Please--Before You Shout Your Obscenities--Remember Who Was in Charge

Bob Hope once famously quipped that “You know you are getting older when the candles cost more than the cake.” The same might be said for the American economy in that it might cost more for the cure than what it cost to get us here in the first place. It could be funny, except for the more than 15 million Americans who are unemployed and the millions more on the verge of losing their jobs—it is not funny at all.

When the White House released its new budget this week, the Republican Party was quick to jump on it, screaming that something terrible will happen if we fail to reduce the deficit. I am not sure where these folks have been over the past 18 months, but isn’t something terrible already happening? More than 15 million Americans are out of work, another nine million are underemployed and several million more face the loss of their home within the next couple of years.

Americans of all ages are witness to the total financial destruction of their lives, fueled by an economic implosion of disastrous proportion that tragically, was entirely preventable if the Republicans, when running things, were not too distracted by cutting taxes and spending unimaginable amounts of money on two misguided, some say criminal, military adventures in Iraq and Afghanistan. It was this behavior that caused them to miss entirely the $8 trillion housing bubble that ultimately blew up in their faces, spewing its wreckage over the rest of us. Ironically, it was because of the cut tax and spend more Republican White Houses and congresses, deficit doomsayers were able to attract far more attention than those who were warning about the dangers posed by the housing bubble.

Now that the collapse has taken place, those same deficit doomsayers are visceral in their response to any effort designed to help the economy recover, such as the American Recovery and Re-investment Act, commonly referred to as the stimulus. There are two almost absolute truths regarding these deficit doomsayers: First, they are themselves the most reluctant to take steps to strategically reduce the deficit when it involves sacrifice on the part of powerful interest groups. This is graphically illustrated by the Republican’s Party current insistence that the nation’s wealthiest taxpayers be spared even a three-percentage point rate increase due to a legislatively mandated expiration of the Bush tax cuts. This then segues directly to the second incontrovertible truth, which is that they are themselves the architects and supporters of the economic policies of the 1980s and 1990s that got us here in the first place!

One of the standard bearers of the Party of “No” Senate Minority Leader Mitch McConnell in his immediate knee-jerk reaction to the release of the Obama administration’s new budget puts the lie to the Republican pretense that its new money and old supply side doctrines are rooted in their Party’s traditional financial policy. Republicans used to believe that prosperity depended upon the regular balancing of accounts—in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses.

The new catechism however, as practiced by Republican policymakers for decades now has amounted to little more than printing money in order to finance the deficits they have created—a kind of vulgar Keynesianism robed in the ideological vestments of the prosperous. This has not only made a mockery of traditional Republican Party ideals, it has also caused the serial financial bubbles such as the housing bubble described above and Wall Street depredations that have led today, to the crippling of our economy.

Just to help us remember who started this mess, it was in 1981that Republicans, then sole owners of the White House and congress, supported tax cuts, matched by spending cuts, to offset the way inflation was forcing many taxpayers into higher tax brackets as well as an honest effort to encourage investment. President Reagan’s economic team however, was no match for what Republican columnist David Stockman calls “the primordial forces—the welfare state and the warfare state—that drive the federal spending machine.” As the 1981 military budget rocketed skyward, the Republicans in congress who were supposed to cut spending instead exempted from the budget knife most of the domestic budget as well to include entitlements, farm subsidies, education and even water projects.

Through the 1984 election, the old guard in the Republican Party returned to some semblance of power and influence, consequently rolling back approximately 40 percent of the Reagan tax cuts. Subsequently, then Federal Reserve Chairman Paul Volcker, finally crushed the out-of-control inflation that had marked those years, enabling an economic rebound of sorts. It was then that Republicans claimed victory for their “supply-side” strategy, hooking Republicans forever on the delusion that the economy will outgrow the deficit as long as we continue to seduce it with substantial tax cuts.

Fast forward to 2009, and the tax-cutters of the George W. Bush era have reduced federal revenues to a mere 15 percent of gross domestic product (GDP), lower than they had been since before World War II. Then, after almost never vetoing a budget bill placed before him. George W. Bush uncharacteristically surrendered on domestic spending cuts as well—signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier from President Bill Clinton.

Still another disastrous outcome of six years of President Bush and Republican control was the vast, unproductive expansion of our financial sector. Here, Republicans were oblivious to the grave danger of flooding financial markets with newly printed inflationary dollar bills while simultaneously removing time honored and proven necessary restrictions on speculation and leverage. Consequently, the combined assets of conventional banks, along with the new financial kids on the market street: investment banks, insurance companies and hedge funds grew exponentially from a mere $500 billion in 1970 to a whopping $30 trillion by September 2008.

It is critical to note however, that this multi-trillion dollar conglomerate that now inhabits this new financial universe, are not free enterprises. They are instead, wards of the federal government, siphoning off billions from the economy directly due to an enormous amount of pointless speculation in stocks, bonds, commodities and the now infamous derivatives. These Wall Street denizens could have never survived much less thrived if their assets had not been government guaranteed or if they had somehow failed to obtain virtually free money through the Troubled Assets Recovery Program (TARP), a program that has forever changed the concept of publicly funded welfare.

Finally, a phenomenon that has contributed massively to the wholesale wrecking of the American economy is the practice of living beyond our means. This was accomplished in part by borrowing heavily for decades from abroad from countries like China. This kind of irresponsibility steadily sent jobs and production off shore. For this tragedy, we are all—Republicans, Democrats, Independents alike—are equally guilty. In the past ten years, the number of high paying careers in manufacturing and in service industries such as trade, transportation and information technology has shrunk by 12 percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in non-agriculture payrolls since 2000 is that there has been a gain in low-paying, often part-time and benefit-less jobs in places like bars, hotels and nursing homes.

If should not be surprising to anyone therefore, that during the last economic bubble from 2002 to 2006 the top one percent of employed Americans, paid mostly from the Wall Street gambling houses, received two-thirds of the gain in national incomes, while the bottom 99 percent, that’s the rest of us, got only 12 percent. This ever-expanding disparity in American wealth is not necessarily the fault of market forces alone however, but is rather poisoned fruit from the poisoned tree of failed economic policy.

As much as I hate to admit it, the Mitch McConnell’s of the world are right on one score. The day of national reckoning is finally here. We will not, tragically enjoy a conventional business recovery at this juncture, but rather will be forced to endure a long nauseous hangover of debt liquidation and downsizing as suggested by last week’s economic news that the American national economy grew at an anemic annual rate of only 2.4 percent in the second quarter of 2010 that we just stumbled through. It is therefore, a sad state of affairs that the Republican Party continues to offer the American people irrelevancy in their constant whining and just saying “No” while the Democrats, intimidated by the right, fail to govern, becoming simply irrelevant.