The American Bear

› Deadly Manufacturing Mirage, Green-Red Alternative | Paul Street

[T]he fact that American and other global capitalists and their corporations increasingly find the U.S. to be a hospitable environment for manufacturing reflects the declining fortunes of the U.S. workers across the long neoliberal era (1970s to the present). The mass “off-shoring” (export) of formerly U.S.-based manufacturing jobs during that era did not occur because big “American” capital was interested in de-industrialization per se. It occurred because capital was interested in maximum profits and reduced costs – reduced labor costs above all. Capitalists who dismantled industry in the “high wage” and once heavily unionized United States were happy to promote a type of industrialization in “developing nations” – ultimately and above all “communist” China (endowed with spectacular supplies of newly available and super-exploitable labor power) – where low wages and weak worker protections promised higher rates of surplus value and profit. It was always implicit that some manufacturing might return to the U.S. if and when American unions were smashed and wages cut.

“U.S. Steel,” that company’s former Chairman David Roderick once commented in explaining why his firm was laying off workers and closing plants, “is in business to make profits, not to make steel.” That was a very candid statement of the cold reality of the profits system. “Rarely is the reality put with greater clarity,” notes the prolific Marxist analyst David McNally: “under capitalism, use is irrelevant; profit is king. Capitalist enterprises have no particular attachment to what they turn out, be it flat-rolled steel, loaves of bread, or pairs of jeans.”. An obvious fact should be added: capitalism has no particular attachment to turning out anything material or tangible in any particular country.

If manufacturing is reviving in the U.S. to any significant degree, it is not because of any particular commitment to the United States on the part of investors. It is happening because U.S. labor, materials, energy, transportation and/or other production costs have fallen so low that capitalists finally find it competitively advantageous to make more things in the so-called homeland.

› Richard Wolff Examines Class

Foreclosure in the United States today is in fact a classic example. Over the last thirty years, we have faced a phenomenon we never had before in the history of the United States. We have had rising real wages in America, roughly from the beginning of our history, up until the 1970s. If you worked hard, you got more money in your wage envelope at the end of the week. That was true for 150 years, that was really amazing, and no other country did that.

It stopped in the 1970s, because of computers replacing people, because of American companies moving abroad so they could pay lower wages, because of a mass movement of women into the labor force, immigration, and we went from a country with a chronic labor shortage to a country with a chronic labor oversupply. Employers no longer had to raise wages to keep workers working, to keep them happy, and keep them employed.

And as result, the American working people went into a kind of prolonged psyhic shock. Their wages weren’t rising any more. And so what they did was they turned to another source of money to realize the American Dream that they had been culturally developed to hope for, to expect, to promise to their kids.

They borrowed money like crazy. And the business community of the United States saw in the borrowing of the American working class a fantastic market to go after. You know in the 1970s, in the beginning, the only people who had a credit card were wealthy people or folks on business expense accounts. Starting in the 1970s, we gave credit to the mass of Americans. Everybody gets a credit card, and everybody can go to the bank to borrow to buy a home. Mortgage debt, credit card debt explodes.

It was a money-making extravaganza. We saw all the wealthy come together and get involved in this money. Bulding houses, lending workers at huge interest rates the money with which to buy the new and expensively built homes. Wealthy people poured their money in to companies that built these homes, furnished these homes, decorated these homes, and you had a literal explosion of profitability.

But of course. You can’t keep lending to working people if their underlying economic situation isn’t improving. So it was only a matter of time until the extra borrowing reached the limit of the underlying frozen, stagnant wages.

That was hit in 2007. Millions of Americans could no longer afford the houses that they had borrowed to buy. The foreclosure crisis represents the rage and anger of the wealthy class. If the underlying people they lent money to can’t pay for them, they’re going to take those houses back, throw those people out of their homes, and try to find another way to make money. Here’s a perfect example of the profit motive creating a housing boom that becomes a bust, and that now to recoup the money of the minority who invested in it, requires millions of people, the majority, to literally lose their homes, producing in the United States in 2010 and 2011, a society that has millions of empty homes, side by side with millions of homeless people. [++]

› We Have Always Been Rentiers | Peter Frase

In my periodic discussions of contemporary capitalism and its potential transition into a rentier-dominated economy, I have emphasized the point that an economy based on private property depends upon the state to define and enforce just what counts as property, and what rights come with owning that property. Just as capitalism required that the commons in land be enclosed and transformed into the property of individuals, so what I’ve called “rentism” requires the extension of intellectual property: the right to control the copying and modification of patterns, and not just of physical objects.

But the development of rentism entails not just a change in the laws, but in the way the economy itself is measured and defined. Since capitalism is rooted in the quantitative reduction of human action to the accumulation of money, the way in which it quantifies itself has great economic and political significance. To relate this back to my last post: much was made of the empirical and conceptual worthiness of Reinhart and Rogoff’s link between government debt and economic growth, but all such disputations presume agreement about the measurement of economic growth itself. [continue]

› Time for Some Publicly-Owned Banks | Ellen Brown

The crossing of the Rubicon into the confiscation of depositor funds was not a one-off emergency measure limited to Cyprus. Similar “bail-in” policies are now appearing in multiple countries. (See my earlier articles here.) What triggered the new rules may have been a series of game-changing events including the refusal of Iceland to bail out its banks and their depositors; Bank of America’s commingling of its ominously risky derivatives arm with its depository arm over the objections of the FDIC; and the fact that most EU banks are now insolvent. A crisis in a major nation such as Spain or Italy could lead to a chain of defaults beyond anyone’s control, and beyond the ability of federal deposit insurance schemes to reimburse depositors.

The new rules for keeping the too-big-to-fail banks alive: use creditor funds, including uninsured deposits, to recapitalize failing banks.

But isn’t that theft?

Perhaps, but it’s “legal” theft.

… [U]nder the Bankruptcy Reform Act of 2005, derivatives counter-parties are given preference over all other creditors and customers of the bankrupt financial institution, including FDIC insured depositors. Normally, the FDIC would have the powers as trustee in receivership to protect the failed bank’s collateral for payments made to depositors. But the FDIC’s powers are overridden by the special status of derivatives. (Remember MF Global? The reason its customers lost their segregated customer funds to the derivatives claimants was that derivatives have super-priority in bankruptcy.)

… An interesting series of commentaries starts with one on the website of Sprott Asset Management Inc. titled “Caveat Depositor,” in which Eric Sprott and Shree Kargutkar note that the US, UK, EU, and Canada have all built the new “bail in” template to avoid imposing risk on their governments and taxpayers. They write:

[M]ost depositors naively assume that their deposits are 100% safe in their banks and trust them to safeguard their savings. Under the new “template” all lenders (including depositors) to the bank can be forced to “bail in” their respective banks.

Dave of Denver then followed up on the Sprott commentary in an April 3 entry on his blog The Golden Truth, in which he pointed out that the new template has long been agreed to by the G20 countries:

Because the use of taxpayer-funded bailouts would likely no longer be tolerated by the public, a new bank rescue plan was needed. As it turns out, this new “bail-in” model is based on an agreement that was the result of a bank bail-out model that was drafted by a sub-committee of the BIS (Bank for International Settlement) and endorsed at a G20 summit in 2011. For those of you who don’t know, the BIS is the global “Central Bank” of Central Banks. As such it is the world’s most powerful financial institution.

The links are in Dave’s April 1 article, which states:

The new approach has been agreed at the highest levels … It has been a topic under consideration since the publication by the Financial Stability Board (a BIS committee) of a paper, Key Attributes of Effective Resolution Regimes for Financial Institutions in October 2011, which was endorsed at the Cannes G20 summit the following month. This was followed by a consultative document in November 2012, Recovery and Resolution Planning: Making the Key Attributes Requirements Operational.

Dave goes on:

[W]hat is commonly referred to as a “bail-in” in Cyprus is actually a global bank rescue model that was derived and ratified nearly two years ago… . [B]ank deposits in excess of Government insured amount in any bank in any country will be treated like unsecured debt if the bank goes belly-up and is restructured in some form.

Jesse at Jesse’s Café Americain then picked up the thread and pointed out that it is not just direct deposits that are at risk. The too-big-to-fail banks have commingled accounts in a web of debt that spreads globally. Stock brokerages keep their money market funds in overnight sweeps in TBTF banks, and many credit unions do their banking at large TBTF correspondent banks:

You say you have money in a pension fund and an IRA at XYZ bank? Oops, it is really on deposit in you-know-who’s bank. You say you have money in a brokerage account? Oops, it is really being held overnight in their TBTF bank. Remember MF Global? Who can say how far the entanglements go? The current financial system and market structure is crazy with hidden risk, insider dealings, control frauds, and subtle dangers.

… Robert Teitelbaum wrote in a May 2011 article titled “The Case Against Favored Treatment of Derivatives”:

… Dodd-Frank did not touch favored status [of derivatives] and despite all the sound and fury, … there are very few signs from either party that anyone with any clout is suddenly about to revisit that decision and simplify bankruptcy treatment. Why? Because for all its relative straightforwardness compared to more difficult fixes, derivatives remains a mysterious black box to most Americans … . [A]s the sense of urgency to reform passes … we return to a situation of technical interest to only a few, most of whom have their own particular self-interest in mind.

But that was in 2011, before the Cyprus alarm bells went off. It is time to pry open the black box, get educated, and get organized.

› After Austerity | Alex Gourevitch

For anyone who wants to know the origins and intellectual foundations of the wavering austerity crowd, Mark Blyth’s devastating new book, Austerity: History of a Dangerous Idea, is one-stop shopping. Unlike most previous critics, Blyth’s angle of attack is not rapier thrusts into the heart of this or that pro-austerity paper, it is an all-out, search-and-destroy mission against every argument these latter-day financial terrorists have mustered.

In quickfire succession, he first reminds us how the austerians radically misrepresent the past five years as a tale of public sector profligacy, rather than as a crisis originating in a private sector banking collapse. He then shows that the longer-term historical claim that deficit-spending just leads to hyperinflation and social instability is also bogus. Those chapters are worth it for the story he tells of Japan in the 1920s and 30s alone. The Japanese attempt to stay on the gold standard – austerity avant la lettre – led to an all out assassination campaign by the increasingly squeezed military against its own Central Bank and chief politicians. In this case, somewhat unintentionally, Blyth also reminds us that not all deficit-spending is created equal –fascist, military-Keynesianism is not exactly an attractive counter-ideal.

Finally, and most originally, Blyth excavates the historical origins of the “expansionary austerity” argument, which he discovers in two generations of postwar Italian “ordoliberals.” Ordoliberalism was originally a German theory of economic liberalism, which argued that markets are not self-regulating. A strong managerial state is required to create the institutional framework, maintain the competitiveness, and preserve the social order that capitalism requires, while never getting directly involved in directing investment and production.

In the hands first of Ludovico Einaudi, Governor of the Bank of Italy and then President of the Italian Republic from 1948-1955, and then his disciples at the Bocconi School of Public Finance, most famously Alberto Alesina – currently Machiavelli to Mario Draghi’s Prince – ordoliberalism became an assault on the welfare state. Their argument for austerity, or “expansionary fiscal consolidation,” was a recent form of liberalism that reacted against the modern welfare state and that has attempted to replace it with a reorganized, more punitive, but just as strong and coercive modern state. Blyth, like others, makes short work of their arguments that you can cut your way to growth during a slump. But the deeper point is that the argument for fiscal consolidation was never just a value-neutral economic theory. It was a political project, springing from a particular vision of state authority, and one whose most important function is to reassure creditors that their claims will remain senior relative to those of, say, Latvian pensioners or American teachers. Bailout the banks, fine, but nobody else will be made whole. [read]

› The Perils of Wonkery | Peter Frase

… [The] wonk … needs to appear to be deeply knowledgeable about a wide range of obscure and technical subjects. But this entails concealing both one’s ideological biases and one’s substantive lack of knowledge, and relying on the borrowed prestige of academics and experts. In doing so, the wonk becomes the conduit for the experts, or more exactly a crucial means by which their authority is reproduced. The wonk takes the expert’s pronouncements at face value because they are serious, mainstream figures, and the fact that journalists do this reinforces their seriousness and mainstream-ness. One could hardly devise a better way of policing ideological boundaries and maintaining the illusion that the ruling ideology is merely bi-partisan common sense.

The unraveling of the Reinhart-Rogoff “fact” about debt and growth was only unusual because the supporting research was unusually sloppy. In that sense, critics are correct that there’s nothing particularly special about this one case. But the very absurdity of the episode makes it useful as a means of unmasking the entire corrupt enterprise of policy wonk journalism and its “just the facts, ma’am” pretensions. [++]

› Evil clowns Reinhart and Rogoff based their pro-austerity study on a butchered Excel formula | Lambert Strether

› Obama Honors Thatcher with TVA “Privitization” Plan, Kicks Ordinary People in the Stomach Again | naked capitalism

President Obama adopted a reflective tone to mark the passing of Maggie Thatcher. Commenting on her death, he stated “the world has lost one of the great champions of freedom and liberty.” In Obama’s proposed budget, we found out what the terms “freedom” and “liberty” mean: the freedom for the old to go hungry and the freedom of the poor to go cold.

The headline issue, cutting Social Security benefits by changing the measurement of inflation (the “chained CPI”), is something that writers on Naked Capitalism have been predicting for a long time. What has come as a shocking (but not surprising) twist is a bombshell buried in Obama’s budget: the proposed privatization of the Tennessee Valley Association. At this point I think it’s important to quote a part of this section of the budget at length:

TVA is a self-financing Government corporation, funding operations through electricity sales and bond financing. In order to meet its future capacity needs, fulfill its environmental responsibilities, and modernize its aging generation system, TVA’s current capital investment plan includes more than $25 billion of expenditures over the next 10 years. However, TVA’s anticipated capital needs are likely to quickly exceed the agency’s $30 billion statutory cap on indebtedness. Reducing or eliminating the Federal Government’s role in programs such as TVA, which have achieved their original objectives and no longer require Federal participation, can help put the Nation on a sustainable fiscal path. Given TVA’s debt constraints and the impact to the Federal deficit of its increasing capital expenditures, the Administration intends to undertake a strategic review of options for addressing TVA’s financial situation, including the possible divestiture of TVA, in part or as a whole.

Notice how nonsensical the justification for the “divestiture of TVA” is. The authors clearly acknowledge that the Tennessee Valley Authority is a “self-financing Government corporation”. The TVA issues its own debt and also has income from electricity sales. Yet because its capital expenditures are counted as part of the federal deficit for accounting purposes, privatizing the TVA supposedly counts as a “spending cut”. This is the willful blindness of orthodox thought taken to extreme levels. Privatizing the TVA doesn’t shrink the amount of debt in the economy one cent; all it does is bring that debt onto private balance sheets. In fact, private investors will buy the Authority on mainly on credit, increasing the amount of private debt.

Additionally, these capital expenditures are being made to modernize the TVA, or in other words, increase the amount and value of government assets. Even from an orthodox perspective, what’s important isn’t just the liabilities of the federal government, but also its assets. Businesses account for capital expenditures, transfers and expenditures very differently, but since “the deficit” is the headline number Washington is obsessed with, Obama and congress are obsessed with shrinking that headline number rather then doing things that make sense economically for the federal government.

What this will change is the lives of over nine million people across seven states. It is impossible to underestimate the explosive impact of this policy. Approximately one out of every thirty-five people in the United States get their utilities from the Tennessee Valley Authority. If the past is any guide, an Obama success in privatizing the Authority will lead to explosive price increases that will increase the cost of living all across these states. The devastating effect of this can’t be underestimated. Take Tennessee for example: according to the Census, Tennessee median household income is nearly $9000 below the national median. One of the things that partially offsets this is that the cost of living in Tennessee is 14% below the national average according to the ACCRA cost of living index. Utilities are a major part of that both by directly lowering the cost of utilities for consumers and lowering costs for the businesses they purchase from.

What’s possibly even more frightening is the environmental implications. The Authority is responsible for all sorts of land management, river management and other environmental responsibilities in the region. A complete privatization of the TVA could conceivably eradicate environmental management in the area. Even in a better scenario, another agency would still have to take over those responsibilities, which would involve enormous investment and cost to set up such a large operation. This area has already had to deal with Mountain top removal for many years; it is unclear whether or not it could take another environmental disaster of this sort.

› Obama Does Social Security and Medicare | Rob Urie

Those whose politics begin and end with rolling off the couch every few years to vote could in theory be forgiven for perceiving a yawning chasm between the Republican and Democrat candidates. Marketing firms were paid a lot of money to create that illusion. And Mr. Obama almost certainly has the political calculus correct that the bourgeois commentariat, a/k/a/ ‘the left,’ will whimper in protest for a few days, weeks at most, before falling in line for Hillary or whatever militaristic, corporatist abomination the Democrats put forward in the next Presidential election. Early reports even have liberal pundits sticking with the line Mr. Obama is only posturing with the proposals, despite his near decade prior explaining why he believes Social Security and Medicare must be cut to be ‘saved.’ However, this is truly a ‘let them eat cake’ moment. Mr. Obama’s policies will needlessly, and in economic terms gratuitously, hurt a lot of people—overwhelmingly those who self-identify as the Democrats’ political ‘base.’ And lest there be confusion over the matter, in his first term Mr. Obama fully restored the fortunes of America’s ruling class at several trillion dollars of public expense before proposing these cuts.

The faux official hand wringing over Social Security is a result of the bi-partisan (‘Washington’) consensus that produced the trajectory of catastrophic public policy over the last forty years. Radically skewed income distribution, the result of public policy, has seen lower and middle-income wages stagnate with all economic gains delivered up to a tiny plutocracy. This has lowered the proportion of total income paid into Social Security because above the current $113,700 cap income is excluded from contribution to the program. Raising the cap would have some effect in reducing expected future shortfalls but would reframe the social insurance nature of the program because payments are also capped. The real solution—where the real money is, lies in shifting economic gains back toward lower and middle class wages. Doing this would raise the proportion of income paid into Social Security. And this leaves aside the fact the Federal Reserve created several trillion dollars ‘out of thin air’ to restore the fortunes of a dysfunctional financial system and its beneficiaries in the plutocracy and could more productively do so to fund the nation’s social insurance programs. In short, the ‘crisis’ facing Social Security and Medicare is one of skewed income distribution resulting from bad public policy and is readily solvable without cutting benefits.

To the argument proposed tax increases on the rich balance ‘sacrifice’ across economic classes, what makes Mr. Obama’s self-imposed wage cut so ludicrous is how radically it understates the degree to which a large and growing proportion of the population has been economically marginalized. It also frames income distribution as an outcome of ‘natural’ processes from which returning some proportion for the benefit of the common weal through taxes is ‘sacrifice.’ (The rich benefit from public expenditure in far greater proportion than the rest of us). About one-third of retirees exist entirely on Social Security payments that are already at bare subsistence levels. These payments constitute the bulk of monthly income for two out of three retirees. Cutting benefits for people who lack other options for obtaining income isn’t ‘sacrifice,’ shared or otherwise—it is immiseration. And Social Security belongs to those who paid into the program throughout their working lives—it is only through radically anti-democratic governance Mr. Obama and Congressional Republicans have say in the matter. [++]

› Buying time and running out | the current moment

Book review of Wolfgang Streeck’s “Gekaufte Zeit: Die vertagte Krise des demokratischen Kapitalismus”. Berlin: Suhrkamp, 2013.

By Philip Mader

On the tenacity of late-stage capitalism (i.e, why it won’t fucking die):

The book begins with a critical appraisal of how useful the Frankfurt School’s crisis theories from the 1960s and 1970s still are for explaining today’s crises. While their works are by no means invalidated, Streeck contends that yesteryear’s crisis theorists could scarcely imagine how long capitalist societies would be able to “buy time with money” and thereby continually escape the contradictions and tensions diagnosed by their theories of late capitalism. He explains the developments in Western capitalism since the 1970s as “a revolt by capital against the mixed economy of the postwar era”; the disembedding of the economy being a prolonged act of

successful resistance by the owners and managers of capital – the “profit-dependent” class – against the conditions which capitalism had had to accept after 1945 in order to remain politically acceptable in a rivalry of economic systems. (p. 26)*

By the 1970s, Streeck argues, capitalism had encountered severe problems of legitimacy, but less among the masses (as Adorno and Horkheimer had expected) than among the capitalist class. Referring to Kalecki, he suggests that theories of crises have to refocus on the side of capital, understanding modern economic crises as capital “going on strike” by denying society its powers of investment and growth-generation. The 1970s crisis, and the pathways that led out of it, thus were the result of capital’s unwillingness to become a mere beast of burden for the production process – which many Frankfurt theorists had tacitly assumed would happen. Capital’s reaction to its impending domestication set in motion a process of “de-democratising capitalism by de-economising democracy” (Entdemokratisierung des Kapitalismus vermittelsEntökonomisierung der Demokratie). This ultimately brought about the specific and novel form of today’s crisis and its pseudo-remedies.

The rest, as they say, is history. In the second part, Steeck outlines how public debt rose with the neoliberal revolution, something mainstream economics and public choice quickly and falsely explained away as an instance of the “tragedy of the commons” with voters demanding too much from the state. However, the rise in debt came in fact with a curtailment of the power of democracy over the state and the economy. First, the good old “tax state” was ideologically restrained – starving the beast – and gradually found itself rendered a meek “debtor state” increasingly impervious to any remaining calls for redistribution by virtue of its objective impotence. Then, the resulting power shift to what Streeck calls the state’s “second constituency” – the creditor class, which asserts control over its stake in public debt and demands “bondholder value” – generated a standoff which Streeck observes between the conflicting demands of Staatsvolk und Marktvolk. The fact that the debtor state owes its subsistence less to contributions from the taxpaying “state people” and more to the trust of its creditor “market people” leads to a situation in which debtor states must continually credibly signal their prioritisation of creditors’ demands, even if it harms growth and welfare. Creditors, in their conflict with citizens, aim to secure fulfilment of their claims in the face of (potential) crises. The ultimate power balance remains unclear, but the “market people’s” trump card is that they can mobilise other states to fulfil their demands, leading to a kind of international financial diplomacy in their interest.

The archetype of such a transnational financial diplomacy, Streeck contends in the third and final part, is Europe under the Euro, where we encounter an even more wretched type: the “consolidation state”. Consolidation, Streeck argues, is a process of state re-structuring to better match the expectations of financial markets, and the consolidation state is a sort of perverse antithesis to the Keynesian state, acting in vain appeasement of the financial markets in hope of one day again being permitted to grow its economy. …

Continue reading →

› Obama’s New Budget: Why He’ll Cut Social Security & Medicare | Jack Rasmus

Having agreed to decouple tax cuts on January 1 and having been outmaneuvered on March 1 and March 27, and with Teapublicans signaling there will be debt ceiling crisis in May, Obama has been stripped of all his leverage points in bargaining. He has no ‘stick’, only more ‘carrots’ to offer and his opposition knows it. Obama has left only the option to offer even more social security, medicare and Medicaid cuts. And throughout March he has continued to do so unilaterally once again. Not just offering once again to cut COLA adjustments for social security but to suggest his willingness to confront big cuts—in the $600 to $700 billion range—for medicare and social security and more for Medicaid. Even more specific reductions will be forthcoming in weeks to come.

But Obama has planned all along to cut social security and Medicare. He made that clear in his signing of the Bush tax cuts deal on January 2, 2013, during which he stated: “Medicare is the Main Cause of Deficits”. And again, in his February State of the Union address, Obama publicly noted he ‘liked the Simpson-Bowles’ recommendations concerning Medicare cuts.

And what are the Simpson-Bowles recommendations for Medicare cuts?

A new $550 a year deductible for Parts A and B of Medicare and provide only 80% coverage for Part A instead of the current 100% (which would require another $150-$300 a month in private insurance to cover the remaining 20%, much like Part B now). That together amounts to another $195-$350 taken out of monthly social security checks to cover, when the average for social security benefit payments is only $1100 a month today. In other words, Medicare benefits will not be cut. Its just that if seniors want to maintain current levels of benefits they’ll have to pay even more for them. Alternatively, they can choose to have fewer benefits and not pay more. It’s all about rationing health care, just as Obamacare for those under 65 is essentially about rationing—as were Bush’s proposals to expand health savings accounts (HSAs) and Bill Clinton’s health maintenance organization (HMOs) solution.

In his typical bargaining approach of ‘let’s make a unilateral offer and see what the Teapublicans do’, in recent weeks Obama has again unilaterally offered to reduce social security COLA increases that will take more than $230 billion out of the pockets of seniors. He has also proposed to introduce a means test for the wealthy, which Teapublicans will begin to extend down to the middle class. As for Medicare, watch for the Simpson-Bowles recommendations in some form to appear, likely scaled in over time. If not in the budget itself, then surely in negotiations that follow. Readers should also note that Obama last week announced higher payments to medicare health providers, while simultaneously planning in his budget cuts for seniors. But Medicare ‘cuts’ will not be mandated benefit reductions. Instead, seniors will have to pay more for the benefits they have, or opt for lower benefit coverage. Social Security Disability recipients will be also significantly impacted by the forthcoming proposals. And Republican state governors will be permitted to reduce their spending in part on Medicaid. And of course, almost certainly there will be the changes to social security: reduction of cost of living adjustments, means testing, and a raising of the eligibility age at least to 67 and later possibly even higher.

With only $1.2 more to cut in deficit spending to reach the Simpson-Bowles $4 trillion target, and Obama offering again his $600-$700 billion enticement in entitlement spending cuts, a deal is closer than ever before. Watch therefore for the full $600 billion in social security, medicare, and Medicaid to take effect, the effective date of the changes to be ‘backloaded’ in later years of the decade and certainly not before the next midterm elections in 2014.

Expect defense spending cuts of no more than half the $500 billion proposed in the sequester, and nearly all of which will be from withdrawals from middle east (Afghanistan, Iraq) operations and not equipment spending. After 2014, most will be recouped as defense spending on naval and air force equipment and operations will ‘ramp up’ for the shift of US military focus to the pacific. The Army brass had its land wars in Asia; now it’s the turn of Navy and Air Force in the pacific.

That leaves only a ‘token’ tax revenue increase of about $200 billion over the coming decade, or a paltry $20 billion a year, which will come in difficult to estimate phony tax ‘loophole’ closings. Major cuts in corporate taxes later in 2013 will not be included or ‘calculated’ in the grand bargain $4 trillion deal. In addition to big cuts in the top corporate tax rate, look for multinational corporations’ tax breaks and tax forgiveness on the $1.4 trillion they are presently sheltering in offshore subsidiaries as well. And of course small-medium business will be thrown yet another tax cut bone to buy into the deal. In exchange, the middle class will pay more in terms of limits on deductions and exemptions.

In retrospect over the past three years, and especially since November 2012 elections, the ‘grand bargain’ looks less like a bargain and more like a ‘grand collusion’ between the various parties—Teapublican, Big Corporate, Obama, and the pro-corporate wing of Democrats in Congress that have had a stranglehold on the Democratic party since the late 1980s.

This is not the Democratic Party of your grandfather that agreed to introduce Social Security in the 1930s and that proposed Medicare in the 1960s. This is the Democratic Party, and the Democratic President, that has agreed with Republicans and Corporate America to begin the repealing in stages of these very same programs—programs that are not ‘entitlements’ but are in fact ‘deferred wages’ earned by Americans over the decades that are now being ‘concession bargained’ away without any say or input. Not content with concessions from those workers still in the labor force, capitalist policymakers are intent on concessions on social wages now coming due in the form of social security and medicare benefits.

It’s not a grand bargain; it’s a charade and a ‘grand collusion’ from the very beginning from Simpson-Bowles to the present. [++]