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Posted May 31, 2011, 7:50 am
Following GM, Chrysler’s early payback of TARP Loans is conclusive proof that the Troubled Asset Relief Program was a success.
It’s worth remembering that conservatives predicted TARP would lead to creeping socialism, economic ruin, and disaster for America’s auto industry. In 2008, Mitt Romney said, “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for this week, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.”
Today, GM is strong again, Ford is fine, and Chrysler – the weakest of all the American players – is rapidly returning to solvency. Chicken Mittle (from the Sky-is-Falling Party) was wrong. Even he thinks so. So this week his campaign tried to rewrite history so he could take credit for saving the auto industry.
How could conservatives have been so diametrically wrong? They engage in Magical Thinking. Like modern day Tinkerbelles they operate from a belief system -- call it Fairy Dust Economics – rather than a set of facts.
After years of this sort of economic mythology, a new analysis by the nonprofit Center on Budget and Policy Priorities throws water on the whole mess. It lays the blame for our current fiscal woes squarely at the feet of the Bush administration. Our large deficits are caused by unfunded tax cuts and unfunded wars. Combined with a devastating economic downturn (many believe Bush caused that too) CPBB says Bush policies account for the whole mess:
[T]he economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.
Even World War II wasn’t fought off-budget. When the war needed more money, the government raised taxes and sold “War Bonds.” Politicians argued on the margins, but everyone agreed that the war should be paid for. Payroll tax withholding was instituted in 1943 for the express purpose of paying for World War II. In 1940, 10% of Americans paid taxes. By 1944 it was 50%. Bush, on the other hand, chose “supplementals,” an irresponsible budgeting trick that treated war like it was as unpredictable as a flood or tornado.
If there is one take away message from the CPBB report, it is that our problems won’t be solved by Republican’s more-of-the-same-plan. Those policies made the mess. Without Bush’s two tragic mistakes (and our economic collapse) our federal budget would be balanced. That bottom black line in the chart (figure 1) is what our deficit would be without the Bush mistakes. If Bill Clinton’s pro-growth economic and tax policies had lasted eight more years, we might be enjoying prosperity right now. The only way to get it back is to return to successful policies.
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Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. By 2019, we estimate that these two policies will account for almost half — nearly $10 trillion — of the $20 trillion in debt that will be owed under current policies.
—Center for Budget and Policy Priorities
That’s not to say that all of the blame can be laid at the feet of the last president. Our current leaders — including President Obama — deserve ample blame for continuing unfunded wars and unfunded services. But the point is worth repeating: If we do not roll back the Bush tax cuts and end the wars, they will account for over half of our annual deficit by 2019. If we stop the wars and end the tax cuts, the national debt stops rising immediately (figure 2.)
Both policy changes are well within President Obama’s reach. He has the power to order the troops home. He can refuse to sign a tax cut extension next year. Both changes have a political risk, but a responsible president doesn’t really have a choice. If the Bush tax cuts are extended again, it won’t matter whether a Republican or Democrat did it. The damage will be the same.
We Americans don’t want to pay higher taxes. But we don’t want our services cut either. This makes us suckers for the Fairy Dust Economics. But you can’t have it both ways, my friend. You must pick lower taxes or quality government. Raising taxes on everyone is the first step toward economic renewal. We must act with the courage—actually the responsibility—of our forefathers. It’s time to put away the fairy dust.
Jimmy Zuma splits his time between Washington, D.C. and Tucson. He writes the online opinion journal, Smart v. Stupid. He spent 5 years in Tucson in the early ‘80s, when life was a little slower, swamp coolers were a little more plentiful, Tucson’s legendary music scene was in full bloom, and the prevailing work ethic was “don’t - unless you have to.”