The President Wonders "How Did We Get Here?"

In Sunday's New York Times, there is this gem:

The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, "scared the hell out of everybody."

It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

"How," he wondered aloud, "did we get here?"

The short answer is Milton Friedman, Arthur Laffer, Robert Hall, Jude Wanniski, Robert Mundell and Michael Boskin in theory as well as Ronald Reagan, Donald Regan, James Baker, Newt Gingrich, and Alan Greenspan among many others in practice. A longer answer would take a volume but to perhaps put it succinctly for 28 years the Republican party has advocated a deadly framework of economic policies revolving around lower taxes, free markets and free trade. And within this mix is the answer to how we got "here".

The conservative recipe for economic prosperity had three main ingredients: cut taxes, low inflation through monetary policy controls and free the market which is an euphemism for unfettered and unregulated markets. The first and last are simply toxic to any large economy. Low inflation is a laudable goal but it's not clear that monetary policy alone is capable of controlling inflation. From the early 1980s through this year, one can make the case that inflation was largely the result of one key factor, we had cheap energy prices. Absent that, inflation can rear its ugly head at any point and earlier this year as oil prices approached $150 a barrel we began to see global inflation tick up. And tapping China's cheap and vast labor reserves also has been a significant factor in checking global inflation since 1991. Both of these factors are outside the control of US monetary policy.

Cutting taxes was the conservative panacea for increasing the rate of savings but when all is said and done cutting taxes has done nothing to increase the overall savings rate of Americans (it's actually fallen since 1997). As James Galbraith has noted point-number one about supply-side economics is that it is "a doctrine that rests on the effect of an incentive directed at an extremely small group number of people." And thus the only thing that mattered is whether that small number of Americans controlled a significantly large amount of the nation's total income so that it actually made a difference in terms of the overall savings rate whether they could be induced to save more. It's fair to say we have had an uptick in personal consumption among that targeted 1% of Americans that the GOP's tax policies have favored, it's less clear that their propensity to invest has been sparked.

Deregulation is the other mantra of the conservative economic philosophy. It's a large part of what they mean by free markets (the other main components of free markets is what they call economic freedom and free trade). But deregulation especially in the financial markets has led to a "criminal misdirection" of the nation's financial sector. From the savings and loans crisis of the late 1980s to the subprime mortgage crisis of today, once reputable firms and individuals were simply induced to commit financial crimes of ever greater proportion in pursuit of holier profits as they were freed of the constraints of government regulation. You can take just about any industry and find a culprit. Deregulation of the coal industry leads to the Bob Murrays of this world. Again, it's hard not to think of Murray Energy as not being a criminal enterprise.

But let's talk about what "here" really means. This is Linda Bilmes and Joseph Stiglitz describing "here":

The worst legacy of the past eight years is that despite colossal government spending, most Americans are worse off than they were in 2001. This is because money was squandered in Iraq and given as a tax windfall to America's richest individuals and corporations, rather than spent on such projects as education, infrastructure, and energy independence, which would have made all of us better off in the long term.

President Bush did manage, by way of deficit spending, to grow the economy by 20 percent during his tenure. But who benefited from that growth? Between 2002 and 2006, the wealthiest 10 percent of households saw more than 95 percent of the gains in income. And even within those rarefied strata, the gains tended to be concentrated at the very top. According to one study, the nation's 15,000 richest families doubled their annual income, from $15 million to $30 million. And in that same period, corporate profits shot up by 68 percent--more than five times the growth seen in the overall economy.

Even as the wealthiest families have increased their holdings, the families at the center of the income spectrum saw their incomes shrink by 1 percent. In 2000, the average weekly earnings of production and nonsupervisory workers (70 percent of the workforce) amounted to $527 (in current dollars). Six years later, their wages had risen a mere $11, and those same workers have meanwhile seen their net worth (assets minus liabilities) wither as a result of falling home values, higher personal debt, and shrinking savings--factors now being exacerbated by the collapsing stock markets.

The worst legacy of the past eight years is that despite colossal government spending, most Americans are worse off than they were in 2001. This is because money was squandered in Iraq and given as a tax windfall to America's richest individuals and corporations, rather than spent on such projects as education, infrastructure, and energy independence, which would have made all of us better off in the long term.

President Bush did manage, by way of deficit spending, to grow the economy by 20 percent during his tenure. But who benefited from that growth? Between 2002 and 2006, the wealthiest 10 percent of households saw more than 95 percent of the gains in income. And even within those rarefied strata, the gains tended to be concentrated at the very top. According to one study, the nation's 15,000 richest families doubled their annual income, from $15 million to $30 million. And in that same period, corporate profits shot up by 68 percent--more than five times the growth seen in the overall economy.

Even as the wealthiest families have increased their holdings, the families at the center of the income spectrum saw their incomes shrink by 1 percent. In 2000, the average weekly earnings of production and nonsupervisory workers (70 percent of the workforce) amounted to $527 (in current dollars). Six years later, their wages had risen a mere $11, and those same workers have meanwhile seen their net worth (assets minus liabilities) wither as a result of falling home values, higher personal debt, and shrinking savings--factors now being exacerbated by the collapsing stock markets.

Here is not where we want to be and it matters that we are perfectly clear on the why we are here and the who is responsible for us being here. To name a few this is on Milton Friedman, Arthur Laffer, Robert Hall, Jude Wanniski, Robert Mundell and Michael Boskin, Ronald Reagan, Donald Regan, James Baker, Newt Gingrich, and Alan Greenspan and most especially George W. Bush.

Tags: Bushonomics, Supply-side Economics, US Economy (all tags)

Comments

12 Comments

no, you're all wrong

It was all caused by ACORN and the Community Reinvestment Act, as well as unions making American business uncompetitive.

Just kidding, but those seem to be the preferred wingnut talking points to explain away the disastrous economic situation we find ourselves in.

Making the case that wrong-headed conservative ideology is to blame will be difficult on a mass scale.

The sad irony is that with real wages stagnant or declining for a long time, and huge numbers of Americans working for low pay and no benefits, it is easy for the right-wing noise machine to make the case that "overpaid" union members or mortgages issued to (hint, hint) people in "bad neighborhoods" are the proximate causes of the meltdown.

I have no idea how to communicate the points you are making to the broader public.

by desmoinesdem 2008-12-20 11:13PM | 0 recs
It's all in "the elevator speech"...

"During Bush's eight years in office, it's statistically proven that the rich got richer and the poor got poorer. Without proper regulations in place, and a will to enforce them by those in power, it's also historically been proven now--and not for the first time but perhaps most blatantly--that given a lack of oversight, the haves will rape and pillage not just our economy, but every one and every thing else (from destroying our environment to basic scientific fact to the most humanitarian guidelines for societal behavior) in our country and throughout the world, to the point of grossly ignoring our Constitution and the basic rule of law, in general.

Repeat that enough times, and it will sink in. (Just remember all of those folks that still think we're in Iraq because we went there to "defeat al Qaeda.")

As Paul Krugman referenced it in Friday's NY Times, it's the "Madoff Economy." (I call it "The Matrix Economy.")

Everything "we know" is wrong. (Glib...snarky...but true.) Just ask Greenspan!

 

by bobswern 2008-12-21 02:53AM | 0 recs
Good thought, Framing needs work

Good Start.  I agree with your sentiments, but I'm a wonk.  You don't create a picture that people will empathize with.  It does not hit me in the gut.  Until it does that, it doesn't work, it's intellectual drivel.  I try to frame things to hit my college age employees and grab their attention as politics are the last things on their minds. Let's see if this works better.  

"During Bush's eight years in office, the rich got richer and fewer, those not rich got poorer and greater. Without proper regulations in place; Greed will Prevail. A lack of oversight, and the will to enforce it allows the rape and pillage not just our economy, but our Constitution and the basic rule of law."

Without saying it, I think that this re-framed does two things to kick the average listener in the gut: (A) the first statement says that 'unless you are already there, there is no American dream for you.' (b) Without a willingness to regulate fairly, you are Anti-American. Hard for the Republicans to fight unless they admit they're Anti-American (lol).

During the Kerry campaign, over at DailyKos we had an elevator speech (framing) thread (what do Dems stand for), that came up with some good stuff.  Not only was it fun, but it was educational, we were practicing framing without knowing it.

I've sensed that we are focusing on our own issues again and loosing the ability to frame the issues and push the movement froward.  I know the Republicans are already ahead of us on this, the success of Prop 8 shows it; Their frame was it's a gay (family values) thing. We failed to properly frame it as a civil rights thing...until it lost.  We need to get back to framing, you've got a good start here.

Krugman was right to call it the Madoff Economy. It calls them the crooks they are, and the kids have heard of that guy (setting up the negative frame).  The Matrix is in fantasy land, and it's abstract. Proper framing goes for the gut.

by NvDem 2008-12-21 05:50AM | 0 recs
You're spot-on except for one thing...

...today's youth and twenty-somethings are much more aware of the storyline behind "The Matrix" than the much smaller percentage that are up on their knowledge of Bernie Madoff. (The majority don't even know the names of their current rep's in Congress.)

Pop culture, and the understanding of the story lines behind the variously popular vehicles that have arisen in it, withstand time.

Just think of this one: "There's no place like home."

That's something like 70 years old!

by bobswern 2008-12-21 06:41AM | 0 recs
Re: You're spot-on except for one thing...

I understand the Matrix, I still think it's too vague, and besides the good guy wins.

I'm betting that before this is over, Madoff is going to have the same tinge and notoriety to the Bush Economy that some Italian immigrant named Charles Ponzi gave to get rich quick schemes, and just as popular a name for children as Benedict Arnold is.

by NvDem 2008-12-21 09:06AM | 0 recs
Re: "How Did We Get Here?"

And you may find yourself living in a shotgun shack
And you may find yourself in another part of the world
And you may find yourself behind the wheel of a large automobile
And you may find yourself in a beautiful house, with a beautiful
Wife
And you may ask yourself-well...how did I get here?

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/after the moneys gone
Once in a lifetime/water flowing underground.

And you may ask yourself
How do I work this?
And you may ask yourself
Where is that large automobile?
And you may tell yourself
This is not my beautiful house!
And you may tell yourself
This is not my beautiful wife!

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/after the moneys gone
Once in a lifetime/water flowing underground.

Same as it ever was...same as it ever was...same as it ever was...
Same as it ever was...same as it ever was...same as it ever was...
Same as it ever was...same as it ever was...

Water dissolving...and water removing
There is water at the bottom of the ocean
Carry the water at the bottom of the ocean
Remove the water at the bottom of the ocean!

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/in the silent water
Under the rocks and stones/there is water underground.

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/after the moneys gone
Once in a lifetime/water flowing underground.

And you may ask yourself
What is that beautiful house?
And you may ask yourself
Where does that highway go?
And you may ask yourself
Am I right? ...am I wrong?
And you may tell yourself
My god!...what have I done?

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/in the silent water
Under the rocks and stones/there is water underground.

Letting the days go by/let the water hold me down
Letting the days go by/water flowing underground
Into the blue again/after the moneys gone
Once in a lifetime/water flowing underground.

Same as it ever was...same as it ever was...same as it ever was...
Same as it ever was...same as it ever was...same as it ever was...
Same as it ever was...same as it ever was...

by HippySuperstar 2008-12-21 03:35AM | 0 recs
Sublime lyrics! n/t

by bobswern 2008-12-21 03:53AM | 0 recs
I have loved the Remain in Light album

since Jonathan Demme's movie introduced me to the Talking Heads music around 1984. To my eternal regret, they played a concert in Des Moines before I really knew their music, and I missed it. Of course they haven't toured in more than 20 years.

Anyway, I got out the Remain in Light album a couple of years ago, and my kids (toddler/preschooler age) love it. The music holds up so well. Of course they don't understand the lyrics, and it's not easy to explain when they ask me what the words mean!

by desmoinesdem 2008-12-21 03:57AM | 0 recs
Byrne's just released another CD!

I don't know anything about it, but I heard a great cut from it on a local college station (Fordham University, WFUV-FM, certainly one of the top college radio stations in the US...lots of the old "alums" from the legendary WNEW-FM are on it) here in the NY area, last week.

by bobswern 2008-12-21 04:11AM | 0 recs
Re: "How Did We Get Here?"

Gaaa!  You beat me to it.

by mistersite 2008-12-21 06:39AM | 0 recs
Re: "How Did We Get Here?"

It won't be his beautiful house for much longer.

by jlars 2008-12-21 06:39PM | 0 recs
"How Did We Get Here?"

This is Ground Zero for the Right Wing.

The foundation of their movement is "free market capitalism", and they will fight to the death to preserve their dream.

This seminal post shows us exactly what we need to do to put this anti-social, anti-American movement under extreme pressure:  Facts have always been their worst enemy.

We have to fight against their sympathizers and propaganda wing at every turn, for they will be working tirelessly to shift blame, find scapegoats, lie, distort, pander, redact, revise, and retroactively change history.

Just listen to HateRadio:  The poster above is 100% right in putting the spotlight on their current marching orders and purpose.

Conservatives know their lives are in danger, and they will continue to fight like the cornered rats they are.

We must, must speak out, speak up, and not allow statements, Editorials, and Op-Ed's to go unchallenged.

by dembluestates 2008-12-21 06:08AM | 0 recs

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