The -ism that we need
From John Rose
Creston
In the current political climate, we carelessly throw around labels such as Socialism and Facism when we clearly have no clue what these terms really mean. If you call someone a name enough times, it must be true, therefore President Obama must be a Communist.
The fact is that anyone who blindly follows an ideology is a fool and is doomed to fail. That is what happened to the Soviet Union for instance. Many of our current economic problems stem from a blind belief system which is just the opposite of the ideology which led to the demise of the Soviet Union.
In the 1970s, the primary economic problem was far different than it is today. Inflation results when people have too much money to spend relative to the goods which may be purchased. Shortages lead to rapid price increases which incomes have trouble adjusting to. President Reagan was elected in 1980 on the promise to employ an economic theory known as Supply-Side, which was specific to the economic problem of inflation. The theory advocated tax cuts, especially for the wealthy and deregulation of business and industry. The idea is that lower taxes for those that create jobs and less government red-tape lead to more productivity, which would therefore tame inflation by balancing supply with demand.
Reagan had a definite point about too much regulation stifling productivity, but the pendulum can swing too far in either direction. Too much deregulation led to the Savings and Loan crisis of the late 1980s. Congressman Jim Leach’s warnings fell on deaf ears. By the end of the 1990s, everyone was drinking the Kool-aid. Democrats and Republicans were falling all over each other to out deregulate the other guy. Even Jim Leach put his name on the piece of legislation probably most responsible for the speculation in home mortgages and derivatives. It was known as Gramm-Leach and was eagerly signed into law by President Clinton.
The other component of Supply-Side was tax cuts. The lie is that government can actually increase revenues by cutting taxes for the wealthy, who in theory go out and create new enterprises, hire workers, and because everyone is making money, more taxes flow into the treasury. The vast majority of economists believe that the government only realizes a return of a third of each dollar in tax cuts.
The electoral successes of Ronald Reagan and George H.W. Bush from 1980 to 1988, led to two foundation stones of Republican ideology. The lesson was learned too well and has been misapplied. The inflexible ideology of the Republican party became the belief that tax cuts and the purity of the unregulated market will solve all economic problems (and allow you to win elections). The truth is that Ronald Reagan was not an ideologue, but a pragmatist, who actually restored a third of his income tax cuts, increased the gasoline tax, increased the payroll tax and increased business taxes when defense spending combined with tax cuts led to unprecedented deficits. Further tax increases under the first President Bush and President Clinton did not lead to a stale economy as Republicans would have us believe; indeed the late 1990s was a time of prosperity and balanced budgets.
The current economic problem is polar opposite to that of the 1970s. Unemployment remains high because of a lack of demand, not a lack of supply. Demand will only increase when people and businesses begin to spend again, but the catch 22 is that they can’t spend what they don’t have. Government is the only player which can create demand through government spending, but that increases short term deficits, which will not disappear until we have economic recovery.
At least one third of our current deficit is because of lack of revenue, however, and even more would be if the government had not injected spending through the Bush bailout of banks and the Obama stimulus package. According to Mark Zandi, who was John McCain’s economic advisor, the Bush bailout and Obama stimulus prevented what would have been Great Depression No. 2, and the federal deficit would actually be $1 trillion more than it is now because of reduced tax revenues which would have resulted from 25 percent unemployment.
Which brings us to the point. The only “ism” which Americans should follow is pragmatism. We have problems, and if “conservatism” is the answer to a specific problem, which it may well have been in the 1970s, then who cares about the label that it gets stuck with. Today our problems will not be solved by more tax cuts and market forces alone. They require an active government role. Some call that socialism, which it is not. What we need now is less emphasis on labels and more emphasis on solving problems, no matter what “ism” the solutions involve.
