Day of Reckoning: Consequences of American Economic Policy Under Reagan

[ramapo]

A few months ago I picked up this book by Benjamin Friedman at Harvard from the Barnes & Noble $1 table. I guess the author appeared for awhile to be very wrong with the '90s boom and all. But I finally got around to reading it and as Yogi Berra would say, "It's deja vu all over again".

Basically Friedman exposes the fraud of Reagan's economic policies, especially trickle-down economics. You would swear the book was written in 2004, not 1987, as the situations he describes are so much like what we see today: Huge budget and trade deficits, a falling dollar, the US as a debtor nation, an uncertain jobs picture as work is exported and we become more and more a service economy. If you want a primer on what causes the dollar to fall then see if you can find this book.

Friedman states that the then current state of affairs can't go on much longer without causing the US grievous harm, that a day of reckoning is close at hand where Americans will have to wake up and realize that they can't have lower taxes and the same, if not higher, level of government services.

Yet here we are sixteen or so years later and there's been no reckoning and the question is why.

Did Daddy Bush's tax increases followed by Clinton's policies really turn things around, only to be crushed by Junior Bush's return to voodoo economics?

Clinton certainly had a lot of help from the '90s tech boom which provided so many jobs until the corporations could figure out how to build and service the new technology cheaper offshore. For a time we even exported a lot of computer systems.

But those times only enhanced the illusion that we could have it all (and them some) without real consequence.

So now we're again facing, as another thread here talks about, the elephants in the living room: budget and trade deficits, export woes, falling dollar, credit bubbles, etc. Possibly the imbalances are greater than ever.

But is the day of reckoning really near or will our economic problems just even out again after a bit of turmoil so we can continue down the road of constant inflationary expansion, putting off reckoning day once again?

[unblock]

1. i can go back even further

i have a book (somewhere around here) call, "ronald reagan: political chameleon". it was written by pat brown (jerry brown's father), who was gov. of california before reagan, and whom reagan beat for governor. it was written in 1975 or 1976, during the republican primaries, when reagan made his first run for the nomination.

in it, pat brown destroys much of reagan's california legacy, and makes a few predictions, including a summary that reagan becoming president would be an unmitigated disaster.

one of the predictions that i stil recall was based on reagan's tax cut crap. in california, he came in and slashed taxes amid much fanfare, and then, when there was no money for anythin, quietly hiked taxes more than ever in california's history.

and, just as pat brown predicted, reagan did just that when president. slashed taxes amid much fanfare, then proceeded to hike taxes each and every year after that.

[Tace]

2. The Party's Over -- Just Nobody Wants To Tell The Goons At The Keg...

to finish up and go home.

[girl gone mad]

3. You might be interested in the book..

"Defecit Politics" by Donald F. Kettl. It was written in 1992, but I dusted it off back in 2000/2001 and realized much of what he was saying about the deficits of the late 80s applies to us now more than ever.

Kettl says Deficits are like termites in the basement. You may not notice the damage until the walls start to crumble, but the result is a severe and lasting erosion to our quality of life.

There is a revised edition out, and I'd be curious to see what he has to say about the current state of affairs.

One thing that certainly has changed under Bush is the public perception of America, particularly abroad. Clinton was liked and respected throughout most of the world. Bush is seen as a fool and a self-serving tyrant. That perception is hurting us as foreign investors become more leery of our spending habits and are afraid to buy our debt. Who wants to hand over their money to someone who does irrational things, like invade Iraq with such poor planning?

Our public image has been so important to our economic security. Bush really has squandered one of America's best assets - our international reputation.

In economics, market psychology can be just as important as any fundamental. Under Clinotn, people felt they had more job security, more of a safety net and hope for the future. That seems to have gone away.

[rustydad]

4. What is "wealth" anyway?

America has long been considered a wealthy country. When we Anglo Saxons arrived we found fertile soils, healthy forests, abundant fisheries, lots of needed minerals, coal, and eventually almost unlimited oil and gas. We were inventive and hard working folks. Yet for many decades the rich few dominated the masses keeping them poor and miserable by measure. Only when the Robber Barons were exposed and driven out during the Great Depression and the "New Deal" ushered in by Roosevelt did the countries wealth begin to flow to the masses. The creation of the middle class with it's new purchasing power is what really lifted this country to new heights of wealth creation and economic efficiencies.

But we have reached the end of cheap resources. Our soils are depleting, our minerals more and more difficult to extract, our forests waining, our fisheries seriously depleted, our oil well over half used up, natural gas at peak and declining, and coal ever harder to extract as well as a primary culprit in global warming which will in the end cause immeasurable negative impacts to the economy. All the low hanging fruit has been picked.

And all along the wealthy in some quarters have sought to go back to the old ways of "to the powerful go the spoils". And they are deep into their game plan which includes the destruction of the unions and indeed the destruction of the Democrat Party as a counter to rampant wealth redistribution to the wealthy from the middle class. As we will see in short order the American economy is a basket case and no one at the top cares a whit. They are rapidly gutting the economy for personal gain. We will be faced with a take it or else situation and I fear most of us will roll over and take it. Others may not. "Times they are a changin". Bob

[Petrodollar Warfare]

5. The day of reckoning will involve 2 factors - IMO...

...but first, I shall address the 3 issues that have fundamentally changed the global dynamic since that 1987 book:

1) Collapse of the Soviet Union = the collapse of the need for the U.S. military umbrella and a unilateral world

2) Rapidily approaching geological phenomenon referred to as global Peak Oil = urgent need for energy conservation within the gluttoness USA. Of course in the land of the the SUV, GWB stated "We need an energy policy that encourages consumption." :-(

3) Emergence of the EU, and most importantly, the first monetary alternative to the dollar in the form of the euro currency (released Jan 1, 1999)

The two factors that will create the "great unwinding?" (borrowing the term from Richard Duncan's book, 'The Dollar Crisis')

First, the day of reckoning will likely occur when - not if - several oil-producers in OPEC (or the largest non-OPEC exporter - Russia) begin to *price* and require *payment* fpr their oil exports in the euro due to unacceptable losses from a devalued dollar. BTW, this is Iran's current trajectory... My guess is the "tipping point" will probably somewhere between 1.40 to 1.50 euros to 1.00 dollars (ie. 2005-2006 is not likely to be a good year for the dollar.)

Secondly, the other potential "tipping point" would be due to geopolitical tensions created by neoconservative doctine that states the US seeks to be the global hegemon and prevent ANY country from "even aspiring" to a larger global role (ie. economically or militarily). Neither the EU, China, and to a lessor degree, India, are keen on neoconservative doctrine of US global domination. As evident in the Iraq debacle, they are not amused by Bush Doctrine of "preventative warfare." So, while Regan was many things, he not an overt, militant, global imperialist - at least not relative to Rumsfeld, Wolfowitz, Perle, Cheney and their spokeperson - GWB.

Those three above issues did not exist in 1987, but IMO, the most dynamic element in the global monetary system is the euro, and specifically the emergence of a broad-"petroeuro"based system for international oil trades. In fact, I spent a year writing a book on that very subject...stay tuned for the spring of 2005 if you're interested in these arcane subjects. I hope my 2cts of opinion helps...

[Strelnikov_]

6. Fully Agree. In The 80's We Were The Safe Harbor 'Market' Economy

in a world of market and planned economies.

Today, there are other market alternatives, as you pointed out. And we have not improved our position regarding energy in the intervening years as we have continued toward the shoal of peak oil.

Now, we have lost 18 years and have less net assets. Assets that we will greatly miss as we try to navigate the peak oil economy.

[ramapo]

8. The guy with the most weapons isn't necessarily the winner

I agree about the Euro, it provides the world with a legitimate alternative to the dollar, gives Europe a historic cohesiveness, and offers the rest of the world a way to defeat U.S hegemony. I don't know if this was part of the plan for the Euro (that would be impressive foresight) but it certainly appears like it might work out that way.

It is apparent to all that the US is, and will continue to be for some time to come, the world's foremost military power, but as we saw with the USSR, that does not guarantee staying power.

Reagan's other "contribution" to our country was his massive increase in defense spending which supposedly resulted in the USSR throwing in the proverbial towel. It might have also set the wheels into motion to spend the USA into oblivion too. Here again Clinton tried to mitigate but didn't have the political power to defeat the defense lobby. Bush Jr. set us right back on the wrong path.

We've spent hundreds of billions (trillions?) since 1980 on defense. I see this as having been mostly unproductive spending. Sure it created a lot of defense jobs but contributed little to the well-being and welfare of the United State, much less the world.

Imagine a scenario where we had actually spent a significant portion of our billions on Version 2.0 of a modern industrial society that replaced our dependence on fossil fuels with alternatives. Alternative fuels, transportation modes, and lifestyles (livable cities vs. endless sprawl).

Maybe we could've spent something to make sure that children had medical care and enough to eat so that tens of thousands wouldn't die daily around the world while the neocons and "religious" conservatives worried about stopping abortion. The world might look more kindly at us today if we really had a concern for people at the center of our foreign policy.

Conservatives would certainly snarl at my "defeatist" blather but had we spent more wisely I believe we'd be in a much stronger position today. We might've really created the jobs of the 21st century by solving the problems of the 20th century. This could've given our economy a true foundation for growth instead of coming to the point today where the manufacture and export of dollars is one of our core competencies.

[many a good man]

7. Is there another rabbit in the hat?

Twenty years ago I predicted a complete disaster. Miraculously, the networked desktop computer appeared along with a raft of business productivity software that revived the economy. Then came Y2K, which forced business to spend and upgrade their infrastructure, and the internet. It was a unique confluence of events that we can't count on happening again.

The nineties are over and now its almost like it never happened.

[ramapo]

9. All produced in the USA (at least for awhile)

That was the real strength of the tech boom. Disk manufacturing plants, circuit boards, final assembly...all done in the US. Software was designed and written here. Success sowed the seeds for our downfall. The internet is one of the greatest changes in how we live but it provided much of the infrastructure to replace us.

[umass1993]

10. In Praise of Hard Industries

by Eamman Fingleton is a must read.

It was written in 1998. It is shocking to see how many of his predictions come true. they aren't really predictions, but rather a sequence of forseeable cause and effect relationships.

The man lives in Tokyo, so I guess it gives him a better perspective on asian culture and the view of America on the outside.