Chris Harman

Thinking it through

Bet your bottom dollar

(February 2005)

From Socialist Review, No.293, February 2005.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Website.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

Bush’s faces more problems in his second term than many realise, argues Chris Harman

The re-election of George Bush at the end of last year has left many people, particularly on the US left, shellshocked. As they see it, an administration dominated by the neocons and bolstered up by the votes of the religious right can now get away with anything it wants for the next four years.

This ignores three things. First, the intractability of the position US imperialism faces in Iraq. It is bogged down in a ground war it did not expect and does not have sufficient troops easily to deal with, and which is paralysing its capacity to act elsewhere.

Second, electoral victory is not the same as ‘hegemony’, in the sense of political and ideological dominance that can steamroller over any resistance domestically. Kerry’s policies may have been virtually identical to Bush’s, but a big chunk of those who voted for him combined their illusions in him with a level of bitterness not seen in US elections since the time of Nixon. They may be temporarily demoralised by the election result, but their bitterness can explode in ways which makes life as difficult for Bush as for Nixon (who got a much bigger victory in 1972 than Bush’s), especially if things go from bad to worse for the US in Iraq.

Third, there is the economy. The US has been going through a phase of ‘recovery’ from the recession of 2000-2002. As always during such recoveries, many apologists for the system are now telling us everything is going to be wonderful for the foreseeable future.

But the performance of the US economy at present is hardly brilliant. The millions of industrial jobs destroyed during the recession have not been replaced – any new jobs are in the poorest paid parts of the service sector. The most important index of capitalist economic health, the rate of profit, has only recovered to what it was in the mid-1990s. And that was no higher than the 1973 level that heralded the new period of economic crises, despite 25 years of falling real wages and lengthening working hours for US workers (now around 400 hours, or ten weeks, a year longer than in France or Germany).

The real weaknesses of the US economy are shown most starkly by its balance of payments. It has a deficit equal to 6 percent of its national product. It fills the gap by borrowing on a massive scale – £1 billion a day! The lenders are states and big capitalists in the rest of the world, particularly east Asia. They see the dollar as the world’s safest currency, and use their surpluses on internal trade to buy bonds in the US. Their surpluses, in turn, come from their ability to sell more to the US than they buy. So the US government and private consumers are borrowing money from east Asia to buy goods from east Asia.

This trend was already present five years ago, at the beginning of the last US recession. The rash of bankruptcies and sackings that occurred in the recession has not changed the pattern. The US ‘economic recovery’ of the last two years is very much a product of the Bush administration’s tax cuts for the rich, low interest rates and high arms spending. But these have accentuated the tendency for a big slice of US expenditure – government and private – to be financed by borrowing from abroad.

The other side of such borrowing to spend has been the massive boom in China that has now reached such a scale as to suck in raw materials and industrial inputs from right across the world. The US recovery depends on the Chinese boom, and the Chinese boom on the US recovery. And mediating between them are vast sums each day moving from the Chinese renminbi and other currencies into dollars to finance ever-longer chains of lending and borrowing. It all seems too miraculous to be true. And, in the long term, it is.

Two things can bring the whole structure crashing to earth. First would be a continual fall in the exchange rate of the dollar against other currencies. The US government has already allowed a fall of about 30 percent against the euro and the Japanese yen. This is meant to reduce spending by US consumers on imports as they grow more expensive and to cut the prices of US goods sold abroad, so making them more competitive. But if the fall goes too far it can become an avalanche, as foreign governments and capitalists see the value of their dollar savings fall and begin switching to rising currencies like the euro and yen. The US government would then try to protect the dollar by raising interest rates in a way that could only bring the US recovery to an end and create immense bitterness among millions of Americans, including many of those who put their faith in George Bush in November.

Second, and just as serious, there are signs of fragility to the Chinese boom. Chinese firms have borrowed from the state banks to expand their plants massively so as to compete with each other, as well as with foreign producers on world markets. The result has been a soaring output of consumer goods that can only be sold through massive price cutting (look at the way the prices of DVD players, bread making machines or microwave ovens have fallen in your local Tesco) just as raw material costs shoot upwards. But are the Chinese firms selling such things actually making any profits? They could well be making losses, which are temporarily concealed through lending, borrowing and financial speculation via the banking system. That would be a classic scenario for the capitalist boom to turn into a capitalist slump – and a sudden withdrawal of the funds that are sustaining the US recovery.

There is no point in speculating exactly when and how this house of cards will collapse – particularly as both the US and the Chinese government will forget any talk about free market principles in an effort to protect their own ruling classes from the debris.

What is important is that Bush is no more likely to have a smooth ride on the economic front than over the war. This can open the way for the disparate forces of the left in the US – those who demonstrated in their hundreds of thousands against the war – to have a real impact by connecting the different sorts of disaffection. But the precondition for them doing so is overcoming post-election passivity and dropping the illusion that they can fight one capitalist party by putting their faith in the other one.

Last updated on 27 December 2009