By Jeffrey Sommers and Michael Hudson. Sommers is an associate professor at the University of Wisconsin – Milwaukee and visiting faculty at the Stockholm School of Economics in Riga. His book with Charles Woolfson, The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model is available from Routledge.
Michael Hudson is the visiting distinguished research professor at the University of Missouri – Kansas City. He is also author of The Bubble and Beyond. Hudson is an associate professor at the University of Wisconsin-Milwaukee, and a distinguished professor at the University of Missouri-Kansas City respectively, who have both advised members of Latvia’s government on alternatives to austerity. Originally published at Michael Hudson’s website.
The Koch Brothers are the closest thing the United States has to Russia’s oligarchs. They fuse ownership of the economy and state, using the latter to enrich themselves while making private gains through the public’s losses. Their idea of a “market economy” is to buy government officials and the assets they privatize at giveaway prices.
The top three butlers at the Koch’s nouveau riche ‘Downton Abbey’ are Governors Sam Brownback of Kansas, Wisconsin’s Scott Walker, and Chris Christie of New Jersey. All three ran elections based on the anti-Keynesian oxymoron of promoting job creation by balancing budgets with regressive tax plans. All declared that cutting taxes (chiefly on their wealthy campaign contributors) was the way to achieve their goal (more campaign contributions). All have served at least one term in office and the results are in: Their rates of job creation and income growth are way below the national average. Rather than closing budget deficits, tax cuts create them – providing more excuse to privatize state assets, post-Soviet style.
Brownback simply hopes to stay on the job as governor of the state where the Kochs’ corporate headquarters are located. Despite flagging poll numbers, he remained in office thanks to a mildly tawdry incident involving his Democratic opponent’s youthful visit to a strip club (in the era of talk radio and Fox News, anything can be manufactured into a scandal). Christie and Walker, by contrast, have presidential aspirations and are raising funding as the two top prospects from the Kochs’ political farm team.
The looming public danger ahead is how these Koch governors will ‘repair’ the fiscal potholes their tax policies are creating. Chanting the GOP refrain of ‘lower tax rates good, higher taxes bad’ as their stage-magic abracadabra, they proselytize Arthur Laffer’s cocktail napkin ‘Laffer Curve’ depicting lower tax rates delivering higher tax revenues as a sacred scroll – its inevitable failure leading to privatization of rent-extracting opportunities in a Yeltsin-like post-Soviet policy under the banner of free markets.
All three Koch Governors are following this fiscal folly of widening budget deficits. The effect is to force more cutbacks in public services, with sermons exhorting voters to tighten their belts while the Kochs gorge themselves on the tax cuts enacted by their pet governors.
Christie and Walker are the two governors with the most to lose by reciting the same tax-cutting catechism that Brownback parroted while driving Kansas into insolvency. Walker ran for re-election largely on having eliminated a $3.6 billion budget shortfall while cutting taxes and – more to the point – by cutting public employee benefits while holding most state wage increases below the rate of inflation. Christie likewise originally ran on closing deficits. Both now find themselves big budget deficits after serving a term with the policy they would like to impose on the nation at large.
Christie and Walker both sought to finance budget deficits and tax cuts (chiefly for the wealthy) by reducing living standards for public sector workers. But the deficits have re-appeared, while the cuts to public worker compensation have reduced consumer spending at local restaurants, taverns, car dealers and the innumerable goods and services tendered by New Jersey and Wisconsin businesses.
Christie and Walker pretended that cutting inflation-adjusted wages and benefits would not reduce consumer demand if the ‘savings’ were spent by the taxpayers enjoying lower tax bills. This argument ignored the obvious fact that the tax cuts go disproportionately to the wealthiest. As every economic textbook for the past century has taught, the rich typically spend and invest more of their money out of state, or simply buy more Wall Street stocks and bonds and foreign luxuries. The supposed savings thus escape Wisconsin, slowing economic growth – and hence, state tax revenue!
Christie and Walker are now facing deeper deficits after their tax cuts. Governor Walker no longer has a balanced budget. New Jersey’s shortfall for this year was close to $1.6 billion. Christie was counting on revenues from the state lottery to serve as income transfer from the poor and working class to pay for his tax cuts to the rich. But lottery revenues have fallen short. So he is trying to make up by cutting state payments to the pension system. As for Wisconsin’s state deficit, it is projected to widen to $2.2 billion.
Just as important as how much tax is collected, is how it is collected. The aim should be to structure tax policies in ways that maximize wealth creation. But Governor Christie and Walker’s tax policies cut the bone, not the fat.
Their political dilemma is that their ‘tools’ of income and property tax cuts have not ‘repaired’ their respective budgets. The danger is that their pursuit of the 2016 GOP presidential nomination will lead them to use the next ‘tool’ in today’s class war arsenal: weaponizing fiscal policy to sell off the public domain.
Governor Walker has led the way by trying to sell state land and power plants in no-bid contracts. The idea is for privatization sell-offs to raise enough short-term revenue to allow the Koch Governors to wave the banner of fiscal rectitude, just in time for the 2016 presidential primaries.
But this will sell their states’ ‘family silver’ of land, power plants and other basic infrastructure. This has been kept in the public domain to benefit taxpayers by keeping their basic infrastructure prices low. Selling off this public property, currently owned free of debt, would provide rent-extraction opportunities for the buyers. It would turn their taxpayers into rent payers for the services of the assets they formerly owned free and clear. The new prices for hitherto public services will include debt servicing charges, management charges, the cost of stock dividends, and whatever rack-renting the new owners can squeeze out of the public.
To be sure, there is room for investigating whether a private vender could better manage our state-owned power plants, or if a private developer should construct and manage buildings on public land to maximize revenue. But this is different than selling the underlying assets owned by taxpayers.
Tax rates can be lowered or raised in response to budgetary needs – and to pay for errors by past political office holders. But once public assets are sold, they cannot easily be re-acquired. The long-term fiscal damage from their sale is permanent. That is what England learned from the devastating wave of Thatcherism. It raised the fees that taxpayers must now pay for transportation, water and other public services that have been privatized and financialized. They lose more paying such rents than they saved in the tax cuts (financed by much higher public debt levels).
The problem with New Jersey and Wisconsin is that unlike Britain, whose economy was saved by North Sea oil revenues coming online just when Thatcher’s policies were cutting demand in the economy, these states have no such natural resource windfall to save them from the short-term fixes to the budgetary shortfalls that have been created by tax cuts benefiting the most affluent.
Beyond New Jersey and Wisconsin, the whole country needs a more enlightened discourse on wealth creation. Blanket lowering or raising taxes will not balance our state budgets or deliver prosperity. The aim should be to make the tax structure more progressive, and to incentivize investment over speculation. What must be avoided at all costs is selling off public infrastructure.
This Koch ‘tool’ will not ‘repair’ our budgets. It risks shattering budgets, and also the middle class. Selling off public property returns the public to their role as peasants on the Kochs plantation.
But here’s the real nightmare: President Obama has been giving speeches warning about the nation’s deteriorating bridges, roads and other infrastructure. This sounds like a Grand Bargain in the making by the Democratic ‘Rubinomics’ and Koch crowds to raise the funds to ‘fix’ America by privatizing bridges and other infrastructure that have been starved of maintenance. Such austerity measures were a means to balance local budgets in the face of cutting taxes for the rich. A Democratic Congress might block Koch tax cuts on the national level – but a Democratic presidential victory could restore Obama-Clinton style neoliberal policies. They could out-Koch the Koch brothers by engaging in privatizations as a means to both restore our infrastructure, while levying a de facto tax on the middle class in the form of tolls and fees going to private investors for infrastructure currently paid for by general government revenues.
In short, the 2016 presidential election could be another example of ‘heads you lose, tails you lose’ with either the Democrats or Republicans. The best chance of staving off the ‘casino fix is in’ is to focus on electing progressives to the Congress rather than ‘investing’ in a Hillary victory for 2016.
The United States for its part has adopted von Clausewitz’s statement that war is an extension of foreign policy in a very limited form: war seems to be the only lever that the United States is using in its foreign policy these days. But that does not mean that all wars have a long-term policy in mind. It seems to be war without policy – military force (from the air only) in itself, making America only a paper tiger when it comes to ground troops. Lacking an ability to mount a ground invasion, its only real threat is to tear economies apart by aerial bombing, as it has done to Iraq, Afghanistan, Libya and now Syria – and in its proxy war in Ukraine. It can smash and grab, but not build.
There is only one conclusion of such strategy: to drive enemies together, to drive neutral countries to join them in order to stop the threat to grab all the world’s resources and destroy all governments that act independently in their own interest. Old Europe has not reached that stage yet, so is safe. But the rest of the world is pulling together.