6.1 Forcing Roosevelt’s hand
Following the stock market crash of 1929, America—and most of the Western world—was thrust into the Great Depression. After the Republican administration of Herbert Hoover proved ineffective at alleviating the despair, Franklin Roosevelt, the Democratic candidate, defeated the incumbent in the election of 1932. Roosevelt began with a fairly moderate platform as a candidate, but as the Depression wore on with no end in sight, he began to set his sights on a more ambitious goal, in part, because he had little choice.
At that time in the U.S., powerful socialist, communist and labour interests still held sway in the political system. Many of them took the Great Depression as a sign that capitalism had outlived its usefulness as a mode of economic organization. They soon began to agitate vociferously for change, for revolt, and for a more humane, more equitable society. America was teetering on the brink of a revolutionary moment. Roosevelt, appreciating the gravity of the situation, responded to the advice of British economist John Maynard Keynes, by advancing the New Deal, various government relief and employment programs, and Social Security. Importantly, he also established the federal Securities and Exchange Commission, Federal Deposit Insurance Corporation, and Glass-Steagall Act, which separated commercial and investment banking while prohibiting various forms of speculation. Roosevelt invested extraordinary sums of money in direct state hiring campaigns, and massive infrastructure projects like the Hoover Dam.
But much of the American business community was not content to see its taxes hiked, and the forces of the free market so brazenly contravened. And since the end of World War II, the event that ultimately lifted America out of the Dirty Thirties, business interests have taken various steps to claw back the benefits afforded by the New Deal welfare state.
Although Franklin Roosevelt may be remembered in the modern era as a populist, or even a leftist, one could also argue that his policy decisions achieved precisely their desired effect. Roosevelt’s New Deal was financed in large part by corporate America, as the Democratic presidential candidate managed to persuade a sufficient proportion of the country’s moneyed class to invest in relief programs and reforms. The New Deal, in other words, was a sort of compromise between the American oligarchy and the workers of the country, undertaken in the interest of preserving the capitalist system.
As time passed, the once mighty American left began to rust, deteriorate, and eventually disintegrate. By the end of Senator McCarthy’s campaign of terror in the 1950s, Marxism, communism and even socialism had become dirty words in America. Although Keynesian economic orthodoxy would continue to prevail until the 1970s, the post-World War II era was a period in which tremendous damage befell the liberal, socialist, labour and social democratic movements. They have not recovered since, and in fact, the decline of the traditional left continues to this day.
But by the 1990s, the leftist bloc was a shadow of its former self. Trade unions—the pillar upon which America’s middle class was built—had been broken, their membership (and bargaining power) shattered in the wake of the 1945 Taft-Hartley Act, through the McCarthy era, and even more precipitously under President Reagan’s two terms in office. The U.S.S.R. had suffered an economic, political and military collapse—which many capitalists took as a sign that their ideology had prevailed. And neoliberalism had supplanted Keynesianism as the predominant school of thought in capitalist economics. After all, neoliberalism was working swimmingly; the stock market was on a robust upswing, and the U.S. was enjoying unprecedented prosperity. Or so it seemed.
Fig. VII
(Source: U.S. Bureau of Labour Statistics, via Dr. Mark J. Perry http://mjperry.blogspot.ca/2011/01/asdf_30.html)
6.2 The rightward drift of the Democratic Party
By President Bill Clinton’s inauguration, the Democratic Party had radically shifted from its New Deal identity, leaving behind many of Roosevelt’s reforms and the Johnson administration’s War on Poverty. Under Clinton, the Democrats reached fundraising parity with the traditionally “pro-business” Republicans. And despite his assurances to the contrary on the campaign trail, Clinton would do little to uphold the interests of America’s working class; in fact, his policies resulted in a further diminution of American workers’ fortunes. In 1996, he fulfilled a campaign promise to reform the welfare system—by reducing its generosity and introducing a “workfare” component. As a consequence, the U.S. to this day possesses arguably the least beneficent social safety net of any industrialized country, and the results—like one in five American children contending with food insecurity on a daily basis in 2013—speak for themselves. Clinton also developed an affinity for neoliberal globalization and a love affair with so-called free trade, which culminated in NAFTA, and—as if to reaffirm in whose interest the newfangled trade deal would operate—he systematically precluded the second component of a true free market, the free movement of labour, by militarizing the border between the U.S. and Mexico for the first time.
But he wasn’t done there.
Toward the end of Clinton’s second term, remembered as a boom period in American history, privately held debts had already reached historic proportions (and were, in fact, exacerbated in 1998 by the first federal budget surplus since 1969). But the Commander in Chief was enamoured of the neoliberal myth of the self-regulating market. His administration’s repeal of Glass-Steagall in 2000 furthered the deregulatory mission undertaken by Reagan. Suddenly, without meaningful antitrust laws, Wall Street banks were free to grow to titanic scales. And without any effective firewall between investment and commercial banking, speculation, complex derivatives contracts and securitization soon produced tens of trillions of dollars in hypothetical assets, distorting market signals and engendering spectacular price volatility in everything from housing, to soy, to petroleum. It was in this context that the dot com bubble inflated and burst, and that the housing bubble began to swell, only to enlarge to a perilous magnitude under the eight-year tenure of George W. Bush.
Bankers and investors made hay in the deregulated environment, undertaking ever more haphazard bets on ever-riskier financial instruments in pursuit of astronomical fortunes. Debt continued to mount, and as the wealth of the 1% swelled exponentially above and beyond the listless lot of the majority, a house of cards was built that would tumble within a decade, and drag much of the global economy into a severe recession.