Americans are justifiably ticked off with both political parties but Election 2010 offers little hope. Democrats, Republicans, and yes the Tea Party offers little that is encouraging.
President Obama’s droning complaints about the failures of George Bush, notwithstanding, the current economic quagmire is a bi-partisan creation.
The Great Recession was caused by reckless Wall Street pay and fraud, a breakdown in sound lending standards by Fannie Mae, Freddie Mac and mortgage mills like Countrywide, and a huge trade deficit with China and on oil. The latter left Beijing and Middle East royals with trillions of U.S. dollars that they invested foolishly in the U.S. bond market and which financed the housing and commercial real estate bubbles.
Scrape away the finger pointing. All was set in motion by bank deregulation engineered by Clinton Administration Treasury Secretaries Robert Rubin and Lawrence Summers, and Bill Clinton’s deal to admit China into the World Trade Organization. The latter permitted China free access to U.S. markets while maintaining an undervalued currency and huge tariffs and other barriers to U.S. exports.
Democrats in Congress and the White House, when they occupied it, took every opportunity to block domestic oil and gas development and, led by the ever thoughtful and high minded Michigan congressional delegation, froze auto mileage standards.
If I like anything President Obama did, it was to finally impose higher mileage requirements. And initially, he pushed for more offshore drilling. Unfortunately, some tropisms can’t be overcome, and when BP disaster hit, the President punished the entire petroleum industry.
If President Bush is culpable for anything, it was to not see the gathering storm on Wall Street. But Treasury Secretary Snow was a railroad man and understood finance little, and Treasury Secretary Paulson, a shinning star from Goldman Sachs, honestly believed banks could borrow at 3 percent and lend at 5 and pay MBAs three years out of school $5 million bonuses to create mortgage backed securities.
The best way to understand the Bush Treasury is to view the Eric von Stroheim 1924 masterpiece, "Greed."
Whichever bunch of second rate incompetents you favor-the Clinton or Bush White Houses-one thing is clear, Obama ratcheting up government spending and taxes won’t fix what’s broke, and neither will the GOP prescription of tax cuts and deregulation.
President Obama’s two signature initiatives-health care reform and financial services reregulation-simply don’t work. The former fails to address the root problem-Americans pay 50 percent more for doctors, hospitals and drugs-than subscribers to national health plans in Germany, France and other decadent socialist European countries, and the banks are back to their old tricks.
Wall Street is hustling municipal governments into the kind of quick-fix budget schemes-like selling parking meters and airports fees-that made Greece the most historically elegant insolvent entity since bankruptcies were invented in the courts of ancient Athens. Now bankers are shoring up 2011 bonuses by hustling shoddy corporate bonds that lack adequate collateral and may never be repaid.
Republicans like Mitt Romney and John Boehner offer little encouraging. Cutting taxes and mindless deregulation are not the answer. Washington can’t forsake any revenue until the GOP trims $1 trillion from federal spending, and few believe deregulation will fix health care or Wall Street.
Republicans don’t believe in effective government solutions to health care, Wall Street, fixing trade with China, and dependence on foreign oil.
Enter the Tea Party. It really only offers a purer form of failed Republicanism. Tax and spend less, and turn the country over to the robber barons.
Americans needs a prophet-another Harry Truman or Ronald Reagan-who will level with them.
Americans must accept fewer government-paid benefits-for the rich, the poor and those in between-and must acknowledge the market works best most of the time, but it is not working in health care, banking, China, and oil.
That means new approaches to regulating, yes regulating, what the medical industry charges, bankers pay themselves, what Americans tolerate and buy in the Middle Kingdom, and guiding big oil and car companies to sustainable solutions.
Sounds radical but running the world has never been a choice between statism and anarchy. And running it effectively accepts that the private sector is not the enemy and government is not evil, but neither can serve the other, and us, if value is not seen in each.
Peter Morici is a professor at the Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission. He is a frequent economic analyst on cable television news networks and grants permission to BizTimes Milwaukee to reprint his commentary.
