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Sunday, August 01, 2010

"Vulgar Keynesianism Robed in the Ideological Vestments of the Prosperous Classes"

I don't agree with a lot of this, but it's entertaining and hopefully informative at some level to watch Republicans fighting with other Republicans about the Party's economic policy. David Stockman -- Ronald Reagan's Budget Director -- is not happy:

Four Deformations of the Apocalypse, by David Stockman, Commentary, NY Times: ...The nation’s public debt ... will soon reach ... a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase. ...
Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.
This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.
The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit ... has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale. It is also an outcome that Milton Friedman said could never happen...
When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative ... would cause immediate economic pain... But now there is no discipline...
The second unhappy change in the American economy has been the extraordinary growth of our public debt. ... This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts. ... [T]he new tax-cutters ... hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts. ...
The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. ...Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. ...
The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs ... has shrunk by 12 percent... The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.
It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.
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... Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.

    Posted by on Sunday, August 1, 2010 at 01:17 PM in Economics, Fiscal Policy, Politics | Permalink  Comments (35)


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