The Most Important Election in Our Lifetime (so far)

The race for the White House has been heating up lately. As a consequence emotions have been running high as both sides have been using emotional rhetoric to try and gain an edge. Nothing divided the two camps more than Governor Palin being selected as the Republican Nominee for Vice President. But like all other emotional propaganda that was just so much window dressing, meant to distract from the issues, and both sides are at fault for that. However, along came an even bigger news item which has begun to move the discussion back to real issues. The economy, specifically the “Wall Street Meltdown of 2008” (that’s mine, do you like it?). You would think 5 million average Americans in foreclosure or receivership would have got our attention, but no, it took malfeasance and mismanagement of some of the richest people in our country to make us sit up and notice. But see, even I am giving in to the emotional diatribe. So I thought I would put us through a short exercise to separate the emotion from the analysis. This is going to come in two parts. The first is a look at the five most important economic crises in the US over the last 80 years, and the second is a look at who we are turning to for ideas and guidance to end the latest. Let us see if we can determine some pattern, and a possible way forward.

“Those Who Cannot Remember the Past, Are Condemned to Repeat It” - Santayana

I believe that this election is the MOST important national election in 45 and possibly even 60 years. Given the market crisis, the global security situation, the growing negative consequences of the energy situation and the environment, and given US dominance and World reliance on the PAX Americana since the end of WWII, this may even be the most important election/political succession in the history of the modern (post Westphalia) world.

I do not throw that out as hyperbole. I believe it is a defensible thesis. Consequently we have a moral/ethical obligation to try and understand the history that got us here so we can find our way forward to a more stable, prosperous and safe future.

Consider before we move forward the supposition that in so far as the President, or Congress, affects the economy, it takes 2-3 years for their policies to have an effect, therefore they cannot take credit or blame in that "grace period". I am sure that this is debatable, but I think it is accurate. Clinton did not deserve credit for the economic up tic in 93 and 94; any more that Reagan deserved the blame for the economic malaise of the first couple of years in the 80s. So if we are too look for the root of any positive or negative long term or deeply impactful economic event we need to look at the people and policies in place 3-5 years before the event in question. So let’s start with today and work our way backwards.

The Wall Street Meltdown of 2008
I have been saying privately that we were headed for fiscal catastrophe since at least 2005. I sold my house in February of 2006 in part because I thought it best to get out with some equity. So if my gut was right then, it is more aptly named the crisis of 2005-2008 and we need to look at the period of 2002-2005 to find who was making the decisions that led us here today. Well it’s obvious to everyone that we have a Republican President and have had one since 2001. What is lost in the debate for some reason I cannot fathom is that Congress (both the House and the Senate) were dominated (I use that word because having a slim voting majority as the Democrats have now in the Senate does not constitute control) by the Republicans from 1994 to 2007. So both the legislation (Congress), and the interpretation and implementation that legislation (The White House) was controlled by the Republicans, meaning they must bear the full weight of the Government’s failure. Note I specify Government, because there is plenty more blame to go around, but this is already going to be a long piece.

The 2000/2001 Bursting of the Tech Bubble
Here we see that both sides of the political debate in the US must own up to some responsibility on financial mismanagement. When this mini crisis occurred the White House was long in the hands of the Democrats. However, as noted above the Congress had been in control of the Republicans for 6 years already. So, as Congress passes the legislation that either weakens or strengthens oversight and regulation, the Republican’s carry the largest blame, but the President can and should stand up and fight back if he or she disagrees. Therefore, the Democrats get to take about 25% of the blame on this one in my book. Mitigating factor – two other economic crises, largely out of the control, but not beyond the influence, of the US government contributed to this financial fiasco, those being the market crises in Latin America and Asia over the 4 previous years.

The 1988 Fender Bender
Let’s face it, it was not a crash, 1929 was a crash, 2008 will be remembered as a crash. 1988 was the second worst economic crisis of post agrarian America until this year, but now it is third. At the time the Republicans had held the White House for nearly 8 years. Additionally from 1981 to 1986 the Republicans also held the Senate, splitting control of Congress. So once again the Republicans had the controlling hand, but the blame is split because the Democrat controlled House went along. 60% Republican, 40% Democrat. No mitigating factor I can think of, but the handling of the crisis into the GHW Bush administration set up the economic recovery that Clinton capitalized on in the 90s.

The Mid 70s Recession
Now here is the beginning of the scary stuff. This recession came after 6 years of Republican control of the White House but the Democrats had and would hold control of both houses of Congress from 1954 till the Republican takeover of the Senate in 1981. But I have to withhold a verdict because of mitigating factors. The US had just come out of a long (nearly 10 years) undeclared and expensive war and OPEC manipulated oil prices to cause steep increases in the cost of everything imaginable. I remember Walter Cronkite lamenting gas going over 50 cents a gallon and wondering aloud how that could mean the end of the American way of life “as we know it.” Sound familiar? Replace Vietnam with Iraq, replace OPEC with oil speculators, replace 50 cents with 4 dollars and throw in the subprime debacle and you can see how the next decade could make the 70s smell like a bed of roses. And if you remember the 70s it was no bed of roses.

The Crash of 1929 and the Depression
Consider the symmetry as we review the political situation preceding the 29 market crash. The Republicans had taken the White House in 1921 and held it till 1933. They also controlled Congress, both House and Senate, from 1921 till 1931 (the first National election period after the crash). In this case it is obviously a Republican failure.

One last set of general observations on the history we so quickly and simplistically reviewed above. Today in the US more wealth is concentrated in the hands of the financial top tenth of 1 percent of Americans than since 1928. Additionally, those same people are taxed LESS than at any time since 1932. Think about that, and all it implies.

Those Who Would Save Us

Treasury Secretary
Well here we are September 2008 and Wall Street is a mess, average Americans are scrambling to figure out how they are going to heat their home, if they can keep it, while still putting $4 a gallon gasoline in the car to get to work. Who is going to save us from ourselves (a little sarcasm)? Right now our knight in shining armor is allegedly the current Republican Secretary of the Treasury, Henry Paulson. Secretary Paulson was confirmed into his position in 2006 so he is not the architect in any way of this calamity right? Remember how I said there was plenty of blame to go around, not just in the Government? Well Paulson could be the poster boy for that shared private sector blame. He was with Goldman Sachs since 1974, and held ever increasing positions of responsibility and influence in the firm until becoming CEO in 1998, when the company went public, until leaving for public “service” in 2006. So he is the main decision maker that took that company to the point where it joined the ranks of so many other overextended financial houses. By the way, Mr. Paulson is personally worth at least $700 million dollars and has suggested a federal bailout that would leave Goldman Sachs in private hands but receiving federal money. Let’s not get into his time during the Nixon Administration as assistant to John Erlichman and what that suggests about Paulson’s ethics.

McCain’s Economic Adviser
Ok, so Paulson is a Bush man you say? Let’s look at McCain’s first choice to help him sort out a subject he readily admits is a weakness for him. Who is the mentor of choice? Phil Gramm former Representative and Senator from Texas. Currently Gramm is employed as the Vice Chairman of the Swiss based USB Investment Bank. As of April of this year USB had the dubious distinction of being the European financial firm WORST hit by the subprime collapse in the US. He was also one of the 5 co-authors of the Commodity Futures Modernization Act of 2000 that created what is now known as the “Enron Loophole”. Two quotes from Mr. Paulson shed some light on his concern for average Americans:

“Most people don't have the luxury of living to be 80 years old, so it's hard for me to feel sorry for them." - (in response to a statement that a Social Security proposal would hurt people over 80)

"I recently told Ed Whitacre (former CEO of AT&T, who retired with a $158 million pay package) he was probably the most exploited worker in American history.”

Obama’s Advisers
Lest you think I only throw punches at the Republicans (true most are aimed that way) let’s look at Obama for a second. First, let’s address the allegation that his adviser is Franklin Raines, former Vice Chairman of Fannie Mae. Both Obama and Raines deny that Raines is an adviser. Though Raines does indicate that they have discussed the economy. So while not a damning indictment of Obama it does indicate he may reach out to some of the same ilk of tainted individuals that are found advising McCain. Finally, Obama’s declared “senior” financial economic advisers are Jason Furman and Austan Goolsbee. Not being an economist myself, I have NO idea who these guys really are. They are relatively young and there is not a lot out there to judge them by. That might be a good thing, as the old crowd got us in this mess. But it might be bad too. I just don’t have enough to judge, and that in itself is a bad thing.

Conclusion
Yep, this was all leading someplace! The bottom line is that the majority of the time the Republicans have been the ones to lead this country, in the last century, into economic chaos. Chaos that has had disproportionate impact on the middle class and working poor, while barely touching the rich. At the same time it has been the ones with their hands deepest in the laissez faire market economy that have shaped and overseen the markets when the markets have let America down the most. So, if this is potentially the most important election in our lives, and if the economy is the most important issue, then I have to take sides. It has to be someone new(er). It has to be someone most unlike those that have put us in this position time and again. It has to be Obama.
-ARC