America's War-Weary

AM (an American combat aviator with an inquiring mind):  Gentlemen, as I currently endure a once, highly acclaimed health system attempting to minister to the accumulated bodily (my wife would include mental as well) wear and tear stemming from my three decades of military experiences, I can’t help but snicker at absurd “war-weary” complaints (see also here, here, and here).

Old Gadfly:  There is a lot to unpack in what you just said.  We all know that the Affordable Care Act, in concert with a bloated and highly inefficient, government-run Veterans Administration healthcare system, has swept in a nearly fatal blow to America’s healthcare system.  So, let’s focus on the “war weary” comment.

AM:  First of all, you will not hear complaints from those who actually wear the uniform of our armed forces.  And, they represent only 1% of our population.  Add another 6% for those who are living and have worn a military uniform.  The complaints come from the ranks of the remaining 93% who have been kept safe by that 7%.  Imagine:  only 7% have invested their lives, fortunes, and sacred honor to preserve our freedoms.

Old Gadfly:  They understand what is at stake.  I recall a very powerful reflection by General Douglas MacArthur, who fought in World Wars I and II, the Korean Conflict, and other expeditions and conflicts. 

On May 12, 1962, MacArthur spoke about “Duty, Honor, Country,” to the Cadet Corps at the United States Military Academy at West Point.  As we talk about America’s “war-weary,” there is a particular passage in MacArthur’s speech that especially resonates with those of us who have actually served in our profession of arms:

The long gray line has never failed us. Were you to do so, a million ghosts in olive drab, in brown khaki, in blue and gray, would rise from their white crosses, thundering those magic words: Duty, Honor, Country.

This does not mean that you are warmongers. On the contrary, the soldier above all other people prays for peace, for he must suffer and bear the deepest wounds and scars of war. But always in our ears ring the ominous words of Plato, that wisest of all philosophers: “Only the dead have seen the end of war.”

IM (an American citizen with an inquiring mind):  We seem to have lost that sense of leadership among our civilian political leaders.  Look at how our nation turned on George W. Bush.  Armed with a bipartisan Joint Resolution from Congress, Bush had the courage to actually force the removal of a fascist tyrant to allow an educated population an opportunity to advance the concept of self-governance.  Sure, the effort was far from perfect.  But, when members of a political faction realized they could not stomach Bush’s 90% public approval following the 9-11 attacks and then the more than 70% when attacking Hussein, they had to politically assassinate Bush as indicated by an internal memo by Senator Jay Rockefeller (the memo was originally released by the Hill.com, but has since been removed).

Old Gadfly:  What we are witnessing is how political elite have shaped a war-weary narrative for political purposes.  This political faction was very successful in convincing America that the wars we were fighting in Iraq and Afghanistan were wrong and immoral—because Bush, a Republican, made the decision to commit our armed forces to these endeavors.  They conveniently forget the political momentum that had developed well before Bush entered the picture.

IM:  Then, when we see how national debt now exceeds our GDP, for the first time in our history, we seem powerless to reverse the pattern of behavior that got us to this point.  Labor participation rate is still the lowest since 1978.

Old Gadfly:  Speaking of 1978, international and national conditions called for courageous and wise leadership.  Just the other day, I located the First Inaugural Address that Ronald Reagan gave on January 20, 1981, and listened very closely. 

 

AM:  Reagan spoke of American heroes, a characteristic unique to being an American.  He also understood that peace could only be secured through strength, economically and militarily.  Here is a telling picture of shifting priorities based on government budget data between 1962 and now:

So, you see that our investment in preserving liberty is becoming overshadowed by a push for greater dependency on “entitlements” controlled by the government.

IM:  Obama either does not comprehend the same concepts and principles advanced by Reagan, or he has a completely different vision of America—one that needs no heroes because political elite, at the helm of a large and powerful central government, will provide what Americans need.
 

          Old Gadfly:  Reagan’s leadership was unifying, uplifting, and constructive.  Even more so than in 1981, we badly need a Reagan today.  Has America lost its capacity for heroic behavior?  I hope not. 

Club Mentality

           Old Gadfly:  IM (an American citizen with an inquiring mind), I have a hunch what you intended by your message to me about club mentality.  I anticipate the analysis relates to current events.  Tell me more.

            IM:  Let me frame my position with the banner:  “Scrushy-in the club; and Paterno-out of the club.”  I learned about Richard Scrushy through one of your ethics case study texts.

AM (an American seasoned aviator with an inquiring mind):  Who’s Scrushy?

IM:  Scrushy founded HealthSouth, a very large chain of hospitals and rehabilitation centers.  From 1987 through 1997, stock prices increased by 31% each year, going from $1 per share to $31 by 1998.[1]  To make a long story short, Scrushy created a corporate culture that led to “cooking the books” in their reporting to the Securities and Exchange Commission (i.e., the SEC).  Scrushy and 15 other executives were the first to be indicted by the federal government for violating provisions of the Sarbanes-Oxley Act.  The 15 other executives were found guilty of a variety of violations.  Scrushy was acquitted of all 36 felony charges. 

AM:  What accounted for the difference in convictions?

IM:  Two major reasons.  First, despite every other co-defendant claiming to take their direction from Scrushy, Scrushy claimed he had no knowledge that questionable accounting practices were taking place.

AM:  Sounds like a familiar defense given some of the scandals currently playing out in Washington DC today.

IM:  The second reason is that Scrushy went out of his way to engender his public personality with the people who would populate the jury for his trial.  Here is how Gadfly’s case study text described it:

Mr. Scrushy joined a church in his hometown just prior to the trial and made substantial contributions.  The pastors of the church attended the Scrushy trial each day.  Leslie Scrushy, Mr. Scrushy’s second wife, attended the church regularly and often spoke in tongues from the pulpit.  Mr. Scrushy’s son had a daily television show on one of the local television stations that Mr. Scrushy owned.  He provided daily coverage of the trial, complete with interviews of the pastors and others attending the trial.  The show enjoyed very high ratings.[2] 

Old Gadfly:  IM, if I correctly interpret what you are saying, public popularity influenced the jury to accept Scrushy’s ignorance claim.

IM:  Yes.  However, Scrushy was later found guilty of political bribery in a civil case and held liable by a judge for nearly $2.9 billion.  So, in the end there was some justice, but it does not correct the complicit behavior of the jury in the criminal trial.  As we have discussed in previous discussions, emotions trump reason.  In Scrushy’s case, the evidence that would shape reason could not compete with the likeability of Scrushy.

AM:  Now, we see similar dynamics playing out on a national level.

Old Gadfly:  OK, I see your argument for the “Scrushy in club” part of the banner.  Despite the news cycles about Benghazi, the IRS, and the DOJ secret subpoenas for phone records, Obama still sports a 53% approval rating.  How about the Paterno out of the club analogy?

            IM:  Coach Joe Paterno left this world in infamy.

            AM:  Let me just say, before you go further, that I watched the Joe Paterno public execution with great pain and disappointment.  I will always remember a Reader’s Digest article I read about Paterno while waiting for some car maintenance.  According to the article, Paterno was being aggressively recruited to be a head coach for a variety of National Football League teams with potential salaries that were orders of magnitude greater than what he earned at Penn State.  He consulted the wisest person he had ever known, his wife, about what he should do.  She reminded him of their values, how much Joe loved coaching, not just about the sport of football, but about being good citizens, living their lives with purpose grounded in traditional virtues.  Coach Paterno was not motivated by pay.  He was committed to bringing the best out of his players.

 

            IM:  I agree, but the NCAA leadership, and others such as politicians and the media, chose to punish Paterno and those who followed him because he did not do enough regarding assistant coach Jerry Sandusky’s criminal behavior.  Former FBI director, Louis Freeh was paid $6.5 million to investigate the Sandusky scandal.  The report did more than wound a living legend.  According to news sources: 

Ten days after the Freeh report was released, Penn State removed Paterno's statue outside Beaver Stadium. The next day, the NCAA hit Penn State and Paterno with an unprecedented string of penalties relating to the scandal: a university fine of $60 million, the vacation of 112 victories from 1998-2011, a four-year postseason ban, scholarship losses and other sanctions. The NCAA acknowledged using the Freeh report to mete out penalties instead of doing its own investigation.[3]

 

Old Gadfly:  Did Paterno do anything illegal or violate University policy?

            IM:  No.  When told about Sandusky’s alleged behaviors, Paterno followed University reporting policy and notified the appropriate authority within the University’s administrative structure.

            AM:  Yet, Paterno was demonized for not going above and beyond University protocol as if to suggest he was fully aware of the egregiousness of Sandusky’s behavior, thus condoning it by not doing more.

            IM:  Yes, and now, because of Freeh’s rushed, yet generously rewarded report, the nearly five decades of legacy leadership and mentorship by Joe Paterno has been erased by the removal of many visible symbols and achievements.

Old Gadfly:  If your logic is correct, then NCAA leadership imposed punishments upon many who had no connection to Sandusky’s actions, like the players who were part of the 112 vacated wins, scholarship opportunities for those who had already been recruited into Penn State’s program, and countless others. d Gadfly:  If your logic is correct, then ore.

e assistant coach'ersity protocol as if to suggest he was f AM:  This is what progressive social justice is all about.  It’s a win-lose proposition.  In this case, there had to be clear winners and losers.  Because Sandusky was a football coach, this impugned anything related to football at Penn State.  The NCAA executioners happen to be university presidents, none of whom ever coached let alone run an athletic program within a university.  University presidents are political administrators.  They get hired to build networks for political and financial influence.  They are like executive directors for nonprofits, hired for the main purpose of keeping the organization handsomely resourced.  Yet, without the millions, perhaps billions of revenue Paterno generated with his successful football teams, many programs, including women sports programs, would not have been funded.  It will be interesting to see all the unintended consequences stemming from the NCAA’s ruling.

            Old Gadfly:  Who were the winners?

            AM:  The politically correct moralists who consider college football a mere manifestation of capitalism.

            Old Gadfly:  Do you think football, because it is a contact sport, also poses some kind of threat?

            AM:  Of course, because the sport requires men with chests.

IM:  Wait a minute.  Is your argument in relation to C.S. Lewis’ observation about “men without chests” in The Abolition of Man?

AM:  Yes.  Those who play or have an interest in following college football refuse to be “conditioned” by the “conditioners,” who think we all should hold hands and sing Kumbaya while the conditioners ensure equality when providing for our personal needs.

Old Gadfly:  I’m pleased to see your arguments supported by seminal works.

AM:  While it was not the easiest book to read, I see why you wanted me to read John Rawls’ A Theory of Justice.[4]  Based on what we have discussed, proponents for social justice believe in Rawls’ “veil of ignorance” concept, where individuals step behind the veil (pardon my aviator candidness), where they step behind the veil and engage in mutual mental masturbation, emerging from behind the veil enlightened as to how to tell other people how to live their lives—ultimately picking winners and losers, rewarding sycophants and punishing dissenters.[5]

Old Gadfly:  So, we have two analogies—Scrushy and Paterno—to demonstrate how people are classified as in the club or outside the club.  Based on the analysis, it looks like Obama and his team are still in the club for all three scandals.  If people feel like Obama is giving them what they need or want, then why would they care if he lies or misleads through manufactured narratives?

IM:  So far, it looks like Obama is following the Scrushy model.

AM:  Eventually, Scrushy was voted out of the club with a conviction based on indisputable evidence.  Here is the evidence under Obama’s watch: four Americans killed due to terrorism at Benghazi at the peak of the Presidential campaign; hundreds of dissenting voices were silenced by the IRS during the last Presidential campaign; and journalists and editors have now been warned by the DOJ that their sources can be identified and prosecuted. 

Old Gadfly:  Do you remember the Pentagon Papers scandal?

AM:  Absolutely.  Daniel Ellsberg leaked 43 volumes of top secret material to The New York Times.  Among a thorough treatment by the media of the Papers, here is an excerpt from the front page of the Times years later:  “[the Pentagon Papers] demonstrated, among other things, that the Lyndon Baines Johnson Administration had systematically lied, not only to the public but also to Congress, about a subject of transcendent national interest and significance."[6]

 IM:  As I recall, the Justice Department secured a federal court injunction to force the Times to cease any further publication of Pentagon Papers material.  The case reached the Supreme Court, which ruled on June 30, 1971 in a 6-3 decision that the federal government failed to meet the burden of proof for its actions.  In his opinion, Justice Black argued:  “Only a free and unrestrained press can effectively expose deception in government.  And paramount among the responsibilities of a free press is the duty to prevent any part of the government from deceiving the people and sending them off to distant lands to die of foreign fevers and foreign shot and shell.”

AM:  Ironically, the Pentagon Papers was a Defense Department Study of a period before Nixon.  The study indicted the Johnson administration.  But, a combination of events and the effort to enlighten the American public left Nixon holding the bag.  How many times did you hear people lament about “Nixon’s War”?  Nixon had nothing to do with the lies and deception captured in the Pentagon Papers.  But he certainly inherited the security issues that followed Ellsberg’s leaks and their violation of security laws and regulations.  Johnson escaped any infamy associated with his own practices of lies and deception.

Old Gadfly:  Do you see any of these dynamics currently playing out under this Administration?

AM:  Absolutely!  As we discussed in our last conversation, this Administration has mastered Sun Tzu’s concept of tactical dispositions.  This Administration’s most serious threat is any American political ideology that is not progressive.  This is why disagreement is not part of its lexicon.  This Administration has pure, unadulterated contempt for views right of center, especially for those who hold and express them.  This is why members of the Administration have no reservation in accusing Republicans of manufacturing scandals, conspiracy theories, fishing expeditions, and so forth. 

The AP and IRS scandals are mere smoke screens for the most egregious activities that have flowed from this Administration.  Yet, the AP and IRS resonate more with the American public.  The Administration wants these two scandals to percolate for as long as possible, which will make Benghazi look more and more fictional over time and the “speed bump” Obama wants it to be in his rearview mirror.  Obvious questions have not been asked:  Why was the Ambassador in Benghazi in the first place?  The facility in Benghazi is not a consulate or diplomatic facility.  Remember the large caches of weapons that went missing during the Qaddafi regime change?  Check out the port facility at Benghazi below.

 

            Old Gadfly:  What are you insinuating?

            AM:  Do you remember Reagan’s Iran-Contra scandal?   The U.S. was covertly selling arms to Iran and then providing the funds from those sales to anti-Sandinista and anti-communist rebels, known as Contras.  The activities were in direct violation of the Boland Amendment.  So, was the U.S. involved in transferring any of these weapons caches to other parties in the region?  Further, how did the jihadist terrorist groups know about the facility?  Did they know the Ambassador would be there?  Or, were they merely focused on the opportunity to take on more resources?    

Old Gadfly:  Very interesting AM.  I wish we had more time to chase this rabbit down its hole, but a similar analysis might be argued with Ron Suskind’s The One Percent Doctrine in which he aggressively pursues a journalistic prosecution of the Bush Administration.[7]  I was amazed at all the classified information Suskind included in his book, yet disappointed in how he distorted the picture by not aligning his evidence with the broader historical and geopolitical context.  This could have been deliberate or just the result of too much time behind his club’s veil of ignorance.

IM:  Given the media’s gentle treatment of the three current scandals, it appears there may be an unholy alliance between a progressive media and a progressive government.

AM:  Jefferson must have anticipated the possibility of these types of developments when he included the following passage in the Declaration of Independence: 

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

IM:  I must admit: if our conversation is being recorded, then we will probably be audited.

AM:  I’m tempted to stop paying taxes because California Democratic Congressman Becerra assured me during the IRS hearing hosted by the House Ways and Means Committee that paying taxes is a voluntary effort (Becerra’s segment starts at 1:27:56 in the C-Span video).  All my life I thought it was mandatory.  Perhaps my fears of the IRS involvement in implementing Obamacare are unfounded.

Old Gadfly:  Perhaps we just need to demonstrate a club mentality to avoid any scrutiny?

AM:  That’s called going along to get along, a common affliction for Copernican drones.  Ellsberg was no drone.  Nor is James Rosen of Fox News.  Let’s see how the club mentality plays out in his case.

Old Gadfly:  Good analysis and reflection, IM and AM.           

---

[1] Helyar, J.  (2002, July 7).  Insatiable King Richard. Fortune, pp. 76, 82.

[2] Jennings, M. M.  (2012).  Case 4.6, HealthSouth:  The Scrushy way.  In M. Jennings (Ed.), Business ethics:  Case studies and selected readings (7^th ed., pp. 183-192), Mason, OH:  South-Western Cengage Learning.

[3] Joe Paterno family releases report.  (2013, February 13).  ESPN.com.  Retrieved from http://espn.go.com/espn/otl/story/_/id/8930657/joe-paterno-family-report-calls-freeh-report-sandusky-scandal-total-failure 

[4] Rawls, J.  (1999).  A Theory of Justice.  Cambridge, MA:  The Belknap Press of Harvard University Press.

[5] Ibid, pp. 118-123.

[6] Apple, R. W.  (1996, June 23).  Pentagon papers.  The New York Times.  See also, Lewis, A.  (1996, June 7).  Abroad at home; “Bare the secrets.”  The New York Times.  Retrieved from http://www.nytimes.com/1996/06/07/opinion/abroad-at-home-bare-the-secrets.html?ref=pentagonpapers   

[7] Suskind, R.  (2006).  The one percent doctrine:  Deep inside America’s pursuit of its enemies since 9/11.  New York, NY:  Simon & Schuster.

The Art of Economy Surfing

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 109^th 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.