The Economy's Foundation Is the Problem

President Bush is likely to tell us in tonight's State of the Union Address that, despite the recent problems, the economy's foundation is sound. Sadly, it is utterly untrue. The economy's foundation has been neglected for nearly eight years by him, and was in truth poorly served since the Reagan years. Back then, the nation and much of the economics profession was essentially rolled by a simplistic economic philosophy that, to sum up, government was almost always the problem. Laissez faire, led by the University of Chicago, was back with a vengeance. The foundation is not teetering.

The New York Times inexplicably reported this morning on its front page that Americans would have known how good the Bush economy was had it not been for the Iraq war. Little could be further from the truth. Americans were disappointed by the Bush economy because the Bush economy failed. Wages, for the first time in a modern economic expansion did not rise, discounted for inflation. Family incomes rose ever so slightly. Meantime corporate profits hit records, and even so, companies did not spend aggressively on the capital investment that would make a future economy strong. Personal fortunes were mind boggling. Mere human beings built 415-foot yachts with basketball courts.

And what about all important productivity, on which all economic growth depends. It rose rapidly for a few years and has been growing slowly again for more than three years. Good economy?

When wages don't rise ordinary people borrow to keep their heads above water, not because they've caught luxury fever. The foundation of this economy became private debt. It rose rapidly in the 1980s and 1990s and zoomed under Bush.

Now we are paying the price. The Times said the sub-prime mortgage crisis could not be laid at Bush's feet. What about decent regulation? Sure, we needed more from the Federal Reserve, but we also needed more from Bush's Treasury Department and the Securities and Exchange Commission. We got an awful lot of 'looking the other way.'

But the genuine foundation of this economy is the people's education, their health, their transportation network, and, frankly, their sense of fairness. All these under Bush are a mess -- and of course it was not only Bush.

When Wall Street bankers make so much by creating the conditions that lead to crisis, does America have confidence the economy is working right? They don't. Do they have a sense it's fair? No, because it's not.

What to do? Get wages up, savings will follow. Invest boldly in our public goods, so long neglected. But do it all smart. Easier said then done? We've done it before.

Comments

[Sundialsvc4]

There are other, more practical things that we can do.

First, some serious banking regulation. Overhaul and regulate the credit-rating system. Re-impose usury laws. Demolish the scam, perpetrated by every national bank, which allows transactions to be processed "in the manner most advantageous to the BANK."

You can see the sickness on the balance sheet of any Federal bank that you care to study. Human nature does not make "good business decisions." Human nature finds money within its grasp and takes it, saying "oh! what a good boy am I!"

[seawolf77]

Aliens land on White House lawn. Bush proposes tax cuts.

[joebaggadonuts]

Two words. Bad Government. What we need is GOOD GOVERNMENT.

If you think that people can't work together to make a good government that helps us all, go back and read the preamble to the Constitution and ask yourself why you think you are smarter than our founding fathers.

[davidmwe]

The economy is effectively out of the hands of any of our political leaders- it is in the hands of the Feds (The Federal Reserve) _and_ the bankers.

Create money from thin-air... no problem, for DEBT=MONEY (That is our debt, mind you, yet not our money.):

http://ronpaul.myfeedportal.com/viewarticle.php?articleid=37

[MSB]

I think the economy and its underpinning are to blame. Frankly, I am very critical of our current brand of capitalism. It SHOULD be heavily regulated. I believe that left to their own devices, people are NOT good. Left to their own devices there are masses of folks that would trade our collective future for a few dollars in their pocket. MANY of these people are in governance currently. This should not be allowed.

Some of America's most equitable programs a socialist it nature. The root of the word society is the same as the root social. We ARE in this together and we are our brother's/sister's keeper.

There are many kinds of wealth. Excessive personal monetary wealth is very rarely a good thing. Very few of the extremely wealthy are creating value or jobs. Very few don't shelter their income from taxation. Very few wouldn't pack up and leave if the government wanted to increase their tax burden. The rich squeal while millions starve, go uninsured, go under-educated and serve the rich coffee and pastry. Regulation is usually a good thing collectively. It is there to remove the extremes - both want and excess.

We ARE in a class war. American capitalism is failing. e should have incentivized socialism or heavily regulated capitalism, but either way - in a democracy we ARE the government. We can't be against it and for it at the same time.

Running against government as a platform is demented. If most people were honest with themselves they would see that an incredible number of benefits they enjoy daily are the product of good government. If you like roads, schools, social security, safe running water, breathable air, zoning ordinances, fire departments, police departments, building safety, civil defense, guaranteed medical care, etc. etc. - then you DO like government. We can debate the particulars but government is good.

BTW - Regan was a tool. If I'm in trouble, I do want to hear, "I'm from the government and I'm here to help." Too bad they didn't hear that in New Orleans. I wonder what they think?

[themodernleader]

Mr Madrck's appraisal of the causes of our economic maliase are standard fare of traditional liberal thinking of our country's elite citizentry. But are the assumptions that more education or better education or more specific education coupled with advanced transportation and more economic fairness the actual causes of economic structural stress and decline?
We spend more on education than any human group in the history of the world. We have been responsible in that endeavor. IN fact, most Americans believe that education is a panaccea for any and all our problems.
We spend billions on transportation, maybe not in the right proportions, but we have the most advanced transportation system in the world.
Fairness since the age of Reagan has taken a back seat for the higher value of unrestrained "private entrepreneership" and global "free trade". This is a deteriorating value-goal that has caused grave concern among our citizentry in recent years.
Where is public policy to derive from these problems of our economic foundation? Except for reinstilling a graduated tax structure, where are the causes of cracks in our country's economic foundation.
If Mr Madrick were to have discussed the structural advantages of turning off opportunity for our citizentry for the opportunity, affluence and power of off-shore organizations, then he would have begun to address the startling decline of Aemerican competence, confidence and economic vitality.
If we are ever to recover from the gross mismanagement of this country, this past quarter century, we must reexamine basic presumptions and assumptions that have driven our nation into unimagined, dangerous territory.

[realitytrumpsbull]

LOLOLOL

I bag on Bush. I think he's kind of a jerk, but frankly, in all honesty, he gets blamed for a lot of crafty crap that's gone on for YEARS, to Clinton-era AND before, and it's always the same same same. Why? Because Reagan called it, the last words people wanna hear are 'we are from the government, and we're here to help'.
People aren't incompetent, and we're not infants either. BUT: We're getting infantaLIZED,
no accident, there, daddy gummit knowz best, right? Or not. Maybe definitely not, especially when it comes to the federal budget. Snag up a pay stub, and look at all the crap that gets taken out, before you get it. State, federal, local, medicare, etc. You get the lion's share, but 20-30% 'goes away'. Poof. Imagine if you were able to 'tap in' to some of that, and sit offshore somewhere absorbing the interest. How?
Careful investing. Get about 100 shares of Hallicheney, and you're well on your way.
Where'd the road funds go? YACHT payments, titty bars, new cars for government fatties that don't need em. Our government is CORRUPT.
It's a nice little racket, all about the friends, buddies, cousins, and in-laws.
That's why Bush had No Problem hanging out with
That Guy. Birds of a feather, there, royalists that reward the loyalists.
Well, I'm sorry, but the Congress's that let him stay in office for 7, working on 8 years were absent from the job, in spirit if not in body, and farted off their public civic responsibilities to nail down spending issues and other forms of corruption in their own ranks. Govpeeps GOTTA run a 'tight ship'. It's part of the job. But, get paid 6 figures and hang out with bomb guy, jet guy, machine gun guy, and laser-guided toilet paper guy long enough, and get your fingers good n greasy with those govbuxx, and you get accustomed to it.
You can rag on Bush all day, but if you just do that, he's just the fall guy, the PBIC. Poor Bastard In Charge.

[ErnestineBass]

What's wrong with America?

We got too lazy to change our own oil.

adieu

[kells1001]

The real problem is not that no one understood what is or was happening. Instead the problem is that the right media and special interests in fear of liberal politics have convinced and controled policy to the detriment of many Americans. Banks changed bankruptcy laws in fear of problems they see or saw coming. We started a war to protect our "oil" interests in Iraq, which we blamed for 911. The question is how many other "lies" are we being told to cater to a republican--supply side-rich man's philosophy. (For instance umemployment rates--incomes) The evidence is clear we have trusted this President and his administration along with the Fed and millions of people are suffering here and around the world as a result.

[mmckinl]

First things first ...

Federally Funded Campaigns ... until we throw the Monied Lobby Mafia out, Congress will heed their beck and call.

[swift goat pet for truth]

The strength of the American economy was built on the disposable income of Middle Class Americans and the stuff they bought. Gut the unions, lower the median income, increase the cost of food and energy, lower the median income, and that strength goes away. The last several decades has seen private debt sustain the economy, as the article says. It is unsustainable.

No middle class wage growth, and the top line (sales) of company balance sheets fall.

[swift goat pet for truth]

Not only private debt, but public debt, too.

Interest on our National Debt is the third or fourth largest item on our budget, after SS, defense, and possibly medicare. That's tax money that could be going for services going to Fed bond holders (China and Japan).

[outnow]

The Times is not truthful. Surprise?

[hopeless277]

Yes, we have done it before. But not with the entire business sector agaist us. Their single minded pursuit of profits by any and all means along with the Clinton NAFTA bill all but doomed this country. Now we are just a comatose body in the matrix being used for our body heat. Fed as little as possible and kept alive only to serve the corporate masters. No politician will dare to stand up to the corporations. Especially Clinton and Obama who are clearly accepting grand sums from these people. The fall of Rome will be a footnote compared to the fall of America. The God of Greed has imposed his sentence; a thousand years of war ushered in by John McCain.

[Pdubya]

I agree there is a huge problem, and love the title.

it begs the question again? what is the root of our economic troubles? it is not one administrations' policies over another...they have compounded themselves into the mess we have now. bush being the final delivery boy of a truck-sized hammer on our economic skulls.

the federal reserve fiat money system is the root and culprit of our woes. a debt based monetary system ultimately always fails. history shows us this. it is especially egregious when wars are fought on printed and borrowed money. just like today.

throwing money (printed or borrowed) at social issues will temporarily "fix" our confidence, but subsequently puts us into the same danger.

we must make our constitution legal again to have economic freedom and prosperity. make gold and silver backed currency competitive with the fed. no taxes on savings from these currencies. drastically reduce overseas spending. balance the budget. close lobby and make regulation fair by not allowing it to be lobbied for.

i suggest some reading at hale 'bondad's posts. read some peter schiff, jim rogers, and don luskin.

we have corporatism. in the form of GUNS right now. you're suggesting BUTTER. same effect.