The Deficit Hawk Putsch

Posted on August 1, 2011


We are witnessing a time in American politics and economics that might evoke the response of the dying Colonel Kurtz in Conrad’s “Heart of Darkness”:

“the horror, the horror”

at what apparently to Kurtz was a “a supreme moment of complete knowledge”.

The catastrophe has revealed itself in slow motion but it should be clear to many by now that we are looking at a financial and economic coup d’etat that allows the planners and perpetrators of this putsch to walk away with an almost complete though, as with many coups, temporary, victory.   None of us have “complete knowledge” but the contours of a new reality are becoming ever clearer.

Unlike in ordinary coups d’état, there has been no need to deploy military force as the “weapons” used are intellectual, cultural, political and financial.  The putschists here are not all part of the same organization but instead an array of political forces that are united by a common economic ideology within which there are vociferous but, in the end, minor disputes.   An advantage to the planners of the coup has been that the targets of aggression did not know that they were targeted until the point where the putsch is almost near completion.  A related advantage has been the existence of a “fifth column” with vacillating allegiances which the putschists have been able to win over with a combination of threats and blandishments. Furthermore these targets, even when they realized they were under attack, have tended to avoid direct confrontation with their attackers.   The putsch is, in classic terms, “class war from above” against a population that is unused to thinking of itself as a people divided by class.

The coup is nearly complete and nearly a complete success from the point of view of the putschists.  Those who will suffer the effects of this economic and political aggression can potentially reverse it, soon or at some later point in time, or at least contest the outcome if they are able to acknowledge what is going on, speak out, and organize effectively.

The Putsch Itself

The 1920 Kapp Putsch against the Weimar Republic was in some respects a typical military coup attempt but exemplifies the sense of entitlement to rule which putschists must possess. The deficit hawk putsch has not been attempted via force of arms but the sense of entitlement and relative aggressivity of its proponents have contributed to its at least temporary success. There have been credible threats of economic violence made either directly or by proxy which have enabled a small minority to magnify its political and economic power.

The deficit hawk putsch is not a traditional coup d’état in that the offices of government have not been seized during the coup nor the personnel in office formally changed.  The planners of the putsch have targeted not the occupants of political offices themselves but the principles that govern the fiscal and economic policy of the United States.  This target, in itself, has shielded the putsch effort from perception or recognition by a very large segment of the public, who generally do not pretend to understand economic principles and government financing let alone disputes among economic schools of thought.

The goal of the planners of the coup has been to discredit within accepted political discourse and policy practice Keynesian approaches to both short-term and long-term economic problems and replace these with an amalgam of politically constructed “hard money”, “limited-government”, free-market ideas and rules, which are themselves not a realistic policy orientation in a complex internetworked national and world economy.  On a more concrete economic level some of the funders of the putsch effort want to expand and gain greater control over the market for private financial and insurance services which is currently greatly influenced by government-run New Deal and Great Society social programs.  Weakening and eventually abolishing Social Security, Medicare and Medicaid is a key objective, which is rarely spoken by the primary sponsors of the putsch.

The realization of market fundamentalist ideals, utopian as they are, are however not the actual goals of the most powerful engineers of the coup d’etat.  The putschists’ goal to discredit and limit the operation of Keynesian principles is not actually to “kill” the functions of a “Keynesian” government but more to allow these valuable functions to slip into the “gray market” of government functions.  In this gray area, these Keynesian supportive and regulating functions can be deployed semi-covertly and strategically to support an oligarchy composed of leaders and investors in a few powerful industries, similar to the TARP bailout.  To do this they must disrupt the intellectual and democratic political basis for maintaining or even growing government’s role in stabilizing the economy and, in particular, in the delivery of social insurance and in regulating the financial services industry.  Unlike some true-believer market fundamentalists, the cleverest planners of this coup see the benefit to themselves personally and their allies in having preferential access to government’s “Keynesian” services but they want to limit these services to themselves and others in the financial/business oligarchy.  So the philosophy is more “Keynesianism/socialism for me, capitalism/free markets for thee” under the official banner of “Keynesianism is bad/wrong/inefficient”.

Currently at stake is the continuance of a “rentier”- focused economy in the developed countries, where the primary mode of business is creditors seeking to extract rents (“passive income streams” rather than monetary reward for ingenuity, labor, risk, and leadership) from existing assets and lines of business rather than build new ventures with higher risks involved.   An openly Keynesian-influenced government focused on the future and overall social welfare would in many cases revalue/devalue some of these existing assets that are now over-valued via debt restructuring in efforts to restore dynamism to the economy.   A fairly open democratically-elected Keynesian-oriented government would in this case threaten the informal but massive political power of the oligarchy, some of which owns or manages banks with balance sheets weighed down with bad debts/mortgages.  Therefore rentiers and their political allies/clients seek to stop or hinder efforts to respond to the economic crisis with the full force of government.

However, an explanation based only upon a limited self-centered rationality in some actors to accumulate material goods and power does not entirely account for the drive to execute this coup:  the most aggressive element of the right-wing seeks also to dole out punishment to those that they feel are undeserving of help, the poor and the unfortunate.  Using the ruse or engineering the circumstances that the government has “run out of money”, the point is to realize and reinforce the Right’s “Just World Hypothesis” view of the world, where the notion is that vast social inequality is a reflection of true differences in the merit of individuals.  The continued existence of government programs and policies that represent social concern about the welfare of others, the welfare of society as a whole, and the future threaten this view of the world and evoke anger, derision, and, become targets for political aggression by the Right.

Longtime observers of the US political scene will find at least the goals of slashing the social welfare state to be old hat.  After all, ever since the 1930’s, the right-wing in the US has always wanted to roll back the New Deal and then Johnson’s Great Society, with particular animus directed at Social Security.  Republican Presidents Eisenhower and Nixon ending up shoring up the social safety net erected by Democratic Presidents much to the chagrin of the extreme right wing.  The extreme Right’s views remained isolated and at the fringes of both political parties until the New Right via Ronald Reagan’s election, started to take over the Republican Party.  The  Right’s “crank” hostility towards Social Security and Medicare that had remained underground started to creep into mainstream Republican discourse however could never be the policy of the Party itself.  Republican President George W. Bush actually added to Medicare through the Part D benefit and Republicans have attempted to portray themselves last year as protectors of Medicare against Obama’s complicated efforts to design an almost-universal health care system using the existing private insurance system.  The sudden reversal then requires explanation.

The Timing of the Coup

Despite the long-standing desire of the extreme Right in the United States to roll back the regulatory and supportive functions of the government for ordinary people, we are seeing the coup occurring only now in 2011.  What factors have led to this string of events?

  1. Firstly and most importantly, the financial crisis of 2007-2008 and its aftermath, have exposed the vulnerabilities of the financial oligarchs to both the vagaries of the bubble economy and also the risk of fundamental re-regulation of the financial industry.  The bubble itself was primarily a product of de-regulation and the bursting of the bubble exposed the inability of the financial industry to self-regulate.  These events temporarily blew away the grandiose sense of being “masters of the universe” which had pervaded the financial industry in the last few decades.  In the dark days of late 2008 and early 2009, the large banks became essentially wards of the state and it was up to political decision-makers guided by competing economic theories to steer the economy one way or the other.  One possibility that was debated but never tried on a large scale was to nationalize the banks, fire their management, wipe out their shareholders and re-privatize them.  Luckily for the financial oligarchs but unluckily for the economy as a whole, political decision-makers, most notably Pres. Obama, and economic advisors hitched the growth of the entire economy to augmentation of the existing wealth and supporting the existing managements of the specific financial institutions that enabled or caused the crisis.  Despite this “lucky break”, leaders of the financial industry must have taken away from this the lesson that they could not make themselves so vulnerable to an activist government again.   Creating or stoking a “counter-crisis” for government via the deficit scare, seemed to be a reasonable form of insurance that government could be lamed and made pliable.
  2. For political enemies of activist government, i.e the Republican Party, “Third Way” and “Blue Dog” Democrats, the aftermath of the financial crisis made very clear that the re-emergence of an activist Keynesian government was a distinct possibility or at least there emerged a strong likelihood that popular demand would grow for such a government from those who had re-discovered the history of the 20th Century.  For the opponents of a return to some form of FDR-style New Deal policy, the need to create a “counter-crisis” of government was important to distract from emerging realization that government was the tool needed to pull America out of the economic slump and face critical national and international tasks.  The urgency to create or reinforce a false narrative about government reached for them, then, a fever pitch.
  3. Barack Obama’s personality, political-economic orientation and surprising ineptitude as President has created an opportunity for the realization of this long-held dream of the Right.  Obama’s occupation of the White House at a time when Rooseveltian strategies would be most appropriate has provided an unexpected “counter-example” to the New Deal for the Right to now realize its long-held dream. More on this in the section below, as Obama still plays a critical role in the coup.
  4. Trends in economic theory and the disorganization of the economics profession has provided the basis for the development of an anti-Keynesian “common sense” among certain economists, political leaders and operatives to proceed with semi-respectable “scientific” support.  This “common sense” propounds that markets are self-regulating, taxes almost always have negative economic effects, and that government as a regulator or investor has very little to offer.  As it turns out these anti-Keynesians have based their case on sparse or questionable data, arguing more out of politically-motivated speculation than out of factual support.  Nevertheless, the deficit hawk common sense has been filtered through economists from prestigious schools like University of Chicago, giving their airy economic narrative the sheen of respectability.   From this, older popular narratives that view the supply of money and wealth as a discrete, fixed amount, a.k.a. “hard money”, have been given the aura of scientific backing by a generation of economists that “forgot”, or were paid to forget, macroeconomics.  Most media commentators remain economically illiterate, especially when it comes to understanding macroeconomics.
  5. In the last few decades, most of the very wealthy and of course multi-national corporations have internationalized their holdings to such an extent that they no longer feel invested in the success of a specific national economy like that of the US.  Many of them are no longer willing to pay significant taxes to the American government for the benefit of less well-to-do Americans.  Recent political leaders have not dared to demand that these people reconsider their economic priorities.  With policy circles in the US naively beholden to free trade ideology, there is also no concerted effort to re-patriate certain aspects of American industry that would boost the fortunes of ordinary people in the US.   The “butcher, baker, and candlestick maker” are now located overseas so the notion of  mutual obligation is weakened.  Thus there is a greater divergence in economic and political interest between the top and the bottom than we have previously seen.
  6. The political process in the United States has become in the last three decades so beholden to concentrated wealth that politicians now tend to represent a series of industries or donors rather than a voting constituency.  A media that remains dependent on the same interests as well as media outlets vying for “access” to politicians, make the power of organized money all the more pervasive.  As a result or with the addition of a cultural premium on “niceness”, the US media is in world terms, relatively unchallenging in its interviewing and reporting style, leaving politicians wide berth to sustain lies over long periods of times through multiple media channels.  The corruption of the United States political process is unprecedented within living memory.

President Obama:  Coup Initiator, Trojan Horse, or Political Incompetent?

President Obama, who had appeared to me and many of my friends as a sympathetic character but vague on commitments to principle, has proven to be absolutely critical to the success of the deficit hawk putsch.  What exactly his role is depends on the political theory that you subscribe to as well as to which facts you pay attention or give more weight.  Here are three accounts that attempt to justify each of these roles as the most likely explanation:

  1. Coup Initiator/Co-Planner – Liberal/progressive supporters of Obama have tended to look away from indications that Obama has very little commitment to New Deal/Great Society liberalism/progressivism and may very well be an opponent of these currents in American politics.  The recent characterization by Bruce Bartlett, reaffirmed by Paul Krugman, that Obama is a moderate conservative holds a lot of weight if you look at the policies that he has put forward, as well as his continuing affinity for the myth of the Reagan Presidency.  Early on, when Obama entered politics, friends were surprised that he did not join the Republican Party but the Democrats instead.  Even more aggressively “Right” than “moderate” are indications early in 2009, that Obama was actively courting the Right by promising to cut entitlements as part of his legislative agenda.  The appointment of a deficit-hawk-heavy deficit commission was, in this view, not “forced” on him, but rather was part of plan to sacrifice social welfare spending for his own ideological agenda or simply as a career move on his part to court elusive independent voters.  Obama’s continual repetition of Republican talking points about government spending “government must tighten its belt” becomes comprehensible if we view Obama as politically part of the Right political spectrum.  Obama’s record on the environment, on warfare, and civil liberties are for the most part continuous with the previous Administration.  Obama has been focused on inflicting “pain” on social program beneficiaries and progressives, ignoring the most realistic deficit cutting plan, i.e. the Progressive Congressional Caucus’s “People’s Budget”.   As a Democrat, Obama however has needed to continually generate “red herrings” that he was more progressive than he was, suggesting in fact that he might know that what he is doing is unacceptable to those who elected him.  In this view Obama functions as a critical co-engineer and instigator of the deficit hawk putsch, a putsch to overthrow the opposing faction and constituencies of the Party that he formally leads.
  2. Trojan Horse/Siege Engine – Siege engines were movable platforms used in ancient and medieval warfare to transport attacking troops over enemy battlements.  If you think of Obama as simply confused about his political views and the Presidency as having limited powers, he then becomes simply a tool, willing or not, for forces larger than himself.  In this view, Obama is trapped by circumstance, history, and his own character to become useful to Republicans, lobbyists and financial interests who seek to undermine the New Deal/Great Society programs as well as lame government more generally.  Obama’s unique story and role as the first African American President is useful in this regard, as progressives have, in all probability been less willing to see his political confusion or conservative side.  Thus he is able to act the “Trojan Horse” and be admitted into the “fortress” of the defenders of the New Deal and the Great Society.  Elizabeth Drew’s theory that after the 2010 election, Obama turned towards “centrism” suggests that happenstance led to Obama turning the debt ceiling debate into what his political team thought would be an effort to court “independent” voters.
  3. Political Incompetent – In this case, Obama is assumed to be a progressive at heart but lacking in skills or fundamental orientation to be a successful political leader.  The Presidency is assumed to be powerful enough to do good, even in our corrupt times, but Obama is not able to apply the power of the Presidency for good causes because of personal flaws.  He is thought here to be a “poor negotiator” and poor strategist.  If one doesn’t believe that Obama is at heart a conservative or wants to cut social programs, his dealings with Republicans then become a series of gaffes, as he has helped reinforce their political position via limp campaigning for himself and his program in 2010.  He has continued to give away almost everything to Republicans even as they have had a weaker formal position than he through most of his Presidency.
    1. Alternative Interpretation:  Simple Careerist – It also could be construed that Obama is not incompetent but simply a careerist at a time that requires transformational leadership.  In another time, Obama might have been a successful President but in a time of crisis his ambitions and scope of concerns are inadequate to the task.  The actions he is taking now could be viewed as competent from the point of view of enhancing his own career but they sacrifice almost everything else.  Drew’s narrative about the 2011, “turn towards the Right”, also supports the Careerist interpretation.

I am agnostic as to which of these are correct but as time goes on, “coup initiator” looks like a strong likelihood, though the careerist narrative captures some of the “variance” in Obama’s essentially Republican policy initiatives.  A portrait of Obama’s character that emerges when we look away from progressive hopes for him to be a “progressive-at-heart”, indicate that he either is a conservative or is, when compared to the historical demands that he has shouldered, a “hollow man” with no firm convictions about the world.

An Assortment of Putschists

Obama has been critical to the success of the deficit hawk putsch so far as it has occurred in the United States, though if we look abroad, we see in many countries, a similar policy trend being attempted with greater or lesser success without Obama as a leader.  The political influence of Obama’s rush to cut deficits may have added momentum to deficit hawk groups  overseas, as in early 2009, Obama was heralded around the world as a savior, relative to his predecessor George Bush.   The Obama euphoria overseas led to the embarrassment of the Nobel Committee awarding the Peace Prize to Obama, without him having accomplished much at all of note, especially as regards world peace.

A commonality across the Atlantic has been the long-standing trend in the economics profession to “forget” Keynesian macroeconomics, the neo-liberal political and economic project to marketize where possible, as well as the political strength of large banks and creditors.  The Transatlantic nature of deficit hawkery may give it credibility but in neither place is its economic justification or results borne out by reference to economic facts.  Furthermore, we are seeing in the stagnating British economy, a clear warning against undertaking the deficit hawk path.

While the deficit hawk, pro-rentier, “hard money” movement may be international, the work of key players in the US has been critical to its domestic success.  These are not coordinated conspirators but agree upon an anti-Keynesian view of economics.

  1. Pete Peterson, David Walker –  The pivotal organizer of deficit mania in the US, Peterson is a long-standing funder of think tanks that profess belief in balanced budgets for governments but always with a focus on low-taxes and cutting social spending.  A billionaire from Wall Street, Peterson is most disturbed by social welfare spending.  Walker has been a driver of Peterson’s agenda and a former Comptroller of the Currency.
  2. Leaders of Obama’s Deficit Commissions – Erskine Bowles, Alan Simpson, Alice Rivlin, Sen. Kent Conrad, etc.  The composition of the deficit commissions were designed to appear “bi-partisan” but the Democrats with the most influence on these commissions were all of the “Third Way” variety whose economic policy orientation is almost identical to that of Republicans.
  3. Koch Brothers, Dick Armey, and other Tea Party Sponsors – The extreme right Tea Party has created the appearance of a grassroots movement, as the Tea Party positioned itself to mobilize popular anger after the 2008 economic collapse.  Unlike most other grassroots movements however it has never lacked for cash due to its wealthy sponsors.  While the Koch Brothers speak as if they are “true believers” in free market ideals, they are in their business ventures happy to avail themselves of the functions of government that suit their business interests.
  4. Tea Party Congresspeople and activists – The “shock troops” of the deficit hawk putsch have been the radical “true believers” in market fundamentalism and “hard money” and/or opportunists that make up much of the Tea Party leadership.  They have a “nothing to lose” mentality and are willing to countenance economic catastrophe to exert power and/or serve their utopian ideals.  Alternatively they are eager to show their paymasters and potential future employers that they are loyal to the cause.
  5. Fox News and Right-Wing Talk Radio – Media channels are critical instruments for those with either formal or informal power to influence opinion and coordinate events on the ground.  Fox News has functioned as a propaganda arm of the Republican Party, working in tandem with pre-existing and massively popular AM radio.  These media channels have developed a series of flexible narratives that are easily deployed to filter and interpret events in the world, creating a right-wing “common sense” that is often based on falsehoods and innuendo.
  6. Third Way and Corporatist Democratic Leaders – The former DLC, now Third Way represents the interests of the financial as well as other privileged industries like pharmaceuticals within the Democratic Party.  These groups are eager to maintain control over and expand their markets by either pushing social program beneficiaries out onto the market or milking existing programs.  They represent “brakes” on the Tea Party agenda of “smashing” social programs because they see “upside” in keeping aspects of these programs in place that are profitable to them.
  7. Financial and Insurance Industry Opponents of Social Insurance – Seeking new markets for financial and insurance products, cuts to social programs appear to be opportunities to the right-wing of the financial industry.  Even if these beliefs are not deeply held, the vast economic advantages that many in the financial industry now enjoy enable them to “throw money at” causes which ideologues then carry out.

What makes all of these political players “putschists” is that for the most part they must hide their goals or the rationale for their goals from the American people, who in large majorities support social insurance supplied by government.  They are not conventional conspirators and they may not see their own unity of purpose; most in the Tea Party, for instance, would not recognize their common ground with Obama or Third Way, even though they may be “useful idiots” to the latter two.

Possible Outcomes of the Coup

The Deficit Hawk Putsch, if it succeeds as is likely, will alter the American political and economic landscape for years to come.  Economists project that economic growth will remain stagnant or negative for years to come because of the lamed ability of government to generate economic stimulus via deficit spending.   Similarly official unemployment may hover around the 8-10% mark with actual unemployment approaching 20%.  As it is unlikely that private debts will be restructured or forgiven in the creditor-friendly political environment associated with the “Grand Bargain” struck between President Obama and the Republicans , household debt and stagnant or sinking housing prices will continue to drag down consumer demand.

The Putsch also should confirm to the American people that, in terms of economic policy that we now live in something like a one-party state.  The Democrats and Republicans are in the areas of social and cultural policy as well as personality at odds, which will distract many from seeing the fundamental unity that the Deficit Hawk Putsch achieves between the leaderships of the Democratic and Republican Parties.

Progressive Democrats are faced with the most wrenching decisions as Obama has engineered a full-scale betrayal of the progressive ideals that were attached to him, justifiably or not, during the 2008 campaign as well as seems to direct scorn and disrespect in the direction of progressive pundits, activists and members of Congress.  The portions of the Democratic Party that supported greater economic equality and active management and regulation of the economy by government are now for all practical purposes homeless in the American political establishment on a national level.  It is true that there are progressive Democratic office holders in Congress and in state and local governments but these are not a group with anything approaching the ideological unity or discipline typical of the extreme right Republicans.  The organizing principle of the Democratic Party has been that it is supposed to simultaneously serve its corporate sponsors, a variety of progressive causes related to human rights and the environment, and demands for greater economic equality.  We now see that the first group has been served, the second may or may not be served while the latter is jettisoned.

We may see a splintering of the Democratic Party or the emergence of a third party to the left of the Democrats.  Alternatively we may see a large gap emerging between party politics in general and the population at large, which is a reinforcement of an existing trend.  Grassroots movements unaffiliated with parties may develop.  The end-game of this may lead to an American Tahrir Square movement or repression and an autocratic state that serves an oligarchy that uses the United States as the launching pad for international ventures but a place of no particular interest or commitment.