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Vol. 72/No. 24      June 16, 2008

The Clintons’ antilabor legacy:
roots of 2008 world financial crisis
Excerpt from article in upcoming issue of ‘New International’
(feature article)
This week we reprint the concluding section of “The Clintons’ Antilabor Legacy: Roots of the 2008 World Financial Crisis” by Jack Barnes, the opening article in the just-published issue no. 14 of the Marxist magazine New International.

“It has been seven years since William Clinton vacated the White House,” writes Barnes, who is national secretary of the Socialist Workers Party. “To hear tell from Hillary Clinton, Barack Obama, other leading Democrats, and the former president himself, almost all today’s ills—from the war in Iraq, to harder times for working people, to high finance’s orgy of destruction, and more—can be laid at the foot of George W. Bush and the Republican Party. In the 2008 Democratic Party primary electioneering, Bill Clinton has taken to modestly describing 1993-2001 as ‘the eight best years we’ve had in modern history.’ (Yes, ‘we.’)… .

“In reality,” says Barnes, “the Clinton administration consolidated an anti-working-class shift in Democratic Party domestic policy that increased the political convergence of the two leading parties of the employing class.” He explains that “the most important elements of domestic and foreign policy alike widely attributed today to the Bush administration” in fact had their origins in measures taken by the Clinton White House together with the Republican-led Congress from 1995 through 2000.

In the opening section of the article, reprinted from the 2001 edition of Cuba and the Coming American Revolution, Barnes reviews the impact of this bipartisan convergence on working people in the United States and worldwide. He points, among other things, to Washington’s nonstop bombardment of Iraq and wars in Yugoslavia; elimination in 1996 of Aid to Families with Dependent Children (“welfare as we know it,” in Clinton’s infamous words); enactment that same year of the “Anti-Terrorism and Effective Death Penalty Act” and of the “Immigration Reform and Immigrant Responsibility Act,” the biggest assault on rights of the foreign-born since the end of World War II; and across-the-board cuts in social welfare spending.

The final section of the article printed below is based on a Dec. 1, 2007, talk by Barnes on “Our Transformation and Theirs: From Subprime to Subhuman,” which was presented to a meeting of some 400 in New York City, as well as reports by Barnes to the SWP National Committee in late 2007 and early 2008.

Copyright © 2008 New International. Reprinted by permission.


In the two decades prior to Clinton’s inauguration in January 1993, capitalism had been hit by two deep recessions, in 1974-75 (the first synchronized slump in the imperialist countries since the Great Depression) and again in 1981-82, with an explosive burst of inflation in between. Working people faced steeply rising prices, meat and gasoline “shortages,” and mounting joblessness. Even using Washington’s own deceptive statistics (to which I’ll return), inflation figures topped 13 percent in 1979, short-term interest rates peaked at more than 16 percent in May 1981, and the official unemployment rate nearly reached double digits in 1982-83.

During the Clinton years, as I described in Cuba and the Coming American Revolution, the employing class in the United States moved aggressively to counteract downward pressure on its profit margins “by cutting real wages and benefits, speeding up production, lengthening the workweek, increasing part-time and temporary labor, and reducing government-funded social security programs.”

At the service of U.S. finance capital and its bondholders, Clinton doggedly pursued a federal “budget surplus,” as well. The Democratic administration reaped the so-called “post-Cold War” peace dividend—temporary reductions in military spending made possible by the end of the Soviet Union and collapse of the Warsaw Pact, as U.S. imperialism prepared a transformation of its global military “footprint.” Clinton cut the number of U.S. active duty troops by almost 25 percent over his eight years in office and, as a proportion of the U.S. Gross Domestic Product (GDP), trimmed the size of Washington’s war budget by 37 percent.

But the Democratic White House didn’t use the savings for “the people.” In what we might call a domestic “class war dividend,” it reduced federal expenditures on Social Security and other social payments, education, veterans benefits, public transportation, scientific research—every major category of government spending except health and Medicare (organized as a boon to insurance companies, HMOs, and medical businesses), agriculture (more fat subsidies for capitalist farmers and agribusiness), and “ justice” (billions for additional and more heavily armed cops, and for courts, prisons, surveillance modernization, and death chambers).

The upswing in the business cycle during that period was a lengthy one by past standards, lasting ten years. But it was not “based on a historic acceleration of capacity-expanding capital investment,” we pointed out in Cuba and the Coming American Revolution. “It was not based on drawing more and more workers into plants, mines, and mills and massively increasing the production of salable goods.” Instead, “the long upturn in the United States was the product of piling up an enormous mountain of debt and a giant increase in speculative derivative ‘debt instruments’”—one that we now know continued to inflate over the seven years since Clinton passed the baton to Bush.

Despite the “bourgeois triumphalism of much of the 1990s,” this debt explosion was inexorably increasing “the vulnerability of world capitalism to sudden and destabilizing shocks,” we said. And that, it turned out, put it mildly!

To help us gain a better understanding of the roots of the current global financial crisis and its consequences for working people worldwide, it’s useful to take a closer look at several points touched on briefly or indirectly in Cuba and the Coming American Revolution that are being posed for the working class today with increasing sharpness.


(1) Long before U.S. capitalism’s financial house of cards began trembling in late 2007, the Clinton administration had laid the legislative foundations for the crisis by helpfully eliminating regulations bankers and other moneyed interests deemed “inconvenient.” In 1999 Treasury Secretary Robert Rubin, formerly co-chairman of Goldman Sachs, and his deputy Lawrence Summers presided over repeal of the Glass-Steagall Act, which the U.S. rulers had been forced to impose in 1933 in response to the wave of bank failures early in the Great Depression. The ruling class had used Glass-Steagall, among other measures, in order to stabilize the capitalist system by establishing a legal separation between, on the one hand, commercial banks (which make profits by taking in checking and savings deposits from individuals and businesses and lending those funds to businesses, home buyers, and others at higher interest rates) and, on the other hand, insurance companies, stock brokerages, and investment banks (the last of which make profits by raking in fees in return for their “services” to companies and governments in raising capital by issuing bonds, stocks, and increasingly other highly leveraged “financial products”).

The Financial Services Modernization Act, which Clinton signed into law in November 1999, facilitated the breaching of that wall, accelerating and magnifying the results of the workings of the laws of capital. Mergers of deposit banks, investment banks, brokerages, and insurance companies proliferated. Above all, the floodgates opened to a massive expansion of so-called derivatives, “securitized” debts, “off-balance-sheet” banking operations—in short, complex bets that the capitalist financial boom and mammoth acquisition of U.S. Treasury debt by the governments of China, Japan, and other countries would go onward and upward forever. Smaller and smaller amounts of collateral—sometimes little or no collateral— stood behind ever more leveraged loans, with less and less provision of any kind for the skyrocketing risk.

A case in point is Citigroup, the largest U.S. bank. The Clinton administration’s Financial Services Modernization Act became law shortly after Citigroup had been formed in 1998 through the merger of Citicorp (then the largest U.S. commercial bank), the giant Travelers insurance company, and the Salomon Smith Barney investment house. It was a blissful marriage, but without repeal of Glass-Steagall, an annulment would have been legally required within two years. In July 1999 Rubin turned the reins of Clinton’s Treasury over to Summers. And in October Rubin, shamelessly, took an initially $40-million-per-year job as chairman of Citigroup’s executive committee! Not for nothing did many tag the new law the “Citigroup Authorization Act.”

Rubin, by the way, still occupied that position as of May 2008, after Citigroup had taken write-offs and losses of more than $40 billion—yes, billion—over the previous fifteen months as a result of derivatives and other “debt instruments” gone sour. So much for the “magic” of a Goldman Sachs bond trader in face of the law of labor value!


(2) The Clinton administration actively worked to keep world gold prices low, thus helping to maintain a “strong dollar,” relatively low interest rates, and at least the appearance that inflation was being held in check.

Clinton’s “financial team” organized to promote the so-called gold carry trade. That is, imperialist governments and financial institutions lent gold from their vaults at cheap rates to major “bullion banks” (such as JPMorgan Chase, Citigroup, Goldman Sachs, and Deutsche Bank). These banks then sold the borrowed gold, reinvested the returns at higher rates, and gambled that the price of gold would go down by the time they had to buy back the precious metal to pay off their loans. So long as the carry trade worked (that is, so long as gold prices did not rise at an accelerating pace), the U.S. government achieved its goals and the bullion banks, as well as the largest gold-mining trusts, made out like bandits.

The Clinton White House also kept gold prices down by encouraging its rival imperialist governments and the International Monetary Fund to publicly sell off their own bullion reserves. It did so cynically, sermonizing that the proceeds could then be used for “debt forgiveness” to “help Third World countries” burdened by onerous interest payments. Testifying before Congress in April 1999, then Deputy Treasury Secretary Summers said that income from such gold sales could be used to support “the world’s poorest countries, especially those burdened by unsustainable debt.” He pledged that such gold sales could “be conducted in a manner that limits any adverse impact on gold holders, producers, and the gold market.”

The upshot of this Clinton administration scam was not long in coming. In May 1999, at what were already the lowest world gold prices since the mid-1970s, Gordon Brown, the United Kingdom’s treasury minister—today its prime minister—announced that London would soon begin selling fully half its gold reserves. Contrary to Summers’s assurance that such sales could be “conducted in a manner that limits any adverse impact,” Brown’s announcement set off such panic on world markets that gold prices dropped by another 10 percent over the next few weeks to a twenty-year low of $253 per ounce, at which price he promptly sold more! As for helping “the world’s poorest countries,” it’s enough to recall that among the top global gold exporters are semicolonial countries such as Peru, Indonesia, Uzbekistan, Papua New Guinea, Chile, Ghana, Mali, and Tanzania, as well as South Africa— whose revenues from mining and exporting gold and other precious metals were devastated!

Over the next few years, the central banks of the United Kingdom, Switzerland, and Canada did sell more than half their gold reserves—at historically low prices—and substantial reserves were sold by other central banks too. The U.S. Treasury, meanwhile, sold virtually none of its own gold reserves—which, at nearly 9,000 tons, are by far the world’s largest hoard (more than a quarter of official world gold reserves). Beginning in 2002 gold prices began a slow, and in a few years accelerating, climb. By May 2008 the value of Washington’s reserves had more than tripled from $67 billion to nearly $225 billion.

Now that’s a plan to help “the world’s poorest countries”! And to get the best of your fellow imperialist “friends,” to boot!


(3) To help mask the rising social toll of the profit system, the Clinton White House simply erased millions of jobless workers from the government’s monthly unemployment figures.

Clinton learned this disappearing act from a previous Democratic administration. During John F. Kennedy’s first year in office in 1961, he had grown anxious about the political kickback from a sharp rise in joblessness that year. So he appointed a committee to look for a solution—not a solution to put people back to work, but to do better at keeping up appearances. A few years later the federal government slapped a label on workers who had been unable to find jobs for so long that they had stopped looking. Calling them “discouraged workers,” it no longer counted them as being unemployed. Voilą! The “unemployment rate” dropped overnight!

Clinton, who also confronted high joblessness at the opening of his first term, took things a step further. Although since the 1960s “discouraged workers” had no longer been counted as unemployed, they were nonetheless included as part of the overall labor force. Evidently that still revealed too much of the actual situation facing working people. So in 1994 the Clinton administration decided that only workers who had been looking for a job for less than a year would be counted as part of the workforce!

That’s how Clinton, with the wave of a statistical wand, disappeared millions more jobless workers. And they keep being disappeared to this day.


(4) Finally, the Clinton administration granted a permanent profit bonanza to the employing class by rejiggering the basis on which annual cost-of-living adjustments are calculated in wage payments and Social Security and other benefits to tens of millions of workers and working-class families in the United States. This is a decisive question for working people, as shown by the fact that real wages in this country today—even by government statistics—are some 10 percent lower than they were thirty-five years ago in 1973.

In 1997 the Clinton administration, acting on proposals by a bipartisan commission it had convened, ordered that the government’s main yardstick of inflation—the Consumer Price Index (CPI)—henceforth be figured in a way that substantially reduced official price figures. This magic was produced by two tricks in particular.

First, Clinton’s commission claimed to have unearthed an astounding oversight in the way inflation figures had been figured since such statistics had begun being kept decades earlier. In the past, if the price of steak went up, for example, that increase had been reflected in CPI figures. But it suddenly dawned on the commissioners that when steak gets too pricey, “people” simply start buying hamburger instead. So the cost of hamburger should replace the price of steak in the CPI. Shazam! No inflation in meat costs! And as one cynical commentator noted, “The new system now promises you hamburger, and then dog food, perhaps, after that?”

The Clinton administration also introduced what it called “hedonics”—from the same root as the word “hedonism”—into calculations of inflation. Lo these many decades, the commissioners discovered, statisticians had been overlooking that the “pleasure” working people and others derive from the goods we buy increases as new models are introduced. Cars may become more expensive, but now we can lock or unlock them as we walk across the parking lot. And as we’re sending off the next payment for that new computer, we should keep in mind that its speed and memory have expanded—so it’s actually getting more and more fun, as well as less and less expensive per laugh!

What’s the bottom line? Whereas the U.S. government’s official annual inflation figure in late 2007 was deduced to be 3.2 percent, it would have been 7 percent— more than double—calculated by the methods used by every administration prior to the change imposed by Clinton and the Republican-led Congress. And that means hundreds of billions of dollars in extra profits for the employing class—who are now paying much less in cost-of-living adjustments to workers in wage agreements and for Social Security, health, workers comp, and other benefits.

What does that mean in the everyday life of the working majority in the United States? In early 2008, less than half a year after the official inflation figure just cited, the U.S. government announced that its so-called Consumer Price Index was now running a bit higher, at a 4 percent annual rate. But a closer look at that very same price data (even using the government’s own crooked methods) reveals that the costs of necessities such as groceries, gasoline, and health care had risen by an average of more than 9 percent over a year earlier. That included a 13 percent hike for milk and other dairy products, 7 percent for bread and cereals, 8 percent for hospital care (who believes it was only that much?), and a whopping 33 percent both for gasoline and for home heating fuel.

Yet the Social Security administration announced that in 2008 the some 50 million people receiving retirement benefits will receive a “cost of living” increase of 2.3 percent in their monthly checks—a measly $24 a month for the average recipient. And tens of millions of other working people will be lucky to get an inflation adjustment of any kind in their take-home pay.

These Clinton administration changes came on top of the statistical swindle inaugurated two decades earlier, when gasoline and food prices, especially, skyrocketed during the mid- and late 1970s. Washington, in its bipartisan wisdom, at that time conveniently decided that federal monetary policy would be better served by a figure that “smoothed out” price fluctuations that are supposedly out of the ordinary. So in addition to the inflation figures the government had been calculating and releasing for decades, it began issuing what it called “core inflation” figures—which left out energy and food costs!

Not surprisingly, whenever there’s a spike in prices on grocery lines and at gas pumps, capitalist politicians and government spokespersons start talking up “core inflation.” A recent cartoon depicted a filling station proprietor trying to calm down an enraged driver at the pump: “Yes, it’s an outrage. But it’s not a core outrage!”


When the Financial Services Modernization Act was adopted in 1999, Clinton’s new treasury secretary Lawrence Summers hailed it as “the foundation for a 21st century financial system.” Indeed it was!

May 2008

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