Socialist Worker

The contradictions of Obama’s budget

by Sadie Robinson
Issue No. 2141

Barack Obama announced the plans for his first budget last week. They reinforced the impression that his presidency marks a clear break from the years of George Bush.

Obama’s plans include several pledges that will be broadly welcomed by the left – proposals to introduce universal healthcare, increase education spending and enforce strict limits on carbon dioxide emissions.

Perhaps most crucially, the plans include some redistribution of wealth from the rich to the poor. Obama plans to fund the expansion of healthcare for some of the poorest in the US by not renewing tax breaks for the rich due to expire in 2011.

But there is a problem. Obama’s budget plans rest upon an economic recovery taking place – something that is looking less likely by the day.

The US economy contracted by 6.2 percent in the final three months of last year – the biggest such decline since 1982 and double what most analysts had predicted. The economic crisis is not just growing – it seems to be accelerating.

The crisis is already having a devastating impact on the lives of millions of ordinary people in the US. Many more face an uncertain future. Just under 600,000 jobs were cut in January alone – the largest number of losses since December 1974.

Every announcement of job losses means more people struggling to pay their mortgages or rents, which compounds the housing crisis at the heart of the economic meltdown. Some 2.3 million homes were repossessed in the US last year.

Obama’s budget also depends on another measure that he announced last week – the “withdrawal” of US troops from Iraq. His plans involve some 50,000 US troops remaining in Iraq until at least 2011 – much to the disappointment of many in his anti-war support base.


The situation in Iraq is volatile and the plans to withdraw sections of troops may well have to be revised. Meanwhile the situation in Afghanistan is worsening and threatens to suck in thousands more US troops to stabilise the occupation there. The cost of this does not seem to be factored into Obama’s plans to regenerate the US economy.

Obama is attempting a “Keynesian” solution to recession – using intervention by the state to shore up capitalism. This approach is inherently problematic, since it fails to deal with the relentless competitive drive for profit that lies at the heart of capitalism’s instability.

But Obama’s plans face a further set of difficulties that stem from their heavy reliance on the private sector to create jobs and on “market solutions” to provide savings.

For instance, Obama plans to raise $175 billion over ten years by forcing private insurance companies to compete for Medicare insurance business. His plans to cut carbon emissions involve encouraging “carbon trading”.

There are also pitfalls in encouraging private companies to create jobs, rather than creating them directly. Private firms will not invest if they do not believe they can make a profit. As the economic situation worsens they are more likely to pull back from investment rather than expand it.

Of course, increasing spending on healthcare and education is a good thing. If nothing else, these measures directly challenge the ideology of free market capitalism and open people’s eyes to alternative possibilities.

But the scale of the crisis requires a different response. There are many things that could be done – nationalising banks, taking over firms that are sacking workers, or investing directly in infrastructure programmes and public services rather than handing over yet more cash to privateers.

Obama could end tax breaks for the rich now rather than in two years’ time. He could pass legislation that forced banks and other lenders to help struggling homeowners, rather than introducing “incentives” for them to do so.

The budget will be finalised in April. It could go in a number of directions. The extent to which ordinary people in the US organise on the ground will be the key factor in determining which direction the budget is pushed in – and who ends up paying the price for capitalism’s crisis.

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Tue 3 Mar 2009, 18:33 GMT
Issue No. 2141
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