In a long and intyersting analysis in the Times David Stickman, who headed the OMB for Reagan, identifies two or three major flaws in our national economic thinking leading to the present catastophic scenarion. The first was Milton Friedman persuadig Nixon to float the dollar, breaking away from the Bretton Woods accord. The second was the mindless belief that deficits don't matter, particularly when they come from tax cuts.

"his debt explosion has resulted not from big spending by the Democrats, but instead the Republican PartyÕs embrace, about three decades ago, of the insidious doctrine that deficits donÕt matter if they result from tax cuts.

In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administrationÕs hastily prepared fiscal blueprint, however, was no match for the primordial forces Ñ the welfare state and the warfare state Ñ that drive the federal spending machine.

Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget Ñ entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the RepublicansÕ fiscal religion."

"By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too Ñ signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy."

The article is well worth a read by anyone trying to understand how we ended up int he current long-term miasma of overheated deebt, starved revenues, and rotten financial gaming within the economy.


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