The Crisis, the Deficit, and the Power of the Dollar: Resisting the Public Sector’s Devaluation

The fallout from the subprime debacle has brought to the fore, once again, the role of the state in the management and containment of crisis. The stakes involved in this debate, for both capital and progressive social movements, are potentially enormous. Even ardent defenders of neoliberalism concede that the proximate cause of the current downturn was Wall Street’s own speculative excesses that culminated a nearly two-decade-long deregulation of finance. The problem facing leading sectors of US business and finance is that the resulting reliance on public expenditure to sustain rates of return on private investment poses a threat to the ideological legitimacy of the neoliberal project. A growing chorus of voices is raising concerns over the supposedly deleterious effects of rising government deficits on the long-term growth potential of the US, as well as the threat posed to the international status of the dollar. It is no surprise that proponents of liberalization, including defenders in the Obama administration, have moved to limit meaningful discussion over the content and scope of ongoing government intervention. Among the many tasks facing the left everywhere, those facing the US left are especially urgent and daunting. Given that attacks on the alleged failure of government were central to the ideological construction of neoliberalism, challenging the devaluation of the public sector is a necessary first step to opening space for the discussion of alternatives. In the most immediate sense, what is at stake is defending the living standards and employment prospects of tens of millions of unemployed workers. This requires countering claims regarding the alleged inflationary effects of government deficits, as well as claims that debt-financed government spending leads to the ‘crowding out’ of private investment. Doing so likewise requires clarifying what is really at stake in arguments regarding the relation of deficits to the dollar’s international reserve currency status. Deficit spending need not involve any inflationary increase in the money supply. Nor do deficits lead to an automatic crowding out of private sector investment. The real issues at stake in the debate over deficits are efforts to defend and perpetuate a set of political-economic arrangements that benefit powerful private interests, particularly capital invested in the global circuits of finance. As we shall see, deficits do in fact pose a problem for capitalists. Particularly during periods of acute crisis, deficits are required to offset faltering rates of investment and profits. At the same time, deficits raise the possibility of government expenditure being used to provide direct benefits to popular constituents. For capital, this raises the spectre of government actions running counter to their own perceptions of economic self-interest. Underlying the growing alarm over deficits is a demand that the present (and any future) US government demonstrate its commitment to placing the interests of wealthy investors over and above the wellbeing and health of its popular classes. Challenging the hegemonic consensus should not be misinterpreted as implying that deficits represent a panacea for stagnation or falling rates of return on investment. Nor is it our task, as socialists, to propose more ‘efficient’ means for managing the current crisis. Rather, the debate over government intervention is inseparable from the struggle to open the political space to pose meaningful questions about the efficiency of markets, the class interests served by present policy initiatives, and the viability of more progressive and egalitarian alternatives