US: Obama’s Budget and stimulus policies

Can they stop the economic collapse?

In a sharp break from political policies during the last 30 years, President Obama’s budget proposes repealing tax cuts for the rich, increasing spending on social services, taking steps to protect the environment, and extending healthcare coverage.

In his radio broadcast on February 28, Obama said: "I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight. My message to them is this: So am I.” “The system we have now might work for the powerful and well-connected interests that have run Washington for far too long, but I don’t. I work for the American people."

This populist posture, along with his proposed budget and other policies, will no doubt strengthen Obama’s support among wide layers of workers and middle-class people, reinforcing the widespread hopes that Obama will be on their side instead of the rich.

Some Details on Obama’s Budget

Obama has proposed a $3.6 trillion budget. It includes sizeable increases in spending on health, the poor and unemployed, the environment, and the military:

  • 7.5 % increase for Health and Human Services;
  • 34.6% increase for EPA;
  • 18.5% increase for Housing and Urban Development;
  • 12.8% increase for education;
  • 4% increase for Defense;

Obama proposes to let Bush’s tax cuts for the richest expire in 2011. Top income bracket taxes are to increase from 35% to 39.6% and the capital gains tax to increase from 15% to 20%.

Under his budget, the federal budget deficit would rise to $1.75 trillion for 2009. He aims to cut the deficit in half by the end of his administration.


Workers will welcome Obama’s statements about moving towards universal healthcare. His tax hikes on the rich would raise $318 billion over ten years as a ”down payment” on his healthcare plan. Also, cuts in Medicare and Medicaid spending are designed to provide an additional $316 billion, creating a total of $634 billion in a “reserve fund” to expand the number of Americans who have access to healthcare.

While we support any steps towards universal healthcare, unfortunately Obama’s policies create major obstacles to reaching that. He is proposing a system that maintains private, for-profit health insurance companies as an integral part of any reform of healthcare.

Universal healthcare can be created without these extra costs by removing the massive waste of dollars that go to the private insurance company’s mismanagement of the healthcare system. A New England Journal of Medicine article stated that this represents 31% of healthcare expenditures in the U.S. (

By adopting single-payer health insurance, as proposed in House Bill 676, we could eliminate private health insurance from their control of healthcare. This would end the abusive denial of access due to pre-existing conditions or other reasons. It would create a system that is controlled by the public and medical professionals and that could provide universal healthcare for all at far less cost than any plan that attempts to preserve for-profit and private companies as part of the healthcare system

These new budget proposals, when combined with Obama’s $787 billion stimulus package and $275 billion proposal on mortgage relief, represent a sharp break from the neo-liberal policies of the past 30 years.

These policies will provide some relief for some workers facing the threat of foreclosures or fearful of losing their jobs. However, they are limited when one looks at the scope of the economic crisis.

The depth of the crisis is staggering, and still accelerating, with the U.S. economy falling at an annual rate of 6.2% in the last three months of 2008. Mark Zandi at Moody’s estimated that Obama’s plan will help less than a million of the 14 million homeowners who are under water. The NY Times writes: “Analysts and administration officials alike cautioned that it would not come close to halting the tidal wave of foreclosures.” (2/19/09)

While many workers will see this as sign that Obama is now on their side, these policies have instead been driven by a global change in policies by capitalist governments and capitalist think tanks around the globe.

With the world and U.S. economy in freefall, big business and the leading economic spokespersons of capitalism have, in panic, concluded that government interventions are needed to salvage capitalism. With banks clogged with bad debts and big business refusing to invest in living-wage jobs, they see stimulating demand through government intervention as a necessary and desperate action to prevent the economy falling into a deep depression.

The idea of nationalizing banks, as a desperate attempt to shore up the system, has also been gaining support. It has even been supported by some Republicans, like Alan Greenspan.

The Flawed Logic of Capitalism

This crisis is rooted in the inner logic of capitalism. Over the last 35 years, under the logic of this system, the U.S. has been transformed from the economic powerhouse of the world to the largest debtor country in the world. A high-wage economy based on a powerful manufacturing sector has been shattered. Most young people now face a future searching desperately for a low-wage, no-benefits job in the service sector.

While many of Obama’s policy initiatives can provide relief to some workers in the short term, it will not stop the massive pain and suffering workers will face in this economic crisis. Obama’s policies are intended to stabilize and restore capitalism. But the system can’t provide for the needs of workers.

The failure of Obama to recognize the extent of capitalism’s crisis means that he is trapped in its logic of attempting to force-feed rich corporate investors to get them to change their ways. In mid-February, he announced a new $2 trillion bailout of banks. At the end of February, he announced a further $30 billion bailout of insurance giant AIG. However, unless investors see the ability to make a profit they will not invest.

As the economy slides further into crisis, more debts will go bad, more banks will fail, and the economy will become overburdened with bad debt. This recession will be deep and extended and the subsequent recovery will be very sluggish.

Further, as the budget deficits explode, at a certain stage there will be growing calls for bringing the deficit under control. This will lead to demands for cuts in Medicare and Social Security and a reversal of Obama’s policies. All of which will hit workers and the poor hard.

Obama’s policies are rooted in the logic of how the Democrats have ruled in the U.S. In election campaigns, they appeal to workers and the poor. Once in power, the interests of workers and the poor are trumped by those of big business. The only way we are going to get real relief is the way we have always got it: By organizing and raising hell. That means mobilizing millions of workers and young people into the streets and demanding relief.

Support for Obama

Clearly, tens of millions of Americans will continue to hold onto Obama as an expression of their hopes that there will be a clear and quick way out of this crisis.

As the crisis continues to deepen during 2009, we can expect to see new and far-reaching initiatives from Obama in an attempt to prevent the economic crisis from being too deep. This can include nationalizations of banks and maybe companies in some other sectors of the economy. For all these reasons, Obama will most likely have quite a long honeymoon, since a viable working-class alternative will not be clearly seen and the Republicans are at present discredited.

But the reality is that Obama’s polices won’t end the recession, because they don’t address the root cause of the crisis: The failure of capitalism to boost the economy and the living standards of workers. This will create a growing mood for a fightback and a searching for solutions.

Workers and young people will increasingly question the continued bailouts of Wall Street, the banks, and rich CEOs. They will increasingly question the logic of a system that cannot provide full employment.

The Need for Socialist Policies

Some Republicans are attacking Obama’s plans as “socialist” in an attempt to electorally gain from later disappointment with Obama and to scare off Americans from looking towards socialism as the alternative to this failing capitalist system. Obama’s policies are not socialist – they are being used to shore up the system, not as a step towards workers running society.

We need to build a massive movement of workers and young people that will fight for:

  • A massive public works programs to provide millions of jobs. All work should be done by union labor, at union wages and conditions.
  • Every person to have a living-wage job of $12.50 per hour, or a minimum income of $500 per week for the unemployed or those unable to work.
  • Cut the workweek, with no loss of pay or benefits, to create millions of jobs.
  • Universal, socialized healthcare for all through the elimination of for-profit medicine.
  • Pass the Employee Free Choice Act as part of immediate steps to introduce full trade union rights.
  • No evictions; renters and needy home owners should be allowed to live in their homes at an affordable rent.
  • We believe that all these policies are both possible and necessary. These policies will not come from supporting Democrats. That’s why we, as workers, need to build fighting labor unions and our own political party to achieve the policies we need.
  • We demand an end to the chaos caused to our lives by the endless cycle of economic bubbles and slumps. We demand an end to this system of capitalism. Take America’s wealth out of the hands of the corporations and super-rich. We need nationalization of the major corporations that dominate the economy under workers’ democratic control and management. We need to establish a democratic plan of production where investment and production decisions are based on our needs, not the short-term interests of profit.

Republicans: “Who Needs Change?”

With a collapse of the housing market and a rapid increase in unemployment, we should be reminding ourselves about the party that was in power – the Republicans. They have been congratulating themselves that not one Republican voted for Obama’s stimulus package in the House, and only three voted for it in the Senate.

Many Republicans are rallying around Rush Limbaugh, who said, referring to Obama: “I want everything he’s doing to fail.” Tell that to workers who have lost their jobs and fear for the future. But of course, Republican leaders don’t work for a living! They make their money by making other people work for them.

Instead, they have called for more tax cuts as their solution. As we found out in the last eight years, tax cuts won’t create the millions of new jobs we need.

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March 2009