AZspot

…the real explosion in the federal debt began under Ronald Reagan who cut taxes while increasing government spending to levels previously exceeded only during the four years of World War II. (After six years with spending over 22% of GDP and two years over 23%, Reagan left office with federal spending running at over 21%. By contrast, President Clinton left office with spending at 18.5% of GDP.) The result was that the national debt increased more than 400% from less than a trillion when Reagan took office to over $4 trillion when President Clinton and a Democratic Congress finally increased taxes again in 1993. The deficits during those years are even more dramatic when you state them in current dollars. In 2009 dollars (using the OMB year-end debt figures and the St. Louis Fed GDP deflator), Reagan and the first Bush ran up cumulative deficits of roughly $5 trillion. (This despite favorable demographics that resulted in entitlement spending to decline temporarily from 11.9% of GDP in 1983 to 10.1% in 1988. Last year, by contrast, the figure was 12.5%.) The turning point in this deficit story was the 1993 Budget Act, about which I have written before, which was designed to eliminate the record budget deficits inherited by President Clinton. It included a large overall increase in taxes and extended the pay-as-you-go budget rules. It passed without a single Republican vote in Congress by the closest possible margin – by one vote in the House and with Vice President Gore breaking a 50-50 tie in the Senate. Republicans predicted that the economy would collapse as a result. Instead, it produced record budget surpluses and the strongest economy in a generation. But the Democrats paid a price, as they were crushed in the 1994 elections and lost control of Congress. Unfortunately, the lesson that was learned in Congress was that fiscal responsibility doesn’t pay politically. daggatt ☀

Most of us came to the conclusion during the Bush years (if we hadn’t previously) that it was actually important that the people running our government be hitched to reality and base their policies on actual facts. I know this may sound unduly partisan, but it seems increasingly that Republicans believe that anything can be true if you just want it badly enough to be so. daggatt ☀

In particular, I think the populist anger is real and it is big, particularly against the financial bailout – and that is not necessarily partisan or right or left. If Democrats don’t deliver on meaningful financial reform, I think there will be a big backlash, including among Democratic voters. Democrats will also suffer if they don’t deliver on meaningful health care reform. But if Democratic members of Congress revert to form, get scared of their own shadows and pull back from any meaningful accomplishments, the story of the 2010 election could be all about turnout on the right (the Virginia governor race writ large). And that is not a pretty picture. daggatt ☀

Today, right-wingers profess their hatred of our government. But it was that government that won World War II and the Cold War. It was our government that built the interstate highway system and the Internet. It was our government that harnessed the power of the atom and put a man on the moon. It was our government that brought about rural electrification and built the Western water projects that made it possible for millions of people to live in deserts like Southern California, Nevada and Arizona. It was our government that created the first national parks, setting aside special places like Yosemite, Yellowstone and the Grand Canyon for future generations to enjoy (and those were controversial decisions at the time, as “conservatives” thought the government had no business putting such places off limits to exploitation). It was the GI Bill after World War II that sent a generation to college and allowed them to own their own homes and laid the foundation for the post-War prosperity and the creation of a broad middle class. And, yes, our government enacted revolutionary social policies like universal public education, the 40 hour work week, repeal of child labor, the minimum wage, Social Security, and Medicare (the latter two allowing Americans to grow old without fear of living in abject poverty with no health care). We also gave women the vote and passed laws making it illegal to discriminate against minority groups and women. The Civil Rights laws had to be enforced by the Federal Government against states that had institutionalized racial discrimination. (The result, as we know, is that the Southern states went from being solidly Democratic to being solidly Republican because many citizens of those states resented – and to this day still resent – the federal government forcing them to stop their apartheid policies.) We also passed laws to clean up our air and water – something “free markets” left to themselves can’t do because individual and corporate polluters don’t bear most of the costs of their polluting activities. daggatt ☀

When Lyndon Johnson signed the Civil Rights Act in 1964, he was said to have remarked to an aide as he put down his pen, “We have lost the South for a generation.” Alas, LBJ actually underestimated the backlash from his fellow Southern whites. The South, which had been solidly Democratic, quickly became solidly Republican. Almost two generations later, it still is. That solid block of Southern electoral votes has been the key to Republican power since Nixon adopted his “Southern Strategy” in 1968. To put it bluntly, Republican success over the past forty has been largely a function of its appeal to Southern whites alienated from the Democratic Party over racial issues. daggatt ☀

…Republicans think we should always increase military spending, even if we are already spending more on our military than the rest of the world combined. (Just as we should always cut taxes, even if we are fighting two wars and running record budget deficits.) But is there something about spending to fight a war – blowing things up and killing people – that is inherently more stimulative (let alone productive) than, say, developing alternative energy sources, or building a national high-speed rail system, or bringing medical records into the 21st Century? From a spending standpoint, World War II was just the New Deal on steroids and seems to support the view that FDR’s spending programs were too modest during the Great Depression. daggatt ☀

Personally, I think trying to prosecute people for this stuff would be counterproductive. As soon as a special prosecutor was named and a grand jury empanelled, all further releases of information would probably come to a halt because “it is the subject of a criminal investigation.” And I think it would be very hard to secure a conviction given the legal cover provided by the torture memos. It would be Hellish partisan warfare. Better to create an independent Truth Commission that has the power to grant immunity in return for testimony, as was done in South Africa. With immunity, no one can invoke his or her Fifth Amendment right against self-incrimination. And if they lie or hide evidence (as Cheney’s office did in the Valerie Plame affair), they can be prosecuted for perjury or obstruction of justice (as Scooter Libby was). So EVERYTHING comes out. Let’s put Cheney to the test. If he claims that “torture works,” let’s find out. Get all the facts on the table. At least we can ensure that a truthful historical record is created and that the perpetrators live with their public infamy. And it might help ensure that this type of thing never happens again – at least not in this country. daggatt ☀

How do you come up with a “bi-partisan compromise” with a party that believes, as the new Republican National Committee chairman Michael Steele said last week, that “Not in the history of mankind has the government ever created a job.” This is so dumb it makes my head hurt. And since it has become a regular Republican talking point, I guess it isn’t a “gaffe” or some random, off-hand comment. These guys seem to actually believe this stuff. Tell the more than one million active duty members of the US armed services that they don’t have “real” jobs. Or the policemen, firemen, teachers, librarians, judges, parks employees, foreign service personnel, etc., that their jobs aren’t real. Or the scientists and engineers that put men on the moon. Or the people that built the interstate highway system and the Internet backbone. I guess “real” jobs are the Masters of the Universe in the financial industry (which, until the recent crash, claimed almost 40% of the profits of the US economy). Real jobs like creating Collateralized Debt Obligations and Credit Default Swaps for which they got $18 billion in bonuses in 2008. It’s not like Steele is some random crank. He is the new leader of the Republican party. How do you come up with a compromise stimulus plan with people who think that no government has ever created a job in the history of mankind? daggatt ☀

I just heard a Republican making the case for a stimulus plan consisting of tax cuts over government spending by arguing that, “Government can’t create wealth – only the private sector can create wealth.” I’ve been hearing this a lot lately and it is just ridiculous on its face. How are the efforts of government workers fundamentally different from the efforts of private-sector workers? If you see someone out landscaping some property or sweeping a street, do you need to know who his employer is to figure out whether or not he is contributing to the economy? If a guy shows up at your door with a package does his economic contribution depend on whether he works for the postal service or UPS? By this logic, someone processing medical claims for veterans at the VA is a leech sucking wealth out of the economy while someone performing exactly the same task for Humana or Aetna is a valuable contributor to society. A private university like Stanford is a source of national wealth while a public university like the University of Washington detracts from that wealth. The interstate highway system is a creation of “government spending” and therefore, by definition, can’t be part of our collective wealth, but if you sold off a stretch of highway to foreign investors (as former Bush budget director and now Governor Mitch Daniels has been doing in Indiana) that new toll road now becomes a valuable asset. daggatt ☀

Here is the final accounting for the equity markets under Bush and Clinton: The Dow Jones Industrial Average went up from 3253 to 10,587 under Clinton (+325%). On Bush’s final day in office it closed at 7949 (-24.9 %). The S&P 500 went up from 447 to 1342 under Clinton (+300%). Under Bush it went down to 805 (-40%). The NASDAQ went up from 700 to 2770 under Clinton (+395%). It has gone down to 1465 under Bush (-47%). daggatt ☀

Seeing Frost/Nixon and Taxi to the Dark Side back-to-back made me realize, Nixon’s crimes really pale in comparison with those of Bush. Nixon abused his power and broke the law, and he paid a heavy price – resigning in disgrace barely ahead of an impeachment vote. But Bush institutionalized torture (in clear violation of international and US law), secret prisons, and the suspension of habeas corpus. He ordered his subordinates to defy subpoenas to obstruct justice. When one of his subordinates, Scooter Libby, was convicted of perjury and obstruction of justice, Bush perpetuated the underlying cover-up by commuting Libby’s sentence. The list goes on. daggatt ☀

The average recession since the Great Depression has lasted 10 months. That means the current recession is already longer than the average post-Depression recession. If it lasts through next April – and I don’t know of any economic forecasters who think it won’t – it will be longest since the Great Depression. (The Great Depression officially lasted 43 months, from August 1929 through March 1933. But the economy fell into a deep recession again in May of 1937 and the economy generally stagnated until World War II.) I expect the current recession will run into 2010. daggatt ☀

Given the current trajectory of the campaign, Obama should win. Given that, the last few weeks of the campaign will probably get VERY VERY ugly. I can’t imagine McCain and the Rove junior varsity running his campaign going down graciously. It will be interesting to see just how ruthless those thugs can get when they have nothing left to lose. Hold on to your hats. daggatt ☀

For all but a very small minority, Americans have collectively been getting poorer over recent years. The most recent economic expansion (that has either ended or stalled) is the first in US history where the real income of the average family actually declined. Only those in the top couple of percentiles of income captured all the gains from our economic growth during that time. And much, if not most, of that has gone to those in the financial industry who have gotten rich by moving money around. Those gains have been goosed with massive amounts of leverage – leverage that will saddle our economy for many years after the financial “Masters of the Universe” have retired to greener pastures. daggatt ☀