Extremely unequal distributions of wealth and income continue to enable the richest and largest individuals and enterprises to manipulate the economy and control the political parties. The result is an economic structure disinterested in a democratically focused way out of crisis and decline.
The last-minute deal reached in the final hours of 2012 continues the sham political theater that dominated the mass media for months. One phony issue was "stalemate" between the parties. In fact, they achieved and sustained consensus all year. Both parties agreed to raise taxes and cut government spending. The fiscal cliff did that and so did the last-minute deal. In Europe that policy is called "austerity." Republicans and Democrats merely bickered over details of austerity: who would be taxed how much more and who would obtain how much less government spending.
Europe's austerity policies since 2010 worsened the economies of Greece, Britain, Portugal, Spain, Ireland, Italy and so on. They likewise provoked the most massive and coordinated protests of the last half-century. Capitalism itself is among the protests' targets. The US in 2013 thus looks set for perhaps Occupy Wall Street (OWS) Round 2.
The last-minute deal also continues the parties' shared program of shifting the costs of the crisis and the government bailouts of banks, large corporations, and the stock market, onto the mass of the citizens. Thus - despite Obama's gross exaggerations - the tax increases "on the rich" have meaningless impacts on the distribution of wealth and income and on the deficit. For example, income taxes on couples earning over $450,000 per year will rise from 35 percent to 39.6 percent of the portion that exceeds $450,000. That will yield extra tax revenue to Washington amounting to less than 4 percent of its 2012 deficit.
At the other end of the income and wealth spectrum, all US workers subject to the payroll tax on their incomes (around 150 million workers) will see the rate rise from 4.2 percent to 6.2 percent in 2013. For couples earning $50,000 per year, that means an additional $1,000 will be withheld from paychecks. That is meaningful for them and for the economy confronting $1,000 less that each such couple will spend.
Republican leaders hype how they saved the rich from bigger tax increases desired by Democrats and maybe lessened the deficit. Democratic leaders will hype how they made the rich pay higher income taxes while maybe lessening the deficit. In honest discussions, the "maybe" must be inserted because the deficit depends more on how the economy evolves in 2013 than on these relatively less significant tax rate changes.
For example, consider this likely economic scenario across 2013: Tax increases agreed upon in the last-minute deal help drive the economy into its second downturn since 2007 - just as austerity policies did in Britain. This second US downturn increases unemployment, enterprise cutbacks and bankruptcies. These all reduce Washington's tax revenues while requiring greater social spending (on unemployment insurance, food stamps, welfare, Medicaid). Reduced tax revenues combined with increased spending would enlarge the deficit in 2013 from what it was in 2012 no matter the outcome of the fiscal cliff follies.
Liberals and Keynesian economists have responded to the Fiscal Cliff theatrics with another kind of folly. They stress "economic growth" as better strategy than austerity. By growing the economy, the higher GDP would reduce the deficit without higher tax rates hurting citizens, and government spending cuts damaging the economy. (Recall this ancient notion: People will suffer a smaller piece of the economic pie if the pie is growing.) To grow, liberals want more stimulus spending by Washington. They admit that will worsen the deficit in the short run. But they insist that the resulting growth will reduce unemployment, enterprise cutbacks and bankruptcies. Those reductions will boost government tax revenues while decreasing needs for government social spending. Growth would thereby erase the initial deficit (needed to fund the stimulus), and could reduce the deficit beyond that.
Liberals and Keynesians promoting growth strategies avoid dealing with how the profound inequalities of capitalism help cause economic crises, bailouts and both parties' commitments to austerity politics. It was the wealth and power of large banks, corporations and Wall Street that obtained their unprecedented government bailouts, thereby hugely increasing government deficits. Once bailouts restored corporate profits and stock markets, those same large banks, corporations and Wall Street use their wealth and power to reduce government spending (chiefly on social programs) to deal with deficits. With or without economic growth, US capitalism's performance is now more subordinated to a tiny rich minority than at any time since the last economic crisis (1930s) imposed by that same minority.
Extremely unequal distributions of wealth and income among individuals, and among enterprises, enable the richest and largest to manipulate the economy and control the political parties. Thus they kept down wages to zoom profits, especially since the 1970s; they reduced business tax rates and top income tax rates dramatically across those same years; and they likewise cut government regulation of their business practices. The result was global capitalist crisis. Yet their economic and political power got the government to bail them out first, foremost and to the exclusion of most others.
Growth inside the US is no longer their priority. They now invest chiefly in industries expanding abroad. For them, the US has become a "mature" market - business-speak for an economy expected to grow slowly if at all, weighed down by masses of people with declining job and income prospects. Neither large corporations nor our richest citizens (chiefly major corporate shareholders and directors) want to pay taxes to sustain such masses of people. They prefer austerity: Keep tax increases down and shrink costly government supports for the masses "unfortunately" marginalized by US capitalism's development.
Explanations of Keynesian theory and celebrations of economic growth miss 2012's real lessons. The key problem is an economic structure disinterested in a democratically focused way out of economic crisis and decline for the population as a whole. It is not realistic to propose policies that ignore that structural disinterest. Counter-posing growth to austerity policies distracts attention from struggles to change an economic system - and especially the structure of its enterprises - whose concentrated wealth and power sustain socially destructive policies. Those struggles are key to realistic political agendas for 2013.