The US presidential election campaign is off and running. As I write Bush has officially launched his campaign for re-election. According to him, the choice before the electorate is between two 'visions' of America. His is that people get the choice for opportunity, enterprise and wealth, while the Democrats will just get the government to take all your money through taxes and choose for you.
It's the usual straw man set up by the neo-conservatives both in the US and the UK. The more right-wing of capitalist analysts argue that lower taxes will mean faster economic growth and prosperity even though public services are decimated as spending is cut back to balance the state budget. The less right-wing argue that lower taxes may not be enough to kick-start an ailing capitalist economy and the government may have to spend too. And anyway without some public services, the whole thing will fall apart.
The irony is that Bush has the barefaced cheek to argue that his campaign is built round smaller government, when his administration has never spent so much. The days of the Reagan administration in the 1980s are remembered for driving up spending on defence, space etc., and so creating loads of unproductive jobs and government deficits and debt that had to be painfully pulled back under George W's father, the elder Bush. Being a war leader in Gulf War No 1 did not save him from defeat by the so-called 'big government' Clinton. Again, ironically, Clinton introduced a very tight government spending policy cutting back on all sorts of social programmes. Only some economic growth in the great hi-tech bubble years of the late 1990s got the government's accounts back in line.
Under Bush Junior, taxes have been cut while spending on arms and Iraq has rocketed 35% in real terms! Most of the tax cuts have been in reducing taxes on stockholders dividend payments, in lower corporation tax and in tax rates for higher income earners. The rich have never had it so good since Reagan and inequalities of wealth and income in the US have reached record extremes.
The result has been a sharp increase in the government deficit. Whereas in the last year of Clinton, the government ran a small surplus of 1% of GDP, in four years Bush has turned that into a record deficit of 5% of GDP – and that does not count the spending of $160bn on the military campaign and occupation of Iraq. None of this spending has been on useful social projects, but only on 'homeland security', new tanks, planes and missiles.
All this spending has stopped the US economy slipping into a major economic recession, up to now. Economic growth is around 3%. But that has not translated into jobs for the unemployed. Under Bush 2.5m jobs have disappeared – mainly manufacturing jobs but also some service jobs as US corporation switch services abroad to cheaper places like India. And wages for the average worker who does have a job have stopped rising as employers pressure employees into accepting wage freezes and cuts in health and social benefits with the threat of redundancy.
But here is the reality. It may be true that if the likely Democrat presidential candidate, Senator Kerry, had been in the White House, the US may have stopped short of invading Iraq. That adventure was clearly the product of the insane arrogance of the neo-conservatives in power. But defence spending would have been raised (Clinton had already started to end the 'peace dividend' that followed the fall of the Soviet Union). Pax Americana made it inevitable that US armed forces would have to be everywhere (from Bosnia to Korea) to defend the New World Order.
It may also be true that Kerry and the Democrats would not have cut taxes quite so much. But they would have done nothing to stem the wholesale destruction of manufacturing jobs after 9/11. And all the same economic forces that have driven up the US trade deficit by 40% and the dollar down by 20% would have operated.
The US economy is living on borrowed time (literally). Household borrowing is up 42% since Bush came into office, corporate debt is up 20% and unemployment is up 45%. Even the stock market is still down 20%. The Democrats would not have changed a jot to those statistics.
And everybody knows that once the election is over, the government debt (now at $7trn, or 70% of GDP, more than 20% points higher than in the Euro area) and deficits are going to be cut by draconian attacks on social spending programmes. The US runs a huge deficit on its social security fund – in other words it does not raise enough social insurance contributions to match its payout of benefits mainly to the old, the sick and the unemployed. And of course, there will be no cutbacks in defence and homeland security spending by either Bush or Kerry. Assuming that the Medicare plan just introduced by the Republicans is not touched, then everything else must go – transport, education, help for poor regions, environment etc. Given that the individual state governments like California also have dire finances, the cuts in social spending are set to be huge and the tax rises significant.
The future for Americans over the next four years is higher taxes and less public services, let alone what happens to jobs and wages. Very interestingly, it is exactly the same future for Britons. It is probably only 15 months to a general election in Britain, so that by the summer of 2005, we could have the same two leaders that went to war in Iraq back in office or just possibly a completely new set.
Either way, taxes are set to rise and public spending to fall. The Blair government has just announced that is it is going to double the spending of MI5 over the next parliament. So defence is clearly not going to be the fall guy in any spending cuts. And Gordon Brown will shortly announce in his March budget that he won't make cuts in any planned spending on the NHS or education before 2007. So that means everything else is under threat.
In its first two years of office, New Labour rigidly followed the budget plans of the Tories under Major and ruthlessly cut back on spending on the NHS, education, roads etc. Tony Blair told us that the days of 'tax and spend' under Labour were over. New Labour stood for low taxes and low spending, just like capitalist governments everywhere and just like the Democrat administration under Clinton.
Of course, what Tony had forgotten was that if you did not spend on health services, education and transport, then your country would become sicker, less skilful and unable to efficiently get around to sell things or services. How did he think we had a health service or schools in the first place? It was by raising taxes and spending money.
Of course, you could adopt the myths and ideology of the neo-conservatives and argue that schooling, education, prisons, housing, roads, rail etc., should all be run by private companies and people should buy their services from these companies direct. From Thatcher to Blair, from Reagan to Bush, that is where the ideology of capitalism would like to go. But the reality was that it does not work. Capitalism cannot deliver a decent education system, a proper health service or fast and effective transport for the mass of people. Eventually, even the blinkered New Labour government began to realise this.
As Britain's public services began to fall apart, they decided to reverse that policy in education and health. Spending on schools and hospitals is now rising at over 5% a year in real terms. And government spending as a share of GDP will hit 42% this year, back at the same level before Thatcher came to power in 1979. This has been paid for by a whole battery of tax measures introduced by Labour. Sure, income tax rates particularly for the rich, have been held down, but social insurance has jumped sharply and there are taxes on air travel, house buying, insurance, etc.
But it is still not enough. The UK capitalist economy is not creating enough new value to justify any more increased spending. Government spending is up 8.4% this year but tax revenues are up only 5.5%. The government is now running a rising deficit on its budget.
The Tories' answer to this dilemma was announced by the new shadow chancellor Oliver Letwin along with his new Transylvanian immigrant leader: they will cut public spending and lower taxes. This is where we came in! Back to the policy of Bush.
But where does that leave Messrs Blair and Brown? Either taxes will have to be raised or spending on transport, social services, environment etc will have to slashed. We shall probably get both once the general election is over, in say May 2005.
Either side of the transatlantic pond, over the next few years, the average working household is set to pay heavily for the tanks, planes and bombs used in Iraq and around the world to preserve 'our way of life'. Of course, if you don't have a job, you may not pay taxes, you'll just pay in not having any sort of a 'way of life'.