When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image. We thought we were flying. Well, we just met the sudden stop at the end. The laws of gravity, it turns out, still apply. You cannot tell tens of thousands of people that they can have the American dream ”” a home, for no money down and nothing to pay for two years ”” without that eventually catching up to you. The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America.
Our financial bubble, like all bubbles, has many complex strands feeding into it ”” called derivatives and credit-default swaps ”” but at heart, it is really very simple. We got away from the basics ”” from the fundamentals of prudent lending and borrowing, where the lender and borrower maintain some kind of personal responsibility for, and personal interest in, whether the person receiving the money can actually pay it back. Instead, we fell into what some people call Y.B.G. and I.B.G. lending: “you’ll be gone and I’ll be gone” before the bill comes due.
Yes, this bubble is about us ”” not all of us, many Americans were way too poor to play. But it is about enough of us to say it is about America.
We have been away from the basics for a long time. And it will not turn around under Obama. You can’t get elected on a sound financial program. Even the Republicans finally learned that. You must buy votes through largess. And that means wealth redistrubution through taxes, at least so long as there are more voters who get than pay.
Just like back in Roman times, huh? Bread and circus.
More or less.
Friedman just can’t bring himself to finger the real culprits here. Too many sacred oxen would be lined up for the blade, alas.
“You can’t get elected on a sound financial program” —#1
Well, in 2000, Al Gore sought to continue the Clinton Administration’s surpluses and balanced budgets. Had those policies continued, we’d be close to paying off the government’s publicly held debt. But perhaps you’re right: the crass expediency of the last 7 years stands as a warning to fiscal conservatives.
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“Even the Republicans finally learned that”
No, the Republicans have led the way to deficit disaster, ever since Ronald Reagan took office in 1981. To rationalize the gaping deficits pioneered under Reagan, Republican ideologues like Grover Norquist came up with the idea that making the government a fiscal cripple is a righteous act because it precludes governmental activism.
“No, the Republicans have led the way to deficit disaster, ever since Ronald Reagan took office in 1981.”
Ahem. Which political party was in control of congress during the Reagan years? [Hint: Tip O’Neal was Speaker of the House.]
Which political party was in control of congress during the Clinton years in which the deficit was reduced? [Hint: Newt Gingrich was Speaker of the House.]
Which political party was in control of congress during the last year an a half, the time period in which the current market collapse occurred? [Hint: Nancy Pelosi is Speaker of the House.]
Specifically, which branch of government is required by law to initiate all government spending? [Hint: It is the branch of government that [i]has[/i] a Speaker of the House.]
Despite Liberal screeds claiming exclusive Republican malfeasance with the national debt, the facts indicate a reality that they seem incapable of grasping.
While I am no fan of George W. Bush, and the Republicans have earned my emnity and the moniker of “Republicrat” from me, it is important to remember that this President inherited the dot.com collapse, 9/11, and an oil shock the likes of which have not been seen since the early 1970s. He has also faced an unrelentingly hostile press corps with a definite liberal bias. I am making no apology for the dismal performance of the Bush administration, but facts are facts. These have been difficult times, and would have proven a great challenge for even the most gifted of presidents.
Perhaps, in the end, the luck of the draw plays a greater role than the skill of the player.
[blockquote]Well, in 2000, Al Gore sought to continue the Clinton Administration’s surpluses and balanced budgets. Had those policies continued, we’d be close to paying off the government’s publicly held debt. [/blockquote]
The balanced (sorta…there was some chicanery involved, too) budgets of the Clinton era were due to two primary factors: a Republican Congress and the dot-com bubble. The former significantly restrained spending (much to the wails of Democrats) and the latter greatly increased revenues. Bush was already behind the 8-ball, revenue-wise, when he came into office as the bubble was popping.
Of course, it didn’t help when he set out on a spending spree on useless boondoggles like prescription drugs for Medicare and NCLB. And then there was 9-11….
But I wonder: Where will the Democrats cut spending?
The real culprits, not merely the proximate-cause villains, are the American people who have forgotten what self-discipline and self-restraint mean, and who thought that get=rich=quick was the American Dream. And why not? After all, if you own seven credit cards, think about how much free money you have! Wow! McClain needs to stand up, point a finger at the public and tell them: You are the prime cause, and it is time you changed your ways. YOU change your ways, and WE’LL make legislation institutionalizing it. Larry
Irenaeus, the Democrats taught the Republicans that they have to give people money to be elected. I do not excuse the Republicans, but the Democrats set the example and are the past masters.
There is a basic principle that needs to be applied to all of life — actions and ideas have consequences. We and the world are now living with the consequence of actions taken based upon flawed ideas. Pointing the finger is no good, merely an attempt to get ourselves off the hook. There is a such a thing as corporate culpability and almost all of us are implicated in some way, if only in terms of our shared greed and human fallenness.
“The Democrats taught the Republicans that they have to give people money to be elected” —#9
A self-servingly selective view of history.
Reagan took office promising to cut taxes and balance the budget (which was, in fact, already balanced under Carter). Having taken power, Reagan embraced a strategy of cutting taxes without making offsetting spending cuts. No one made him do it; he chose to do it. He didn’t need to do it “to be elected”; he had already been elected.
Reagan led the way to unprecedented deficits. He showed that you can, with a little cant about small govuernment and fiscal responsibility, reap the political advantages of colossal fiscal irresponsibility without paying a serious political price. His successors, Bush I and Bush II, did much the same. Al Gore offered a realistic fiscal agenda and, well, did not actually become president.
Small wonder that neither McCain nor Obama’s fiscal proposals add up; they have both, tragically, concluded that in presidential politics fiscal responsibility no longer pays.
11, no more than you. I remember the Democratic demogogary when the Rebublicans tried to be fiscaly responsible. I think the Rebublicans simply gave up in order to get elected. I agree with your last sentance however.
“I remember the Democratic demogogary when the Rebublicans tried to be fiscaly responsible”
When was that? During the 1950s?
Whenever the Rebublicans tried to get serious about Medicare and Social Security. You know, I am willing to blame the Republicans for selling out their principles of fiscal responsibility in order to get elected, but if you want to play the “Democrats can’t do anything wrong and bear no responsibily” then fine. End of discussion.
“If you want to play the ‘Democrats can’t do anything wrong and bear no responsibily’ then fine.”
I don’t and never have. I agree that Democrats have done more than their share of demagoguing Social Security issues over the years.
(On the other hand, the “reform” proposals offered by the current President Bush actually stymied the reforms that would have put Social Security on a more solid financial foundation: e.g., modest, phased-in changes in eligibility criteria and the age at which one receives full benefits.)
#11 Carter submitted a proposal for a balanced budget for the year 1981 by which time he was voted out. In his years as President, he has never enacted a balanced budget.
I doubt we’ve had fiscally responsible Presidents since the ’50s…
“#11, Carter submitted a proposal for a balanced budget for the year 1981 by which time he was voted out. In his years as President, he never enacted a balanced budget” —JGeorge [#16]
WRONG! Fiscal year 1981 began while Carter was president. Carter sent his fiscal 1981 budget proposal to Congress in January 1980. Congress adopted the budget that summer. Carter signed the fiscal 1981 appropriation bill into law on Oct. 2, 1980. The budget yielded a surplus.
“I doubt we’ve had fiscally responsible Presidents since the ‘50sâ€
Clinton inherited mammoth federal deficits and a limping economy. Unlike GW Bush, Clinton was willing to take politically unpopular action to cut the deficit. His budgets cut the deficit in half during his first term and ultimately yielded surpluses. He stood for budget balance at a time when many said it didn’t matter or couldn’t be done.
— Reagan and GHW Bush presided over huge deficits. This was so even though, as they often reminded us, they also presided over the theretofore longest peacetime economic expansion in American history—an expansion that lasted until 1992.
— — Here are the annual deficits under Reagan: fiscal 1982, $128 billion; 1983, $208 billion; 1984, $105 billion; 1985, $212 billion; 1986, $221 billion; 1987, $150 billion; 1988, $155 billion; 1989, $153 billion. Red, red, as far as the eye could see.
— — Here are the annual deficits under GHW Bush: 1990, $221 billion; 1991, $269 billion; 1992, $290 billion; and 1993, $255 billion. More red, as far as the eye could see.
— Clinton took office in 1993 pledging to cut the federal deficit in half within four years. He persuaded the Democratic-controlled Congress to enact a package of spending cuts and tax increases designed to achieve that goal. This was not an obvious or politically popular step to take. The economy was still very weak. We know in hindsight that the recession had ended, but recovery was not obvious at the time (and when economists ultimately did verify it, they called it a “jobless recoveryâ€).
— Every single Republican in Congress voted against Clinton’s budget package. Republican leaders repeated likened the budget to the 1930 Smoot-Hawley Tariff Act, which deepened the Great Depression. The budget squeaked through the House of Representatives by one vote.
— But the results validated the Clinton-Rubin position: that slashing the deficit, and thus allaying fears of inflation, would lower long-term interest rates and thereby promote investment and sustainable economic growth. That is exactly what happened. Inflationary fears raise real interest rates and also encourage people make nonproductive investments in gold, collectibles, and other tangible assets. High interest rates discourage equity investment. Why take the risk of buying stock if you can get a plump, safe return buying government or blue-chip corporate debt? Clinton’s policies effected a huge, lasting reduction of long-term interest rates and inflationary expectations. Those policies also drove down the price of gold.
— Clinton played a decisive role in restraining tax cuts by the Republican Congress. For Republican leaders like Gingrich, Armey, and DeLay, fiscal responsibility took a sorry second place to tax cuts. Those Republicans settled for deficit reduction because Clinton wouldn’t let them fund tax cuts for the affluent by running up the debt saddled on future generations.
— At the end of Clinton’s last budget, the total public debt stood at $5.7 trillion. Under GW Bush, the debt has now risen to $10.3 trillion. Think about it: from 1775 to 2001 (a total of 226 years), the government amassed a total of $5.7 trillion in debt. During Bush’s first 7 years, the government incurred an additional $4.6 trillion in debt, most of it from years in which Republicans also controlled Congress.
— Had Clinton-era fiscal policies remained in effect during this decade, the government would have reduced the public debt by some $2 trillion.
— And what about the 1950s?
— — Eisenhower had 3 budgets in surplus: 1956, 1957, and 1960. These surpluses respectively amounted to 0.9%, 0.8%, and 0.1% of GDP.
— — Clinton had 4 budgets in surplus: 1998, 1999, 2000, and 2001. These surpluses respectively amounted to 0.8%, 1.4%, 2.4%, and 1.3% of GDP.
But don’t try to tell this to the dyspeptic right-wing commenters on this blog. They have their minds made up. Their preconceptions enfold them like a cozy security blanket.