Letter from the US: Working people hurt amid shutdown, default threat

The US House of Representatives lit up for a rare late-night session.

Amid bitter recriminations between the Democrats and Republicans over the partial shutdown of the government and the Republican threat of forcing of a United States government default, it is easy to forget what their policies have in common.

Both have intervened to protect the interests of the capitalist class as a whole in the aftermath of the Great Recession at the expense of the working class. This is indisputable given statistics showing profits are soaring while real wages are declining.

Both parties have implemented policies that cut the social wage for working people.

That said, there are real differences between them. The Republicans have been captured by extreme rightists intent on slashing the social wage drastically. The Democrats fear slashing too drastically will cause social unrest.

The immediate issue in dispute is the Republican drive to defund the Patient Protection and Affordable Care Act, known as “Obamacare.” The Republicans control the House of Representatives, which is responsible for approving government spending, and must approve the federal budget and the looming need to raise the ceiling on the federal debt.

The Republicans refused to approve a budget for the government unless Obama's health care program (“Obamacare”) was defunded, and threaten to refuse to support new government borrowing over the issue. Obama and the Democrats who control the Senate would not agree, causing a partial shutdown of the government beginning October 1.

The brunt of the shutdown is being born by workers, including 800,000 government workers who are on leave without pay laid off and many more who are working without pay. Many millions who rely on social services which are not functioning are facing dire circumstances.

Default threat

A US default due to a failure of Congress to raise the ceiling on the federal debt would be catastrophic. The deadline for when the government runs out of money to pay its debts without taking out further loans is around October 17.

Both the Treasury Department and the International Monetary Fund have warned against such an outcome. IMF head Cristine Lagarde said: “The government shutdown is bad enough, but failure to raise the dept ceiling would be far worse.

“It is mission critical that this be resolved as soon as possible.”

If the default were allowed to happen, US securities would begin to lose their convertibility to US dollars. These form a large part of the reserves of the central banks of other nations.

A default, therefore, would cause huge banks runs, including in the US. Credit of all kinds would dry up, interest rates would soar, industrial production drop and world trade grind down.

This would be a crisis on the scale of the 2008 financial crisis — or greater. But unlike 2008, it would not have been the result of the workings of the capitalist system itself, but of a policy failure.

For this reason, such a default is unlikely. It is not, however, impossible. Capitalist politicians have been known to make irrational decisions.

It is most likely the Republicans will have to back down from their bluff. They will still try to “get something out of this”, as Tea Party-aligned Republican Senator Rand Paul was inadvertently caught on videotape saying to another Republican senator, who nodded in agreement.

Health care

To understand the issue of Obamacare, we have to look at the state of the US healthcare system.

Martin Wolf, writing in the pro-business British Financial Times says: “The Republicans are doing all this in order to impede a modest improvement in the worst healthcare system of any high-income country.”

He writes: “The U.S. spends 18 percent of its gross domestic product on health against 12 percent in the next highest spender, France.” Then come Germany, Canada, Japan, the U.K. and Italy.

“U.S. spending per head is almost 100 percent more than in Canada and 150 percent more than in the U.K. What does the US get in return? Life expectancy at birth is the lowest [of the other imperialist countries], while infant mortality is the highest.

“Potential years of life lost by people the age of under 70 are also far higher [in the U.S.].”

For comparison, Australia spends 9.3% of its GDP on health, about one-half of what the US does, and has a much lower infant mortality rate and higher life expectancy. These are two universally recognised indicators of the quality of a health care system.

This disparity puts the US at a disadvantage with its imperialist competitors. There are 40 to 50 million people in the US with no health insurance. Obamacare seeks to extend coverage to much of those presently not covered.

The aim is to check runaway medical insurance costs, which would make it easier to hold down workers’ wages. It would also help create a healthier and more productive workforce, more like other imperialist countries.

From the start, Obamacare excluded a national government insurance plan, such as Medicare in Australia, that covers everyone.

In fact, the idea behind Obamacare originated in a right-wing think tank, the American Heritage Foundation, as an alternative to national health insurance. The idea was to lock in the hold of the private insurance companies, part of finance capital.

When 2012 Republican presidential candidate Mitt Romney was governor of Massachusetts, he implemented such a plan there. The fact that he ran against his own policy last year is an indication of how far to the right Republicans have moved.

An idea originating in a right-wing think tank is now denounced by the Republicans as “socialism”.

But it is not only that the Republicans moving to the far right. The Democrats follow in their wake, moving right but not as far or as fast. A case in point: Obama adopted “Romneycare” — once the right wing alternative.

It is ironic, but the day of the partial government shutdown, October 1, was the day when the major part of Obamacare went into effect. Moreover, because of technicalities about how it is funded, the partial shutdown does not affect it.

A popular aspect of Obamacare is that the children of insured parent covered by their parents' insurance policy up to age 26. This has already gone into effect.

Another popular provision is that insurance companies can no long deny coverage to people who have already existing medical problems, which went into effect October 1.


A major defect in Obamacare is that it relies on employers to provide most medical insurance plans for their employees. This makes it more difficult for workers to change jobs.

Morever, in the current economic situation, employers are looking for ways to cut back on their contributions to employee plans.

The Obamacare law is a bureaucratic mess. It is more than 2000 pages long, in order to accommodate all the demands of the insurance industry. It will not work if millions of healthy young Americans do not sign up for it. That is why it contains a provision to fine them if they don’t.

Healthy Americans not covered by their employers must buy private insurance to make the system work. If they don’t, the insurance sharks will raise the cost of insurance for the rest.

There is another problem. Obamacare will provide subsidies to lower income people to help them buy private insurance, but it relies on the states to raise the coverage for the very poor to cover the millions of uninsured in this category. It does so under a program called Medicaid.

The federal government is set to give the states the money to increase Medicaid enough to provide insurance for these people who are the ones most in need. But 26 Republican-controlled states have rejected taking these federal funds, in order to sabotage Obamacare.

These are the states with the greatest extreme poverty rates.

There are all kinds of problems in Obamacare, including different plans with different coverages. In all the private insurance plans that Obamacare rests on, there are costs individuals must cough up.

None of these problems would exist with universal Medicare. The profits of the insurance companies, which are pure waste and contribute zero to healthcare, would be eliminated. Medical costs would go down.

But even with all of its problems, when it became possible on October 1 for the uninsured to sign up for Obamacare, millions of uninsured rushed to do so. The computer systems broke down. This fact underscores the dire needs being unmet in the US medical system.

Meanwhile, the standoff in Washington continues.

[Barry Sheppard was a long-time leader of the US Socialist Workers Party and the Fourth International. He recounts his experience in the SWP in a two-volume book, The Party — the Socialist Workers Party 1960-1988, available from . Read .]