An American citizen with an inquiring mind (IM): Gadfly, before we get into our discussion about former President Clinton’s economy surfing skills, are there any additional points we may have left out of our discussion on tax cuts, unemployment, and national debt?
Old Gadfly: I took another look at the claim of 4.5 million jobs created by the Obama Administration in the past 29 months. As you recall, we concluded this number does not add up. Perhaps the claim fails what former President Clinton (aka Slick Willie) called “an arithmetic test” in his policy lecture at the Democratic National Convention (DNC, Wednesday, September 5, 2012). Nonetheless, we wondered why the period did not start in January of 2009, the beginning of the Obama Administration. By starting at that point, the employment situation would still show a net loss of 3.1 million jobs. What change took place between January 2009 and July 2012? There was no change in top marginal tax rates. But in November 2010, there was a political sea change in Congress, especially the House of Representatives. So, I looked at the unemployment rates for this period and discovered the rate reversed when Republicans took control of the House. The number of unemployed at the end of 2010 was 14,825,000. The number of unemployed in July 2012 was 12,794,000, a net gain of a little more than 2 million jobs.
IM: Yet, former President Clinton alleged in his DNC lecture that Obama created 4.5 million jobs, and a Republican Congress created none. Should we believe him?
Old Gadfly: I remember when Clinton looked into the camera and said, “I did not have sexual relations with that woman,” and then later was found guilty of perjury by a grand jury and faced impeachment proceedings in Congress.
IM: Perhaps he has redeemed himself in terms of honesty.
Old Gadfly: Clinton spent a lot of time, during his DNC lecture, bragging about all the great things he did while President. Yet, he did not share any of the credit for “his successes” with a Republican dominated Congress, which drove a balanced budget and the welfare reform that put a lot of Americans in the workforce. While taking credit for many imagined successes, Clinton seemed to overlook the recession he handed off to George Bush.
IM: But, I was impressed by all the facts included in Clinton’s speech.
Old Gadfly: Clinton threw out a lot of “facts” at the DNC to fit the Obama narrative “frame.” The only problem with a lot of the facts is that they are not completely true. But, to a progressive, that doesn’t seem to matter. As Professor Lakoff would tell us, cognitive science research has revealed that it is the frame that matters—if facts fit, great; if not, they are irrelevant (see lesson # 8 in Thinking Points, p. 14). Clinton cherry picked facts, even some that did not pass his own “arithmetic test,” to fit the Obama frame--hope and change, forward, and so forth.
IM: Well, I know I referred to Obama types of narratives as lies, damned lies, and statistics in our last conversation. Yet, I did find a credible source that addresses this type of behavior in political campaigns. Anthony Downs explains this dynamic in his book, An Economic Theory of Democracy. According to Downs, “political parties are interested in gaining office per se, not in promoting a better or an ideal society. . . . Uncertainty allows parties to develop ideologies as weapons in the struggle for office. An ideology [is] a verbal image of the good society and of the chief means of constructing such a society” (1957, p. 96, italics in the original).
Old Gadfly: Interesting. How do you see this dynamic playing out in today’s political campaigning?
IM: Wow! I see this dynamic playing out in two major ways. First, why would Clinton speak at the DNC? Clinton was not on speaking terms with Obama for months after Obama’s tactics against his wife, Hillary, during the Democrat presidential primary in 2008. According to Edward Klein, in his book, The Amateur, Clinton believes Obama is utterly “incompetent” and has caused great damage to our nation. So, the only way to explain Clinton’s behavior is with Down’s observation that “political parties are interested in gaining office per se.” Second, Downs’ “verbal image of a good society” is remarkably different between Democrats and Republicans—it is characterized as visions for America. A classic example is the Democrat vision of collective liberty, guaranteed by a strong central government to ensure “shared responsibility” and “shared prosperity” as their dream of America. Of course, this dream requires egalitarian policies.
Old Gadfly: What do you mean by egalitarian?
IM: Egalitarianism is a belief that it is morally expected to ensure equality of outcome for all, even if this requires restricting freedoms for some. Obamacare’s individual mandate is a clear example of an egalitarian policy. And, despite the top 1% of our tax filers already paying more than 38.7% of federal tax revenues (as of 2009) while nearly 50% are paying none of the revenue, the 1% is demonized for not paying its fair share (see also a report from the Congressional Budget Office). Egalitarianism is a key mechanism of the progressive movement in promoting social justice.
Old Gadfly: Hmmm. Progressive. I have heard people use this term before. Progressive means wanting progress does it not?
IM: The meaning is far more complex than simply wanting progress. Progressivism is an entire philosophy that derives its inspiration from European socialism and statist administrative practice. Read Hayek’s The Road to Serfdom. Think about political correctness in our society. Where did it come from and why did it take root in America? Bill Lind provides an explanation at the web site, Accuracy in Academia. Read C. S. Lewis’s The Abolition of Man and how “conditioners condition the conditioned.” Lewis wrote this book in reaction to society-wide experiments by Lenin, Stalin, and Hitler in the mid-1940s. In today’s public narrative, progressivism means “moving forward.”
Old Gadfly: Wait a minute. Moving forward. That’s the Obama campaign slogan: “forward.”
IM: This is no coincidence, Gadfly. The attacks on the wealthy in defense of the middle class is the same class warfare promoted by Karl Marx in alleging bourgeoisie (those who controlled centers of production) exploitation of the proletariat (labor force).
Old Gadfly: Are you suggesting that Obama and those who endorse him are socialists?
IM: I am amazed at how reluctant people are to acknowledge this possibility. Perhaps this is so because of political correctness. Yet, here is how socialism is defined: “A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole. . . . (in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles” (http://dictionary.reference.com).
Old Gadfly: So far, we seem to be describing our understanding of the progressive Democrat vision for America. How about the conservative Republican vision?
IM: The Republican vision has great faith in the goodness and innovativeness of American citizens to live virtuously within their communities while exercising liberty in the pursuit of happiness. Of course, these are two of the three unalienable rights endowed by the Creator. Life, the third unalienable right, seems to be a right that has been amended by human beings. In politically correct terms, life is now subordinated to reproductive rights. Now, this is a complex issue, Gadfly, and I want us to discuss it in a near future conversation because I think this issue, more than any other, tests our ability as a civilized nation to truly live virtuously in a truly just society.
Old Gadfly: I look forward to the conversation about reproductive rights.
IM: Meanwhile, the following models graphically depict the Democrat and Republican visions of America.
The Democrat vision:
The Republican vision:
Old Gadfly: This is all fascinating and sobering, IM, which brings us to the topic for today’s conversation: President Clinton’s role in the good economy in the 1990s. What does your analysis reveal about this period?
IM: First of all, most of us, including Ivy League and London School of Economics economists, underestimated the role President Reagan and the states played in enabling the economic conditions that led to economic growth in the 90s. Two of Reagan’s major actions included (a) promoting deregulation of the airline industry, which was critical to operating in a globalized economy; and (b) taking a leadership role in bringing the Cold War to an end. I don’t think we have time to discuss the Cold War victory in this conversation. But, I believe it contributed to a tremendous increase of certainty and confidence in support of a growing economy and greater prosperity.
Old Gadfly: Tell me more about deregulating the airline industry.
IM: Most of us forget that it was President Carter who signed into law the Airline Deregulation Act of 1978. Yet, it was President Reagan who championed its enactment, along with his major tax reform (which removed “over 3 million low income people from the tax rolls”). Airline deregulation brought down prices to the consumer and made U.S. companies more adaptive and profitable in the international system.
Old Gadfly: How did the states play a role?
IM: When we hear politicians talk about deregulation of the financial sector, we seem to understand this to mean Presidential fiscal policy. For the financial sector during the 70s through the 90s, state legislatures played a major role in deregulating banking practices. In their article, “Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States,” published in The Journal of Finance, Thorsten Beck, Ross Levine, and Alexey Levkov concluded from their analysis that bank deregulation “removed restrictions on intrastate branching, which intensified bank competition and improved bank performance. . . . deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median” (2010, p. 1637). This state-led banking deregulation accounted for a lot of the economic growth during the 1990s.
Old Gadfly: So, what you are telling me is that federalism works, especially when respecting the role the public and private sectors play in the economy at all levels of government.
IM: Absolutely. But it is far more complicated when trying to understand what is called the “New Financial Architecture” (NFA). James Crotty does a great job of explaining apparent structural flaws in the NFA system in his article, “Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture,” Cambridge Journal of Economics. Crotty concluded from his analysis that the lightly regulated NFA, in combination with the propensity for government bailouts, allowed financial institutions to take far greater risk to enhance profits and bonuses. The dilemma in this dynamic is to either increase regulation or to avoid bailouts. Crotty admits that lighter regulation promotes innovation. Thus, while not suggested by Crotty, it seems that government bailouts should not be allowed in order to reduce the incentives for excessive risk.
Old Gadfly: Were there any fiscal policies that aggravated the flaws in the NFA system?
IM: Yes, but hardly anyone is aware of it. In 2011, Gretchen Morgenson and Joshua Rosner revealed the causes and conditions for the global financial crisis in their book, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption led to Economic Armageddon. The key trigger that moved our nation to the financial crisis was the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. The law was essentially written by James Johnson, Chief Executive Officer of Fannie Mae, in cooperation with a Democrat-controlled Congress and with the help of activists from ACORN to pressure mortgage lenders into making risking loans, i.e., sub-prime mortgages. In 1994, “Clinton launched the National Partners in Homeownership, a private-public cooperative with one goal: raising the numbers of homeowners across America” (p. 1). While three Republicans--Phil Gramm, Jim Leach, and Thomas Bliley—are implicated for their role in the Financial Services Modernization Act of 1999 (i.e., the elimination of Glass-Steagall), the vast majority of the politicians who worked with the financial sector in advancing corrupted practices were Democrat. The book is loaded with detailed patterns of corrupted activities. The evidence in Reckless Endangerment clearly supports the dynamics described in Crotty’s article about structural causes of the financial crisis.
Old Gadfly: IM, I am amazed that there is so much credible analysis on this topic. Did Congress commission any studies on the crisis?
IM: Yes. Congress established The National Commission on the Causes of the Financial and Economic Crisis in the United States as part of the Fraud Enforcement and Recovery Act.
Old Gadfly: Well, that sounds encouraging. Did the Commission complete its task?
IM: Sort of. The Commission’s final report in January of 2011 was listed on the New York Times and Washington Post best seller lists. The commission consisted of 10 commissioners, six appointed by Senator Reid and Congresswoman Pelosi and four appointed by Senator McConnell and Congressman Boehner. When the report was publicly released, only six of the 10 commissioners endorsed the report—they were the Reid and Pelosi appointees. The four commissioners appointed by McConnell and Boehner dissented from the report and were allowed a short rebuttal at the end of the report, which pointed to other potential causes not considered by the Commission. The official report placed all the blame on the financial sector with absolutely no consideration of government fiscal or monetary policy causes. Nowhere in the entire report, which is loaded with specific names, is Fannie Mae’s James Johnson mentioned.
Old Gadfly: Am I misreading the public narrative that appears to claim the recent Bush Administration did little to stem conditions that led to the financial crisis?
IM: No. The public narrative and corresponding public sentiment, which I believe was intentionally engineered (a topic for another conversation), made Bush look incompetent.
Old Gadfly: I infer from your innuendo that this is not true.
IM: As early as 2003, the Bush Administration wanted stronger oversight on Fannie Mae and Freddie Mac. Two years later, Republicans in the 109th Congress also pushed legislation for greater oversight in Senate Bill 190. The bill never made it out of the 20-member committee. The bill needed 12 votes in favor to defeat a filibuster. Eleven Republicans voted in favor and nine Democrats opposed. So you see, efforts were under way to avoid or minimize the effects of the tidal wave, but they are not widely known among the voting public. Also, don’t forget the public outrage about Enron and Worldcom. Bush “inherited” these “problems” and pushed for regulatory reform that became Sarbanes-Oxley.
Old Gadfly: But, how do you account for the willingness of Congresswoman Pelosi, as the Speaker of the House, to level such harsh criticisms against Bush?
IM: It was all rhetoric—it reinforced a narrative frame. By creating an “image” that Bush was incompetent to advance an ideal society, Democrats, especially the progressives driving their agenda, created a political bogey man for any Democrat to run against in 2006 and 2008 elections. Democrats took majorities in both houses of Congress in 2006 and that momentum helped Obama win in 2008. Don’t forget. Obama changed his mind about campaigning with federal funding while McCain kept to his pledge to do so, which explains why Obama spent over $760 million or $10.94 per vote versus McCain’s $358 million or $5.97 per vote. If we’re willing to be objective about what is happening, then we clearly see examples of politicians who are willing to say or do anything to get elected.
Old Gadfly: Your analysis provides strong support for Anthony Downs’s observation you described earlier in the conversation. So, before we stop for a glass of wine, what are our key take away points from today’s conversation?
IM: I think there are four conclusions: First, Clinton’s DNC lecture reinforced his Slick Willie legacy. Second, while he demonstrated brilliant surfing skills with a growing economic wave in the 1990s, Clinton deserves little credit for generating the conditions for the wave, yet deserves some credit for the recession he handed off to Bush. Third, Democrats, more so than Republicans, use ideology (i.e., egalitarian social justice policy to promote equality in outcome) to attain political office. Fourth, our “free press” has done a very poor job of being the watchdog of current affairs in our society. Most of what I learned about the global financial crisis I had to glean from deep research of credible research sources. The information I found provides important insights to guide future actions to put our economy on a healthy footing.
Old Gadfly: Thank you, IM, for your powerful reflections.
IM: For our next conversation, perhaps we can discuss the dream I had after Obama’s DNC speech. Two features of the dream frightened me: it was in black and white, and Obama had dried, parched lips.
Old Gadfly: I can’t wait to hear about it.
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