While the new mantra of the current crop of Republicans in Congress is debt reduction and tax relief to get the economy going again, they should look at the role of their own party’s policies in creating the mess of an economy that we are all experiencing.
Let’s begin by taking a look at the Republican insistence on debt reduction as a pre-requisite to any budget deal. In the last three decades, supply-side Republican presidents have added more to the national debt that any previous Democratic president. When Ronald Reagan entered office with a promise to cut government and reduce the budget, the national debt stood at $1.9 trillion, when the champion of trickle down economics left office the national debt stood at $3.75 trillion, a staggering 97% increase. In just eight years, President Reagan increased the annual deficit from $99 billion to $252 billion. Most of this growing annual deficit and the huge increase in the national debt was a result of a bloated military budget and tax cuts targeted to corporations and the wealthiest Americans. While the US debt was growing so was the average household debt. In eight years, under Reagan’s trickle down economics, average household debt increased from 60% of income to 119%, making the average American household more vulnerable to the vagaries of the marketplace.
In spite of this growth in the debt, “Reaganomics” would continue to influence Republicans claiming that businesses and wealthy Americans needed to become unfettered by onerous taxes and regulations so that they could create jobs and lift the economy. Under Reagan, this march toward deregulation of the financial marketplace began with gutting the federal regulations on mortgage lending, put in place as a result of the first foreclosure crisis during the Great Depression. This first step toward financial deregulation demonstrated once again how we as a society are ahistorical (not a real word but it seems to work here). These mortgage lending regulations, and indeed the whole host of regulations governing the practices of the financial industry were put into place because they were needed to protect Americans against the veracious appetite of the banking industry.
Next, the administration and Congress focused on freeing the Savings and Loans from “onerous” federal regulations. This included steps such as lifting regulations on the types of investments they could make, allowing for riskier investments; changing the way S & L’s recorded assets and liabilities artificially inflating their bottom line, allowing them to take on more risk with less of a cushion to fall back on; and delaying the closure of insolvent S & L’s allowing them to take on more debt without sufficient reserves.
Inheriting the trickle down theory of supply side economics, which he once referred to as “voodoo economics,” and a national debt of $3.75 trillion, George Bush the First went about increasing the national debt by 59% in just four years to $4.98 trillion. Halfway into his presidency the bill began to come due from the Reagan administration’s deregulation of the Savings and Loan industry. As their risky and often ethically and financially questionable investments began to fail, what has been called the “greatest collapse of financial institutions since the Depression,” was under way. As in the current financial industry meltdown, the administration rode in on its white horse, committing taxpayer dollars to bail out wealthy bankers and investors. Once again demonstrating how our so-called free market system is in reality a hybrid economic system – socialism for the rich and capitalism for everybody else. By the time the dust settled on the S & L bailout, the government had spent $123.8 billion in taxpayer dollars, while the industry only put up $29.1 billion of its own.
But President Bush had a personal incentive to spend taxpayer dollars on the bailout. Two Bush sons, Jeb and Neil, were deeply involved in financial dealings in the S & L industry. At the ripe old age of 30, Neil Bush was made a director of the Silverado Savings & Loan. A mere three years later, Silverado closed costing taxpayers $1.66 billion. While a director, the younger Bush brother approved loans to businesses in which he had an interest and received a $100,000 loan, with no obligation to pay it back, from an individual doing business with the bank. At the same time, brother Jeb was defaulting on a $4.6 million loan from another S & L.
Bill Clinton entered the White House with an inherited national debt of $4.98 trillion. In his eight-year tenure, Clinton increased the debt by 13% to $5.64 trillion. While this increase may not be cause for celebration it was lest than one-quarter of the debt increase amassed by the previous administration in only four years. However, Clinton proved to us that free market deregulation and supply side economics are not solely the property of Republicans. As President, Clinton signed into law the most sweeping deregulation of the banking industry, sweeping away the fail-safe protections put in place after the Great Depression, lifting almost all of the restraints on the giant monopolies dominating the financial industry. The Financial Services Modernization Act of 1999 repealed the Glass-Steigall Act of 1932, which mandated the separation of investment banking from commercial banking, rules put into place as a result of the banking meltdown that caused the Great Depression. This paved the way for a spate of bank mergers and takeovers that created the myth of “too big to fail.”
Clinton and the Republican controlled Congress paved the way for the coming bank meltdown and George Bush, his successor in the White House, added into the mix his brand of supply side economics, clinching the sprint towards economic catastrophe. As President, George Bush quickly turned the Clinton budget surplus into record budget deficits and increased the national debt by 46% up to $8.2 trillion. He first began whittling the surplus down by sending out tax refund checks to American taxpayers, telling the public that they surplus was theirs to do with as they chose. Then we were gifted with the now famous Bush Tax Cuts that were targeted overwhelmingly to the wealthiest Americans. These were justified by the fantasy that if wealthy individuals paid less in taxes they would have more money to invest and create jobs. Although this has been proven wrong over time, and it is fact that the Bush tax cuts did not stimulate the economy nor prevent the coming meltdown, the Republican mantra still remains that taxes are job killers and that tax breaks will help to stimulate the economy.
So today we find ourselves in the middle of the Great Recession, with record unemployment, record numbers of children living in poverty and more than 50 million people without health insurance and we are still told that taxes and the debt are the real culprits. When in fact the only institution large enough to help us out from under is the federal government, and its only source of revenues are taxes. However, defying reality, the conversation has focused solely on cutting the debt. Not on creating jobs, supporting education, infrastructure improvements or clean energy. As long as the debate is on how to reduce the debt, the real problems facing everyday Americans will continue to be ignored. In the ongoing debate, government is the problem not the solution and all government programs that do not subsidize business or fund defense are on the chopping block. This means that the social welfare programs that prevent economic catastrophe for millions of American families and individuals have become expendable, seen as luxuries and not the legitimate role of a government that is responsible for the welfare of its citizens. As President Obama has so eloquently stated, the debate in Congress is “less about reducing the deficit than about changing the basic social compact in America.”
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