Aug. 10, 2010, 12:45 a.m. EDT
Reagan insider: 'GOP destroyed U.S. economy'
Commentary: How: Gold. Tax cuts. Debts. Wars. Fat Cats. Class gap.
new
By Paul B. Farrell,
ARROYO GRANDE, Calif. (MarketWatch) --
"How my G.O.P. destroyed the U.S.
economy."
Yes, that is exactly what David Stockman, President Ronald
Reagan's director of the Office of Management and Budget, wrote in a recent New York Times op-ed piece,
"Four Deformations of the Apocalypse."
Get it? Not "destroying." The GOP has already "destroyed" the U.S. economy, setting up an "American Apocalypse."
Jobs recovery could take years
In the wake of Friday's disappointing jobs report, Neal Lipschutz and Phil Izzo discuss new predictions that it could be many years before the nation's unemployment rate reaches pre-recession levels.
But why focus on Stockman's message? It's already lost in the 24/7 news
cycle. Why? We need some introspection. Ask yourself: How did the great
nation of America lose its moral compass and drift so far off course, to
where our very survival is threatened?
We've arrived at a historic turning point as a nation that no longer
needs outside enemies to destroy us, we are committing suicide.
Democracy. Capitalism. The American dream. All dying. Why? Because of
the economic decisions of the GOP the past 40 years, says this leading
Reagan Republican.
Please listen with an open mind, no matter your party affiliation: This
makes for a powerful history lesson, because it exposes how both parties
are responsible for destroying the U.S. economy. Listen closely:
Reagan Republican: the GOP should file for bankruptcy
Stockman rushes into the ring swinging like a boxer: "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. The
nation's public debt ... will soon reach $18 trillion." It screams "out
for austerity and sacrifice." But instead, the GOP insists "that the
nation's wealthiest taxpayers be spared even a three-percentage-point
rate increase."
In the past 40 years Republican ideology has gone from solid principles
to hype and slogans. Stockman says: "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."
No more. Today there's a "new catechism" that's "little more than money
printing and deficit finance, vulgar Keynesianism robed in the
ideological vestments of the prosperous classes" making a mockery of GOP
ideals. Worse, it has resulted in "serial financial bubbles and Wall
Street depredations that have crippled our economy." Yes, GOP ideals
backfired, crippling our economy.
Stockman's indictment warns that the Republican party's "new policy
doctrines have caused four great deformations of the national economy,
and modern Republicans have turned a blind eye to each one:"
Stage 1. Nixon irresponsible, dumps gold, U.S starts spending binge
Richard Nixon's gold policies get Stockman's first assault, for
defaulting "on American obligations under the 1944 Bretton Woods
agreement to balance our accounts with the world." So for the past 40
years, America's been living "beyond our means as a nation" on "borrowed
prosperity on an epic scale ... 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."
Remember Friedman: "Just let the free market set currency exchange
rates, he said, and trade deficits will self-correct." Friedman was
wrong by trillions. And unfortunately "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."
And without discipline America was also encouraging "global monetary
chaos as foreign central banks run their own printing presses at ever
faster speeds to sop up the tidal wave of dollars coming from the
Federal Reserve." Yes, the road to the coming apocalypse began with a
Republican president listening to a misguided Nobel economist's advice.
Stage 2. Crushing debts from domestic excesses, war mongering
Stockman says "the second unhappy change in the American economy has
been the extraordinary growth of our public debt. In 1970 it was just
40% of gross domestic product, or about $425 billion. When it reaches
$18 trillion, it will be 40 times greater than in 1970." Who's to blame?
Not big-spending Dems, says Stockman, but "from the Republican Party's
embrace, about three decades ago, of the insidious doctrine that
deficits don't matter if they result from tax cuts."
Back "in 1981, traditional Republicans supported tax cuts," but Stockman
makes clear, they had to be "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."
OK, stop a minute. As you absorb Stockman's indictment of how his Republican party
has "destroyed the U.S. economy," you're probably asking yourself why
anyone should believe a traitor to the Reagan legacy. I believe party
affiliation is irrelevant here. This is a crucial subject that must be
explored because it further exposes a dangerous historical trend where
politics is so partisan it's having huge negative consequences.
Yes, the GOP does have a welfare-warfare state: Stockman says "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."
When Fed chief Paul Volcker "crushed inflation" in the '80s we got a
"solid economic rebound." But then "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 2009, they "reduced federal revenues to 15% of
gross domestic product," lowest since the 1940s. Still today they're
irrationally demanding an extension of those "unaffordable Bush tax cuts
[that] would amount to a bankruptcy filing."
Recently Bush made matters far worse by "rarely vetoing a budget bill
and engaging in two unfinanced foreign military adventures." Bush also
gave in "on domestic spending cuts, signing into law $420 billion in
nondefense 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." Takes two to
tango.
Stage 3. Wall Street's deadly 'vast, unproductive expansion'
Stockman continues pounding away: "The third ominous change in the
American economy has been the vast, unproductive expansion of our
financial sector." He warns that "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." Wrong, not oblivious. Self-interested Republican
loyalists like Paulson, Bernanke and Geithner knew exactly what they
were doing.
They wanted the economy, markets and the government to be under the
absolute control of Wall Street's too-greedy-to-fail banks. They conned
Congress and the Fed into bailing out an estimated $23.7 trillion debt.
Worse, they have since destroyed meaningful financial reforms. So Wall
Street is now back to business as usual blowing another bigger
bubble/bust cycle that will culminate in the coming "American
Apocalypse."
Stockman refers to Wall Street's surviving banks as "wards of the
state." Wrong, the opposite is true. Wall Street now controls
Washington, and its "unproductive" trading is "extracting billions from
the economy with a lot of pointless speculation in stocks, bonds,
commodities and derivatives." Wall Street banks like Goldman were
virtually bankrupt, would have never survived without
government-guaranteed deposits and "virtually free money from the Fed's
discount window to cover their bad bets."
Stage 4. New American Revolution class-warfare coming soon
Finally, thanks to Republican policies that let us "live beyond our
means for decades by borrowing heavily from abroad, we have steadily
sent jobs and production offshore," while at home "high-value jobs in
goods production ... trade, transportation, information technology and
the professions shrunk by 12% to 68 million from 77 million."
As the apocalypse draws near, Stockman sees a class-rebellion, a new
revolution, a war against greed and the wealthy. Soon. The trigger will
be the growing gap between economic classes: No wonder "that during the
last bubble (from 2002 to 2006) the top 1% of Americans -- paid mainly
from the Wall Street casino -- received two-thirds of the gain in
national income, while the bottom 90% -- mainly dependent on Main
Street's shrinking economy -- got only 12%. This growing wealth gap is
not the market's fault. It's the decaying fruit of bad economic policy."
Get it? The decaying fruit of the GOP's bad economic policies is destroying our economy.
Warning: this black swan won't be pretty, will shock, soon
His bottom line: "The day of national reckoning has arrived. We will not
have a conventional business recovery now, but rather a long hangover
of debt liquidation and downsizing ... it's a pity that the modern
Republican party offers the American people an irrelevant platform of
recycled Keynesianism when the old approach -- balanced budgets, sound
money and financial discipline -- is needed more than ever."
Wrong: There are far bigger things to "pity."
First, that most Americans, 300 million, are helpless, will do nothing,
sit in the bleachers passively watching this deadly partisan game like
it's just another TV reality show.
Second, that, unfortunately, politicians are so deep-in-the-pockets of
the Wall Street conspiracy that controls Washington they are helpless
and blind.
And third, there's a depressing sense that Stockman will be dismissed as
a traitor, his message lost in the 24/7 news cycle ... until the final
apocalyptic event, an unpredictable black swan triggers another, bigger
global meltdown, followed by a long Great Depression II and a historic
class war.
So be prepared, it will hit soon, when you least expect.
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