Who's to blame? Not those "big-spending Dems," says Stockman. Rather, it stems "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." (Their ideology was that tax cuts would stimulate the economy so much that the increased profits and income would more than make up for the deficits.)
Back "in 1981, traditional Republicans supported tax cuts," but as 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."
Stockman says our problems started with the fact that "the neo-cons were pushing the military budget skyward. In addition to that, 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 ideologically driven tax-cutters who killed the Republicans' old fiscal religion."
When Fed chief Paul Volcker "crushed inflation" in the '80s we got a "solid economic rebound." But then "these 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!" So, by 2009, they "reduced federal revenues to 15% of gross domestic product," lowest since the 1940s. And now they're irrationally demanding an extension of those "unaffordable Bush tax cuts, which would be tantamount to a bankruptcy filing."
Then George W. Bush made matters far worse by "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."
Deformation #3. Wall Street's 'vast yet unproductive expansion'
"The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector." Stockman warns that "Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money while at the same time removing traditional restrictions on leverage and speculation." But this is wrong; key Republicans have not been oblivious: Self-interested Republican loyalists like Paulson, Bernanke and Geithner knew exactly what they were doing, Stockman says they wanted the economy, markets and the government to be under the absolute control of Wall Street's too-greedy-to-fail banks. Accordingly they conned Congress and the Fed into bailing out $23.7 trillion worth of bank indebtedness. Worse, they have since destroyed or at least crippled meaningful financial reforms. The result: Wall Street is now back to business as usual, beginning 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, useless to the larger economy, is "extracting billions from that economy by means of a lot of speculation in stocks, bonds, commodities and derivatives " that does nothing for anyone else in the country. Wall Street banks like Goldman Sachs were virtually bankrupt, and would have never survived without government-guaranteed deposits plus "virtually free money from the Fed's discount window to cover their bad bets." And now that these banks have in this way recovered, they have resumed robbing the nation of hundreds of billions of dollars that could have otherwise been put to some larger, national, productive use.
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