David Stockman, Republican Congressman from 1977 to 1981, and a director of the Office of Management and Budget under President Ronald Reagan
recently penned an op-ed in the NY Times. He announces, and in no uncertain terms, that the GOP has
destroyed the US economy.
Here are some highlights:
IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the
unaffordable Bush tax cuts
would amount to a bankruptcy filing. It is therefore
unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation's
wealthiest taxpayers be spared
even a three-percentage-point rate increase.
More fundamentally, Mr. McConnell’s stand puts the lie
to the Republican pretense that its new monetarist and supply-side doctrines are
rooted in its traditional financial philosophy. 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, too. But the
new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar
Keynesianism robed in the ideological vestments of the prosperous classes.
This approach has not simply made a mockery
of traditional party ideals. It has also led to the serial financial bubbles and Wall Street
depredations that have crippled our economy
. More specifically, the new policy doctrines have caused four great deformations of the national
economy, and modern Republicans have turned a blind eye to each one.
The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our
accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit — the
combined shortfall on our trade in goods, services and income — has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale.
It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars
no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will
It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely.
But that does not absolve Friedman’s $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians
the world over were free to cheapen their money and disregard their neighbors.
The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross
domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not
from big spending by the Democrats, but instead the Republican Party’s embrace
, about three decades ago, of the insidious doctrine that
deficits don't matter
if they result from tax cuts.
In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher
brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces —
the welfare state and the warfare state — that drive the federal spending machine.
Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the
knife most of the domestic budget — entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological
tax-cutters who killed the Republicans’ fiscal religion.
Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about 40 percent of the original Reagan tax cuts. But
when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new
tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the
deficit if plied with enough tax cuts.
By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s.
Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending
cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years
earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.
The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been
oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on
leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks
and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.
But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting
billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less
thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount
window to cover their bad bets.
[edit on 12-8-2010 by 12GaugePermissionSlip]