A Fool's Economic Paradise

By Stephen Pizzo, News for Real. Posted February 27, 2006.

So, how are you doing? No, I mean really, how are you doing -- you and your family? Are you feeling prosperous, living the American dream? Are you on course for a secure retirement and with smooth going as you sail off into the sunset?

American families saw their real incomes fall 2.3 percent from 2001, according to a Federal Reserve survey of consumer finances released Thursday.

Bush will, of course, blame these negative figures on a "recession we inherited" (Translation: Blame Clinton) and being "attacked on 9/11." (Translation: Blame the terrorists.)

I wonder how many years have to pass before those excuses ring as hollow as they are?

Simply put, Bushonomics has been the most destructive set of economic policies to hit Americans since Herbert Hoover. No, wait. That understates the problem. Thanks to this administration we are all now stuck in a race between two looming catastrophes: an economic collapse or an ecological collapse. Who knows, it even might be a draw.

Oh sure, you say, "There he goes again! Mr. Repent-The-End-Is-Near."

Well, you tell me. Let's just look at the gauges on our economic dashboard and see what they tell us. The Federal Reserve study released Thursday provides us with the most current readings. "This is a tremendously detailed, comprehensive look at the American family's balance sheet and it ain't pretty," said Jared Bernstein, senior economist at the Economic Policy Institute.

Read "Paying employers not to end pensions" and "Paying for retirement."

All of which are among the reasons I continue to believe we are living in the final months of a fool's economic paradise.

The last time we teetered on such a precipice was at the end of the Reagan presidency. Conservatives like to point to the Reagan years as golden times, and for the wealthy and unscrupulous, they were. But Reaganomics, like Bushonomics, was fueled, not by genuine worker productivity and a healthy consumer spending, but hot money -- credit.

During the Reagan administration, banks and savings and loans were deregulated and allowed to lend to anyone, even themselves. That fueled a building boom that was more often than not completely unrelated to housing demand.

Billions of dollars were pumped through the bank accounts of shady speculators and even shadier developers, for housing developments and commercial buildings for which there was no demand. Many of those developments went bankrupt and were later simply torn down.

You know how that story ended. While all the free and easy dough pumped up economic indicators, it nearly killed the thrift industry, with almost half the nation's thrifts going under. And, it left future taxpayers with a $500 billion hole to fill. And, like Bush's tax cuts, Reagan's tax cuts did not, as promised, increase real economic activity resulting in higher tax revenues. They did just the opposite, they gutted the treasury, just as Bush's tax cuts have done today.

How did we escape economic collapse after Reagan? Well, first his successor, George H.W. Bush, was left with no choice but to go back on his "read my lips, no new taxes," pledge, and raise taxes. It was either that or start boarding up government buildings.

That cost Bush I the love and support of the usual suspects that benefit from tax cuts, corporations and the wealthy. And that cost him reelection.

But even the Bush I tax increases proved a drop in the deficit bucket. So when Bill Clinton came to office, he raised taxes on the wealthiest Americans, and by the time he left office eight years later, the U.S. budget was in surplus.

Crisis averted.

Then Son of Bush and his team of economic Taliban arrived, and it was back to voodoo economics; the wrong tax cuts for the wrong people, deficits and profligate borrowing. Happy days were here again -- at least for those with the right connections, or the right lobbyist.

All that loose cash has done it again -- distorted traditional economic indicators. The needles point to "full," but family bank accounts remain empty. Here we go again.

Deborah Reed, an economist at the Public Policy Institute shares my sense of deja vu. "The 1980s were marked by a similar paradox. The economy is growing, but the profits of that are not being shared with workers. They're going to the CEOs and the people owning stock," she said.

It was just lucky for us that Reagan's term in office ended before all his deficit chickens came home to roost at once. We are not likely to be as lucky. This time the perps have three more years at the till.

By the time the next president is sworn into office he/she may have to take a crash course in Franklin Roosevelt's first years in office. Even if the next president is able to plug the holes in this ship of fools, it might be too late. Worldwide disruptions in food and energy, and human migration forced by global warming might well sink us anyway.

On the bright side -- at least the water will be warm.

Stephen Pizzo is the author of numerous books, including "Inside Job: The Looting of America's Savings and Loans," which was nominated for a Pulitzer.

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