Saturday, November 06, 2004The most obvious area in which the Bush Administration is going to wreak tremendous damage is to the U.S. economy. As if they are unsatisfied with the poor performance of the last four years, their new policies are an orgy of self-destruction and crony capitalism. They appear determined to reduce the U.S. to a 3rd world nation.
The U.S. has been suffering from long-term stagnation of middle class incomes, which have remained essentially unchanged over the last generation. There are many causes of this phenomenon- globalization & free trade, declining competitiveness of U.S. industries, deregulation, changes in technology and management, and the decline of the union movement. The Bush Administration has positively encouraged these trends, with predictable results: high unemployment, low wage & income growth, wasteful merger frenzies, and large trade deficits. The most telling statistic: over the last 30 years, 99% of the income gains have gone to the top 10 percent of the population.
These trends are long-term threats, but U.S. policies are threatening an immediate crisis. The source? Debt. Right now corporations, households, governments, and the nation as a whole are running unprecedented and unsustainable annual deficits. This debt is not just immoral, since it amounts to a tax on the future by the past and present. It is also threatening a major financial crisis. Former Fed Chairman Paul Volcker has predicted that there is 75% chance of an Argentina-style meltdown in the next couple of years. Like Argentina, we have an inflated currency and a large debt held by foreigners. Any loss in confidence will result in a run on the dollar, high interest rates and a major depression that will cut living standards roughly in half. Unlike the Argentina debacle, the U.S. crisis will probably bring the rest of the world down with it.
The Administration's response the growing crisis? Make it worse, of course. Bush & Co.'s plans to privatize Social Security, preserve and extend the tax cuts, impose a flat tax, and embark on a new round of free trade agreements with the third world will have the inevitable result of a creating a much larger debt and of magnifying the coming crisis.
We might have averted the catastrophe to come. With a Kerry Presidency, we might have been able to repeal the tax cuts and begin tackling the budget deficit (again), while managing a slow depreciation of the dollar and attempting to bring down household debt without depressing the economy. It would have been difficult and fraught with political peril, but such a strategy was at least possible. Now we will be left to pick up the pieces when it is far, far too late.