Thursday, 27 September 2012

Thanking Monica.

In Praise of Sex Scandals.

What can we say of the economics of the New Democrats? Well, it wasn't too soon after the election Federal Reserve Chairman Alan Greenspan met with Bill Clinton and told the President that his election promises of social reform could not be carried out without increasing the deficit, which would lead to higher interest rates that would undermine economic growth. The dinosaur libertarian Greenspan advised the Clinton administration to slash spending in order to convince the bond markets to lower interest rates and growth would ultimately be generated. Surprising Greenspan the President swallowed this theory without a fight. Clinton made the case for austerity in order to achieve greater long-term economic growth. The prescription was a significant cut in public spending coupled with minor tax increases to fill the koffers left ransacked by 12 years of Republican government. It displeased the middle-class he had pledged to cut taxes for and further diminished the standard of living for the American working-class.

Out of a triangulated politics the Clinton administration implemented welfare reform which was much harsher than anything the GOP ever rammed through a complacent Democratic Congress in previous decades. As the boom emerged there was a widespread belief that it would not all come crashing down because of the innovations in computer technology. The guarantee of stability and stupendous rates of growth came with the advances in computer technology, equations and mathematical models could now be used to bring order to a chaotic marketplace. The state was not needed to intervene either. In theory, it would ensure long-term growth and the confidence in the midst of deregulation produced from this led to an orgy of lending. The banks could now throw money at millions of new lenders. High levels of competition and productivity were now within reach of a self-stabilising order. This is what became known as the New Economy.

Alan Greenspan was concerned when he found little evidence for any rise in productivity, yet he did find signs of "irrational exuberance". In 1996 Greenspan argued that the markets might be overvalued and that a dangerous speculative bubble was beginning inflated. The press attacked Greenspan and he buckled to the pressure. He now claimed that the advances in computer technology had been so significant as to ensure rates of productivity that could not be measured in the traditional way. Greenspan told Clinton it was like "discovering a new planet". The high-tech boom itself had come out of huge amounts of public investment over many years which culminated in the dotcom bubble. This was all going on as deregulation opened up the financial sector to run amok. It would all later blow up in the form of subprime mortgages. The financialisation that began in the 1970s and was intensified under Reagan and Clinton led to the economic disaster that we're still living with.

If we want to take the glass to be half-full then we might take the view that the Lewinsky scandal which saved social security from Clinton's prescribed privatisation as Robin Blackburn has noted. It was in the mid 1990s that the widespread attitude was that the social security system required radical reform. The privatisation lobby basked in the popular perception that an aging population would soon make social security unsustainable in its current form. As Clinton had just sold the workless down the river it was expected that the administration could well do the same to the retired and soon to be retired. Clinton had a top secret "Special Issues" coterie - with Larry Summers at the helm - to go over the minute details of the basis for a "bipartisan policy" on social security that would splice individual accounts into the program. Note the emphasis on unity in American politics runs constant, the preference is always for consensus rather than dissensus.

The New Democrats had snuffed the life out of the welfare program that had been established with the New Deal, now it was social security to be asphyxiated. It just needed to be harsh enough to win over the Republicans without appearing to be Draconian in order to keep the support of a fair chunk of the American public. It soon looked like it was going to be triangulation par excellence. So what went wrong? At the time the Republicans and the media were engaged in a moral crusade against Bill Clinton over a variety of accusations regarding his personal, sexual and political conduct. By 1998 the "Special Issues" agenda had developed seriously over the years and Clinton attended a meeting to review the project. This was in July, shortly before he was handed a subpoena and it wouldn't be long before he was confessing to an affair with Monica Lewinsky. Now Clinton could not be seen to be trashing a long-standing institution of American society. Social security reform was put on ice, the reform would have to be reformed quickly in order for it to be saleable.

It was not the time for a radical overhaul of the system as it had been founded during the New Deal. As one member of the "Special Issues" team would later put it "Toward the end of 1998, as the possibility that the President would be impeached came clearly into view, the policy dynamic of the social security debate changed dramatically and it became clear to the White House that this was not the time to take risks on the scale that would be necessary to achieve a deal on an issue as contentious as social security reform." Quickly the plan was reoriented to strengthen social security through a rare recourse to the budget surplus that the austerity had attained, of course a portion would be invested in equities. Clinton came to propose that 62% of the budget surplus be used to build up the social security trust fund. He promised to veto any attempts to divert social security funds to other uses while calling for 15% of the trust fund to be invested in the stock market.

The investment would be overseen by the social security administrators. It had the potential to create a powerful new lever over economic policy, naturally Alan Greenspan became an opponent of investing social security funds on the stock market. Nevertheless the reform was well received among the American public, the pessimism around social security was supplanted for optimism and the GOP had to concede that social security should be prioritised. And as the sex scandal deepened President Clinton fully endorsed the system. It set back the privatisation lobby in the form of right-wing think tanks as well as the corporate wing of the Democratic Party which Clinton had nursed so well. The consensus was now that social security had to be preserved, even George Bush pledged to prioritise it. The service remained untouchable until the recent economic crisis. This is probably the only reason to praise Clinton's promiscuity that had in the past led to so much misery for others. Fucking Monica Lewinsky may be the only worthwhile decision Bill Clinton ever made.

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