How Our Leaders Screwed Up

John Dean, the last honest conservative:

Our country's best and brightest economists have, for over a decade now, been traveling the land to warn of the coming economic crisis. Championing this cause are a number of former government officials, both Republicans and Democrats, who have gathered at the Concord Coalition. Former senators Sam Nunn and Warren Rudman, former Fed chairman Paul Volcker, former Secretary of the Treasury (during the Clinton Administration) Bob Rubin, and former Secretary of Commerce (during the Nixon Administration) Peter Peterson together constitute the bipartisan coalition.

Peterson, a founding partner in the Blackstone Group, which manages some $80 billion dollars for investors, started the Concord Coalition in 1992. He knows his way around the economy, and since the Reagan and Bush I years, he has been expressing his concern about the way Republicans have handled it.

Peterson's most recent book, Running On Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It (2005), along with the reports that are regularly issued by the Concord Coalition, give the distinct impression that the Republicans have not been good for our economy. While this material tries to be evenhanded in its critique, there is no escaping the fact that the Republicans have become fiscally irresponsible.

Peterson's Running On Empty

Peterson's book is a good read, if you want to learn the bad news. Like many savvy businesspeople and economists, he worries particularly about the excessive debt and deficits Republicans have created. (His principal criticism of Democrats, in contrast, is their refusal to end entitlements -- not that Republicans have done so, either.) As a Republican, he was proud of the long tradition of fiscal responsibility, for they once had no hesitation to cut spending or hike taxes, since the party abhorred deficits that burdened future generations.

Fiscal responsibility, however, is no longer the guiding conviction of Republican leaders. For the last quarter century, since Ronald Reagan arrived in the White House, Peterson writes, Republican leaders have been oblivious to the devastation that deficits bring. "Deficits have become like aspirin," he explains of their thinking, "a sort of fiscal wonder drug. We should take them regularly just to stay healthy and take lots of them whenever we're feeling out of sorts." (Peterson doesn't say it, but while aspirin is not lethal, it can be deadly when you are bleeding badly, as is our economy.)

Peterson devotes a chapter to explaining "How the Republicans Got Us Much Deeper [With Democratic Help]" - with their tax-cutting mania and undisciplined spending. And he finds George W. Bush's performance "breathtaking" in his ability to turn what was a projected federal surplus of $5.6 trillion, when he arrived, upside down and into an even greater deficit. It is not easy to dispose of over $10 trillion. As Peterson also notes, hard accounting numbers would show that, in fact, the deficit is even greater than Bush projects, and the problems created by excessive government debt are exacerbated by the failure of Americans generally to save, rather to opt for personal debt.

Where is all this going? Peterson's title makes it clear that unless business as usual is changed, our nation will ultimately become bankrupt. He offers solutions and suggestions, but he reports, "I have spoken with a large number of senior leaders, both public and private. And I'm alarmed by the number who tell me, 'Pete, I really believe it will take a palpable crisis to get us to act.'" To avoid that alarming potential, Peterson and others are trying to warn us all.

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Warnings from the Concord Coalition about Fixing the Problems

No one knows if, or when, such a crisis might occur. As the Concord Coalition looked at the 2008 presidential election, in a publication titled "America's Economy: Headed for Crisis," it noted that "[n]o one can say when all this might end up in a crisis, nor what that crisis would look like. Indeed, there might be no crisis at all - just a long, slow erosion in our nation's standard of living. In either case, it's a dismal future, and doing nothing now to avoid it would be an act of fiscal and generational irresponsibility."

The next president, not to mention the current aspirants, must address this situation head-on. "The problem [in addressing and solving the situation] is not that the public cannot handle the truth," the Concord study notes, but rather, "the problem is the poisonous political environment in Washington and a process for nominating candidates that rewards the most obstinate forms of partisanship."

Strikingly, this report points to the very problem that Republicans, in particular, are facing, as Senator John McCain emerges as the likely party nominee, and Democrats are facing to a lesser extent in the contest between Senators Hillary Clinton and Barack Obama. "The very idea of bipartisan cooperation seems highly offensive to ideological purists of both left and right," the Concord group warns, for nothing in Washington can really be resolved without bipartisanship.

John McCain is being hammered by people like Rush Limbaugh, Sean Hannity, and Ann Coulter for his cooperation with Democrats. Hillary Clinton's judgment, if not sanity, is being questioned by Democratic anti-war ideologues for her joining Republicans on the use-of-force resolution in Iraq (notwithstanding her desire to end the war). None of this bodes well for solving the problems facing the economy, which will require compromise on both sides.

It is no longer a question of who caused the problems that have weakened our economy - problems that are going to get much worse before they get better. Rather, it is a matter of who can best fix the mess. That, too, is pretty clear.

Republicans and Democrats Have Changed Places on Fiscal Responsibility, with Democrats Now Better Suited to Repair the Damaged Economy

Harvard Kennedy School Professor Jeffrey Frankel, an MIT-trained economist, has examined and documented the ironic but now conspicuous change in the economic philosophies of presidents of the contemporary Democratic and Republican Parties. Comparing the records of Presidents Carter and Clinton with that of Reagan, Bush I, and Bush II provides the evidence at which voters should look in 2008.

Professor Frankel's fascinating study points out that the turnaround extends far beyond the Republican presidents creating deficits and Democrats creating surpluses, or in Carter's case, holding down the deficit. He notes that while Republicans claim to be inflation fighters, "in practice, Presidents Reagan and the first Bush pressured the Fed to ease up on monetary policy - sufficiently so that Paul Volcker decided the chairmanship was no longer worth having in 1987" and threatened to leave. In comparison, President Clinton "deliberately and unprecedentedly" allowed Alan Greenspan do his job without pushing him.

"Republicans are supposed to support small government," Frankel noted, "but federal employment rose under Presidents Reagan and Bush, and shrank under Clinton. Republican presidents have been big on free trade rhetoric. But their actions have in fact been protectionist, judged not just by some politics-free ideal, but as compared to the record of Clinton." Frankel cites as examples "George W. Bush's tariffs on steel and lumber and Ronald Reagan's voluntary export restraints on autos."

Republicans claim that they are the ones to take government off the back of business, yet Frankel found that the trend toward deregulation of many industries -- airlines, trucking, natural gas, and banking - began in the Carter Administration. "Reagan at best continued the trend," the professor pointed out.

This is not the view from the left, claiming credit for the right. To the contrary, Frankel reported that his "characterizations are shared by economists from across the political spectrum," as is clear from studies by other economists. Not only are the Democrats better for business, they are more likely to be able to start the heavy lifting of repairing the damage done by too many years of Republican rule.