OK, a quick trip down memory lane.
Kids and young adults, anyone under 25, ask your parents, because I know it wasn't covered in school.
Ronald Reagan came into office in 1981. He cut income taxes, especially income taxes for rich people. He raised Social Security taxes, which have a cap on them, so rich people don't pay after a certain point, thereby shifting the tax burden from the rich to regular people. His presidency also marks the point when the income of the rich really took off, but median income flattened out.
He had two recessions. He had high unemployment at the start of his first term and at the end of his second. His budgets led to massive deficits, the biggest ever up to then. Plus there was a fiscal bubble. It imploded, causing the biggest set of bank failures since the Great Depression. That required a gigantic bank bailout.
This period is known as Morning in America. It's why Ronald Reagan is a virtual saint to the Republican Party.
George H.W. Bush, that's Bush the Elder, made a pledge during his campaign, in earthy, everyman language, "Read my lips, no new taxes!" Fortunately for America, he had a residual streak of sanity. He raised taxes. It reduced the deficits. More important, the recession he inherited from Reagan bottomed out. Unfortunately for him, this was heresy. Republicans abandoned both Bush and his readable lips, making him a one-term president.
In 1993, Bill Clinton, who campaigned on the slogan, "It's the economy, stupid," came into office. He raised taxes even more.
The result? The economy really took off. Employment soared! The stock market soared! Deficits shrunk and turned into a surplus!
Then George W. Bush (known as W, the Younger, the Lesser, and Bush with a Codpiece) became president. He cut taxes. Kaboom! Instant recession. Markets keep going down. No new employment. The surplus disappeared and became a deficit!
His response? More tax cuts! Especially for the rich.
This created a two-track economy. For most people the recession never quite went away. But up on top there was a party! It was boom time. Actually, it was bubble time! Real estate bubbles, bank bubbles, derivative bubbles, insurance fiddle bubbles! The rich got super rich. Then the bubbles popped! Kaboom! Boom! Boom! Fizzle, fizzle, fizzle! There had to be a big, super huge bailout, quick, before the whole world economy collapsed.
There it is. Quick and simple.
The prescription for ending the Great Recession -- the one we're in it -- is simple and straight forward. Do what saved us last time. Do the opposite of what brought us here. We know it works. We saw it happen right before our eyes.
To the great relief of many, we elected the Un-Bush. This guy was supposed to be smart, sensible, capable of seeing reality over theology! He surrounded himself with really smart people. Well, people with degrees from top schools and professorships and experience at the highest level of government.
A bunch of them were Big Bankers, like Larry Summers, Tim Geithner. So we expect them to pimp for Wall Street.
But here's where it really got strange.
Let me introduce you to Christina D. Romer who Obama picked to head his Council of Economic Advisors. She is a "Berkeley professor, one of the preeminent macro-economists in the country, specializes in the Great Depression. ... As a graduate student at the Massachusetts Institute of Technology, she was a favorite of a young assistant professor named Lawrence Summers." "... so well-regarded ... many economists cheered that the Obama administration is going for the top minds in the field rather than those who adhere most closely to party lines."
Christina Romer, along with her husband, David Romer, authored a paper entitled, "The Macroeconomic Effects of Tax Changes: Estimates Based On A New Measure of Fiscal Shocks." It invents new classifications. Endogenous vs. Exogenous Tax Changes (which should mean tax changes that change from the inside vs. tax rates that change from the outside, but that's meaningless, so it's not what it means). It has one of the coolest equations, like ever!
∆lnYt =a +∑bi∆Tt_i+et,
No, I have idea what it means. But I can absolutely assure you that if Chris and Dave plug economic data into that equation it will prove that raising taxes hurts the economy! Who you gonna believe? An equation by a team of Berkeley economists, or your lying eyes?
As Chief of the Council Of Economic Advisors, Romer got to design Obama's save the economy package. Guess what? The biggest component was tax cuts, the thing that got us here in the first place. It's not often that social scientists get to put their theories into action. Surprise, it worked just like the Reagan and Bush tax cuts. The rich, the big corporations, and the banks got richer. The rest of us, poorer, and no jobs were created.
By the way, Romer regards herself as sort of a Liberal.
This is not Tea Party wacky, it's not Republican theology trumps reality, it's not even media 'we only quote 'em, we don't know nothin' ourselves,' kind of stupid. This is ultra-special, ultra-elite, PhD stupid.
So here we are.
We have an economic crisis brought about by something very simple. The Bush tax cuts. Seasoned and spiced with de-regulation and few other things. But the meat in the dish -- or if you prefer vegan metaphors -- the beans, are the Bush tax cuts.
This has happened before. In the 1920's, in the 1960's, and, of course, under Reagan. Tax cuts lead to bubble. Bubble explode, becoming depression or recessions. This type of recession ends after tax hikes. (It is true that the intention of the tax hikes is always to balance the budget, but the depression or recession reverses shortly after). The only time a tax hike did not improve the economy was when Roosevelt was convinced he had to balance the budget, so he cut spending. Then came WWII with unlimited spending, a top marginal tax rate of 90%, giant deficits, and huge economic growth.
The current crisis is a manufactured crisis.
It is easy to fix. Dump the Bush tax cuts. Go back to the Clinton rates. It worked before. Created jobs, turned the big, scary, deficit monster into a nice warm, reassuring surplus, lifted the stock market to new heights.
But no! Instead, more tax cuts! Cut spending! Cut government jobs! Threaten to destroy the faith and credit of the US government.
Stupid Rules! All hail Stupid!