The “Permanent Interests” Budget

S. Herman

James Madison in the Federalist Papers referred to as the "permanent
interests" of society—i.e., property owners, or Veblen’s "substantial
citizens"—are doing extremely well in the New World Order. They underwrite
elections, so that the two party system is one in which both parties and their
candidates must first sell themselves to sets of investors, then worry about
getting ordinary folks to vote for them. As Tom Ferguson points out in Golden
, where most of the investors substantially agree on a policy or policy
complex—like the need for large armed forces, and trickle-down economic
policies—the candidates and parties won’t compete, the corporate media will
maintain the appropriate silences, and the general public will have no choices
on such matters.

On the other
hand, with the permanent interests all agreed that the welfare state must be cut
back to "empower" poor people, both major parties have competed to "end
welfare as we know it" and to deal with the mythical "crisis" of the
Social Security system. At the same time, the permanent interests (and thus the
main investors in the political system) are hardly bothered by the increasing
inequality of income and wealth, the huge luxury excesses of the elite, or the
shrinking tax liabilities of business corporations, as they are the
beneficiaries. These interests never have enough for themselves: competition
presses them ever onward toward increasing profit margins and personal net
worth. If this requires supporting political scoundrels and causing misery for
large numbers, ideological rationalizations are brought to bear and media
normalization and support will follow.

The Mythical
Surplus and its Capture

is all clear in the ongoing debate over the budget and how to cope with the
alleged forthcoming "surplus." Just as the Social Security crisis is based
on dubious assumptions and extrapolations 32 years away to justify cutbacks in a
successful government program benefitting many citizens, so the "surplus"
debate rests on questionable assumptions that are being used to fuel another
round of the corporate/right-wing attack on the welfare state.

Two-thirds of the
next decade’s projected $2.9 trillion budget surplus will accrue from Social
Security tax collections in excess of outlays. Neither political party suggests
lowering the payroll tax, which would be a relatively progressive tax cut.
Instead, both agree that all or much of this part of the surplus should be used
for debt reduction—which can help alleviate future Social Security tax burdens
only insofar as the debt reduction reduces interest rates and thereby stimulates
growth. But using the surplus to finance the rebuilding of U.S. schools and
other infrastructure and to invest in human capital (education, job training,
health, child care, housing) would almost surely increase productivity and
growth rates more than any interest rate effects of debt reductions. But this
route is not even discussed as it runs counter to the elite consensus that the
government must be scaled down, in its civil if not military/police/prison

Aside from the
Social Security surplus, it is not generally appreciated that much of the
remaining surplus rests on the Clinton-Republican agreement to scale back future
discretionary spending—by $129 billion over the next three fiscal years, and
by reducing overall discretionary spending from 6.6 percent of GDP in 2000 to 5
percent in 2009 (it was 10.2 percent in 1980). As these figures include
"defense" spending, which is already on its way up by two-party consensus,
they assume a virtual liquidation of the civil functions of the federal
government over the next decade. This degree of cutback is not going to happen;
the budget agreement on spending is already being violated. But the pretense of
a surplus is being used to justify tax cuts and debt reductions that will put
pressure on the civil spending opposed by the permanent interests, just as
Reagan used the huge tax cuts of 1981-82 to force spending cutbacks on the
ground of threatening deficits.

The Republican
party proposes to use up some 80 percent of the "free" (non-Social Security)
surplus with a massive ($792 billion) and regressive tax cut, including estate
and capital gains tax adjustments, along with a $100 billion direct business tax
gift. Much of the press has been critical of the "huge benefits to the rich"
(New York Times) and a plan that can "warm the heart of many a
Washington lobbyist" (Philadelphia Inquirer), but the media rarely tie
the overall Republican proposals to election funding and the Republican party is
not denounced as a brazen agent of "special interests." Thus David Rosenbaum
notes that tax cuts are important to Republicans because "two main strands of
the party, business interests and religious conservatives, agree" on them (NYT,
July 19).

If a major party
served labor organizations with the crassness of the Republican party’s
service to "business interests," the media would be hysterical over its
capture by a "special interest"—recall the editorial indignation of both
the New York Times and Washington Post at organized labor’s
lobbying in opposition to NAFTA, and their contrasting complete silence at
business’s role in both writing the NAFTA agreement and lobbying on its
behalf. When the dominant societal power does the capturing, this is treated as
acceptable, especially where the only other major party is trying as hard as it
can to be taken prisoner itself.


The Clinton

key media trick that lends the system credibility is the portrayal of Clinton
and the Democrats as the presumably liberal or even left alternative, who offer
a more and perhaps even extravagantly people-oriented option, but who may
eventually compromise with the Republicans to yield a "moderate" or
"centrist" budget resolution. In this way the people are made to appear to
have a real choice, and as the New York Times explains in a sub-head to
an article on "Tax-Cut War Games" (August 6), "Voters will have the final
word on who was right." Business Week even has Clinton engaging in
class warfare in his desire for "vivid campaign issues," in contrast with
"moderates" who "want to make policy, not war" ("The Surplus: Is
Clinton Torpedoing The New Democrats," August 16).

This is a fraud.
Having abandoned his plan to remedy the "two deficits"—in people and
infrastructure—back in 1993, Clinton now pushes U.S. exports, a balanced
budget, and higher military spending. "The people" have had to wait for a
trickle-down, and the infrastructure deficit has grown in size. Clinton is
continuing in the same pattern, which to their political discomfiture puts him
very close to the Republicans. Having achieved budget balance he plans on using
most of the surplus to reduce the total debt—in the alleged interest of
protecting Social Security, but partly to fend off Republican efforts to
encroach on Social Security surpluses for tax reduction. Clinton also joins the
Republicans in tax cutting ($250-300 billion), increasing the military budget
even further, and continuing the attrition of the welfare state. Even with its
proposed enlargement of Medicare to include payment for prescription drugs, the
Clinton budget calls for cuts of $200 billion in non-defense discretionary
spending over the next 10 years (while the military budget will be increased by
$110 billion).

During his July
"poverty tour" Clinton offered his deepest sympathies to the forgotten poor,
along with peanuts in cash (less than $1 billion over five years). This follows
a $5 billion cut in children’s nutrition and $25 billion from food stamps in
1996. It is paired with a "New Markets Initiative" that features his
"innovative approach to community empowerment," which relies on the
"enlightened self-interest of the private sector to bring new capital and jobs
to communities that the prosperity for the past six years has passed by"
(White House Press Release, July 2). Clinton will propose tax incentives to
induce business to search for opportunities in these neglected areas, but it is
not clear why these are needed when "people who have done well feel a moral
obligation to help those who were less fortunate" (Clinton at Pine Ridge, July
7). This is tokenism and hypocrisy, designed to obscure Clinton’s continuing
role in dismantling the safety net.

What Clinton has
done once again is to position himself only slightly to the left of the
Republicans. By failing to offer an alternative that protects and rehabilitates
the public sector and safety net, he helps push the entire political spectrum
rightward. His Third Way is the corporate/anti-people way, with minor sops to
the majority as he pursues an agenda that does nothing for most of them and
harms large numbers.

The Irrelevant

is difficult to establish exactly what the general public wants, but there are
compelling indications that neither of the two major parties serves their
interests. Only a tiny minority (6, 9, and 11 percent in recent polls) put tax
cuts first and a recent poll found that two-thirds believe the rich pay fewer
taxes than they should. For years most polls have found that a majority of the
public favors spending on public purposes like education, health care,
infrastructure, and protecting the weak. But in one CBO estimate, based on
Clinton administration budget projections, the shortfall in public investment in
education and training, physical capital (schools, bridges, water-sewage
facilities, mass transit, and roads), and research and development, will rise
from $68 billion in 1998 to $173 billion in 2007. There is no reason to believe
that this shortfall and its prospective further enlargement are in accord with
public desires and priorities. Furthermore, as noted, Clinton and the
Republicans agree on a larger military budget. But except in periods of war and
intense war propaganda the general public has wanted smaller military
expenditures. In a detailed opinion survey in 1995, Steven Kull found only 7
percent agreeing that the United States "should spend twice as much on arms as
its potential enemies combined" (as it does); an "overwhelming majority"
opposed the $7 billion addition passed in 1995; and the public wanted military
budget cuts and would have supported deep cuts. A 1991 NBC/Wall Street
poll found that 84 percent of the respondents favored a spending
shift from defense to education.

But the permanent
interests want a larger military budget, so that’s it, for Clinton as well as
the Republicans; and while he assails the Republican proposals for their effects
on education, Clinton’s own planned reduction of non-discretionary spending
helps us understand why his own educational spending agenda remains vague. In
their proposed use of the budget surplus both parties will continue to weaken
the safety net, fail to address areas important to ordinary citizens, and pour
resources into the military-industrial complex.

At this
historical juncture there is no real political option for the majority of U.S.
citizens; there is a greater and not very different lesser evil. Because the
difference may still be of some consequence, people who hate both will often
choose the lesser evil. But this does not alter the fact that the democratic
system is not serving the majority and is a de facto plutocracy. By its
virtually unrestrained service to the permanent interests, it is systematically
widening every social gap in the country—notably the overlapping ones of
income and race.

Herman is professor of Finance, Wharton School, University of Pennsylvania, and
the author of numerous books on political economy and the media. In press now is
The Myth of The Liberal Media: An Edward Herman Reader (Peter Lang,