The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Reaganomics or Kennedy-Nomics
– What’s the Difference?

Apr 30, 1982

As the economic crisis continues to be felt in the U.S., the union leaders put the blame for the current state of the economy on the Republicans, and especially on Reagan. Lane Kirkland, President of the AFL-CIO, has said that “Reaganomics” would better be labeled “kool-aid economics,” referring to the mass suicide of Jonesville, Guyana.

UAW President Doug Fraser said at the last AFL-CIO convention, “We will not and we cannot recover from the depression in the auto industry unless we change the economic policy of the administration.” But the change the leaders propose is to champion Democratic politicians, like Ted Kennedy and Walter Mondale. The union leaders would have the working class believe that these Democrats have a real alternative economic policy to put forward.

But what is it these Democrats are proposing? Do they have a policy that is really different from Reagan’s?

Reagan’s Economic Policy

The Reagan administration has helped to shift the burden of the economic crisis onto the backs of the working class and the poor layers of society. If the government hasn’t resolved the crisis, it certainly has insulated the bourgeoisie from suffering the effects of the crisis.

The most important way the government has protected the bourgeoisie is through its various direct and indirect subsidies, the largest part of which are the increased military outlays. Reagan’s military budget calls for over 1.5 trillion dollars to be paid out through 1986. The giant aerospace and defense companies are only the most obvious beneficiaries. But by no means are they the only ones. There will be billions paid out to create demand in steel, mining, electronics, computers, tooling, and a myriad of other areas as well. All told, there are some 25,000 primary contractors, and up to 100,000 subcontractors who will profit from the huge military outlays.

In order to pay for the increase in military expenditures, the administration cut back on other expenditures, namely on the social programs that aid the working class or the poor. Unemployment compensation, job training programs, welfare, ADC, Medicaid, food stamps, housing subsidies, and school lunch and other nutritional programs have been cut more than 50 billion dollars a year. In order to ease the crisis on the bourgeoisie, it has been reinforced on the working class and poor.

Through revisions in the tax code, the government gave a new gift to the wealthy, a gift which is to be paid for by the working class. Reagan’s new regulations will shift the relative burden more onto those in the lower income brackets. According to the Congressional Joint Economic Committee, people with incomes between $5,000 and $50,000 today pay 67 percent of all the personal income taxes collected by the federal government. After the new laws, this will increase by 1984 to 70 per cent. On the other hand, those with incomes over $200,000 will have their share reduced from 8.7 percent to 7.1 per cent in this same period.

Even more significant changes have come in corporate taxation. Changes in such items as depreciation, investment credit, capital gains, and leasing for tax credits have been estimated by the government itself to save the corporations come 200 billion dollars in taxes over the next 5 years. The effect of these changes will be to drastically reduce the share of tax revenue corporations pay into the federal government. To quote Business Week of April 20, 1981:

“With little lamentation and hardly any notice so far, the corporate income tax is well on its way to extinction. In 1960 it accounted for more than 23% of all federal revenues; after a succession of business tax incentives starting with the Kennedy-Johnson cuts, it dropped to a share of roughly 14% throughout the 1970s, bottoming at 12.4% last year.

If President Reagan has his way, by 1986 the corporate tax will provide a scant 7.7% of Washington’s receipts...”

The money corporations will save on taxes will of course go into their profits. The same is true for the additional funds they will save due to all the cutbacks in government regulations, on such items as pollution control, chemical dumping regulations, as well as health and safety requirements for the workers on the job as well as for the consumers of their products. The costs of these social regulations have already been built into the price structure of the corporation, to be paid for by the consumer. We can be sure that those reductions in social costs will not reduce prices, but rather be kept by the corporations.

It’s not only these ways whereby the Reagan administration aided the bourgeoisie. Reagan’s attack on the air traffic controllers served as a warning to all workers and to the trade union leaders of the harsh consequences they could potentially face if they tried to resist the new takeaway demands being places upon them. In a time like this, when the corporations demand concession after concession, it’s a useful aid to the corporations.

The Democrats’ Policy

Despite the Democrats’ denunciation of Reagan’s “voodoo economics”, the Democratic Party itself has protected the bourgeoisie by forcing the working class and poor to shoulder the effects of the crisis. We can see this in many ways.

The tremendous increase in subsidizing the bourgeoisie through the military budget has been supported by the Democrats as well as the Republicans. The military budget the Democrats put forward during Carter’s re-election efforts also proposed increases well beyond the rate of inflation. And the Democrats approved and voted Reagan’s budget. The latest military budget passed through Congress with only a handful of votes against it.

The Democrats would pay for these increases by the same cutbacks in social programs. In fact, it was the Carter administration which began to cut the social programs. For example, the maximum length of unemployment benefits was reduced from 65 weeks down to 39 weeks under the Democrats. And it was also during the previous administration that state eligibility requirements for extended benefits were rewritten to reduce the number of workers who even qualified for the 39 weeks of benefits.

And well before Reagan took the presidency, corporate payments to federal tax revenue had decreased substantially during Democratic administrations. We already quoted Business Week to that effect. Last year when the Republicans put forth their corporate tax proposals, the Democrats put forth an alternative that would have provided even more corporate tax giveaways in such areas as depreciation allowances.

Furthermore, we shouldn’t forget that Carter was the president at the time of the Chrysler contract re-negotiations. It was those concessions which set the example for what was to follow. Carter helped reinforce the cutbacks by offering a 1.2 billion dollar loan guarantee to Chrysler, but only on the condition that the UAW first approve the takebacks.

Finally, the economic crisis has been going on for a decade, a decade in which there have been Democratic administrations as well as Republican ones. So certainly the results we see for the bourgeoisie in this period must as much be attributed to the Democrats as to the Republicans.

The Wealth Floods up

The bourgeoisie has fared rather well during the economic crisis, despite its claims to the

contrary. We can get an indication of this by looking at some economic figures.

When the spokesmen for the bourgeoisie talk about how even the wealthy are suffering, most often they refer to statistics on domestic corporate profits. Here they show that on an overall basis profits in the last years have stayed flat, or even declined somewhat. And certainly it is true that specific corporations, especially in the most hard hit industries like auto, have declared losses. Although here, as well as with the overall corporate profit figures, there is reason for caution on the reported figures. Accounting techniques can go a long way to massage figures.

But even if we accept their statements at face value, even this indicates something about how the bourgeoisie has protected itself. With the economic crisis, production has been cut back. To say that the corporations have been able more or less to hold their profits in this condition says a lot about how they have been insulated from suffering the effects of the crisis.

It is worth noting in addition that despite the complaints of flat or falling profits, overall corporate dividends to stockholders have increased in every single quarter of every year from 1973 to at least the end of 1981. And these increases have outpaced inflation.

One of the means by which the bourgeoisie has adapted to the crisis has been through its shift out of productive investments into financial speculation. This financial speculation has become the most profitable field for the trusts. It is possible to arrive at a more accurate picture of what has taken place during the economic crisis if we simply add corporate profits together with the net interest from financial investments. The total has grown from 112 billion dollars in 1970 to 361 billion dollars in 1980, keeping their profits well ahead of inflation.

If on the other hand we look at what has happened to wage income during this same period, we can see who has paid the cost of the economic crisis. According to Department of Labor statistics, the real gross weekly earnings of production workers in private non-agricultural industry have decreased to the point where they are lower today than anytime since 1967!

The distribution of income in the United States is continually becoming more unequal. Lester Thurow, a recognized expert in this area, has calculated that in 1945, the top 1/5 of the population had a current income 19 times as great as the bottom 1/5 of the population. By 1980, the gap had grown to 27 times as great. And these statistics underestimate the real concentration of wealth in this country, as they consider only current income, and not the net of accumulated assets.

This further concentration of wealth at the top layers of society is readily admitted by the Reagan Administration. In fact, they claim that it is a necessity if the economic crisis is to be overcome. David Stockman, in his now famous interview in Atlantic Monthly, openly stated that the aim of the government’s policy was to put more wealth into the hands of those at the top. This is supply-side economics, or the trickle-down theory as others have called it: give more money to the wealthy and they in turn will invest it, creating new employment and the production of new wealth in which all will be able to share. This is the theoretical justification that is used.

But if the economic crisis was simply a question of providing the capitalists wealth, the crisis should have ended long ago. For today, the bourgeoisie does have the wealth, an increasing wealth. But they are speculating and not investing in production. Still more money in the hands of the bourgeoisie will do nothing to resolve the crisis.

An Opposition – Not an Alternative

Today it is true there is a lot of controversy over Reagan’s handling of the economic

crisis. The Democrats have been the loudest in criticism, but some Republicans like Domenici have now joined in as well. On Capitol Hill there is now recognition that Reagan’s 1983 budget proposal will be revised. But the revisions have nothing to do with changing the basic policy. In fact, both the Democratic Party alternative budget and that of the Republicans who have taken a distance from Reagan are proposing new ways for the working class and poor to pay for the crisis. Both the alternative budgets propose further cuts in social programs, including Social Security. And both call for a freeze in the wages of all federal workers. Both plans also talk of lessening some of the increase in the military budget.

In large part these proposals are being made in response to the criticism that a section of the ruling class itself is making of Reagan’s budget. Recently the Business Roundtable, made up of top executives of the largest corporations, stated that the projected budget deficit was too high and would cause them difficulties. The fact that the Democrats repeat these same arguments and try to implement a budget to satisfy the Roundtable doesn’t say much for it being an alternative for the working class and the poor!

Additionally, the debates now going on in Congress are partly explained by electoral maneuvering. With Congressional elections just a few months away, the various Democrats (and even some Republicans) are simply trying to figure out how to avoid the blame and take any credit they can for the changes in the budget.

The presidential hopefuls like Ted Kennedy and Walter Mondale pretend to be totally in opposition to Reagan’s economic policy. But despite all the harsh criticisms, they rarely put forward any alternatives.

In the rare instances where these liberal Democrats ever say anything concrete, it becomes very apparent that in fact their differences with Reagan are very slight. Kennedy and Mondale both recently spoke at the convention of the AFL-CIO construction and building trade unions. Mondale proposed to slightly lessen the subsidy to the bourgeoisie by budgeting less of an increase in military spending. Reagan’s budget calls for a 255 billion dollar subsidy, Mondale proposes 245 billion! In terms of taxes, Mondale proposed to eliminate the third year of the personal income tax cuts, saying nothing about the other two years, or about all the other tax regulations. As far as the 200 billion dollar corporate tax give-away, Mondale made no proposal!

The only level on which Kennedy really differentiates himself from Reagan is in his call for Congress to begin to allocate new credit allowances to ailing industries, like housing and auto, if interest rates don’t fall. For the last decades, credit has mushroomed through all sectors of the economy. And certainly it didn’t prevent the crisis we have been in for at least the last 9 years. In fact, today, this credit explosion is part of the problem. It is part of the reason for the underlying inflation. Kennedy’s proposal is a shift back to the old policies of previous Democratic administrations ... policies which already had aggravated the economic crisis.

The liberal Democrats have in fact no real alternative to propose. They didn’t when they controlled the White House, and they don’t now.