Monday, August 23, 2010

Taking The Wrong Path

On Hardball this evening Howard Fineman of Newsweek favorably contrasted President Ronald Reagan's "sunny optimism" with the negative and nasty conservatism of the Obama era. In November, Fineman had written

A democratic president, you'd think, would stick to Franklin D. Roosevelt or Jack Kennedy as role models. Not Barack Obama. As he faces tough times—economically and politically—I am told that he and his advisers are turning to an unusual source for inspiration: Ronald Reagan. Looking back, it shouldn't be a total surprise. On the campaign trail in 2008, Obama said nice things about the Gipper. Reagan, Obama said, "tapped into what people were already feeling, which was: we want clarity, we want optimism, we want a return to a sense of dynamism and entrepreneurship that had been missing."

This is an adjunct to The Village's bipartisanship: angry-bad; happy (of whatever political ideology)- good.

Except that this, in part, is what got us where we are now- and that isn't good. The Washington Post interviewed chief executive officers in in large and mid-sized businesses "in the heartland of America" (apparently, if you're on the East Coast or West Coast, you're not real Americans. Or more difficult to patronize.) They are reluctant to hire more workers as corporate profits soar and

They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis.

Across the industrial parks and office towers of the Chicago region, in a more than a dozen interviews, senior executives said they see Americans for years ahead paying down debts incurred during the now-ended credit boom and adjusting spending to match their often-reduced incomes.

"It's a different era," said Daryl Dulaney, chief executive of Siemens Industry, which has 30,000 U.S. employees who make lighting systems for buildings and a wide range of other products. "Our hiring and investment decisions have to be prudent and reflect that."

How times change. Conservative Andrew Bacevich explained how voters evaluated in 1980 the different approach and style of President Jimmy Carter and challenger Ronald Reagan. Outlining in his infamous "malaise speech" a strategy for eventual energy independence, Carter deplored "this intolerable dependence on foreign oil" and warned "there (was) simply no way to avoid sacrifice." Bacevich remarked

As an effort to reorient public policy, Carter's appeal failed completely. Americans showed little enthusiasm for the president's brand of freedom with its connotations of virtuous austerity. Not liking the message, Americans shot the messenger.

Carter's speech did enjoy a long and fruitful life--chiefly as fodder for his political opponents. The most formidable was Ronald Reagan. He portrayed himself as conservative but was, in fact, the modern prophet of profligacy--the politician who gave moral sanction to the empire of consumption. Beguiling his fellow citizens with talk of "morning in America," Reagan added to America's civic religion two crucial beliefs: credit has no limits, and the bills will never come due. [Emphasis mine -- RD] Balance the books, pay as you go, save for a rainy day--Reagan's abrogation of these ancient bits of folk wisdom did as much to recast America's moral constitution as did sex, drugs, and rock and roll.

As Will Bunch points out, President Reagan jacked up military spending while drastically cutting the tax rates of the wealthy and in so doing turned the U.S.A. from a creditor nation to a debtor nation for the first time since World War I. Unfortunately

earning power for middle-class Americans has barely budged since the dawn of the Reagan era. So in order to take part in the great festival of materialism that Ronald Reagan called "Americanism," people borrowed. The 40th president tried to make that easier by deregulating the savings-and-loan industry -- which proved to be a massive boondoggle that cost taxpayers $160 billion even as policy makers failed to learn the lessons of the S&L debacle. Still, people found many ways to borrow and buy, mainly on credit cards. In 1980, the typical American saved 10 percent of what he or she earned, but by 2004 that plunged to zero. Household and consumer debt went from 100 percent of the U.S. GDP in 1980 to 177 percent today. If you've been around for the last 25 years, you saw how this was accomplished through the chasing of bubbles, first on Wall Street and then in the housing mania of the mid-2000s. Now, with falling home prices and record foreclosures, there are no more bubbles to inflate, which is why the Reaganist chickens of our unsupported spending binge are finally coming home to roost.

It didn't have to be this way. Had the U.S. pursued more sensible policies in the 1980s --if all the dollars funneled toward the top 2 percent of American millionaires and unnecessary weapons had instead gone into rebuilding our infrastructure, making America the world leader in alternative energy that it is not because of Reagan's short-sighted policies, and a better education system -- we would not be facing this massive hangover that could now lead to a lost American decade.

The WaPo quotes David Speer, chief executive of Illinois Tool Works in Glenview, Illinois, remarking

It took us a decade to get in the ditch we are in. There isn’t going to be instant gratification to get us out of it. We’re going to have to get used to a lower growth economy, and that is going to be a big adjustment for all of us.

Three decades, actually, since an American president first bought fleeting prosperity on cheap money, a massive defense buildup, tax breaks for the privileged, and a growing economy built on sand. Now, many business leaders believe the country is on course for a long period of lower growth, and that view has serious implications for our national economy and position of leadership in the world.

Ronald Reagan brought a smiling face, a warm feeling all over, and renewed faith in materialism, leaving the legacy that proves the old adage: if it looks good enough to be true, it probably is.

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