The International Energy Agency estimates the world's spare oil production capacity at about 2.5 million barrels per day, almost all of it in the Persian Gulf region. It also predicts that global oil demand in 2004 will be, on average, 2 million barrels per day higher than in 2003. Now imagine what will happen if there are more successful insurgent attacks on Iraqi pipelines, or, perish the thought, instability in Saudi Arabia. In fact, even without a supply disruption, it's hard to see where the oil will come from to meet the growing demand.Krugman, however, thinks that it is unlikely for today's "crude shock" -- in contrast to the fallouts of "the Arab oil embargo after the 1973 Israeli-Arab war and the 1979 Iranian revolution" -- to lead to "1970's-style stagflation," because two factors predominant in the 1970s are missing today: "the prevalence of cost-of-living adjustments in labor contracts and the experience of past inflation" (Krugman, May 14, 2004).
But wait: basic economics says that markets deal handily with excesses of demand over supply. Prices rise, producers have an incentive to produce more while consumers have an incentive to consume less, and the market comes back into balance. Won't that happen with oil?
Yes, it will. The question is how long it will take, and how high prices will go in the meantime. (Paul Krugman, "A Crude Shock," New York Times, May 14, 2004)
What does it all mean for the working class of the world? Recent electoral victories of centrist neoliberals in Spain, France, and India -- riding a wave of discontents about war and economy -- suggest that the ruling class may be once again betting on socially liberal faces to pacify the left and rein in wage demands to prevent any potential wage-push profit squeeze from arising to aggravate the cost-push inflation.
What about American workers in particular? In the event that John "I'm-a-Deficit-Reduction-Hawk" Kerry gets elected on the strength of anti-incumbent sentiments alone, what may we expect? The Democratic Party is not even a party of centrist neoliberals like the Socialist Party in Spain, the Socialist Party in France, and the Congress Party in India, which can translate voter sentiments against US hegemony into measurably different foreign policies as evidenced by Spain's pledge never to return its soldiers to Iraq (Elaine Sciolino, "Spanish Premier Says Troops Will Not Return to Iraq," New York Times, May 7, 2004). As one of the two right wings of the one party of the American empire, with no parliamentary opposition parties to its left whose support it needs to form the government, it will "stay the course" continuing the occupation of Iraq. Squeezed between the sharpening "crude shock" and the ruling class expectation to keep taxes low ("For the first time, Kerry detailed his plan to raise the amount of an estate not subject to taxation to $4 million for families and $10 million for a family-owned farm. Bush's tax cut that was passed in 2001 also raised that exemption, but not until late this decade, and repeals it in 2010. Kerry would maintain the estate tax for large inheritances" [Jim VandeHei and Jonathan Weisman, "Kerry Targets Budget Deficit," Washington Post, April 8, 2004]) and inflation moderate, the 2004-8 Kerry administration will likely find it more urgent than ever to cut social programs, perhaps even flip-flopping back to the idea of raising the retirement age and instituting a means test for Social Security that Kerry once advocated publicly: "During the 1996 campaign, when I was a Globe reporter, Kerry told me the Social Security system should be overhauled. He said Congress should consider raising the retirement age and means-testing benefits" (Michael Grunwald, "John Kerry's Waffles," Slate, March 3, 2004); and "Declaring 'I am blessed to be wealthy,' Senator John F. Kerry said that, if elected president, he would consider some form of means-testing for rich Americans as part of a broader review of ideas to shore up the Social Security system" (Glen Johnson, "Kerry Hints at Reform for Social Security," Boston Globe, August 14, 2003, p. 21).
As many journalists have noted, Kerry has surrounded himself with Clinton's economic advisors -- Roger C. Altman, Gene Sperling, Jason Furman, Sarah Bianchi, and Robert Rubin: "In fact, the Clinton-era god of deficit reduction and private-sector supremacy is also worshiped in the Kerry camp. 'This group is consulting literally daily with Bob Rubin,' Mr. Altman said. 'He was the best secretary of the Treasury since Alexander Hamilton and he is the single most influential figure in business and finance'" (Louis Uchitelle, "A Kerry Team, A Clinton Touch," New York Times, March 28, 2004). How did the working class fare at the mercy of "the Clinton-era god of deficit reduction and private-sector supremacy"?
Nowhere is [Robert] Pollin more persuasive than in analyzing the causes of the fiscal turnaround from deficit to surplus, an achievement that had Al Gore in 2000 pledging to pay down the entire federal debt of $5.8 trillion. Was this turnaround the consequence of economic growth (producing higher tax revenues), along with the moderate rise in marginal tax rates on the rich in 1993? If indeed these were the causes of fiscal virtue, we might take a benign view of Clinton's fiscal policies. On the other hand, if surplus was achieved by dint of hacking away at social expenditures and at social safety nets, plus gains in capital gains revenues stemming from the stock market bubble, then progressives, even Democratic candidates, might not so eagerly extol the Clinton model.To look at Pollin's analysis summed up by Cockburn above, read "Anatomy of Clintonomics," New Left Review3 (May-June 2002); and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity (Verso, 2003).
In a piece of original and trenchant analysis Pollin shows that almost two-thirds of Clinton's fiscal turnaround can be accounted for by slashes in government spending relative to GDP (54 percent) and on capital gains revenues (10 percent). Pollin then asks the question: Suppose there really had been a peace dividend after the end of the Cold War was won. We could have had a few less weapons systems, 100,000 new teachers, 560,000 more scholarships, 1,400 new high schools and still had a budget surplus of $220 billion.
Wall Street applauded the surpluses, and the ordinary folk paid the costs of all those slashes in the budget: fewer teachers, a dirtier environment. (Alexander Cockburn, "From Bill to George: How Many Dimes Worth of Difference?" The Free Press, November 5, 2003)
So, will Kerrynomics be the second coming of Clintonomics? Karl Marx once quipped: "Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce" ("The Eighteenth Brumaire of Louis Napoleon," 1852). However, in the case of Clinton and Kerry -- who has none of Clinton's charms and will be saddled with Bush's trifecta legacy of war, deficit, and the crude shock -- we will probably have to rewrite Marx's formula: the first time as farce, the second time as tragedy.