The Case For Liberal Economics


We have serious economic problems.

As a country, we need to move ahead. China is buying up the world’s resources. Soon Russia will do the same thing. What China and Russia do not buy up, the Middle Eastern oil countries will buy while there is still something left.

Our largest financiers are holding their cash. It came to them too easily. They are like spoiled children of rich fathers. They never earned the money they use to speculate. They borrowed it, made hundreds of millions or more. If or when or how they paid it back, most of us have no idea.

Even the ways they make their money is very often shrouded in secrecy. We know that it is made by selling securities, which these days are often simply bets on whether existing corporations will have higher or lower profits, larger or smaller markets, or whether corporations will or will not merge. The money, in any of those cases, rarely leaves Wall Street or the financial district of London.

Instead of grouping together and working for the common good of America, they are buying rich man’s toys and luxuriating in the spas around the world that have been created only for them and their colleagues who are the only ones who can afford to stay in such luxury. This is not only foolish, it is dangerous.

The Chinese are not sitting back, checking the latest offerings of the Robb Report or window shopping along Fifth Avenue. They are in Africa, buying up assets and resources.

Why is this happening? Why has this country become the economic sissy of the world? No one wants to hear the answer but it is very clear.

Conservative economics is the reason. contemporary “conservative” economics. Somehow the matchup between Ronald Reagan, the master salesman, and those in this country ready to sell it out for their own personal gain came at a most inopportune time, and it came in the disguise of good news.

The good news was, supposedly, that the Jimmy Carter-hired economist Paul Volcker had the intestinal fortitude and the brains to end inflation by restricting the supply of money from1979 through 1982. That accelerated both the advancement of inflation, interest rates and unemployment to the point that businesses began to fail. And from 1981 to 1983 they failed at an astonishing rate. After the recessionary crash, inflation rates fell from 10% in 1981 to 6% in 1982 and then to 3% in 1983 and 4% in 1984. Businesses could once again afford to do business, and the economy was stabilized.

That was the good news. We did not have Argentinian style or 1920s German style inflation. But we paid a terrible price. The price was the Presidency of Ronald Reagan and the substitution of Conservative economics for real economics. And from 1980s forward, for ten years at least, Right Wing politicians sold the Ronald Reagan version of economics—low taxes, increased military spending and privatization of everything that could be spun off to Reagan and GOP cronies.

(In a sense this had nothing to do with economics at all. The Republicans were merely making it look like the economy was growing by borrowing hundreds of billions a year from taxpayers and giving it to private companies working for a government run by Republicans.) Within ten years we went from billions in debt to $4 trillion in debt. You and me…taxpayers…people who depend on a solvent government.

Conservative Economics

The attractive part of Conservative economics for everyone was the idea that the lower the taxes you pay the more people will have in their pockets to spend, and the more they will spend and that creates business and that creates jobs and those added businesses and individuals will pay enough taxes to make up for the cuts in revenues.

It never worked. It still doesn’t work. It is a variation on something called Ricardian equivalence. It has to do with how people see taxes as being used. Reagan’s advisors told him that people with more money would spend more money and this would raise enough revenues to balance the budget. They weren’t even close.

Reagan created 16 million jobs in his two terms and yet the country went $4 trillion into debt. Why? It is basic fourth-grade elementary school economics. Yes. It’s that simple. By the way, Jimmy Carter created 10 million jobs in just four years, and had a higher percentage of annual job growth than…not only Reagan but Kennedy, Johnson, Nixon, Ford, Reagan, and by far more than either of the Bushes!

So, Conservatives had this idea: cut taxes and reduce the size of government to fit the money you have available. But it didn’t work and here’s the simple reason why.

Let’s say that you have a $100,000 house and you add a $50,000 addition and a pool and a garage for another $50,000. You earned $50,000 a year to pay for the house, then you increased your earnings by $10,000 for the addition and you got another raise of $10,000 to cover the pool and garage.

Now you’re making $70,000, those are your revenues, and you suddenly get a pay cut down to $50,000. You look around and you find that you can’t afford the house, the addition and the pool and garage, but you don’t have any more income. You cut your income before you knew whether or not you could afford it.

This is exactly what Reagan did. But instead of changing plans, he simply put a Band-aid here and there. He raised a little money here and a little money there…but he never got around to paying for or even coming close to paying for the add-ons to the house.

By the end of ten years from the day he walked through the door we, all of us, were in debt by about $21,000. Either we had to cut back on government or raise taxes. George Bush the Elder (and smarter) did raise some minimal taxes, for which he was excoriated by Republicans. But it was a pittance.

Then came Clinton and over the vote of every single elected Republican…every single one….he passed a tax increase of about 5%. Then he set the Vice President, Al Gore, to cutting government waste. They had the support of the Republicans who used this reduction in government by President Clinton to blame him for cutbacks everywhere.

So, Republicans went along with government cuts but blamed Democrats for it in Mid-term elections. The Democrats lost many House seats, but the Republicans also voted for reductions, all the while not supporting but blaming the President, while lying about him and even finally impeaching him.

Meanwhile the business world saw Clinton’s policies as solid economics and they began to invest and soon we had the great expansion in Internet technology and software and all the varieties of spin offs from higher technological investment.

Many of the country’s biggest corporations today were started in that period. The laptop computers, the Internet browsers, startups like Google, Pandora, GoDaddy,, Priceline, Zipcar, and, among others, and the rapid expansion of others like Microsoft and Oracle and Ebay…rocketed the economy until we had less than 4% unemployment and Clinton balanced the government budget not once but twice and created a surplus.

But by now we had another problem. The tax cuts that Reagan had given to the public, it turned out, enabled the wealthiest taxpayers to keep most of their money. Their taxable income was reduced by large deductions and their real income, the income that created huge wealth, was capital gains income, taxed at 20% or less. So the top income Americans, particularly the Right Wing, were getting a taste of keeping lots and lots of money…more than they could ever spend in many cases…and deciding that they did not want this boondoggle to go away.

And so they began to buy up media which they used to rail against taxes. Lobbyists like Grover Norquist were hired to create a phony philosophical justification for them to keep all their money, and think tanks filled with Conservative economists to lay out rationales for low taxes and dire cautionary papers against the fabricated potential disasters of returning to reasonable tax policies.

The Neo-Conservative Era

When George Bush the Dumber came into office, he and Dick Cheney hired all their friends to take over government jobs like—the military, military contracting, military support services and security for the other hired mercenaries. They gave tax breaks to send companies abroad. They gave $600 billion in taxpayer money to the pharmaceutical companies. They gave Halliburton $39 billion—billion—dollars in contract for mostly war-associated activities.

As a thank you, Halliburton continued to keep the Vice President…unprecedented in the history of this country….on the payroll and no one made him resign, or fired him or shot him. It is one of the big disgraces of this country. Before he started giving big contracts to Halliburton he was worth very little. By the time he became Vice President he was worth $44 million. Today, after his looting of the government he is said to be worth about $80 million. And he is still alive and not in prison.

During the 8 years of Bush and Cheney, Conservative economics became Neo-Conservative economics. Why was that? It was because the government, with a balanced budget at the end of the wealthy, high-employment, prosperous Clinton era began to spend  more than it took in.

In 2008, eight years, the country went from $5.16 trillion in debt to $12 trillion in debt. The Neo-Conservative economic policies now were modified. They now wanted to cut spending on government. Why was that?

Because Bush and Cheney had crashed the economy, costing Americans losses in their personal households, not in government….but savings accounts and home equity…of over $7 trillion. But what they also did was put 16 million people out of work and closed tens of thousands of small and medium sized businesses…restaurants, dry cleaners, flower shops, hair salons, groceries, movie theaters, auto dealers, retailers of all kinds and sizes…out of business.

So what was the Neo-Conservative approach to fixing the problem? Put more people out of work. This time, in addition to the private industry workers, they would lay off teachers, firemen, cops, nurses, and administrators of every kind of service from birth certificates to marriage licenses to death certificates. Cut government pay and cut government pensions. Those formerly safe jobs that many entered into for less advancement and opportunity but for security and some shred of meaningful service to the community…those jobs had become as risky as walking a high wire.

The Neo-Conservative economic philosophy is pretty clear. To explain we need to back up a little. By 1979 when the administrations of Nixon and Ford had ignored inflation—talking a good strong policy but did nothing. Carter at the beginning of his administration acted on unemployment and inflation but in late 1978 and 1979 the country was hit by another even larger oil shock. Inflation increased and unemployment increased, something that economists had thought could not happen.

Staglation and the Misery Index

This belied an old Liberal economic theory called the Phillips Curve which said that when inflation rises above a certain point, rates of unemployment will fall. But they didn’t. Inflation was in double digits and unemployment was high. Here is what happened. In 1976, the last year of the Ford Administration, the unemployment rate was 7.7% and inflation was at 6.5%. But the previous two years the inflation rate had averaged over 10%. Why?

In 1973, the Arab countries embargoed oil purchases to the United States. Prices went from roughly $2.50 to $12 per barrel. But in real prices, i.e. if you were making what you make today and paying what you pay today, prices went from about $12 per barrel to about $52 per barrel.  In 1974 and 1975 the effects of this astronomically higher cost of petroleum…and  petroleum based products…raised prices beyond the government’s ability…and it’s real will to stop them.

So now, in the Ford Administration, the people were already suffering. Then Carter was elected in 1976. He dropped unemployment from 7.7% to 7.1% in 1977, then to 6.1% in 1978, 5.8% in 1979. In 1980 it shot up to 7.1% again. What happened in 1980? The oil shocks of 1979.

Once again in 1979, the Middle East oil supplies were cut as Iran stopped its oil exports to the U.S. Oil prices, which had not gone down after the 1973 shocks, went up again. They went from a nominal price of $12 and real price of around $52 to a nominal price of $39 and a real price (i.e. in today’s dollars of over $100 per barrel.) Inflation, which had already been high, went even higher.

But this was not typical inflation. This was a price shock on petroleum which by 1979 was used in everything we do and almost everything we make. As a result, what happened was that inflation went so high, so quickly that companies could not keep up and began to lay off workers.

In normal circumstances, as prices for products used in production go up, the supply increases, prices go up and employment stays high as companies have price increases and more revenues. But in 1979, the supply of oil all but vanished and the price of oil stayed at exceptionally high prices. This caused production facilities to close down. High inflation and high unemployment.

In order to keep up, manufacturers had been borrowing more money and the Fed had let out the supply of funds. But now, with no end to inflation in sight, Carl Volcker and the Fed reduced the money supply. Borrowing was curtailed, businesses failed and unemployment went up even further under Reagan, but eventually inflation ended.

From Neo-Conservatism to Neo-Fascism

When does a country go from being Conservative to being Fascist? In the 1930s, the period, with the exception of General Franco’s regime in Spain which went almost until his death, began in the early 1930s and ony ended with the end of the Second World War in 1945.

The United States has had some mildly Fascist politicians in the 1930s. But they were virtually annihilated by the overwhelming popularity of Franklin Delano Roosevelt’s social welfare and national reconstruction policies. We had some overreacting politicians during the 1950s who followed Joe McCarthy on his quest to eliminate Communists. And we had some in regions of the country who were upset, first by a Catholic in the White House, then by the progress of African Americans and finally by the women’s equality issues, abortion and contraception. All those issues, which some people did not want to be seen as supporting, led to Neo-Fascist movements, in which these issues became one of the fundamentals.

In 2001, however, Dick Cheney, Karl Rove, Donald Rumsfeld, Richard Perle, Paul Wolfowitz, Gale Norton, Colin Powell, George Bush the younger and a large number of generals in the military began to join with very large corporations and certain billionaires to create a new Republican Party. This Party would be as different from the old Republican Party as Abe Lincoln was from Jefferson Davis.

They cut taxes twice from the top rate of 39.6% that Clinton had restored. And they went on a spending spree and a privatization spree that put us dangerously in debt as a country. This not only created a larger spread between rich and poor but it gave the rich the power to use huge amounts of capital to elect their own type of politician…one who could be told what to do and how to vote.

We had people like Judd Gregg in the Senate and Lamar Alexander and John Cornyn. In the House, Billy Tauzin sold out the American people to the pharmaceutical companies for a mere $2 million a year. He’s now wealthy and he left you the tab for $600 billion of prescription drugs. All Congress had to do was to tell the pharmaceutical companies to lower their prices. But the Republicans said…no, let’s let the pharmaceutical companies keep their profit margins and we’ll have the American people pay the difference.

Neo-Conservative economics and politics transformed into Neo-Fascist politics the day we walked across the border and into Iraq. There was no reason for that war. Any graduate of the Army War College, even perhaps any special forces officer with intelligence background will tell you that the United States could have removed Saddam Hussein without going to war. Not without firing a shot, probably, even though that is possible, but certainly without the loss of 4500 men and women soldiers killed and 30,000 more mutilated and at least 250,000…at least…innocent Iraqis killed.

We spent another minimum of $3 trillion on those wars and the money still goes out. Because of Bush and Cheney’s ineptitude and their focus on greed and insane political agendas, we lost 3,000 people on 9/11 to terrorists whom the Clinton intelligence people not only knew were here but warned Bush might do exactly what they did! We didn’t need to go to war in Afghanistan. We were already bombing them all the way out of the country. But we were interested in Iraqi oil. Two oil men crooks were in office and they were not put there to help American citizens. They were there to help the oil lobby.

So the Neo-Conservative agenda tightened up after Iraq. The goal then, turned over to the Himmler-look-alike Karl Rove, was to lie cheat and steal elections wherever possible. The big money raiser for the Republicans, Mitch McConnell, was given the job in the Senate of filibustering every single piece of legislation that would, 1. help the Democrats win seats in the Congress, 2. create jobs for average Americans, thus potentially raising wages, 3. create any amount of new government service, and 4. any expansion or even continuance of social services like Medicaid, Medicare, Social Services (even though these were already paid for by American Citizens) and 5. cut military expenditures.

In the meantime, guns are ubiquitous and shootings of innocent civilians a daily occurrence, even of innocent children. Though we now are essentially awash in oil from every direction, gasoline prices are still at $3.50 to $4.00 per gallon. Several…no more than 5…giant global corporations control over 80% of every single major industry. Polls show that people want certain things, gun control for example, by numbers of 70-80% and yet nothing is done. This is because giant industries, organized together…coal, oil, tobacco, food production, autos, health care have formed a colossal lobby, known as ALEC which has representatives in every state legislature and now at least one Governor who was a former ALEC representative—Scott Walker of Wisconsin.

Taxes this year will rise to 39.6% again, only just on those who make more than $450,000. But that does not mean that the super rich will now have to pay their share. We have not been able to raise rates on those who make $5,000,000 and more a year—hedge fund managers—who sometimes pay no tax at all. None.

Corporations like BP and GE pay no taxes. We are supposed to thank them for the jobs they give us while ignoring their participation in ALEC. So while they are paying no taxes, they are supporting and promoting legislation that allows them to pollute the air and water. They promote legislation through ALEC that does not allow citizens to sue them but merely to rely on Republican judges, appointed by Bush and Cheney, to give you justice in arbitration. Do you remember Valerie Plame, the ENRON scandal in California electrical prices, the U.S. Attorney scandal where Carl Rove fired U.S. Attorneys who would not prosecute his political enemies?  So…should you trust Republicans and corporate CEOs?

Most of what you hear on radio and television news are lies. Furthermore, you do not hear much of what is going on around the world. Some European countries will not allow George W. Bush into the country unless he waives his right to extradition to the Hague to be tried as a war criminal. You think that is unfair? Well most of the countries of the world, even if they have not gone quite that far, do not agree with you. He and Cheney and Rumsfeld are considered international war criminals by many of the rational, humanity oriented, sensible, pro-American societies around the world.

Neo…new…Fascism. It says this. You can have a job as long as you do what we tell you, agree with what we want, accept the wage we give you, run your moral life under our values and do not protest. This is the same as the old Fascism. The only difference is that…as yet…it is not being carried out at the point of a gun.