The End of Voodoo Economics

AllPosters.com

AllPosters.com

Well, I hope we have been rescued from economic meltdown; I hope I won’t be out in the street selling pencils next month.

I remember the election campaign of 1980; The father of our current president was seeking the nomination of the Republican party.  He called Ronald Reagan’s economic plan “voodoo economics.”  Regan of course, prevailed, and his philosophy is now sometimes called Reaganomics.  Reaganomics is the economic theory and practice that has prevailed for the past 28 years.  The key elements of Reaganomics have been deregulation, deficit spending, and income redistribution.

First, a disclaimer: economics is messy and complicated.  In fact the current economic crisis is based on economic instruments so complicated even the banks that own them don’t understand them.  So what follows are the memories and reflections of a marginal participant in the U.S. economy, not those of an expert.

DEREGULATION

One of the basic principles of American democracy is the balance of power.  Our political creed is based on a fear and loathing of tyranny, a belief that the concentration of power in any one source or segment is dangerous.  Reaganomics is based on a fear of government–which is genuinely part of our heritage: That government is best which governs least.  But with Regan this became absolute: Jefferson with a vengeance.  President Bush can still recite the words, “I’m from the government, I’m here to help” as a self-evident joke (and verified by hurricane Katrina).

Anyone who has ever dealt with a bureaucracy can understand this side of Reaganomics.  But the other side is an unbounded confidence in the good will and ability to do good of the free market.  There is no attempt to balance the evils of big government vs. the evils of big business.  Reaganomic diehards would see no irony in the words, “I’m from the global oil company” or “I’m from your HMO, and I’m here to help.”

Regulations were designed primarily to protect the public against three dangers: reckless gambling with other people’s money in the financial markets, the loss of genuinely free markets through concentration of power in monopolies, and damage to the air, water and other natural resources we all depend on.  Reagan and his disciples saw environmental protection as a threat to the free markets.  They managed to portray those who wanted to conserve nontoxic air and water for their children as a crazy bunch of deranged tree hugging Luddites who wanted to stop progress.

In response to the energy crisis of the 1970s, President Carter initiated a series of energy-saving programs that actually worked.  By the 1980s and 90s the price of oil had plummeted–to the point that we got fat and lazy and started driving gas-guzzlers again.  But that’s another story.

One of Carter’s projects was to install solar panels on the White House.  One of Ronald Reagan’s first acts as president was to remove them.  They were a reminder of the need to conserve, of the fact that resources are finite–and as such they did not convey the kind of optimism he wanted to mark his presidency.

So, for nearly the past thirty years, regulations have been rolled back or swept under the rug–and it worked.  It produced a booming economic bubble.

But now the bubble has burst and some of the financial gambling turned out to be losing bets.  Now Congress has to provide a security net for the Wall Street high rollers.

Winning the Cold War

Putin

Ronald Reagan won the cold war against the “evil empire” of the Soviet Union by forcing that empire into bankruptcy. There were other forces at work, not least the force of prayer, but I want to focus on the economic facts. First a little history:

In 1973 OPEC put an oil embargo on the US which resulted in an energy crisis. The price of gasoline shot up to 65 cents a gallon, more than double what we were used to paying. Richard Nixon was too preoccupied with his own political survival to do much about it.

But beginning in 1976 Jimmy Carter did. He went on TV wearing a sweater as a symbolic gesture, and he put solar collectors on top of the white house. We started driving smaller cars, we started car pooling, building earth contact homes with wood stoves for heat–we started doing lots of things to conserve energy. We even learned to drive 55 mph on the highways (although everyone hated it).

And something amazing happened. We showed OPEC we could do without them (in the same way we showed England, 200 years earlier, we could do without their tea). The price of oil plummeted. It went so low that a lot of oil men (including many in Texas) lost their fortunes.

Then we got complacent. Ronald Reagan removed those “ugly” solar collectors from the white house. Eventually the 55 mph speed limit was repealed, and Detroit found their cash cow in the SUV.

Meanwhile, back in the 80s, the Soviet Union had gotten bogged down in a costly war in Afghanistan, and Reagan ratcheted up the arms race. It seemed like a dangerous escalation at the time. Jonathan Schell had to write The Fate of the Earth to explain why the total annihilation of all life on the earth would be a bad thing. But Reagan’s plan must have worked–we are still here to talk about it. (More on Jonathan Schell here.)

The Soviet Union went broke. They couldn’t keep up. We outspent them. They tried a few modest reforms, hoping that a little openness and a light taste of freedom might stimulate some economic growth. But a little freedom is hard to contain–and the rest is history.

Where are we now? We are in a multi-trillion dollar war in Iraq that is sucking the national economy into a recession–some are even beginning to whisper the D-word. It may have been a noble experiment, this venture to bring democratic enlightenment to the middle east, but evidently we can’t afford it.

Could some of it be waste? Maybe. I think the small college where I teach could use the $132,000.00 per month that is being spent on “runway snow removal” for the airport in Baghdad. I’ve never been there myself, but surely there must be at least a couple months a year when it doesn’t snow in Baghdad. (On the cost of the war, click here.)

But those smart bombs are expensive, as are the private contractors–Blackwater employees are paid up to ten times the salary of U.S. military personnel–but we have to showed those Iraqi’s how free enterprise works.

Meanwhile back at the Kremlin: it turns out democracy and freedom weren’t so hot after all. The Russians love Putin (whose method of solving a hostage crisis is to kill the hostages), and they are no doubt comforted to know that even though he is no longer president, he will be pulling strings from behind the scenes.

After the fall of the Iron Curtain, there was a little talk of some kind of Marshal Plan for the former Soviet Union, but no checks were ever written.

But we did find another way to help them. Russia is swimming in oil, and our insatiable thirst along with the, uh, instability in the Persian Gulf, is keeping oil above $100.00 per barrel, and we are getting used to the idea of paying $4.00 per gallon.

So, here we are making Putin’s empire rich and bankrupting ourselves. It’s like someone had taken a videotape of history, and starting around 1991, put it on rewind.

Next time you fill up your tank, just imagine those icy blue eyes watching.