When even the faithful start despairing of how their core economic principles have been tossed on the ash heap, one can but wonder at the foment and disarray that characterize the political arena these days.
One of the most stinging critiques of the politics and fiscal mismanagement leading to The Great Financial Meltdown was delivered in a recent New York Times op ed piece by David Stockman, who was director of the Office of Management and Budget under President Reagan and the chief architect of “Reaganomics.”
Only thing, his criticism was of his own party.
“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,” he wrote in the article, “Four Deformations of the Apocalypse.”
“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.”
The first of the “deformations” of the national economy, Stockman says, was the Nixon administration’s default on U.S. obligations under the Bretton Woods agreement, and since then the U.S. has “lived beyond our means,” resulting in “borrowed prosperity on an epic scale.”
The “second unhappy change,” Stockman says, has been “the extraordinary growth of our public debt … not from big spending by the Democrats, but instead the Republican party’s embrace … of the insidious doctrine that deficits don’t matter if they result from tax cuts.”
The much-vaunted tax cuts under President Bush were not matched by spending cuts, he notes, and government expenditures ballooned due to massive “welfare and warfare” programs. While deriding Democrats as the Tax and Spend Party, Republicans themselves were throwing fiscal conservatism to the winds and becoming the Spend But Don’t Tax Party.
The third “ominous change,” the “vast, unproductive expansion of our financial sector,” was abetted, he says, by Republicans “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 … (then using) virtually free money from the Fed’s discount window to cover their bad debts.”
Fourth, Stockman says, was the steady export of American jobs and production to other countries. “In the past decade, the number of high-value jobs … has shrunk by 12 percent, from 77 million to 68 million.”
Now, the “day of national reckoning has arrived,” he says, and rather than the conventional business recovery many in the current administration are desperately hoping for, he sees instead “a long hangover of debt liquidation and downsizing.”
While Stockman’s views are likely to be dismissed by many in his party as traitorous, and while the Washington establishment continues to suck up to Wall Street, a great nation tippy-toes on egg shells, fearing yet another, perhaps worse, meltdown.