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The Grand Bargain: What It Is and Where It Comes From

By National Committee of Socialist Organizer

On August 2, 2011, wielding the pretext of a phony debt-ceiling crisis, the U.S. Congress approved legislation aimed at raising the debt limit to cover debts until January 1, 2013 — in exchange for $900 billion in cuts to domestic programs during this first phase. The programs cut ranged from schools, to mass transit, to welfare and food safety.

The legislation also set up a bipartisan “Super Committee” of 12 members of Congress (six Democrats and six Republicans) with special powers to make another $1.5 trillion in cuts. Targeted in this second phase were Social Security, Medicare and Medicaid — the so-called “three sacred cows.” Medicare eligibility was projected to rise from ages 65 to 67, and changes were announced in the formula for Social Security cost-of-living adjustments.

Wall Street considered that this 11th-hour agreement worked out in the Congress did not go far enough. Wall Street and the banks — with the support of both President Obama and Republican House Speaker John Boehner — demanded $4 trillion in cuts over the next 10 years, with some income in tax revenue to maintain a “national consensus” and stabilize an otherwise explosive situation. This demand for deeper cuts was made explicit in the August 4, 2011, statement by Standard & Poor’s, which downgraded the U.S. government’s credit rating from triple-A to AA-plus.

Growing Political Crisis

This economic crisis, expression of the impasse of capitalism today, provoked an unprecedented political crisis in the summits of the State. The political stalemate involved in the six months of debt-ceiling debates was so tense, in fact, that it almost brought the U.S. economy — and the world economy — to the brink of collapse.

About 10 days before the August 2, 2011, debt-ceiling deadline, Obama and Republican House Speaker Boehner announced that they had reached an agreement around a $4 trillion package that included $3 trillion in cuts and $1 trillion in new tax revenue. The Grand Bargain, however, was torpedoed by the Tea Party wing of the Republican Party — which insisted that no tax revenue of any sort was acceptable (a position that Obama and the Democrats ultimately accepted).

This stance by the Tea Party earned the wrath of major sectors of international finance capital. A lead article in The Economist on July 30 referred to the Tea Party as “intellectual midgets” who threatened to undermine the ability of the U.S. government to meet its international financial responsibilities on a world scale. The Financial Times warned on August 4, 2011, that the Tea Party’s intransigence risked blowing up the consensus — the “new governance” — needed to administer the additional cuts.

Sen. John McCain (R-Ariz.) attacked the Tea Party wing of his own Republican Party as “hobbits” out to derail the “Grand Bargain” debt plan proposed jointly by President Obama and House Speaker John Boehner.

But the infighting was not only within the Republican Party. Key Democrats were also outraged that Obama had caved into all the demands of the Republicans.

Congressman Dennis Kucinich (D-Ohio) lashed out at Democratic Party leaders, stating that, “We are seeing symptoms of a government which has lost its way; symptoms that are a challenge to the legitimacy of the two-party system.”

Similarly, Congressman Emmanuel Cleaver (D-Mo.) did not mince words when he called the debt-ceiling compromise “a Satan sandwich” forced upon the nation by the president’s refusal to stand with and for the tens of millions who elected him.

Other financial sectors invoked Frank Delano Roosevelt’s recourse to special powers to tax the rich and the corporations under the New Deal, quoting Roosevelt, who stated that “any attempt to deny needed funding only promotes gross inequity and undermines national unity.” (A constant thread in the financial press has been the deep concern that the Tea Party “extremism” is undermining the possibility of reaching a “national consensus” required to impose the necessary cuts.)

The majority sectors of the Democratic and Republican parties supported the Obama-Boehner “Grand Bargain” proposal. They felt that this Grand Bargain would be the best vehicle to begin dismantling the so-called “entitlements” (Social Security, Medicare and Medicaid) and to establish a “national consensus” with the unions and major community organizations. The carrot to lure the unions was the call for new tax revenue. But even this deal was a hoax, as the tax revenue provision was tied to a major reform of the tax code that ultimately would give back to the rich and the corporations what they had given up in increased taxes.

The more lucid wing of the corporate class understands that it is vital for them to integrate the trade unions into their “neo-corporatist” co-optation schemes, as they have done in Europe. Without it there is a real risk of the development of a massive social explosion, with the creation of an independent labor movement that could quickly move the working-class majority in an entirely different direction — in the direction of class struggle and independent working-class political action.

Despite the growing crisis in the summits of the ruling class, there is one thing they all agree on — and that is that the working class must shoulder the burden of the crisis.

AFL-CIO’s Response to the Grand Bargain

A July 27, 2011, posting by Manny Herrmann, online mobilization coordinator of the AFL-CIO, urged union members to oppose the plan put forward by House Republican House Speaker John Boehner (R-Va.) but did not say one word about the equally anti-worker plan submitted by Democratic Senate Majority Leader Harry Reid. And Herrmann concluded as follows:

“The president already has conceded to painful spending cuts — cuts that we believe go much too far. But he rightly insists that we not put the entire burden of deficit reduction on working families.”

Hence, according to the AFL-CIO the cuts have gone “much too far” and the entire burden of deficit reduction should not be placed on working people. This is not the language of an independent labor movement. It is a back-handed call for smaller cuts (as opposed to saying “No Cuts!”) and for sharing the burden (“shared sacrifice”) of deficit reduction with Wall Street and the employers. It is a call that accepts all the false premises of the twin parties of the bosses and the corporations concerning the origin of this financial crisis.

Moreover, there was no concerted campaign by labor to call on Congress to reject the deal.

Under the title, “Union chief warns of job losses from debt-ceiling deal,” an article in the August 1, 2011, issue of The Hill reported that Gerry McEntee, president of the American Federation of State, County and Municipal Employees (AFSCME), “did not announce opposition to the agreement negotiated by President Obama.” The article continued, “[S]everal other labor groups, including the AFL-CIO, were notably silent in the hours leading up to votes Monday in the House and Senate on a deficit-reduction package that would also raise the $14.3 trillion debt ceiling.

“‘While our statement expresses major concerns about the deal, we are not taking a position on how lawmakers should vote,’ said Chuck Loveless, the union’s [AFSCME's] legislative director.”

The Failure of the Super Committee

On November 21, 2011, President Obama announced the failure of the 12-person Congressional Super Committee charged with coming up with at least $1.5 trillion in spending cuts over the next 10 years to reduce the national deficit. This failure concentrates all the contradictions that have accumulated in the United States today.

The main reason for the failure was the widespread resistance to these attacks by labor and retiree organizations across the country; though more generally, the failure can be ascribed to the re-emergence of the U.S. working class on the political scene after the Uprising in Wisconsin.

But this is not the entire story. Another reason for the failure is the growing rift within the Republican Party between the traditional conservative wing and the extremist Tea Party wing.

Obama lamented that the Republicans — under pressure from their Tea Party wing — had rejected a pared-down version of the Grand Bargain deal that would have cut $1 trillion in domestic and defense spending, and $650 billion from Medicare, Medicaid and Social Security.

Likewise, Senator Majority Leader Harry Reid, D-Nev., stated: “Democrats were prepared to strike a Grand Bargain that would make painful cuts while asking millionaires to pay their fair share, and we put our willingness on paper, but Republicans never came close to meeting us half way.”

The Democrats were prepared to give the Republicans just about everything they wanted in terms of cuts to the “entitlement” programs, but they needed to be able to exact some tax revenue from the Republicans to prevent the trade unions, whose relations with the Democrats have been strained almost to the breaking point, from bolting from the Democratic Party.

The Tea Party is a right-wing populist expression of the impasse of the capitalist system itself, as millions of disenfranchised, mainly white, middle class and working class people have fallen prey to slick demagogues with facile solutions, a potential base for a fascist movement in the United States.

But the failure of the Super Committee to reach an agreement did not mean that the threat of devastating cuts to critical safety net programs protecting millions of people was over. Far from it. This major assault was merely postponed until after the 2012 elections.

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