The ITT List
Credit Downgrading Signals the U.S. Needs a More Democratic Economy
The downgrading of the U.S. economy by Standard and Poor's compounds a grim reality: The economic recovery from the Great Recession is stalled and beginning to move in reverse. With no relief in sight for the poor, jobless, and those who have lost their homes, and with the country now facing further deep cuts to government sponsored programs, the future looks very bleak. The lack of prospects for further fiscal stimulus measures, and the resulting stock market sell-off, confirm that the United States, and especially its poor and working population, faces an economic maelstrom, propelling the European debt crisis and threatening another global economic collapse.
It did not have to be this way. America's economic troubles are the direct result of decisions made by economic and political advisers in President Obama's administration—as well as the president himself. Of course Republicans are to blame for their complete refusal to negotiate in good faith or to put the well being of American citizens and the economy before their own political aspirations. But the current administration set its priorities long ago.
When President Obama came into office he continued and escalated Wall Street bailouts—infusing huge amounts of capital into failing financial institutions. His administration has since supported tax cuts for corporations and the wealthy rather than pushing for an effective jobs program, or a plan to help alleviate foreclosures and the housing crisis which actually works. As a result we have seen a completely lopsided economic recovery: Large corporations and banks have seen record-breaking profits, while on the other hand the middle and working class have seen rising unemployment, stagnating wages and increasing costs for everything from healthcare to gas, and are now facing painful cuts to social services.
For a president who campaigned on a bottom-up approach to governing, this top-down approach to the economy has been devastating to those on the lowest economic rungs. Wealth has continued to concentrate in the hands of the most opulent at an astounding rate over the past 3 years. We are facing radical inequality—the greatest levels in almost a century. And what has the U.S. government's response been? Austerity for poor and working people with no sacrifices from the rich or corporations.
Such an approach to the economy is completely unsustainable. No new taxes on the wealthy means there will never be enough revenue to help close America's debt gap—not to mention continue funding social programs. Borrowing from foreign countries can only go on for so long, a fact China recently made clear. Debtor countries like the U.S. are bound to face a choice of whether to restructure their economy in order to generate more revenue and increase investments, or to stay on their path toward economic calamity. So far, the U.S. government has resolutely chosen the latter.
Any solution to the current crisis will require not only a rearranging of priorities which puts the exigencies of the most needy before those of the powerful, but also more economic democracy.
Currently the U.S. economy and government are entirely beholden to Wall Street. This relationship must change if there is to be any meaningful restructuring of our economy—and it is not impossible, as illustrated by a recent report from the New Economy Working Group entitled "How to Liberate America from Wall Street Rule".
The report's recommendations include policies to support community banks which operate cooperatively and are controlled by non-profits, to greatly increase transparency in secretive organizations that wield great economic power such as the Federal Reserve, to create partnership banks in every state to fund local projects, and to institute stringent regulation on financial institutions, including the breaking up of big banks.
Other policies which would increase democratic control of our economy include a financial transaction tax (currently being pushed throughout the EU), and a maximum wage policy (as demonstrators in Egypt are presently demanding).
Many countries with social democratic and leftist governments in Latin America practice a more democratic approach to their economies, and they have in large part been shielded from the worst effects of the recent global financial crisis—and are seeing declining levels of inequality.
The political system in the U.S. is entirely dysfunctional at this moment, as evidenced by the recent debt ceiling debate, making the challenge to enact any progressive economic policies formidable. But the economic conditions facing the least fortunate in America are desperate, and the need for a different economic path has never been greater. This new path must be founded on more democratic control of the economy, and not involve putting the country's fiscal future in the hands of a 12 member, untransparent congressional committee. Unbelievably, it may take a credit downgrading, a stock market crash, another recession or worse for our political leaders, including President Obama, to finally realize this fact.