Is the partial shutdown of the federal government a “manufactured crisis?”

by Jehu

This is the charge made by some on the Left who oppose it.  Many point to the relatively small scale of the impact — estimated by a Forbes magazine writer to be less than 13% of federal expenditures. Others point to the focus of the shutdown on non-military expenditures, which must strike the programs that most closely appear to maintain the working class — which have been labeled “nonessential”. Deliberately excluded from the shutdown are the very mechanisms of state repression that capitalist class employs to maintain their rule.

Shutdown-thumbAccording to this line of thinking, the folks in Washington really aren’t in a crisis. Rather, the shutdown is an opportunity taken to further impoverish the working class. For this section of the Left, the shutdown is a purely political event driven by ideology, not by economic laws: We have a bunch of neoliberals who have decided their particular ideology is the proper way to organize society and they want to impose this vision on society by means of the state power they control.

This sort of idea is popular among certain anarchist and Marxist circles who explain everything in terms of politics and the state. According to this view, certain neoliberal economic arguments are advanced by certain specific elements of the ruling class, and the policies appear entirely political. The sections of the Left holding to this view ignore the fact that the aim of capital is always and everywhere the production of surplus value, of profit. This fact determines all politics and all policies of the state no matter which members of the ruling class we discuss.

Consider this: If the shutdown is just a political event, then layoffs and export of capital to low wage nations must also be political events. The steady deterioration of the purchasing power of the minimum wage and of the average wage must be purely political. This is all too often the line of argument among those who oppose neoliberalist policies. However, if you follow this line of thinking to its ultimate end, these folks are only making the argument the fascist state is itself the capitalist. Our anarchist and Marxist comrades are only stating that, by assuming the functions of the capitalist, every economic decision by the state is immediately a political decision as well.

Which makes complete sense.

But there is, in addition to this admission, the idea that events we never would have previously argued were purely political, now appear to be only “politics”. It is, in this line of thinking, not the aim of the capitalists as a whole to reduce the real wage, but the ideologically driven aim  of the Tea Party faction in Congress. If it were not for the Tea Party faction, the Democrats and ‘moderate’ Republicans would make sure the fascist state functioned properly — Democrats and moderate Republicans would see to it that the trains ran on time.

Okay, so nobody actually carries the argument to that absurd limit, because no one is really that stupid. But this, I think, is what it means to state this crisis is driven, in the first instance, not by the laws of capitalist society, but by neoliberal ideology and is not a real crisis. In fact, the shutdown is not ideology driven; it is a real crisis. The Tea Party is not ‘manufacturing’ the crisis in Washington, it is the crisis in Washington; the Tea Party caucus in Congress is the form the crisis takes within the ruling class itself. The ruling class is split on how to find a way out of its economic predicament.


That predicament can be summarized as a profit rate that has fallen to zero. How to raise the profits rate is the source of real conflict within the ruling class, with one side arguing it can be raised by simply reducing wages still further. But we have already seen how well this strategy works in southern Europe — in Spain, Greece, Portugal. Since the working class composes almost the entire domestic market for the produced capital, reducing wages only reduces the market for the overproduced capital — intensifying the crisis of overproduction of capital, of capital in the form of wage commodities.

As every good labor theorist already knows, a crisis of overproduction of capital can only be resolved by export of capital. But here is the problem: the crisis of overproduction is now global and extends to every corner of the world market. This problem was already being discussed by the classical (prewar) Marxists as a fact. It was linked to the outbreak of wars of redivision within the world market. The culmination of these wars was the emergence of the US as global hegemon and the subordination of other national capitals to it. The depression of the 1970s consolidated the US’s unrivaled position within the world market. The collapse of the Soviet Union extended US hegemony into the so-called socialist camp. In the run up to the present depression, which began in 2001 not 2008, the US has essentially served as the manager of a now global production process. Which is to say in the terminology of Engels, Washington is the world capitalist, a single state organized as the world capitalist.

The conflict in Washington, therefore, is a conflict brought on by a crisis that has penetrated to the heart of global capitalism. And this political crisis concerns how global capitalism can exit what is now an immediately global overproduction of capital.

There is still only one way to resolve this crisis, as at the national level: export of capital beyond the existing limits of the world market. It cannot be resolved by reducing wages nor by increasing wages of the working class; it cannot be resolved through political repression; it cannot be resolved by NSA spying; and it cannot be resolved by counterfeiting currency. It can only be resolved through export of capital beyond the existing limits of the present market.


The political form this crisis takes is the domination of a single national capital over all other national capitals. A crisis of this sort implies the further concentration and centralization of capital into the hands of this dominant national capital. It implies the financialization of capital in the form of the currency and financial assets of this dominant national capital. It implies the production of commodities for the express purpose of export to this dominant national capital. Finally it implies that all other national capitals hand over their excess capital to this dominant national capital.

This is because at this stage of development of capitalism the capitals of entire nations can no longer operate profitably on their own. They must, therefore, place their undersized capitals at the disposal of the dominant national capital, headquartered in Washington, or lose it entirely. This means that if the US is not willing to further expand its own deficits to absorb this excess capital, the crisis must continue. The expansion of US deficits does not resolve the crisis, which can only be resolved by outward expansion of the mode of production, but it does appear to buy critical time for the fascists.

The debate in Washington against rapidly expanding public deficits results from the fact that no matter how large the public debt is at present, it must increase still more. The realization of this fact is expressed paradoxically in a demand to regress to a previous stage of capitalism  where the state allegedly had no role in production. Of course, we know this is a pipe-dream: since the emergence of capitalist relations of production the state has been reconstituted to express the common interests of this class against its individual members and against other classes. But they hope at least to regress to the days when the patriarchal owner could ‘peacefully’ exploit his own workers without too much political interference.

Moreover, a section of the US capitalist class is not altogether happy with the present state of affairs. Since the rest of the capitals in the world market must produce for export to the US, they experience tremendous foreign competition. New capitals entering into production must displace existing capitals if they are to find their place. These other capitals seek to penetrate the US market and displace the domestic producers, who are themselves hobbled by rising prices. The rising prices are produced, in turn, by the expansion of totally unproductive expenditures of the fascist state in Washington. For the Tea Party inspired faction of the ruling class, if state expenditures could be brought down, they think domestic producers could survive.

On the other hand, the dominant capitals within the US simply move their facilities offshore and export back into the US. This generates anger among the working class.The anger is directed at so-called ‘free trade’ agreements and the like. Thus the Left and Right are confused when, although in conflict on so many other issues, they find themselves on the same side in these conflicts.

What is happening in this shutdown is by no means a purely political event. This characterization of events in Washington is misleading and, I think, the attempt by certain folks to limit criticism of the existing state to the realm of ideology and party politics. According to this view, if the present ideology of the state were replaced by a ‘better’ ideology, the state, as direct exploiter of the labor power of the entire planet, would be a more rational capitalist. We might even get some of that ‘green Keynesianism’ Doug Henwood has such a huge hard-on for.


So what are the facts? For fiscal year 2014, the Federal deficit is estimated to be $744 billion. The Shutdown is estimated to be reducing spending by $494 billion. This would, if it lasted one year, reduce Federal debt accumulation to about $250 billion. Since nominal GDP for 2012 was $15.68 trillion, a reduction of federal spending by $494 billion amounts to roughly a 3% reduction in GDP. Over the past three years, US GDP expansion has averaged 2.1%. This rough back of the envelope calculation suggests we are likely in a contraction at present. US daily GDP is roughly down by 1% since the beginning of the shutdown.

However, the problem is complicated by the fact that all of the spending being saved at this point is in the form of new debt. This suggests to me that there is two sides to this problem: on the one hand the reduction of federal spending; on the other hand there are now $494 billion worth of commodities that cannot be sold under any circumstance. While there is a direct reduction of debt fueled spending by the feds, there is now also the risk of a general devaluation of capital. The newly accumulated federal debt would have allowed overproduction of capital to the tune of about 3% per year. There will soon be a sudden adjustment as people stop spending and begin hoarding their funds — although not all at once. The problem is the commodities have already been produced, but now they will go unsold.

At the same time, federal accumulation of debt is reduced by about two thirds. The big problem with the federal debt is not that it is growing, but that it might stop growing or even slow. Large quantities of excess capital pour into the US to be turned over to Washington because it has no other place to go. Since the amount of excess capital Washington can absorb is now cut by two thirds — where else can it go? It flows to the US precisely because the US has almost unlimited capacity to absorb it. No other nation has what the US has: a monopoly over the world reserve currency. This is essentially like having an unlimited supply of gold with which to repay your debts.

What is overlooked in the typical treatment of the shutdown is not its direct economic effect, but the role federal debt plays in a crisis. When the world market contracts, Washington’s unlimited ability to absorb and destroy excess capital steps in to offset the contraction. The crisis is caused by overproduction of capital, the solution found by the simpletons is to simply destroy this capital. The essential method is not difficult to understand: farmers produce too much corn, the federal government steps in, “borrows” the corn, and then burns it. But this is not all they do: They then pay the farmers interest on the destroyed crops.

However, in this crisis the source of the contraction is not IBM, GE, BoA, etc. laying off 800,000 workers to increase the rate of profit. That is what we saw in 2009 in that vicious downturn — and Washington stepped in with a massive stimulus package to offset it. About the same number of people lost their jobs then in January 2009 as have been furloughed in this shutdown, but Obama pushed his stimulus through. This time the 800,000 losing their jobs are in Washington and not only will there be no stimulus, Washington spending is contracting and its deficit is shrinking.

This is why I think this crisis is different — although I am prepared to be wrong. Instead of a $780 billion stimulus package, the deficit is being reduced by $494 billion. And that is a $1.2tn shift — or roughly 2 percent of global GDP. So, I think the capitalists are fucked unless this shutdown is ended quickly. It cannot go on for three weeks like the Clinton-Gingrich spat.