David Stockman bombshell: How my Republican Party destroyed the American economy.

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"David Stockman bombshell: How my Republican Party destroyed the American economy."

The “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.”

Cue the FoxNews denunciations.

David Stockman, director of the Office of Management and Budget under President Ronald Reagan, has dared to call out his own party for creating our current economic problems.  His NYT op-ed, “Four Deformations of the Apocalypse,” begins:

IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing.

Given our long-term deficit problem, Stockman said it is “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.”

UPDATE:  Huffpost reports that in an interview today on NBC’s Meet the Press, “Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being ‘disastrous’ for the economy.”

Here are some more excerpts from Stockman’s must-read piece:

More fundamentally, Mr. McConnell’s stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. 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 second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. 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.

Good to see Stockman abandon his infamous “starve-the-beast argument, that tax cuts would force government to cut spending.”

… when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too “” signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.

The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, 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.

There’s only one piece of GOP orthodoxy even Stockman can’t bring himself to take on — the need for government policy to rebuild the U.S. industrial base:

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 in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by 12 percent, to 68 million from 77 million. 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.

Well, the bold-face identification of the problem is right, but a major reason we have hollowed out  the larger American economy is that the GOP have succeeded in  blocking almost every major progressive effort to increase investment in infrastructure and R&D and other key aspects of a 21st century economy when Democrats were in charge, and they cut funding in those crucial areas when they were in charge.  This effort will only intensify in the coming years.

So Stockman has only this solution:

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 “” as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. 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.

That would  perhaps get our economic house in order in a narrow sense — assuming we deferred the balanced budgets until after the recovery is much further advanced.  But it would continue the decline of our relative competitiveness to our major trading competitors.

Still,  considering the source, this is an Emperor-has-no-clothes moment for the GOP.  At least until the rest of the conservative kingdom turns on him.

Related Think Progress posts from today:

Related CP Posts:

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22 Responses to David Stockman bombshell: How my Republican Party destroyed the American economy.

  1. Prokaryotes says:

    Anthony Weiner Rips Apart Republicans http://www.youtube.com/watch?v=W4zwCMf8dsc

  2. burk says:

    Great post. But calling what Republicans are for Keynsianism is an insult to Keynesianism. What Republicans are for is straight class warfare. More for the rich, less for the poor. Their concerns for deficits and public debt are so many crocodile tears, and rightly so, since our debt is the least of our problems- that can be seen as a healthy savings program for savers who want to save in dollars. True Keynesianism is what we need right now.

    Check out

    http://neweconomicperspectives.blogspot.com/

  3. Tim L. says:

    Stockman was a bit of a heretic even back in the Reagan era, when he basically ripped the dogma of supply side economics to shreds. Would that responsible Republicans (if any remain) like former EPA Administrator William Reilly and/or others called out the GOP on their climate change b.s. I doubt whether today’s Teabagger GOP would ever elect Lincoln, Eisenhower, Nixon, Goldwater, Reagan, or Bush I. They’d be seen as too liberal. And just think of all the “liberal” epithets the Religious Right and Teabaggers would hurl at Jesus H. Christ!

  4. Dave E says:

    I must admit that I failed to recognize the dangers of Reagan’s policies during his administrations–but in retrospect it is clear that his administrations marked a major retreat from the policies of the previous half century. Certainly without the deregulation that Reagan began, we would not have experienced the savings and loan crises or the more recent subprime lending crises. 1950 to the early 1970′s were a period of great prosperity for the middle class. 1980 to present has been a period of great prosperity for the privileged but a period of stagnation for the middle class. Tax, regulation, and union policies were all part of this.
    In terms of the environment Carter had begun a move to renewables, the solar industry was thriving. Under Reagan, solar tax credits were abandoned and worse, oil prices were made artificially low—effectively killing solar and ceding our lead to foreign competitors.
    It is encouraging to hear Stockman laying the blame for our current deficit on these policies—it would be good if people were more aware of the other effects of Republican policies as well.

  5. Douglas says:

    Good to see a ray of sanity from one official from the original voodoo economics administration.

    But let’s be clear re Greenspan — he bears as much responsibility for our current fiscal mess as anyone. And I’d wager he’d be more than happy for the tax cuts to continue IF we gut more social safety net programs, e.g. social security. He’s “fiscally responsible,” you see.

  6. fj2 says:

    re: ” a long hangover of debt liquidation and downsizing”

    . . . Elicits a sense of the unreal considering the ever accelerating rate of environmental devastation.

  7. Erica Smith says:

    Jul 27, 2010 · US industrial titan General Electric has agreed to pay over 23 million dollars to settle allegations that it bribed Iraqi officials.
    Dirty energy.

  8. Deborah Stark says:

    EXCELLENT post, Joe. I’m still reading but I had to stop and say this is so DEAD-ON.

  9. Peter Mizla says:

    As I have said here before- the republican party is an incarnation of A new kind of 21st century American Neo-Fascism- a political party that engages in lies, smears, racism, is anti science,homophobic with the goal to ‘protect’ the ‘Greater Fatherland’ from those they consider inferior.

    Have we been down this road before?

  10. fj2 says:

    http://www.nytimes.com/2010/08/01/weekinreview/01zeller.html

    “Is It Hot In Here? Must Be Global Warming.” Tom Zeller Jr., NY Times, July 31, 2010

    “Those pointing to hot weather as evidence of global warming are, in the broadest sense, more likely to be right. Scientists at the National Center for Atmospheric Research in Colorado demonstrated last year that record high temperatures have occurred twice as often as record lows over the last decade.”

    They would also more likely to be right that observed change is moving a lot faster than predicted by climate change models.

  11. john atcheson says:

    The Republicans have boxed themselves in. Cutting taxes was never really about supply side economics, it was a stealth way to gut and cut government — to shrink it until they could “drown it in a bathtub.”

    The reason they needed a stealth approach was that while people supported the general notion of tax cuts, they didn’t like the specifics. When Newt Gingrich laid out his Contract on America, complete with hits, and then began to implement it, they lost support.

    It was a clever plan: Demonize government as wasteful, cut away until it was eviscerated, pretend that the magic markets would solve all problems by pure serendipity. But the more successful they were, the closer they came to the day when they would reap the harvest of failure their policies were bound to create.

    And now it has.

    Unfettered markets were a tragic and complete failure. Tax cuts reduced revenue. Deregulation hurt ordinary citizens, but were a bonanza for the wealthy and powerful.

    And once that happened it was bound to become obvious what the real agenda was — to fashion a country for the wealthy, by the wealthy and of the wealthy — for the corporations, by the corporations and and of the corporations.

    And so it has.

    And the Republicans are hoisted on their own petard. Deficits are bad when it means a mere $33 billion for the unemployed, but irrelevant when it means an astounding $2.3 trillion in deficits to extend the tax cuts for the rich.

    Reality is immune to Fox propaganda, and impervious to mindless bluster from talk show radio. It doesn’t matter how many times Republicans click their ruby red tax cutting slippers and wish it were so — thirty plus years of evidence shows supply side is a fantasy.

    And now, if the Democrats are smart, possessed of an ounce of integrity and a gram of courage, they will take on this dangerous set of myths that is destroying our country, and engage in a genuine national dialog about the role of government, the need to regulate, and the importance of honesty.

    But don’t bet on it. The cynics suggest this politics is nothing more than a Kabuki dance or some modified version of good cop-bad cop in which each party plays its role, while representing the same corporate fat cats.

    I used to think they were paranoid. But as Sherlock Holmes used to say, “strip away all that is not possible, and you will find the answer.”

    I’m down to two possibilities: 1) the cynics are right; or 2) the Democrats really are as stupid as they act.

  12. Jeff Huggins says:

    Another great piece in today’s paper is Verlyn Klinkenborg’s “Death of a Farm”.

    I must also admit (as someone above has already noted) that the mentions of Keynes and Keynesian (in terms of their association with how the Republicans think) in the piece are confusing and confused.

    My oh my, what now?

    Cheers,

    Jeff

  13. Jim Edelson says:

    First, they destroyed the fiscal economy. Then they destroyed the middle class. Now they are knifing the final gashes into the global environment.

    Quite an accomplishment for a small cadre of old white men revolving between the corridors of DC power and the heights of American criminal capitalism.

    The real question is how our system failed so miserably to check their power.

  14. _Flin_ says:

    While it is nice that someone brought up the main reason for the incoming decline of American power (who can seriously confront China when China owns them?), blaming the Republicans only won’t do. President Obama just a month ago at the last G20 meeting pressured European governments not to embrace a strategy of sustainable growth but instead of debt-induced consumption.

    I am starting to wonder how much of a Democrat this president really is. Looking at Guantanamo, renditions, increased war spending and troop sending etc…

    The world was actually hoping for a bit more along the lines of peace making, battling climate change and economic recovery of the United States. Health Care alone won’t cut it.

  15. Colorado Bob says:

    The first dribbles coming out from eastern Russia , and some more wacko stuff as well . This article references a story that is linked about America having a ” Climate Weapon” that is being used on Russia. Know doubt it will gain much traction there. But I found this section to be sobering to say the least :

    ” And growing numbers of people — many of them nursing-home residents or prisoners kept in stifling conditions — are reportedly dying as a result of the heat.

    Russian officials have refused to release statistics on how many people may have died as a result of heat exhaustion, and journalists have reported being turned away from hospitals reluctant to discuss the human cost of the extreme weather.

    The growing crisis — reminiscent of the 2003 heat wave in Western Europe, which caused the death of 15,000 mainly elderly people in France alone — may present the Kremlin with uncomfortable questions as the broader consequences of the heat wave become clear. …………………..

    In the central Kirov region, temperatures have edged towards a baking 50 degrees.

    Mansur Nasipov heads the Kalinino agrofirm in the Kirov town of Malmyzh, says if things continue the way they are, “no one will be left alive” at the region’s collective farms.

    “Today the temperature here is 47 degrees,” he said. “Everything has simply dried up. There’s not a patch of green anywhere. Not a single gram of water is left in our well. In the morning it’s possible to draw three or four buckets, but after that there’s no water.”

    http://www.rferl.org/content/Russia_Fights_Fires_Looks_Ahead_To_LongTerm_Costs_of_Heat_Wave/2114404.html?page=1&x=1#relatedInfoContainer

    Kirov looks to be about 750 km northeast of Moscow. 116 F in Kirov is a mind boggling number for that latitude.

  16. Colorado Bob says:

    Aug. 2 (Bloomberg) — Wheat futures surged to the highest price since 2008 on speculation that a drought in Russia may force the country to curb exports, squeezing global supplies and boosting demand for U.S. shipments.

    The September-delivery contract jumped as much as 2.7 percent to $6.795 a bushel on the Chicago Board of Trade, the highest level since Oct. 1 that year. Today’s rally extends the commodity’s 38 percent jump in July, making it the best performer over the past month on the UBS Bloomberg CMCI Index.

    http://www.businessweek.com/news/2010-08-02/wheat-surges-on-speculation-drought-hit-russia-may-curb-exports.html

  17. Colorado Bob says:

    2 more things in the Bloomberg story -

    Temperatures of at least 36 degrees Celsius (96.8 degrees Fahrenheit) are forecast for the capital in the coming week, according to Gidromettsentr, the state weather service.

    and

    The wheat harvest in Canada, the world’s second-largest exporter, may drop 17 percent to 15.6 million tons this year from a year earlier, after unusually wet weather prevented seeding in some areas, the Canadian Wheat Board said July 30.

  18. Colorado Bob says:

    Water levels in Lake Baikal, the world’s deepest and most voluminous freshwater lake as well as the natural laboratory for researchers, have dropped by more than one-third in July.

    The ongoing heat is blamed for the drying up of the lake, said a report from Natural Resources Ministry of the Russian Federation released Wednesday.

    http://news.xinhuanet.com/english2010/world/2010-08/01/c_13424899.htm

  19. Boris says:

    Stockman is just an old man who is now old enough to have cashed out and is more than happy to leave the younger generations to fend for themselves. For him it was OK to live on credit – and now in his infinite wisdom he is telling the rest of us to live within our means, and pay for his debts as well as ours?

    Nowhere does Stockman mention when he will be returning his unfairly gotten gains to the American people – or to China, for that matter. Because he was, and is, a part of the system, and so was able to use the borrowing and the money printing press as much as any other member of the Reaganite establishment. Where, in his repentance, is the money?

  20. Rick Covert says:

    For a cogent analysis that included the Clinton administrations fingerprints in the financial bubbles since the late 1980′s Kevin Phillips, the man who crafted Nixon’s 1968 “Southern Strategy” has spot on analysis and insight on defecits, the finance banks in what he calls the “Greatest Story Never Told.” Here’s an interview he had on Bill Moyers Journal back in 2008.

    http://www.pbs.org/moyers/journal/09192008/watch2.html

    http://www.pbs.org/moyers/journal/09192008/transcript2.html

  21. Ryne says:

    Greenspan also said he loves tax cuts but not tax cuts with borrowed money that add to the deficit! I guess Reagans man is a “socialist” LOL

  22. fj2 says:

    This is about a hug monetary debt.

    The debt in natural capital is much larger and much more dangerous.

    When we run out of natural capital . . .