Reagan insider: 'GOP destroyed U.S. economy' ARROYO GRANDE, Calif. (MarketWatch) -- "How my G.O.P. destroyedthe U.S. economy." Yes,that is exactly what David Stockman, President Ronald Reagan's director ofthe Office of Management and Budget, wrote in a recent New YorkTimes op-ed piece, "Four Deformations ofthe Apocalypse."
Get it? Not "destroying."The GOP has already "destroyed"the U.S. economy, setting up an "American Apocalypse."
Yes, Stockman is equally damning ofthe Democrats' Keynesian policies. But what this indictment by a party insider -- someone so closetothe development ofthe Reaganomics ideology -- says about America, helps all of us better understand how America'stoxic partisan-politics "holy war" is destroying not just the economy and capitalism, but the America dream. And unlessthis war stops soon, both parties will succeed intheir collective death wish.
But why focus on Stockman's message? It's already lost inthe 24/7 news cycle. Why? We need some introspection. Ask yourself: How didthe great nation of America lose its moral compass and drift so far off course,to where our very survival isthreatened? We've arrived at a historicturning point as a nationthat no longer needs outside enemiesto destroy us, we are committing suicide. Democracy. Capitalism.The American dream. All dying. Why? Because ofthe economic decisions ofthe GOPthe past 40 years, saysthis leading Reagan Republican.
Please listen with an open mind, no matter your party affiliation:This makes for a powerful history lesson, because it exposes how both parties are responsible for destroyingthe U.S. economy. Listen closely:
Reagan Republican:the GOP should file for bankruptcy Stockman rushes intothe ring swinging like a boxer: "Ifthere were such athing as Chapter 11 for politicians,the Republican pushto extendthe unaffordable Bushtax cuts would amount to a bankruptcy filing.The nation's public debt ... will soon reach $18trillion." It screams "out for austerity and sacrifice." But instead,the GOP insists "that the nation's wealthiest taxpayers be spared even athree-percentage-point rate increase."
Inthe past 40 years Republican ideology has gone from solid principlesto hype and slogans. Stockman says: "Republicans usedto believethat prosperity depended uponthe regular balancing of accounts -- in government, in internationaltrade, onthe ledgers of central banks and inthe financial affairs of private households and businessestoo." No more.
Todaythere's a "new catechism"that's "little morethan money printing and deficit finance, vulgar Keynesianism robed inthe ideological vestments ofthe prosperous classes" making a mockery of GOP ideals. Worse, it has resulted in "serial financial bubbles and Wall Street depredationsthat have crippled our economy."
Yes, GOP ideals backfired, crippling our economy. Stockman's indictment warnsthat the Republican party's "new policy doctrines have caused four great deformations ofthe national economy, and modern Republicans haveturned a blind eyeto each one:"
Stage 1. Nixon irresponsible, dumps gold, U.S starts spending binge Richard Nixon's gold policies get Stockman's first assault, for defaulting "on American obligations underthe 1944 Bretton Woods agreement to balance our accounts withthe world." So forthe past 40 years, America's been living "beyond our means as a nation" on "borrowed prosperity on an epic scale ... an outcomethat Milton Friedman said could never happen when, in 1971, he persuaded President Nixonto unleash onthe world paper dollars no longer redeemable in gold or other fixed monetary reserves."
Remember Friedman: "Just let the free market set currency exchange rates, he said, andtrade deficits will self-correct." Friedman was wrong bytrillions. And unfortunately "once relieved ofthe discipline of defending a fixed value fortheir currencies, politiciansthe world over were freeto cheapentheir money and disregardtheir neighbors."
And without discipline America was also encouraging "global monetary chaos as foreign central banks runtheir own printing presses at ever faster speedsto sop upthetidal wave of dollars coming fromthe Federal Reserve."
Yes,the roadtothe coming apocalypse began with a Republican president listeningto a misguided Nobel economist's advice.
Stage 2. Crushing debts from domestic excesses, war mongering Stockman says "the second unhappy change inthe American economy has beenthe extraordinary growth of our public debt. In 1970 it was just 40% of gross domestic product, or about $425 billion. When it reaches $18trillion, it will be 40times greaterthan in 1970." Who'sto blame? Not big-spending Dems, says Stockman, but "fromthe Republican Party's embrace, about three decades ago, ofthe insidious doctrinethat deficits don't matter ifthey result fromtax cuts."
Back "in 1981,traditional Republicans supportedtax cuts," but Stockman makes clear,they hadto be "matched by spending cuts,to offset the way inflation was pushing manytaxpayers into higher brackets andto spur investment.The Reagan administration's hastily prepared fiscal blueprint, however, was no match forthe primordial forces --the welfare state andthe warfare state --that drivethe federal spending machine."
OK, stop a minute. As you absorb Stockman's indictment of how his Republican party has "destroyedthe U.S. economy," you're probably asking yourself why anyone should believe atraitortothe Reagan legacy. I believe party affiliation is irrelevant here.This is a crucial subject that must be explored because it further exposes a dangerous historicaltrend where politics is so partisan it's having huge negative consequences.
Yes,the GOP does have a welfare-warfare state: Stockman says "the neocons were pushingthe military budget skyward. Andthe Republicans on Capitol Hill who were supposedto cut spending, exempted fromthe knife most ofthe domestic budget -- entitlements, farm subsidies, education, water projects.
But inthe end it was a new cadre of ideologicaltax-cutters who killedthe Republicans' fiscal religion." When Fed chief Paul Volcker "crushed inflation" inthe '80s we got a "solid economic rebound." But then "the newtax-cutters not only claimed victory fortheir supply-side strategy but hooked Republicans for good onthe delusionthat the economy will outgrowthe deficit if plied with enoughtax cuts."
By 2009,they "reduced federal revenuesto 15% of gross domestic product," lowest sincethe 1940s. Stilltodaythey're irrationally demanding an extension ofthose "unaffordable Bushtax cuts [that] would amount to a bankruptcy filing."
Recently Bush made matters far worse by "rarely vetoing a budget bill and engaging intwo unfinanced foreign military adventures." Bush also gave in "on domestic spending cuts, signing into law $420 billion in nondefense appropriations, a 65% percent gain fromthe $260 billion he had inherited eight years earlier. Republicansthus joinedthe Democrats in a shameless embrace of a free-lunch fiscal policy."Takestwototango.
Stage 3. Wall Street's deadly 'vast, unproductive expansion' Stockman continues pounding away: "Thethird ominous change inthe American economy has beenthe vast, unproductive expansion of our financial sector."
He warnsthat "Republicans have been oblivioustothe grave danger of flooding financial markets with freely printed money and, at the sametime, removingtraditional restrictions on leverage and speculation."
Wrong, not oblivious. Self-interested Republican loyalists like Paulson, Bernanke and Geithner knew exactly what they were doing. They wantedthe economy, markets andthe government to be underthe absolute control of Wall Street'stoo-greedy-to-fail banks.They conned Congress andthe Fed into bailing out an estimated $23.7trillion debt.
Worse,they have since destroyed meaningful financial reforms. So Wall Street is now backto business as usual blowing another bigger bubble/bust cyclethat will culminate inthe coming "American Apocalypse."
Stockman refersto Wall Street's surviving banks as "wards ofthe state." Wrong,the opposite istrue. Wall Street now controls Washington, and its "unproductive"trading is "extracting billions fromthe economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives."
Wall Street banks like Goldman were virtually bankrupt, would have never survived without government-guaranteed deposits and "virtually free money fromthe Fed's discount windowto covertheir bad bets."
Stage 4. New American Revolution class-warfare coming soon Finally,thanksto Republican policiesthat let us "live beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore," while at home "high-value jobs in goods production ...trade,transportation, informationtechnology andthe professions shrunk by 12%to 68 million from 77 million."
Asthe apocalypse draws near, Stockman sees a class-rebellion, a new revolution, a war against greed andthe wealthy. Soon.Thetrigger will bethe growing gap between economic classes: No wonder "that duringthe last bubble (from 2002to 2006)thetop 1% of Americans -- paid mainly fromthe Wall Street casino -- receivedtwo-thirds ofthe gain in national income, whilethe bottom 90% -- mainly dependent on Main Street's shrinking economy -- got only 12%.
This growing wealth gap is not the market's fault. It'sthe decaying fruit of bad economic policy." Get it?The decaying fruit ofthe GOP's bad economic policies is destroying our economy.
Warning:this black swan won't be pretty, will shock, soon.
His bottom line: "The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing ... it's a pitythat the modern Republican party offersthe American people an irrelevant platform of recycled Keynesianism whenthe old approach -- balanced budgets, sound money and financial discipline -- is needed morethan ever."
Wrong:There are far biggerthingsto "pity." First,that most Americans, 300 million, are helpless, will do nothing, sit inthe bleachers passively watchingthis deadly partisan game like it's just anotherTV reality show.
Second,that, unfortunately, politicians are so deep-in-the-pockets ofthe Wall Street conspiracythat controls Washingtonthey are helpless and blind. Andthird,there's a depressing sensethat Stockman will be dismissed as atraitor, his message lost inthe 24/7 news cycle ... untilthe final apocalyptic event, an unpredictable black swantriggers another, bigger global meltdown, followed by a long Great Depression II and a historic class war. So be prepared, it will hit soon, when you least expect.