Friday, March 06, 2009

How the Bush Administration Bankrupted America; How the Obama Administration can Restore America's Prosperity

Conservatives are like the comedian Rodney Dangerfield these days, they can't get no respect. In the public mind, figures like Rush Limbaugh, Bobby Jindal, Joe the Plumber, and Sarah Palin are a source of bemusement, a slightly annoying but nonetheless chuckle-producing diversion from the calamities the conservative movement helped engineer.

The same cannot be said, alas, for conservative commentators like Charles Krauthhammer, Michael Gerson, and Sean Hannity (a trio of humorless blowhards oozing animus from every pore). I suspect their vinegary dispositions stem from the fact that their most cherished beliefs are constantly at variance with reality. As William James recognized, there is nothing more painful than false belief.

The financial pain America is currently facing can be traced to a set of false beliefs that constitute the core of conservatism's economic doctrine. These discredited principles include: the notion that tax cuts pay for themselves, the idea markets are self-correcting, and the belief that deregulation serves the common good.

Tax cuts are to conservatives what crack cocaine is to lab rats. The basic idea behind supply-side economics is that taxes must be lowered on America's most productive (i.e., wealthiest) citizens because they alone possess the wherewithal to put capital to work. Conversely, transferring resources to the poor, so the thinking goes, will only insure that wealth is squandered on unproductive forms of consumption.

The wealthy received their tax breaks under the Bush administration, but the promised investment glut never materialized. Conservatives have peddled the notion that taxes are a form of punishment, or a disincentive to productivity. But a truer view of taxes comes from Oliver Wendell Holmes, who held that taxes are the price of civilization. If Holmes is right, then it follows that those who benefit the most from society (i.e., the wealthiest) owe the greatest share in return.

The origins of the current financial crisis are complex. Americans had been living beyond their means on borrowed credit for too long. The United States staked its future on financial services and products, as opposed to manufactured goods. To make up for the trade deficit the United States borrowed heavily from countries like China to keep the good times rolling. Debt-ridden consumers, however, found they could no longer afford to products once housing prices were undermined by deadbeat sub-prime borrowers. By this stage, as British historian Niall Ferguson observes, the United States has become a sub-prime superpower.

To reverse America's economic fortunes, the Obama administration must increase the earnings power of the vast majority of ordinary Americans. Doing this will require substantial and sustained investment to upgrade public education, our healthcare system, and our infrastructure. Investments along these lines are necessary to insure that Americans are the brightest, healthiest, and productive workforce on the planet. When we are once again making the products and services the world wants to buy, then incomes will rise. This will revitalize consumer spending, leading to corporate profits, which will translate into rising stock prices.

Tax cuts disproportionally aimed at the wealthy did not lead to broad-based income gains or the kind of investments America needs to ensure sustainable prosperity. Free market fundamentalism has also proved to be a false creed. Put simply, if the last eight years have shown anything it is that free markers do not inexorably allocate resources efficiently or rationally. In fact, free market fundamentalism has proven to be nothing but a cover for crony capitalism, whereby the powerful and well-connected rewarded themselves by feeding at the public trough. The fact that the financial wizards that created the current crisis walked away with billions, while America's healthcare, education, and infrastructure needs were starved, illustrates the total intellectual and moral bankruptcy of free market fundamentalism.

Looting the financial system and cannibalizing companies could not have happened to the extent it did without wholesale deregulation. The invasion of Iraq was another conservative enterprise predicated on false premises that helped bankrupt the United States, and not just economically but morally too. Of course, conservatives are loath to admit they are wrong, which explains why Krauthhammer and others are trying to portray the Iraq War as a victory. A pyrrhic victory, perhaps, but mostly the Iraq War has been a strategic debacle that siphoned America's blood and treasure in a failed bid to leverage our military might to transform the Middle East. As the historian Arnold Toynbee recognized, societies that attempt to remake far off outposts on the periphery of empire are invariably less successful than societies that remake themselves.

Revitalizing America is a herculean task facing Obama. Conservative commentators have generally heaped scorn upon the Obama administration's approach, which will make government a more central partner in shaping the economic landscape of the future. As Michael Gerson ludicrously puts it, "governments don't invest, they spend." Obviously, Gerson is thinking of the Bush administration, not the far-sighted administrations that initiated the GI bill, the interstate highway system, and the Internet.

Krauthammer is even more obtuse than Gerson. The dyspeptic Krauthammer completely fails to see how healthcare has anything to do with the current financial crisis or its cure. Let me enlighten this vapid windbag. The current healthcare system is an inefficient monstrosity with private insurance companies gobbling up resources to feed a vast bureaucratic apparatus collecting premiums from those who don't need healthcare while denying treatment to those who need it.

Ok, that's a bit of a caricature, but it captures an essential truth: private insurers represent a vast layer absorbing our healthcare dollars, but this layer does not deliver healthcare. This system has become an albatross for businesses and individuals. For instance, the cost of health insurance has to be factored into every product, which makes U.S. goods less competitive. Additionally, it stifles individual initiative – i.e., under the current system, employees will be less inclined to leave dead end jobs to pursue more rewarding opportunities if they fear they'll lose their health coverage in the process.

Conservatives like Krauthhammer, Gerson, and Hannity appear congenitally incapable of connecting the dots. These guys are like Rodney Dangerfield – the joke always seems to be on them and they don't get no respect.

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