How my Republican Party destroyed the American economy
The "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."August 1, 2010
Cue the FoxNews denunciations.
David Stockman, director of the Office of Management and Budget under President Ronald Reagan, has dared to call out his own party for creating our current economic problems. His NYT op-ed, "Four Deformations of the Apocalypse," begins:
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.
Given our long-term deficit problem, Stockman said it is "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."
UPDATE: Huffpost reports that in an interview today on NBC's Meet the Press, "Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being `disastrous' for the economy."
Here are some more excerpts from Stockman's must-read piece:
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 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.
Good to see Stockman abandon his infamous "starve-the-beast argument, that tax cuts would force government to cut spending."
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.
There's only one piece of GOP orthodoxy even Stockman can't bring himself to take on the need for government policy to rebuild the U.S. industrial base:
The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by 12 percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.
Well, the bold-face identification of the problem is right, but a major reason we have hollowed out the larger American economy is that the GOP have succeeded in blocking almost every major progressive effort to increase investment in infrastructure and R&D and other key aspects of a 21st century economy when Democrats were in charge, and they cut funding in those crucial areas when they were in charge. This effort will only intensify in the coming years.
So Stockman has only this solution:
It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans paid mainly from the Wall Street casino received two-thirds of the gain in national income, while the bottom 90 percent mainly dependent on Main Street's shrinking economy got only 12 percent. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy.
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 as suggested by last week's news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, 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.
That would perhaps get our economic house in order in a narrow sense assuming we deferred the balanced budgets until after the recovery is much further advanced. But it would continue the decline of our relative competitiveness to our major trading competitors.
Still, considering the source, this is an Emperor-has-no-clothes moment for the GOP. At least until the rest of the conservative kingdom turns on him.
Related Think Progress posts from today: