Debts, Truth and Lies in the U.S.

Richard Wolff Mar 23, 2011

Debts and lies about them are being used to push conservative agendas in Wisconisn and across the country. Lots of statistical flim-flam is flowing from the pushers of those agendas. Yet alternative progressive agendas make more sense. The flim-flam becomes clear from the Federal Reserve’s just released Flow of Funds statistics for 2010. They reveal some truths about current economic events that deserve attention. First, consider this breakdown in the total debts of the five basic sectors of the US economy:

Federal Government………………………………….    $ 9.4 trillion
Households……………………………………………     13.4 trillion
Non-financial businesses……………………………      11.1 trillion
Financial businesses…………………………………      14.2 trillion
State and Local governments………………………        2.5 trillion

In the light of these numbers, consider that conservative politicians, journalists’ headlines, and their allied academics’ pronouncements are all shouting about the need for states and cities to cut services and lay-off workers because  “we don’t have the funds” or because “we need to live within our means.” The facts above show very clearly that it is precisely state and local governments that have kept down debts better than the other four sectors of the US economy.

State and local governments deliver most of the public services that people rely upon (public schools, public health, police, fire, street maintenance, parks, and so on).  The need for those services rises in times of economic crisis such as the years since 2007. Given our high unemployment rate, it would have been doubly beneficial to hire more pubic employees to increase those services since 2007.

Instead, in our irrational economic system, we have seen state and local governments cut services and lay off pubic employees in recent years. And now in 2011 the attack on state and local services and employees is being intensified under a cloud of false claims about state and local budgets that stress their “extreme debts.” That attack is actually about furthering the twin goals of the business sector and its alliance with the conservative politicians it funds: (1) lower state and local taxes on business and (2) justify the resulting cuts in state and local services, public employees, and their unions’ collective bargaining rights on the grounds that state and local tax revenues are falling and state and local debts are too high. Wisconsin’s governor and its Republicans are mounting just this attack to pursue just these goals.

The second interesting fact  revealed by the Federal Reserve’s Flow of Funds concerns household debts. Consumers have borrowed more money in the US every year since the Federal Reserve began publishing these numbers in 1953…. until 2008. Since then, every year has seen drops in consumer debts. Creditors have been writing off bad debts and reducing the credit they will provide. Individuals have been reducing their debts and borrowing less. Meanwhile, real wages continue to stagnate partly because high unemployment continues. The mass markets in the US have been correspondingly contracting and that is likely to continue for quite some time. As a result, corporations everywhere are refocusing their plans and investments toward other, more profitable markets promising faster growth. That’s how profit-driven enterprises work. Thus, just as US corporations have been moving their production facilities out of the US for decades, now they are also reorienting their plans, investments, and marketing expenditures increasingly to markets outside the US. This suggests a longer and deeper decline in economic conditions in the US unless and until the US economy stops depending passively and helplessly on the profit-driven priorities of private corporations.

State and local governments could and should be working instead to offset the ongoing US economic decline as corporations move and look elsewhere for workers and customers. State and local governments could borrow and fund new local industries of a democratic sort where workers function as their own boards of directors. These enterprises could function in far greater harmony with the natural environment than profit-driven enterprises did; they could focus locally to save on the wasteful energy costs of producing far away for consumption here; they could generate far more productivity because workers’ lives would henceforth include not only their particular jobs in each enterprise but also democratic participation in the the tasks of directing, designing, and developing what would, for the first time, really be “their” enterprises. As was pioneered by the Marcora Law in Italy, instead of giving unemployment compensation to workers laid off by departing corporations, provide them with the capital to start and run democratic businesses that will employ and pay them. Such steps could become parts of a genuinely progressive agenda needed now more than ever.

Instead of shrinking in the wake of private corporations’ decisions to focus elsewhere – what the conservative agenda seeks – state and local governments might become a social force to restart such new and better kinds of enterprises, helping them to grow and serve our economy’s actual needs. Imagine a mass social movement from below that insisted on such changes in the nature of state and local governments.

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