Krugman: Large fiscal expansion needed

Update: National Bureau of Economic Research says the U.S. economy fell into a recession last year.

Among the pathological programs pursued by the Bush administration is its enterprise to turn the national debt from prospects made in 2001 of the debt being completely paid off in 10 years to upping the debt to $10 trillion.

'Deficits don't matter,' infamously mumbled Dick Cheney at a high-level meeting that was recalled by former Treasury Secretary Paul O'Neil.

Worse is the wish list that the rightwingers wanted from the future administrations dealing with the massive debt: Eliminating those awful programs like Social Security and Medicaid and Medicare which would become unsustainable because of the debt purposefully piled up by Bush and Cheney.

Nobel Prize-winning Paul Krugman warns today that president-elect Obama should not clean up the fiscal mess immediately in the face of a dangerous recession, and views government spending as a economic imperative to ending the recession:

(C)ircumstances right now are anything but normal. ...

(W)e have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.

The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.

Hyper Power Corrupts

In December 2000, the Clinton administration announced projections that “the United States is on course to eliminate its public debt within the next decade.”

Then George W. Bush took over.

Discussion ensued over the next two years about the consequences of paying off the public debt in toto. It was stirring to hear the Federal Reserve Chair talk about the ramifications of this scenario before Senate committees.

Attending a critical meeting in the Bush administration in November 2002, Treasury Secretary Paul O’Neill warned of impending fiscal crises as he objected to a new round of regressive tax cuts that O’Neill saw as locking in fiscal debt were Bush to tack in the same fiscal direction. O’Neill was fired one month later.

Vice President Dick Cheney cut O’Neill off in the meeting, saying "Reagan proved deficits don't matter. We won the midterms (congressional elections). This is our due" (Ron Suskind, The Price of Loyalty; Simon and Schuster, 2004).

But Reagan had proved no such thing.

As Reagan presided over the catastrophic October 1987 stock market crash, Walter Isaacson noted:

What crashed was more than just the market. It was the Reagan Illusion: the Idea that there could be a defense buildup and tax cuts without a price, that the country could live beyond its means indefinitely. ... As he shouted Hooverisms over the roar of his helicopter ... or doddered precariously through his press conference, Reagan appeared embarrassingly irrelevant to a reality that he could scarcely comprehend. Stripped of his ability to create economic illusions ... he elicited the unnerving suspicion that he was the emperor with no clothes. [Time Magazine, November 2, 1987
pp. 20-21. Quoted in Haynes Johnson, Sleepwalking Though History, pp. 385-386; W.W. Norton, 1991] (It's worth noting that assertions that Reagan was a deregulator of markets is a myth, though he did share with George W. Bush a profound ignorance of policy, and though Reagan had neocon aspirations, they were knocked down after Iran-Contra blew. His true heir is George W. Bush who took the first term of Reagan's and streched it to its absurd and destructive conclusion.)

Now, eight years after the Clinton announcement projecting the end of public debt, we have a $10 trillion national debt and $500 billion projected annual fiscal deficit.

Many wonder whether foreign investors might decide to find greener pastures than twenty-first century America, resulting in dire consequences to the American way of life should this occur.

As “old Europe” and Latin America and indeed most of the world engage in schadenfreude, many mainstream intellectuals in America now openly wonder if America is "A Power That May Not Stay So Super."

Greed-and-crony finance, deregulation, corruption, and eight years of nihilistic politics may spell the beginning of the end of America as a hyper power and the launching of something new, something better.

As American citizens something new is our due.

We should have listened to warnings issued before. We can listen now.

From September 26, 2005 in CounterPunch, an excerpt from a piece by Paul Craig Roberts:

George W. Bush will go down in history as the president who fiddled while America lost its superpower status. Bush used deceit and hysteria to lead America into a war that is bleeding the US economically, militarily, and diplomatically. ... Once China completes its acquisition of US capabilities, it will no longer have a reason to support the dollar. ... When the dollar goes, it will affect costs, profits, interest rates and living standards in dramatic ways. Costs and interest rates will soar, and profits, living standards, equity values, bond prices and real estate will plummet. ...
These unpleasant events await only Asia's decision to curtail its support for US red ink. That will happen when this support no longer serves Asia's interest. ...
Time is running out for Republicans and Democrats to escape from the distraction of a pointless war and to focus on the real threats that endanger the United States of America.

McClatchy: Fiscal Crisis Threatens U.S. future

The Bush administration's self-conscious program to run up the national debt to put politically popular programs - Social Security and Medicare and Medicaid - in peril has succeeded beyond expectations.

At the beginning of the Bush administration, there was talk about $trillion surpluses and the beginnings of a debate over the wisdom of having too large of a budget surplus, with no national debt.

Bush and Cheney have made that reality a distant memory.

Writes Kevin G. Hall at McClatchy:

... President Bush touts the now-shrinking annual federal budget deficit, the amount that annual spending exceeds tax receipts. The deficit fell from a high of $413 billion in fiscal 2004 to about $163 billion in fiscal 2007.

But that masks what's happened to the gross federal debt, the sum of outstanding debt issued by the federal government. Since fiscal 2001, the federal debt has soared from $5.8 trillion to $8.9 trillion.

Like everything else Bush has done, running up the national debt was a well-crafted big con, this time with the American people and our grandchildren as the marks and the coming zap on the U.S. Treasury as the Sting.

But not to worry, Bush's family will be fine, and that's what really important.
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Iran War Moves

If you wish to understand how Bush and Company got away with the atrocity of Iraq, observe how the administration's moves against Iran are portrayed on the cover of the London Independent versus your local newspaper, nevermind the network news channels.

We live in a depoliticized, dumbed-down, corporate media society spawning an American public that can believe still that Saddam caused 9/11 (one out of three), and accept its government's statements unquestioningly, with merely a muttered comment.

A vibrant democracy would be alive with indignant cries of: They're doing it again, let's stop them.

But the depoliticalization of the American public, along with its related susceptibility to emotion and image, is an aspect that Bush and Cheney and the whole despicable lot of them know so well.

As Bush took a projected long-term $5-trillion surplus and turned it into projected multi-trillion dollar debt within five years while slashing social service spending, the Cheneys and Roves made a political calculation that they could get away with it without economic dislocations and political costs to the people who matter.

"Reagan proved deficits don't matter," Cheney said, according to former Treasury Secretary Paul O'Neill (Suskind. The Price of Loyality, p. 291). And Bush proved an all-out looting of the U.S. Treasury doesn't matter.

So now as tax cuts for the super-wealthy, public money directed at the high-tech sectors as never before, and war without end is waged, the burden of war falls on a small number of Americans in the armed forces and their families, while profiteering and crony contractor capitalism's fraud remains protected by the Bush administration, as it continues to insist that war is necessary to protect America as a society.

But Cheney is right, you get away with quite a bit; it's up to each American to draw the line at how much squandering the treasury, lying, and killing and maiming our young does matter.

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