Saturday, March 29, 2008


Deterring Democracy Copyright © 1991, 1992 by Noam Chomsky. Published by South End Press.
Chapter 2: The Home Front Segment 6/7
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3. The Achievements of Economic Management

The Reagan era largely extended the political program of a broad elite consensus. There was a general commitment in the 1970s to restore corporate profitability and to impose some discipline on an increasingly turbulent world. In the U.S. variety of state capitalism, that means recourse to military Keynesian devices at home, now adapted to the decline in U.S. power and therefore with a right-wing rather than liberal slant, the "great society" programs being incompatible with the prior claims of the important people. Abroad, the counterpart is large-scale subversion and international terrorism (whatever term is chosen to disguise the reality). The natural domestic policies were transfer of resources to the rich, partial dismantling of the limited welfare system, an attack on unions and real wages, and expansion of the public subsidy for high technology industry through the Pentagon system, which has long been the engine for economic growth and preserving the technological edge.

Plans reflecting these general elite perceptions of the 1970s were proposed by Carter and implemented by the Reaganites, including military spending, which, overall, largely followed Carter projections. The method adopted was to sink the country into a deep recession to reduce inflation, weaken unions, and lower wages, then to lift it out through deficit spending while organizing the subsidy to high tech industry and shaking a fist at the world, policy choices that commonly go hand-in-hand. It should be recognized that while talk about free trade is fine for editorials and after-dinner speeches, those with a stake in policy decisions do not take it too seriously. The historical evidence shows that the economies that developed and industrialized, including the United States, adopted protectionist measures when these were advantageous. The most successful economies are those with substantial state coordination, including Japan and its periphery, and Germany, where, to mention only one feature, the IMF estimates that industrial incentives are the equivalent of a 30 percent tariff. In the United States, the two major components of the economy that are competitive internationally -- capital-intensive agriculture and high technology industry -- are both heavily subsidized by the state, which also provides them a guaranteed market. These two sectors are also, not surprisingly, the "villains" behind the federal deficit, the Wall Street Journal observes. The other "villain" is the untouchable entitlements; correcting for statistical chicanery, if the Social Security surplus were removed from the budget, as it would be if properly devoted to capital formation for future needs, the deficit would rise by $50 billion, Franco Modigliani and Robert Solow estimate.16

The right-wing military Keynesians were also highly protectionist, quite apart from the expansion of the protected state market for high-tech production under the euphemism of "defense." The Reaganites initiated a Pentagon-based consortium for semiconductor research and development, and increasingly gave the Pentagon the task of functioning in the manner of Japan's state-corporate planners, organizing R&D in chip and computer design, superconductivity, high-definition television, and other areas of advanced technology. Star Wars fantasies were only one of the methods concocted to induce the public to provide a subsidy to high technology industry, which will reap the profits if there are commercial applications in accord with the doctrines of "free enterprise." Reagan also introduced more import restrictions than the past six presidents combined; the percentage of total imports subjected to quota and restraint agreements doubled from 12% to 24% under Reaganite "conservatism."17

The results of these policies were apparent by the mid-1980s, and became increasingly so as the presidential transition approached. Expressing a fairly general consensus among economists and business elites, David Hale, chief economist of Kemper Financial Services, observed that "seldom has a new American administration taken office against such a pervasive backdrop of economic gloom as that which now confronts President George Bush," with "the country seemingly awash in a sea of red ink as the Reagan era ends."18 There was a rapid increase in the federal deficit, and a seventy-year climb to the status of the world's leading creditor nation was quickly reversed, as the U.S. became the world's leading debtor. Hale estimates that "by 1991 the United States will probably have a $1 trillion external debt," a transfer of well over a trillion dollars in a decade, not a mean feat on the part of those who regularly deride "Sandinista mismanagement." The investment balance also swung radically in favor of foreign investors. Private and corporate savings deteriorated to a historic low, relative to GNP. Private wealth rose more slowly than in the late 1970s, and real wages stagnated. Income was sharply redistributed upwards; the rich gained, the poor suffered, as intended. Government economic management led to consumption by the rich, speculation and financial manipulation, but little in the way of productive investment. "Investment is a smaller fraction of the GNP today than it was in the late 1970s, when we were not borrowing abroad," Lester Thurow observes, adding that "our current international borrowing is going into either public or private consumption and will therefore eventually extract a reduction in the future American standard of living." U.S. net investment, relative to GNP, is now the lowest of the big seven industrial countries. Even that low level of investment was maintained only by the large increase in capital imports, Modigliani and Solow note. Military R&D rose from 46% to 67% of federal spending from fiscal years 1980 to 1988, another development that in the long run will severely harm the U.S. economy. These and other factors also contributed to the trade deficit, which may be ineradicable if U.S. investors shift their operations abroad.19

For the first time in its history, the General Accounting Office issued a study on the perilous state of the economy left by an outgoing Administration.20 The report by the head of the GAO, the chief federal auditor and a Reagan appointee, outlined the "staggering" costs to be paid because of Reaganite economic mismanagement and environmental destruction. The GAO also noted the rapid rise in homelessness, the deterioration of the limited welfare net for the poor and the middle class, the lowered safety standards for workers, and numerous other consequences of the blind pursuit of short-term gain. There was an aura of prosperity thanks to the willingness of foreign investors to throw a party for the rich -- not, of course, out of charity; they can call in their chips. The same is true of the wealthy at home. Tax reductions induced lending to government by the beneficiaries, who will gain the further benefits. In this way too, fiscal policy constitutes a long-term shift of resources to the wealthy. The "staggering" costs discussed by the federal auditors will be paid by the poor and the working class who have been left out of the consumption binge that economists now blame for the clouds on the horizon, just as the taxpayer is called upon to bail out speculators hoping to profit from deregulation of the Savings and Loan institutions, and probably, before too long, the banks that reaped enormous profits by lending to the wealthy classes and neo-Nazi military rulers who took over much of Latin America with U.S. backing from the early 1960s.

The state managers were selective in the forms of state intervention in the economy that they adopted. Where deregulation could yield short-term profits, it was considered a worthy goal. The Savings and Loan fiasco is one dramatic consequence. The wild abandon of these years has had its effects more broadly in the deterioration of infrastructure, health and education standards, the conditions of the environment, and the general state of the economy. Regulatory programs to encourage energy conservation went the way of plans to develop renewable energy resources, on the pretext that the price of oil would be lowered by the miracle of the free market (the price in practice has generally been administered by the U.S. client regime of Saudi Arabia and the major oil corporations, who maintain production at a level that will ensure prices high enough for rich profits but low enough so as not to encourage a search for alternatives, with U.S. government pressures in the 1980s to lower the price so as to sustain the recovery from the deep recession of 1982). This form of foolishness has ample precedent, and, as in the past, is bound to have grave repercussions.21

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16 James Perry, WSJ, Jan. 5; Modigliani and Solow (both Nobel laureates in economics), letter, NYT, March 12, 1989. Germany, Amsden, "East Asia's Challenge."

17 Andrew Pollack, "America's Answer to Japan's MITI," NYT, business section, March 5; David Hale, "Just Say No: The GOP Abandons Free Markets," International Economy, Jan./Feb. 1989 and "Picking up Reagan's Tab," Foreign Policy, Spring 1989.

18 Ibid.

19 Robert Cowen, "R&D Spending Under Reagan," Christian Science Monitor, Jan. 20, 1989; Benjamin Friedman, "The Campaign's Hidden Issue," New York Review of Books, Oct. 13, 1988; John Berry, "The Legacy of Reaganomics," Washington Post Weekly; Dec. 19, 1988. Arthur MacEwan, Dollars & Sense, Jan./Feb. 1989; Thurow, "Winners and Losers," BG, March 7, 1989; Economist, March 25, 1989; Modigliani and Solow, op. cit.

20 Robert Pear, "Reagan Leaving Many Costly Domestic Problems, G.A.O. Tells Bush," NYT, Nov. 22, 1988.

21 On earlier phases, see Towards a New Cold War, especially chapters 2, 11. With the Middle East crisis of mid-1990, the problems finally began to receive public attention. KEYWORDS terrorist democracy elections cia mossad bnd nsa covert operation 911 mi6 inside job what really happened wtc pentagon joint chiefs of staff jcs centcom laser hologram usa mi5 undercover agent female sex exploitation perception deception power anarchy green social democratic participation japanese spy black-op false flag gladio terror.

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