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The Art of Political Dragon Slaying

June 13, 2011

The “U.S. Deficit” is the most demonic term in the Republican vocabulary. Oddly, it was the Republican economic strategy that encouraged its growth. Why, then, would they create the very beast they decry?

Saint George: The Dragon Slayer

The freewheeling days of the Roaring Twenties came to an abrupt end because of business and capital market excesses. While it was fun for a few, it cast the United States into economic, political and social chaos. Then two things happened: The New Deal and the Second World War.

The first infused the country with jobs, wages, improvements to infrastructure, governmental regulation and programs to insure individual security. The second created the most powerful industrial complex in the world and assured the flow of a river of money from the government to private enterprise. A great irony is that the horror of the Great Depression and the horror of War combined to bring the United States economy and the well being of its citizens back to life.

The process, by necessity, generated massive debt. In 1945, according to the Congressional Budget Office, Franklin Roosevelt faced a national debt that was a crushing 117% of the Gross Domestic Product (GDP). Government spending without corresponding revenues does that; however, that crisis was addressed steadily over the following thirty years with taxes (as high as 50%) on swelling income flows that allowed most of the debt to be retired. It was vast government spending coupled with increased taxation that fixed the problems created by unbridled greed and an unavoidable war.

When Ronald Reagan took office in 1981 the national debt had been reduced to a respectable 32.5% of GDP. Yet the leaders and financial backers of the Republican Party had for two generations been longing for the good old days. They were prepared to begin their quest for the return of a pre-Depression free-market environment. The first order of business was freeing up money by cutting taxes. To sell the idea they asserted that government was a problem and that to grow the economy, taxes and government spending must be slashed. While revenues would suffer, they argued, the bulk of those lost tax dollars (retained by the wealthy) would “trickle down” to the middle and lower classes by creating jobs and stimulating economic growth.

At the same time, a full assault was launched on unions, governmental regulation and restrictions that kept American businesses from entering global markets. Money became a tool to solidify corporate power. It could be shifted away from the U.S. economy freeing it from government restrictions. Factories and jobs could be relocated abroad, thereby reducing domestic labor costs and eroding union strength. Unfortunately, the plan also had the effect of halting the steady rise of America’s median income, which stagnated as wealth moved upward and tax revenues fell.

This curious plan had one inevitable result. It reinvigorated the growth of our national debt. By the time Reagan left office, the national debt had exploded to 53.1% of GDP. It rose to 61.1% of GDP during the presidency of the first George Bush but fell to 56.4% of GDP during the Clinton administration. In fact, when Bill Clinton left the White House, the Congressional Budget Office predicted that during the ensuing 10 years the nation would generate a five trillion dollar surplus. It was a huge Democratic victory.

Unfortunately, the Democrats made a fatal error. They allowed the financial houses, banks and insurance companies, after years of lobbying, to re-write the laws controlling their own collaborations, mergers and growth. Federal regulations were discarded or ineffectively enforced. When George W. Bush took office, the scene was set for a perfect economic storm.

The winds began to blow with a series of tax cuts and code revisions that reinvigorated the flow of money away from mainstream America into the hands of wealthy individuals and corporate giants. Waves mounted when a national tragedy (the attacks of September 11) primed the administration for launching military engagements that were funded by debt not revenues. The storm broke the moment gigantic financial and insurance institutions, having had their way with shabby manipulations, suddenly imploded requiring unprecedented government expenditures to prevent domestic if not global chaos. The national debt soared to 83.4% of GDP as George W. Bush left office. The Congressional Budget Office predicted a ten-year loss of 4.7 trillion dollars in place of any gain.

Today, the outcry against the national debt is deafening but the Republican Party has seized upon it, embracing it as a rallying cry. It has become a chant in their political liturgy. But why? It was precisely their economic policies that nurtured its resurgence.

The answer is because the new mantra works to accomplish their second goal: dismantling what remains of the New Deal.

If consolidating wealth at the upper levels of the economic hierarchy is mission critical, then increasing taxes is counter-productive. Advocating a radical reduction in spending is the only alternative. Since the two largest segments of government spending are military expenditures and social welfare expenses, the choice is clear and the next step is certain. By harkening to deeply seated post-World War II fears of communism and the need for military might, the defense budget cash cow is secured and the portrait of the dragon is complete. Its face is the Democratic New Deal.

The GOP and its backers have armed themselves with a mighty sword. Our children and our future must be protected. Republicans are self-styled dragon slayers and their victory will be won by cutting out the dragon’s guts: Medicare, Social Security, social welfare programs, regulatory agencies, public education and workers’ rights.

Apparently, the second President Bush is no villain: He’s Saint George.

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