerity policy.

By Conrad Schuhler

[This article published August 3, 2011 by ISW, Institute for Social-Ecological Economic Research is translated from the German on the Internet,  http://www.isw-muenchen.de/download/obama-deal-cs-20110803.pdf.]

The drama over the supposedly threatening state bankruptcy of the US really has a very different theme. What should be the state's role in the future? What values and priorities should be set in a time when public resources become scarcer under the pressure of state indebtedness? The radical fraction of neoliberals prevails across the board in the Republican Party to which Obama and the majority of democrats ultimately resigned.

The rich and big corporations keep their tax privileges given them by former president George W. Bush. $2.5 trillion in federal spending should be cut within ten years for the US federal budget. This represents 6% of all federal resources at this time which will now be saved in social spending, infrastructure projects and public jobs. Less state, less support for the unemployed, poor and sick will occur along with a free ride for billionaires and big corporations. As in the Euro-zone, an intensified neoliberal approach is also applied in the US under the mantle of "austerity policy."


The ominous news of the threatening state bankruptcy that was prevented at the "last minute" had the goal of accustoming the public to the idea that any solution between the parties was better than none. The result of the "deal" was not in the foreground but that it was successfully achieved. That the state budget hits its debt ceiling at a foreseeable moment has a tradition in the US like the raising of the ceiling by Congress. Since John F. Kennedy's days, this happened almost 70 times and was often practiced by the icon of the republicans, former president Ronald Reagan. President Obama allowed this banal conflict to become a principled trial of strength. Is the president capable of acting or can the right break him down completely? To save his political future, Obama agreed to a deal that fundamentally contradicts his vision of a renewed America and his campaign promises to the poor and the "middle class." Poor America dependent on its labor is the great loser in the debt deal. Obama has in no way saved his political respect but gambled it away once and for all. The Sueddeutsche Zeitung newspaper calls August 1, 2011 when the deal was confirmed the "day on which his (Obama's) presidency ended." Obama's governing and organizing is over. Obama is now a bankruptcy manager and has to bury his dreams of change in America.


The debt ceiling for the federal budget was raised $2.1 trillion from $14.3 to $16.4 trillion. In a countermove, budget cuts of $2.4 trillion are earmarked for the ten years from 2011 to 2020. Of this $2400 billion, cuts of $917 billion will be carried out immediately and another $1500 billion of cuts will be made by a 12-member committee of both parties by 11/23/2011. If no agreement is reached in the committee, a so-called "trigger" will take effect - a mechanism that trims all spending around $1.2 trillion altogether.

Thus cuts will occur in two steps. In the first step covering over $900 billion, $350 billion will be cut from military spending and the remaining $567 billion from civilian spending. Pension-, health care and social programs should be frozen in this first phase. This "restriction" will not be in effect any more in the second step, the additional $1.5 trillion of budget cuts. The pensions and the social programs could then be slashed. The domestic civilian cuts amount to a trillion dollars. Only $500 billion are earmarked for cuts of military spending.

Obama's promises of higher taxes for the rich and corporations in this second phase are given as little credit as his earlier announcements. With his promises, Obama wants to regain the lost trust of his earlier political friends. The democratic leader in the House of Representatives, Nancy Pelosi, distanced herself from the deal because "massive cuts" are exacted on the average American "without demanding one red cent from the richest people in this country." The majority leader in the Senate, Harry Reid, criticized the "imperfect compromise" with nearly the same words. In the House of Representatives, every second member of the Democratic Party rejected the bill. In contrast, leaders of the republicans in the debt deal cheered the "beginning of a fundamental cultural change." How could the winners in the debt tug-of-war now agree in the committee to tax increases for the rich and corporations, the worst of all evils for neoliberals? The truth is Obama with this deal isolated himself in his party and none of the groups that previously supported him believe his words.


The enormous state indebtedness of the US has three causes: the tremendous public expenditures to bailout the collapsed financial sector and avoid the economic crisis threatened by the financial debacle, the expenditures in the mad "war against terror" increasing by leaps and bounds and the huge fiscal gifts to the rich and corporations.

The financial crisis began in the US. The US surpassed all "partner countries" by far in bailing out the degenerate financial industry with public funds. The immediate state bailout actions for the assailed US banking system amounted to $1.1 trillion; the first state economic package weighed in at $783 billion. Joshua Holland from Alternet said the financial- and economic crisis altogether cost US taxpayers $14 trillion. That would be almost 100% of the whole gross domestic product of the US, more than eight times the 2011 budget deficit ($1.6 trillion). The connection of the financial crisis and state indebtedness is clear in the growth rates of the state debts: they rose 6% in 2006 and 2007 and around 14% in 2008 and the years afterwards. The poor and sick have to save because the "financial industry" had to be bailed out and continues to be bailed out.

The second great cause of the debts lies in the military budget of the US that has rap0idly soared. Since 2001 when former president Bush declared "war on terror," the US has spent $5.5 trillion for the military and weapons. Since that time, military spending has risen 167% and is the largest entry in the US budget. The war in Afghanistan alone costs the US two billion dollars every week. Two-thirds of all US citizens are for US withdrawal from Afghanistan and even more are for leaving Iraq. Nevertheless president Obama raised armament spending an additional $17 billion in the new budget. There must be savings on the other side, the social side.

The third great cause of state indebtedness is the tremendous tax privileges of the rich and big corporations. The tax rate in the US at 18% is lower than in most industrial states and lower than in the US of the 1960s. It is raised for those who have relatively little in income to offer. The Congressional Budget Office has stated that the tax cuts for top earners and big corporations carried out in 2003 by former president Bush will cost the US economy $3.3 trillion from 2011 to 2020, more than the savings of $2.4 trillion now resolved. Who has to make what sacrifices for whose advantage is clear in this contrast.

While the austerity measures will grievously strike the poor and middle class, they will hardly be enough to produce a balanced budget. If the savings were carried out in 2011 to the planned extent, the $240 billion would amount to one-seventh of the annual deficit. If tax increases should really be excluded thanks to the vetoes of republicans and the compliance of the president and the balanced budget produced through cuts alone, this would result in an unparalleled impoverishment of the middle- and lower classes of the US.

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