Budget: Fiscal Crisis

In ordinary parlance, the fiscal crisis of the state may be understood as the tendency of revenues to increase at a slower pace than the demands placed on the political system by its supporters. This is a crisis of what the Easton model posed as inputs: revenue, demands, and support. As demands are not supported, citizens begin to lose confidence in government and the political system, creating a legitimation crisis.

The fiscal crisis at the national, state, and local levels of government seems to be a harbinger of an age of austerity and retreat of public policy. After the binge of the Reagan administration and the huge public and private debt overhang, rapid economic growth capable of sustaining the cost of new policy initiatives is quite unlikely.

Much of our previous discussions of ideology can help us here. Conservatives exhibit a strong aversion to government taxation and spending (except for defense and pro-business programs). Liberals appear to have faith in the efficacy of public policy formulation and implementation which extends to government spending. Marxist analysts, however, see the federal budget quite differently. They begin with the premise that expenditures and revenues are understandable only within the dynamics of the capitalist system as a whole and with reference to the class-based power relations which characterize that system. These systemic movements, they argue, determine the level and the composition of the governmental budget. Let's examine this claim.

A starting point is the observation that the state sector is an organ of class rule. Two functions are fulfilled by the state: subsidize the accumulation of capital and legitimize the system as a whole. The former provides profit for the owners of capital. The latter protects the system from the inevitable class conflicts which from time to time pose a serious threat.

The most cogent analysis from this perspective comes from the economist James O'Connor, author of a seminal treatment of the budget, The Fiscal Crisis of the State. O'Connor contends that the continuation of a flow of business profits requires the state, to spend revenue on social capital designed to improve the profitability of enterprises through the creation of infrastructure (roads, harbors, airports, etc.) and the formation of a trained labor force (education, health care, job training).

Those who are marginal to labor markets are problematic: the elderly, unemployed, disabled, homeless, etc. While they may not pose a direct threat to the stability of the system, social welfare expenses are needed to maintain political harmony and legitimate the system as a whole. This averts instability.

Foreign and defense policies, inextricably mixed, support the expansion of capitalist markets, investment opportunities, and natural resource sources4 The international division of labor can be manipulated to hold down wage costs, provided governments around the globe cooperate with an agenda of free trade. All this requires a foreign policy and a defense posture which makes the world safe for the expansion of the capitalist system. This implies that popular insurgent movements must be extinguished and

that client elites in foreign countries must be subsidized economically and militarily. Obviously, the existence of another global economic system, Communism, made these claims more compelling and persuasive.

The unfolding of the system creates deeper contradictions over time. Profit opportunities wane and social unrest intensifies, thus creating a situation in which the state cannot indefinitely manage the society for the class-based interests. This becomes the real fiscal crisis of the state.

The policies of the Reagan administration can be viewed as generally supporting the O'Connor perspective. It is to the budget policies of the recent presidents that we now turn.