It is possible to lay a large share of the blame for our economic problems on President George W. Bush. When Bush was leaving office, Nobel Prize-winning economist Joseph Stiglitz and Harvard Professor Linda Bilmes did an article "The Ten Trillion Dollar Hangover: Paying the Price for Eight Years of Bush," arguing that Bush had added more to our debt than all previous presidents combined and his mountains of debt would crimp President Barack Obama's ability to deliver the kind of change he promised.
Several months after Obama's presidency began David Leonhardt, New York Times Pulitzer Prize-winning columnist, analyzed the deficits. He noted that the Congressional Budget Office had predicted annual surpluses of over $800 billion for 2009-2012 as the Bush presidency began. He put the spending into four categories: Recession costs; Bush policies; Bush policies which Obama extended; and Obama policies. He found 37 percent was caused by the recession. By far Obama's biggest contribution to the deficit was to continue the Bush wars and tax cuts. But 7 percent was caused by the Obama stimulus and 3 percent was the result of Obama's spending on health care, education and other spending.
Two facts stand out about his analysis. First is that only one-tenth of the deficits were caused by policies Obama initiated. "President Obama's agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying." Second, and more important, the recession is the big culprit in creating deficits. In fact, if the stimulus is seen as a result of the recession, then the recession, which began in December of 2007, is almost half of the problem (44 percent); and President Obama is only responsible for 3 percent.
Yet to focus on Bush and Obama is to ignore and obscure a deeper and bigger problem, perhaps our very biggest problem; capitalism is an inherently unstable system. As economist Richard Wolff remarked: "Between the Great Depression and current crisis there were 11 recessions. If you lived with someone as unstable as capitalism, you would demand separation or professional help." Many have forgotten that government spending ended the Great Depression (World War II entailed the biggest government spending in history) and has played the key role in propping up U.S. capitalism for almost a century.
For our economy to grow, there needs to be investment opportunities. But there is a limit to how many businesses an area can support. To make an extreme example, it would be impossible for Ogden to support 5,000 restaurants (though we never had near that number we have still had a number go out of business for lack of customers in the last several years). Therefore, as markets become saturated with excess capacity, there is a lack of investment opportunities.
As investment opportunities dwindle, the economy slows and unemployment rises. Any macroeconomics text will state that government spending can play the same role as business investment; both serve to inject money into the economy. And who would deny that a government-built school or bridge is of more value to society than a private-sector campaign to hook children on high sugar cereals? Ever since the spectacular success of World War II-era deficit spending, government has been propping up the economy with deficit spending.
Forty years ago, economists Baran & Sweezy argued that in mature capitalism, stagnation is the norm and prosperity is the exception. For a century now, outside of periods of wars (hot or cold), speculative bubbles (stock market or housing) or big-government spending projects, the economy has tended to stagnate. John B. Foster notes that an economy with a tendency to stagnation is like a leaky tire; it is always in the process of going flat and needs to be pumped up constantly. Since the tire and leak are expanding in size, it requires a bigger and more active pump to keep it inflated. It is the government pumping up U.S. capitalism which has taken our budget deficits to astronomical levels.
Capitalism's popularity depends on its ability to "deliver the goods." In much of the world, the inability of other governments to pump up their economies has fostered significant socialist and communist parties.
A century ago, when much of the U.S. was in abject poverty and there was not much of a middle class, there were scores of openly socialist mayors and other politicians. Today, faith in capitalism is falling. Only two years ago 74 percent of Americans believed that the free market "is the best system on which to base the future world." Today 15 percent fewer people (59 percent) believe that proposition.
Unless capitalism, which is proving to be a very high maintenance system, can "deliver the goods" again, that number is likely to rise.
Jones lives in West Haven.