Thursday, May 07, 2009

Acting White: The Reagan GOP Fallacy

The Wall Street Journal (WSJ) ran a recent editorial asking the question, “Should the GOP Forget Reagan?” Perhaps they should, but maybe this is the wrong question. Forgetting someone you think was right is a lot harder than letting go when you believe they were off the mark.

Reagan, and his near-term stand-in, the recently departed Jack Kemp, espoused the philosophy, as described by the WSJ, of “work, save, and invest”, with the help of only modest government intervention. On the surface, this is a philosophy I can get behind, but it failed us, and the Republicans have not taken the time to understand why, so they still cling to it even though it’s killing them and the country.

So why did a governing philosophy that seems to make good sense land us in such a mess? First of all, the mess was inevitable regardless of the party in power, modest Republican or immodest Democrat. Fettered or unfettered capitalism, and its purveyor, US corporate HQ, never bought into Reagan’s philosophy. (I'm not sure Reagan bought into his own ideas). Oh sure, business liked the part about having free run, but they used this freedom to develop and mature US consumer appetites for fancy living, which is just the opposite of work, save, and invest. The rest of the world has beaten its way to US shores to jump on the super-consumer band-wagon.

The Democrats are no better. Just recently, we see Demo leaders circling the wagons to protect corporate ability to run tax free, or amok, to provide goods and services that the country does not need. Reaganomics et al never placed a premium value on smart and patriotic companies investing in real advancement, rather than the high-living that makes importers, distributors, and bankers richer, and which requires more free time and bigger credit-limits for dumb-down consumers to enjoy their debt-fueled sedentary flat-screen comforts.

Yes, we should forget all the presidents, Congress and the Senate too, and perhaps Obama after four years, but not before we understand and strike-down the implicit governing philosophy which encourages US corporations to engage consumer-citizens as though they are drug addicts, with no care for our long-term demise. And if we were really serious about digging our behinds out we would institute consumption taxes, and savings tax breaks, while eliminating graduated income taxes and tax havens for all.

James C. Collier

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14 comments:

bbgcmac said...

Ronald Wilson Reagan... reminds me of Gil Scott Heron's classic "B-Movie when he talked about ReaGUN"...

and as he said then America is still in love with nostalgia and the days when the white man came in on the white horse and saved the day ala john wayne... this was america's facination with reagan as well as those whom they thought would keep up the tradition... for all the sins of both parties, specifically as they relate to THIS post about reagan's effect is living and loving, embracing a hollywood fantasy perspective of america and americanism.

Kentucky Packrat said...

Reagan was an anti-Communist first, and then a small-government person second. He would have given Tip O'Neil almost anything to "arms race" the Soviet Union into bankruptcy. He succeeded, but at the price of a federal government that was technically insolvent in the 90s, and (after 20 years of "head in the sand" politicians inflating said problems) is truly bankrupt.

Blaming US businesses for this mess is like blaming the cook in the restaurant scene of Monty Python's The Meaning of Life. The cook provides the food, but the eater is bound and determined to kill himself.

US companies provided the credit and the storefront, but it was US consumers that were dead-set to have dual incomes, 2 SUVs, a 3000 square foot house, and gadgets out the wazoo. No one held a gun to their head and said "Run up your credit card". These people deliberately chose to pay more than stuff was worth.

In a fair world, the people loaning the money would lose it all. Instead, we have TARP and banks "too big to fail". Japan proved that all that gets you is a 20 year depression. Since there have been, and continue to be, no consequences to the actions, the push will be to loan more.

As I've told everyone who will listen, you don't cure alcoholism with hooch.

James C. Collier said...

KYPR, I don't let business off so easy when they spend so much money buying, uh...influencing, elected officials in their self-interest. I agree with you about giving hooch to a drinker. I call it the hair-of-the-dog approach. The stimulus money is suppose to get mainlined into consumers, who will spend it, boosting confidence - what utter BS! Even this is not 'working', since the banks are holding onto the dough to fix their already ailing balance sheets.

MuscleDaddy said...

James,

The philosophy of “work, save, and invest” didn't fail us.

We, as a people, failed when we turned our collective back on the philosophy, in favor of the pretty baubles flaunted in front of our noses by people exercising their version of the "work" part.

- MuscleDaddy

Alden Merrill said...

Well written piece. May we never haver to endure future Reagans or Bushes, and the failures that are certain to occur when Corporate America is left to its own devices.

Anonymous said...

Freedom only works for intelligent, principled people. We dumbed down our culture and lost the religion that gave us our principles. Democracy and capitalism both fail when the people are no longer capable of making responsible decisions.

DaveinHackensack said...

One man's consumption is another man's livelihood. If everyone only bought the bare necessities, not only would our lives be bleaker, but a lot of people who work in fields that sell non-essential goods or services would be out of jobs. We do need to save more and consume less as a country, and we are doing that now. In fact, we're probably doing too much of it now. It's the old "paradox of thrift".

The main reason Americans, on average, consumed more than they saved for so many years was that rising asset prices. Conversely, falling asset prices have scared Americans into saving more than they spend recently. These are common (if, unfortunately, pro-cyclical) reactions.

Regarding Reagan, it's worth remembering what things were like in America when he came into office. The top tax rate was 70%, and because of that, a lot of investors' money went into tax shelters instead of more productive investments. Government regulations fixed prices and limited competition in some industries (e.g., airlines).

Sure there have been excesses and imbalances in our economy in the three decades since. Consumers took on too much debt, and finance became too big as a share of our economy. The current recession is correcting that, all on its own. People forget that these adjustments, while painful, are part of any free market economy: they aren't a flaw of the system, but an essential feature with which it wouldn't work.

We Americans can be a whiny bunch when you think about it. We having our first truly painful recession in a quarter century (and it's not even as bad as that one) and we start doubting everything. Take a breath. If you're old enough, remember back to the early 80s, and think of all the ways your life is better today than it was then. You probably have more variety of higher quality foods to eat -- from Whole Foods, to Chipotle, to your local sushi restaurants, etc. You probably drive a much better car than the shit boxes that filled the roads back then. You have a much better TV with a hundred more channels to chose from. You have a cell phone. You have a computer. Video games are orders of magnitude more sophisticated than they were back then. When you get sick, there are drugs you can take today that didn't exist back then.

There are so many ways we are richer and live better today than we did back when Reagan was first inaugurated. There are policy changes worth considering today, but we should remember how well off we are today before we risk throwing out the baby with the bathwater.

James C. Collier said...

DaveinHackensack, what advice do you have for Mayor Bing (Detroit) with his city of 'America no longer needs you?'? I estimate that the US has a population of 10-15% (mostly black and brown) that it simply does not need, want, or know what to do with, eh?

DaveinHackensack said...

James,

As I've written elsewhere (e.g., here), in order to create broad-based prosperity we need to facilitate industries that have high enough margins that they can pay their blue collar employees well -- industries such as natural resources and manufacturing.

The problem is that many liberals (and some conservatives) -- although they support the goal of a strong middle class in the abstract -- advocate policies that work against this goal in reality. They oppose most natural resource industries out of concerns about carbon and global warming; they advocate policies that will make energy (and thus energy-intensive industries such as manufacturing) more expensive, for similar reasons; they oppose the vocational tracking that would support a strong manufacturing base, out of egalitarian educational ideals; and they support unskilled immigration, which lowers the wages of blue collar workers in industries such as construction.

I don't know how much power the mayor of Detroit has to change any of this -- probably not much. But maybe he can influence his fellow Democrats at higher levels of government to rethink some of their current policy ideas.

DaveinHackensack said...

James,

Thinking about your Detroit scenario some more:

Wasn't there a proposal a while back to foster economic development there in an Afrocentric fashion? Why not try some steps in this direction?

If I were the mayor of Detroit, in addition to doing what I suggested above WRT those policy issues, I'd try to jump start some new businesses in town. Think about this: I'm sitting in a Starbucks right now as I'm writing this. Why isn't there an Afrocentric coffee chain I could sit in? It's a natural fit, because some great coffee is grown in Africa. Why doesn't Mayor Bing put in a call to Magic Johnson, who knows a thing or two about running a coffee business (from his partnership with Starbucks), and also call an entrepreneurial African leader such as Rwandan President Paul Kagame (who wrote an op/ed in Friday's FT that I excerpted on my site). Everyone knows Starbucks has gotten a little stale. Why not start a new chain selling African-origin coffee, with stores decorated with African artwork, and headquarter it in Detroit?

Why not contact some small company in Italy that makes great espresso and coffee machines and try to encourage them to set up a factory in Detroit to supply this chain?

Before coming to this Starbucks my girlfriend and I had lunch at Whole Foods. They sell a premium chocolate bar brand called Vosges that combines some exotic flavors with chocolate (e.g., chipotle, bacon, etc.). It sells for a ridiculous $8 per bar. Why can't there be an African American premium chocolate company? Like coffee, great cacao comes from Africa. With selling price of $8 per bar, there ought to be fat enough margins to pay half-decent wages to American workers. Why not put the factory in Detroit?

That's just five minutes of brainstorming by me. I could come up with more ideas.

Anonymous said...

To answer your question or at least give my opinion it is very difficult to start a business in the US; too many rule and regulations. I started an Internet business a few months ago and it was a complete failure. I lost money and then the state tried sticking me for 400 dollars tax on profits I didn’t make. Most people don’t have the attention to detail to run a business.

Anonymous said...

"Why not start a new chain selling African-origin coffee, with stores decorated with African artwork, and headquarter it in Detroit?"

Derr... because the people in Detroit have no jobs, and no money to spend on coffee even if they wanted it.

Ditto for your other ideas. The people of Detroit have nothing to offer. No one wants to deal with them. It's harsh to say, but the people in Detroit right now are the worst of the worst. Anyone with any skills, any wealth, or any sense left a long time ago. What is left is not fertile ground for business, especially with the mafia-esque nature of Detroit politics. Unless someone steps up and finds a way to stop Detroit politicians from trying to extort suburban residents for revenue to pass on as handouts to residents, the city will continue to degenerate into the worst kind of slum. And even if that happens, it will take at least a generation for Detroit residents to regain their sanity, adopt positive values, and get on the road back toward being the most prosperous city in the country. The more we deny Detroit's culpability for its own decline, the more we retard its recovery.

James C. Collier said...

Hey Dave, I thought I asked you what Mayor Bing should do? I'm not sure. Unfortunately, the opportunity for betterment initiatives is challenged in direct relation to age of the person affected. Early childhoood development, like Head-Start, represent the greatest leverage. The habitually un/under-employed are another matter. Cultural remediation is the greatest need, as it thwarts other development programs, but victim pathologies block even the hint of adaptive programming.
Simply put, Detroit needs to shrink to a much smaller incorporation, via bulldozer. The people need to be trained/re-trained and relocated to public works and ultimately to private industry, which needs incentives to hire rather than outsource. Not easy.

ComRevDe said...

I wish European elites were'nt trying to transform Europe into an U.S. (yap, I'm european)

The whole Reaganomics also played an important role in the definition of european economies. Thatcher, Chirac, post-soviet countries, Cavaco Silva-in Portugal- and José Maria Aznar.

European countries have a tradition of public services. Much because we had more acceptance to Socialism, having in count that the european working class and their trade unions were always active and ready to take the next step on political demands.

But after the fall of the Soviet Union, a new spirit is in the air. And it's not "freedom". It's like europeans know their public services will sooner or later be privatized. Handed over to corporations and the "free" market.

It's incredible that even though Obama's win was a symbolic defeat of Bush and Reagan, Europe didn't moved from the Bush period. The free Market guru's are in such high spheres of power as the European Union, the governments and the European Central Bank.

It's also incredible how the media in Europe everyday sort out the 'freedom of choice' argument and I actually heard a tv commenter saying 'thanks God we live in a market economy'. I mean...their world is torning apart and yet they keep pointing out the same old ideas.

With the Lisbon Treaty - something like the Constitution of the European Union - the citizens won't be entitled to public services, which probably means that in the long run they will be privatized.

Reagan's ideas and of those before him didn't die. In fact, they are emerging in Europe stronger than ever and they will surely be the european's future.

Unfortunately, the europeans don't give much a damn about politics nowadays or this sort of measures. We used to be a free people. Not only in word and thoughts but also in actions. I mean, it was in Europe that the USSR was raised. And the Democratic German Republic. Also the Commune of Paris and Anarchist Catalonia. And much more progressist societies. But now the european people is tamed.

Believe me, Capitalism won't end and it will soon meet their next victories. The privatization of the public services in Europe will give Capitalism another boost.