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The decline of the USA, the financial crisis and military expenditure

Mario Pianta
Lecturer at the University of Urbino and a member of the Italian peace movement
Mario Pianta

Mario Pianta

Thirty-eight million Americans, one citizen in eight, are at a level of poverty that means they are eligible for Food Stamps, a card that enables them to buy pre-cooked food from supermarkets, which have an average value of 133 dollars per person per month. If we include children, the percentage rises to one in four: this is the same level as in a third world country.

Six of these thirty-eight million people (two percent of Americans) live in families with no financial income – no income from work, public benefits, pensions, unemployment nor anything else – except for theFood Stamps. As a consequence of the crisis, the number of users has increased by 50 percent in the last two years. In 2010, the federal government will spend 60 thousand million dollars - less than 10 percent of the extraordinary provisions made for the financial crisis – on this programme, which is the only means of dealing with poverty in a system of state benefits which has been pared to the bone.

Now, take a deep breath: a pie of the same size is about to be divided up, not among the 38 million poorest Americans, but instead among a hundred thousand bankers, who will on average be receiving half a million dollars each. In total, the five big American banks, in the first nine months of 2009, set aside 90 thousand million dollars to pay salaries and "business bonuses". All five banks received enormous emergency bail-out loans from the government during the crisis of 2008. After protests from public opinion and Congress, attempts were made to add conditions to the astronomical payments, and the banks reacted by repaying the loans thy had obtained as soon as they could, in order to be free to pay themselves millionaire-level salaries as soon as possible.

This has all led to an accentuation of the disparity which began in the new economy boom of the late nineties: in 1998, the head of Citigroup received payments amounting to 167 million dollars, 4,500 times the wage of an unskilled worker in the same company. However, as Seymour Melman said ten years ago in his book After Capitalism – it is at Walt Disney where the disparities exceeded the wildest dreams of Scrooge McDuck: in 1998, the president of the company received 575 million dollars, i.e. 15,500 times the gross salary of a worker in the company.

The fact is that one of the American problems is that this type of inequality is no longer exceptional, and is not limited to Wall Street and Disneyland; they can be found all over the economic world. In the economy as a whole, the ratio between the amount earned by the richest 10 percent of Americans and the poorest 10 percent has increased by 40 percent since 1975, with particularly sharp rises during the governments of Bush Senior and Junior. Neoliberal theoretical rhetoric does not tie in with reality, as is apparent in a study by Richard Wilkinson and Kate Pickett: major inequalities do not stimulate economic growth, and have serious consequences in terms of a decline in welfare and growing social problems such as exclusion, disease and criminality.

The bad news in the American economy in the first decade of the twenty-first century has affected most of the country's citizens. There has been no increase in jobs, and the increase in incomes has almost entirely been among the 10 percent of wealthiest families, with a further concentration in the 1 percent who are the ultra-rich. Since 1989, real (average) salaries of male workers for graduates have remained unchanged, and have significantly declined for those with only a high school certificate, while women have partially overcome the salary differential compared to men. In real terms, the minimum wage is at the same level as in the 1960s.

The financial crisis was unleashed on a real economy affected by a long decline in its production capacity, and highly dependent on other countries: the surplus of imports to exports has reached 5 percent of GDP. The public accounts are deeply in the red, which is also the result of enormous military expenditure by the USA, which accounts for half of what the entire world spends on weapons. These deficits have increased even further as a result of the measures taken to combat the financial crisis.

While American politics immediately came to the rescue of banks in difficulty, this has not been the case for the ten percent of Americans who are now without a job: the effects of the crisis are documented in a new report, Battered by the storm, published in December by the Institute for Policy Studies and other progressive organisations (the authors include John Cavanagh and Barbara Ehrenreich). It is available for download at In the USA, only 57 percent of those without a job receive unemployment benefit, which amounts to half the total of the previous salary, and many have lost their right to healthcare. The main federal income support programme Temporary Assistance for Needy Families, has less than 30 percent of the resources that would be necessary to bring above the poverty line the 50 million Americans who are currently below it. Gaps as big as this one in the American benefits system have left the Food Stamps, as the only means of at least putting some food in people's mouths.

However, there is an alternative, like the one proposed in the study mentioned above: a 400 thousand million-dollar plan, to be spent on social programmes providing income support and help for the owners of homes repossessed by the banks, the creation of a million public sector jobs and coverage of State and local governments' deficits in 2010. This could all be financed by increasing taxes on the rich and on speculative financial operations, and by measures against the use of tax havens. The good news is that the Obama administration is looking for a system to tax finances and to recoup some of the funds spent as state aid last year. The dispute between the White House and the Treasury over which direction to take has yet to be resolved, but something that is new is that in Washington there is now even talk of a tax on international financial transactions – that so-called Tobin Tax that has been discussed for decades by social movements everywhere. After the financial debauchery, will there finally be a political response?

* Article published in "Il Manifesto", 13 January 2009, p.10