June 14, 2011

My favorite statement from the Republican candidates’ forum in New Hampshire was Ron Paul’s castigation of the “Keynesian bubble that’s been going on for 70 years” (Wall Street Journal, June 14, 2011). 70 years takes us back to 1941. Of course there was a war until 1945. Then from 1945 to 1975 the American people experienced the greatest economic boom in the country’s history. Real inflation-adjusted incomes for the median household doubled. For an entire generation. Working class people bought homes. Their kids could go to a tax-supported public university. Their pay kept up with productivity and the cost of living, thanks to union contracts. They had Social Security and Medicare.

So, for half of the 70 years, the Keynesian welfare state was a terrific success. But then, it’s true, since 1979 median family income has increased only 10% adjusted for inflation. Working class incomes have actually fallen since 2000. Home ownership? Fuggedaboudit. Send your kids to college? College tuition at public universities has dramatically increased as state legislatures have cut support. College completion rates are stagnant and student debt is at an all time high.
Let’s see. What has been the U.S. economic strategy since 1979? Reaganism, in a word. Tax cuts for big investors and corporations, a massive increase in federal borrowing and debt (except for the Democratic Clinton years!), de-regulation of corporations and banks, a war against union members, and cuts in employer-provided health and pension benefits. Actually paid effective corporate taxes are the lowest since 1950 and income inequality is the greatest since Herbert Hoover, before the glory years of the Keynesian welfare state and redistributive taxation.

The Wall Street Journal wasn’t ready to repudiate all 70 years with Ron Paul – no doubt they were tempted to repudiate the Golden Age of American capitalism because it came by virtue of Keynesian demand management, high taxes, unions, regulation, and liberal Democrats – and it settled on the formula that the Republican candidates “pressed for dismantling of government regulations drawn up over 40 years”, not just since Obama was elected. The candidates not only opposed the tepid financial regulation law passed last year by Congress in the wake of the worst financial crisis since Hoover; they also agreed to repeal Sarbanes-Oxley, the law passed in response to the massive corporate frauds by WorldCom, Enron and others. The Republican leaders vied with each other for the most dramatic opposition to protective legislation, some reaching back more than 40 years: Romney wants to give up the Federal Emergency Management Agency, Bachman said we should get rid of the Environmental Protection Agency, Gingrich called for repealing the National Labor Relations Act, and Herman Cain wants to privatize Social Security. They all repudiate the Affordable Care Act and want to dismantle Medicare by shifting us into the private health insurance market.

Like Alan Greenspan before the financial crisis, the Republicans believe in the magic of the marketplace: capitalists can be trusted to self-regulate. Who could possibly believe that this won’t work out for the best in the best of all possible worlds? Capitalists have always served the public interest before, haven’t they? Of course, there was no one to say “boo” to the candidates, which is a good illustration of what happens when we only talk to people we agree with: the obvious flaws in our assumptions go unacknowledged.