August 27, 2012

The Elephant in the Room

In politics, the blame game is everything, so starting this week you will hear a lot of rhetoric from both sides as to who caused the problem. None of this is helpful in terms of actually solving any of the problems, but the blame game is tremendously useful in getting elected, which is, after all, the primary objective of politicians.

So, what are they blaming each other for? Well, any reasonable person will agree that the economy sucks and we have too much debt. How that happened ... aye, there's the rub. In my view, we got into this mess over a very long period of time, mostly as a result of our response to two major events: the real estate collapse, which was brought on by shady financing techniques; and the wars fought in the aftermath of the attack on the World Trade Center, which were paid for by ... well, shady financing techniques.

Take a look at this chart, produced by an economist named Steven Stoft, who began publishing economic data on a site called zFacts in 2003, the year we invaded Iraq. The chart shows a rising trend in debt as a percentage of the total economy that spiked sharply in 2008, the final year of the Bush administration. While we hear much talk about the collapse of the real estate indusry, too little is made of the role played by the decision to invade Iraq.

What matters most about Iraq is not so much the cost—a cost that will eventually include money spent caring for the wounded—but how we paid for it. Rather than raise taxes—which would have meant unwinding the Bush tax cuts—the Republican-controlled Congress chose to borrow money against future revenues to pay for the war. The result was a rising tide of debt that became a tsunami when the second wave kicked in, the collapse of the real estate bubble. The affect on the national debt is shown in another of Mr. Stoft's charts:

Liars figure and figures lie. We all know that. But in my gut, I firmly believe that Bush's decision to pay for the invasion of Iraq with a credit card—a decision supported and defended by the Republicans who then controlled both houses of Congress—has to play a significant role in today's debt problem. Throw in the Bush tax cuts and you have most of today's debt accounted for.

So please, spare me the rhetoric about how Obama is killing us. He may have been ineffectual in his efforts to stop the bleeding, but the wounds were inflicted during a time when Republicans had total control of the government. Invading Iraq was a choice. Paying for it by borrowing was a choice. Doing so while keeping taxes at historic lows was a choice. These choices were made by the Republicans then in charge.

If there is a debt bomb, it was the Republican Party that lit the fuse. Until they stand up and admit that their policies were and are largely responsible for today's debt crisis, the Republican Party will have no credibility. I'm not overly enamored of Obama, but the devil I know is better than the devil I know even better.

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