Debt ceiling melodrama rooted in U.S. neoliberalism
Debt ceiling melodrama rooted in U.S. neoliberalism

Editor's note: CGTN's First Voice provides instant commentary on breaking stories. The column clarifies emerging issues and better defines the news agenda, offering a Chinese perspective on the latest global events. This First Voice article is written by CGTN Special Commentator Radhika Desai, a professor of political studies at the University of Manitoba in Canada. The article reflects the author's opinions and not necessarily the views of CGTN.

The debt ceiling melodrama playing out in Washington DC is serious. The normally sanguine Treasury Secretary, Janet Yellen, has warned of a "constitutional crisis" and economic and financial catastrophe, should Congress fail to lift the debt ceiling and allow the U.S. government to borrow more. It appears to be a result of some strange political dysfunction, but is in fact internal to U.S. capitalism.

In the last debt ceiling standoff during the Barack Obama era, there was a last-minute deal to raise the ceiling. But Congress is more deeply divided nowadays. Moreover, even with a deal, several credit rating agencies, including Standard and Poor, had downgraded U.S. debt in 2011. (For all the hype about the dollar's "exorbitant privilege," it has long borrowed at higher rates than many European countries and that differential got worse for the U.S.). If that happened then, what might happen now, with the U.S. economy in worse straits and the possibility of a deal that much more remote?

This drama is generally seen as being Republicans blaming Joe Biden's Democratic Party for overspending and the Democrats seeing the Republicans as insisting on spending cuts ruinous to economic growth. However, if these two parties, once famed for their bi-partisanship, are now locking horns so frequently, it has to do with the slow pace and unproductive and financialized pattern of U.S. economic growth over the last decades since the appointment of Paul Volcker as Federal Reserve chairman and Ronald Reagan as president, that signalled a decisive turn towards neoliberalism.

It was expected to revive the flagging productive economy plagued by the stagflation of the 1970s but did nothing of the sort. It couldn't. The theory of new liberalism relies on levels of competition in the economy that have not been seen since the end of the 19th century. Though they emerged when capitalism was entering the monopoly era, these theories assumed and celebrated competition. The history of neoliberalism since has been a history of attempts to deny this fundamental discrepancy and to try to persuade the public that somehow competition could be injected into fundamentally senile monopoly capitalism with "anti-trust" legislation and policies.

So, it is no surprise that the dogged and persistent implementation of neoliberalism decade after decade by U.S. governments failed to revive the U.S. economy. They only persisted with this policy because anything else was against the interests of narrow and wealthy corporate capitalists these governments have unswervingly served. 

A quiet center area of San Francisco, California, U.S., January 9, 2022. /CFP
A quiet center area of San Francisco, California, U.S., January 9, 2022. /CFP

A quiet center area of San Francisco, California, U.S., January 9, 2022. /CFP

What we now have after four decades of neoliberalism is a U.S. economy that is bereft of productive dynamism, having outsourced much of its production, an economy that has become exceedingly reliant on purely rentier capitalism and financial gains. That is to say, it is more and more reliant on rent and interest than profits of productive enterprise as a source of gain.

Profiting from production at least involves creating employment, which involves permitting at least some part of the social product to flow to working people. Since, with their property and financial investment, they do not need to permit any such flow, U.S. capitalists increasingly rely on siphoning off the incomes made by workers, governments and small businesses in the form of rent and interest. The result is the most profound inequality ever known.

With the richest people being able to indulge in fanciful schemes of space exploration while the poor cannot manage adequate nutrition, let alone shelter or education or culture or transport, this inequality is the basis of the social divide that underlies the entrenched political positions of the two main parties in the U.S. today. The chasm between them makes any agreement on a deal very difficult and perhaps impossible.

Failure to agree will send the United States, which is already wandering into uncharted territory whose usual landmarks and road signs have been removed by its economic decline and its increasingly irresponsible policy, both at home and abroad, into even less charted territory.

Unfailingly, this will have many implications for the countries that have remained its allies. They have already been questioning why they should put up with the levels of financial instability to which closeness to the U.S. subject them in the 21st century (note the decline of European capital flows to the U.S. after 2008). Now they will question whether they can afford to add new levels of political instability to the even greater financial and economic instability that will inevitably follow.

Washington's neoliberal path has never been in the interests of ordinary U.S. citizens. It will become clear to more and more people in allied countries that an alliance with such a country is even less in their interests.

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