Everything you think you know about fascist state deficit spending is wrong (2)

by Jehu

To summarize my argument in part one:

The present crisis arises from the fact that there is a mass of superfluous capital that cannot, under any circumstances, become real capital — that is, cannot produce surplus value and, therefore, profit. This mass of superfluous capital poses the constant threat to the mode of production of a general devaluation of the existing capital as a whole. If a general crisis of devaluation is to be avoided, the state must run deficits, i.e., it must spend more than it takes in in tax revenue. State deficit spending is, therefore, not determined by the needs of society (and, in particular, by the needs of the social producers), but by the needs of the owners of capital, who, if they are to avoid a nominal (FILES): This 04 June 1998 file photo shdevaluation of this superfluous capital, must hand it over to the state to be consumed unproductively in return for interest payments.

The purpose then for the fascist state to borrow the excess capital is to avoid a nominal devaluation of capital. Avoiding this nominal devaluation of capital does not mean the capitalists avoid a real devaluation of their capital. Which is to say, the real means of production and labor power of society is really consumed by the fascist state in the form of unproductive expenditures. But, in this real devaluation of capital, the nominal value of the capital, expressed in some currency, is replaced by the fascist state in circulation by valueless tokens, by treasuries, which represent it only symbolically and which take effect as such. The real capital consumed is, therefore, replaced by fictions of capital in the form of promissory notes issued by the state and on which it pays interest.


Part Two: Fascist state deficits can never improve the condition of the working class

But this raises a very good question: Certainly the capitalist class have their own agenda for seeing to it the fascist state always runs a deficit, but why can’t the working class have its own agenda; namely, to boost social spending for improvement of the material conditions of the working class? Even if deficits are undertaken solely to prevent a nominal devaluation of capital, what evidence do I have that deficits cannot, on any account, help the working class but only serves to further impoverish it? Why, in other words, can this excess capital not be used to improve the material conditions of the working class, rather than simply be squandered in military expenditures or interest payments?

Actually there is nothing I can say that is likely to change the mind of a single person who thinks it makes sense to fight for more fascist state social spending. So, instead, for the moment, I will limit my argument here only to the material premise underlying that are incontrovertible yet often overlooked by those who raise arguments for such reforms. My argument on this point is based on a simple and obvious fact:

All government spending — no matter the source of the revenue and no matter the aim of the expenditure — is ultimately just surplus value wrung from the working class in the first place. Which is to say, no matter that the source of the state’s revenue is taxes on either class or borrowing excess capital from the capitalist, and no matter whether the aim of the spending is to produce aircraft carriers, pay interest on the debt or provide food stamps for unemployed or low wage workers, all of this spending is made possible by the surplus value extracted from the working class and has no other source. All state spending is just a portion of the surplus value extracted from working class during the production process.

Since all state spending is predicated on the extraction of surplus value from the working class and has no other source, the argument that this state spending can improve the material subsistence of the working class cannot logically hang on the idea that the state can, through its spending add anything to the real wages of the working class. Even if the state acted as a mere pass-thru for redistribution of a portion of the wages of one section of the working class to the subsistence of another section, it could not add to the net subsistence of the class as a whole.

The argument that deficit spending can improve the conditions of the class must be based, more or less, on the assumption that full employment policies will somehow change the balance of power between the two classes, improve the competitive position of the class by insulating it from competition generated by unemployment, and by affecting the balance between the working class and the capitalist class lift wages at the expense of profits.

Indeed, the features of a crisis of overproduction is expressed not only in a mass of excess capital, but also in a mass of unemployed workers. And the growth of unemployment acts to reduce the solidarity of the working class and prevent its common action. So it seems a straightforward proposition that the fascist state could borrow excess money capital and employ it to hire the unemployed. The result is that the excess capital would be “put to work” as capital, resulting in an increase in wages. However, this argument, as convincing as it may be to some, misses the point that the state produces nothing and its borrowing is repaid, not by adding to the wealth of society, but by absorbing an additional mass of surplus value, either extracted from the working class directly, by a tax on wages, or indirectly, by a tax on, or by borrowing additional money capital from, capital.

The excess capital borrowed by the fascist state, and the labor power the state employs with this capital, is not merely un-utilized capital but absolutely unnecessary to the creation of both wages and profits. It is, therefore, completely superfluous to the material requirements of either class and of the mode of production of wealth itself. If this capital could be employed productively to produce surplus value, it would not be loaned to the fascist state in the first place. The only purpose for the capitalist to lend it to the state is for the state to unproductively consume it. However, unproductively consuming this double mass (unemployed workers and superfluous capital) means nothing is produced either in the form of wage goods or additional means of production to return to the production process. The labor time socially necessary to produce the means of production and the labor power employed by the state is used up without being replaced in circulation as a new increment of capital. This means of production is wasted unproductively and, therefore, the labor expended on its creation is wasted as well, and does not count as value. The net result of such deficit spending is that neither new material wealth nor new value is created.

This means, above all, that such state spending cannot improve the immediate material conditions of the proletariat in any sense of that phrase nor can it add to the productive capacity of society at large. The working class may build aircraft carriers or trident nuclear missiles because of these expenditures, but can eat neither. Although, it is true, nominal wages are paid out for the production of these “commodities”, the labor power in the production process does not result in any increase in the real mass of wage goods available to be consumed by the working class nor in the total productive capacity of society.

Wages have been paid out in nominal terms — i.e., in the form of valueless tokens — but the real wage, the real wage goods that makes possible the real subsistence of the working class does not increase. Simply put: when wages are paid for labor that is expended unproductively, these wages have no impact on the subsistence of the working class, but only redistribute the existing mass of subsistence goods among them — they each, on average, become poorer. Paying a soldier to kill, a DMV worker to collect fees, or an NSA employee to spy on his girlfriend or the Chancellor of Germany does not in the least add to the material subsistence of the working class, although each worker may collect a hefty sum of paper wages by such labor.

It should be clear now, based on the above argument, that the excess capital borrowed by the state, and which must be placed at its disposal because no profitable outlet exists for it to be invested, is as equally superfluous to the working class as it is to the capitalist class. It must be lent to the fascist state because neither class nor both of them together have any productive need for it.

I will return to this point in the next part of this series.

This raises an additional and, moreover, critical question: If the purpose of fascist state deficits is to avoid a nominal devaluation of capital, and if, in any case, these deficits cannot improve the condition of the working class, why then do we see in Washington the almost continuous agitation by bourgeois ideologues against fascist state deficits? That is, what are the argument against deficit spending by the fascist state meant to accomplish, if not an end to the deficits?

As the Tea Party caucus of the House GOP found out much to their chagrin when they actually tried to force Washington into reducing its deficits in September and October, the almost constant agitation by the House and Senate GOP leadership against deficits is, in first place, blatant political posturing with no real basis in the realities of the capitalist mode of production. Deficits help extend the shelf-life of the mode of production and any actual reduction must produce a severe economic contraction. This has already been demonstrated by the Balanced Budget Act of 1997 agreed to by President Bill Clinton and House Speaker Newt Gingrich. The depressive effects of the attempt to end deficit spending forced Washington to quickly reverse it in the Bush administration era tax cuts of the Economic Growth and Tax Relief Reconciliation Act of 2001. The Bush era tax cuts have been appropriately called “tax cuts for the rich”, but this is true for more than the simple reason that money was shoveled into the coffers of the wealthy: the deficits themselves produced by this travesty also provided a safe haven for the resulting windfall in tax cuts.

The argument made by bourgeois ideologues against deficits is only that spending of the fascist state must be tightly controlled and kept within certain bounds. Since these deficits absorb the excess capital within the world market, (that portion that cannot be productively employed), the volume of deficits must be no more than is required to actually prevent the devaluation of the overproduced capital. The arguments of the so-called deficit hawks has nothing to do with balancing the federal budget and was never intended to actually reduce deficits. Thus we find this January 2013 piece by the Harvard economist, Robert J. Barro, “Lessons from the fiscal cliff“, who writes:

“a shortcoming of the US individual income-tax system is that marginal tax rates are high at the bottom (because of means testing of welfare programs) and the top (because of the graduated-rate structure). Thus, the government has moved in the wrong direction since 2009, sharply raising marginal tax rates at the bottom (by dramatically increasing transfer programs) and, more recently, at the top (by raising tax rates on the rich).

One of the most efficient tax-raising methods is the US payroll tax, for which the marginal tax rate is close to the average rate (because deductions are absent and there is little graduation in the rate structure). Therefore, cutting the payroll tax rate in 2011-2012 and making the rate schedule more graduated (on the Medicare side) were mistakes from the standpoint of efficient taxation.

Republicans should consider these ideas when evaluating tax and spending changes in 2013. Going over the “fiscal cliff” would have had the attraction of seriously cutting government spending, although the composition of the cuts – nothing from entitlements and too much from defense – was unattractive. The associated revenue increase was, at least, across the board, rather than the unbalanced hike in marginal tax rates at the top that was enacted.

But the most important part of the deal to avert the fiscal cliff was the restoration of the efficient payroll tax.”

According to Barro then, the progressive income tax is inefficient and should be replaced by the more efficient regressive payroll tax; means tested social supports for the working class should be eliminated; and spending on the military should be given priority over spending on so-called entitlements like Social Security and Medicare. Overall, the emphasis should be on smaller government, focused on maintaining military spending and reductions in social welfare programs.

Barro argues:

“As the economist Alberto Alesina has found from studies of fiscal stabilization in OECD countries, eliminating fiscal deficits through spending cuts tends to be much better for the economy than eliminating them through tax increases. A natural interpretation is that spending adjustments work better because they promise smaller government, thereby favoring economic growth.”

So here we have a seeming typical example of a conservative ideologue, who favors smaller government, reduce taxes on the very wealthy and thinks social programs are “inefficient”. However, one thing should be clear: Barro does not insist on any actual reduction in fascist state deficits. To the contrary, whether the fascist state runs deficits is a matter of policy, not principle — so long as revenues come from taxes on wage labor, not capital.

“For a given size of government, the method of raising tax revenue matters. For example, we can choose how much to collect via a general income tax, a payroll tax, a consumption tax (such as a sales or value-added tax), and so on. We can also choose how much revenue to raise today, rather than in the future (by varying the fiscal deficit).”

Although Barro is clearly an ideologue determined to reduce the wages of the working class to the lowest possible level, it is not deficits that are the problem but what those deficits are spent on.

But even among the most ardent mainstream critics of deficit spending, as with the two bipartisan deficit commissions, we find their concern is not so much with ballooning deficits, but with ballooning social spending over the coming decades. There is, following this, a clear readiness to put social spending programs on the negotiating table. The Center for Budget and Policy Priorities (CPBB) explains that deficit reduction plans of both the Obama appointed Rivlin-Domenici commission and the Bowles-Simpson committee target the Social Security and Medicare programs for reduction. But this is not all, both plans require draconian reductions in non-defense expenditures that would likely cripple basic services provided by Washington, while leaving the military unscathed.

However, one thing that might have been overlooked in the clamor over the draconian reductions in social spending proposed by both plans is this: On closer reading, it appears neither plan has any definite target for an actual reduction in fascist state deficits. The emphasis, in both plans, is solely directed at scheduling real hard and fast reductions in social spending combined with nothing more than vague promises that these reductions will eventually reduce the deficit. For instance, according to the CBPP:

“Most budget analysts agree that the crucial fiscal policy goal is not to balance the budget but rather to stabilize the debt as a share of GDP at a tolerable level, which the Rivlin-Domenici plan would do.”

Thus both plans impose real draconian reductions in social spending without offering any evidence, beyond vague projections, that these reductions will achieve any definite measurable corresponding reduction in fascist state deficits. Both plans are, for all intents and purposes, a bait and switch scheme, imposing real reduction in social spending on pretext of needing real deficit reduction without providing any real and measurable targets for actual deficit reduction. The hand wringing in Washington over deficits is not aimed at real reductions in fascist state spending at all, but to impose draconian reductions on social programs and dramatically higher taxes on the working class.

The aim then of all arguments in favor of deficit reduction is to reduce social spending so as to increase the capacity of the fascist state to absorb the superfluous capital within the world market through its deficit spending. I think it is fair to assert that arguments against deficit spending aim not to eliminate deficit spending, but, as in the case of the European crisis, to increase the capacity of the fascist state to absorb excess capital  by eliminating all social spending.

The conclusion is obvious: fascist state deficits cannot improve, but only threaten, the material conditions of the working class and must be done away with. How this can be done will be addressed in the final part of this series.