Mourning in America – After Decades of Voodoo Economics (Chaos Monitaur–32)

In 1979, near the end of Jimmy Carter’s presidency, the USA was said to be suffering through an “economic malaise.” So when Ronald Reagan came along the following year, he promised to bring a new dawn to the country. But while Reagan’s “Morning in America” looked rosy for a few years, it has actually turned into “mourning in America.” And there’s plenty to cry about.

The situation is grim and foreboding – from the sluggish growth of the economy, to the trillions of dollars in debt, and to the quadrillions of dollars in derivatives strangling the US and the globe. But what else could we expect, after the excessive money-printing and the complete financialization of the economy.  

Let's rewind to the early 1970s. A few years before Carter was elected, the US could not afford to fight its war in Vietnam, so it started printing more money to pay for its massive war machine. It proceeded to lose the war, but continued to print money. The results are what you might expect.    

Less Money Means Less Fun. This Sucks. 

During the first few years of Carter’s presidency, the economy had actually been humming along quite nicely. In 1979, however, the second oil crisis of the decade put a major damper on the economy. And in July of that year, Carter gave a nationally televised speech in which he advised all Americans to tighten their belts – that is, to NOT continue spending money. Carter also hinted that maybe it was best NOT to continue printing money.

In general, America reacted like a spoiled child who was about to have his allowance cut in half. They were not pleased.   

Then, out from the west came Ronald Reagan, riding boldly and determinedly towards the bright morning sun, with 4 clear objectives, as follows: 

1. Reduce income tax and capital gains tax 
2. Reduce the regulation of business 
3. Reduce government spending / debt 
4. Limit the money supply  


Reagan planned to achieve those goals through supply-side economics, which is just a euphemism for trickle-down economics. The point is to make the rich richer, in the belief that the extra riches will trickle down and make the middle class rich too. Furthermore, it is believed that the new riches will eventually trickle all the way down to the poorer people, and soon, everybody will be rich.  

George HW Bush disparagingly and correctly called the trickle-down plan “voodoo” economics.” Nevertheless, Reagan won, and so did trickle-down economics. For the most part, America has been run on voodoo economics ever since, even though it was clear in 1980 that “It just isn’t going to work.”  



More Money Means More Fun. Let’s Party.  

Reagan achieved his first two objectives, but failed to achieve the latter two. He reformed the tax code in mostly beneficial ways, and deregulated business, albeit in not entirely beneficial ways (just google “savings and loan crisis”). However, he did not rein in government spending or debt. In fact, his administration’s spending spree was among the most profligate of the past few decades.  



He also failed in his promise to limit the national debt. During the 30 years prior to Reagan’s tenure, the national debt had remained relatively stable, as shown in the following graph.   



But soon after Reagan took over, the national debt started to increase – rapidly. In fact, by the end of his second term, he had tripled the US debt, increasing it from $900 billion to $2.7 trillion. And since then, no president has been able to reverse the trend.   

As for Reagan’s fourth objective – well, he did not manage to achieve that one either – to say the least. While he had planned to limit the money supply, he ended up increasing it significantly. And, just as with the ever-increasing national spending / debt, this set in motion a trend which has not abated, and which is now unstoppable.  



A Looser Belt, A Tighter Noose 

These large increases in debt and in money supply should have been seen as ominous signals, but most Americans (including politicians and economists) were so pleased to have all the extra money in their pockets that they did not bother to consider the consequences of their debt spiraling out of control. Hell, they did not even consider if there might be consequences.   

But there have been consequences, and they have had significant impacts on the economy and society.   

Quite simply, voodoo trickle-down economics does not work. It may appear to work at first, and it may work to a limited degree, but not for long, and not much. That has become increasingly obvious over the past few decades.   

Sure, with the increase in money supply, the rich clearly get richer. And some of their new money might even trickle down to the middle class – probably as loans or as credit on their credit cards, both of which reap nice healthy rates of interest for the lenders / the banks / the rich. With that extra credit, the middle class too got a bit richer. And there was so much extra credit that some of it trickled down to the poorer people too, and they too seemed to get a bit richer.  



But neither the middle class nor the poor were really any richer. They simply had more debt. (Y’know, the kind that you have to pay back eventually.)

Most of the new-found wealth was temporary and ephemeral. It’s what is called the “wealth effect.” You feel richer, but it’s not real. In effect, you’re getting screwed.   

Naturally, if you feel richer, you’re gonna spend a bit more money. But that just puts you further into debt. (See “spiraling out of control” above).   

The Truth. The Consequences. 

As seen in the above graphs, both national debt and the money supply are still spinning far out of control. Just a few months ago, US debt surpassed the $20-trillion mark. That is definitely not good for the economy, the society, the country, the businesses, or the individuals.    

Moreover, the results of voodoo economics clearly show how bad the situation actually is. Following is a list of the some of the major failures resulting from America’s policies over the past few decades.  

Failed banks – Over 1986–1995, more than 1,000 S&Ls failed. In 2008, Bear Sterns and Lehman Brother collapsed. That year, several other banks almost collapsed, but they were “too big to let fail,” so they were “rescued” with taxpayer money.   

Failed companies – Long-Term Asset Management, Enron, World Com, AIG, GM, Countrywide Financial, and many more.   

Irreversible debt – Sovereign debt of over $20 trillion. Corporate and consumer debt also at vertiginous levels. Total US debt of over $67 trillion, etc, ad infinitum.   

Credit tsunami – Another credit card, for everybody. Apply today, get approved tomorrow, go underwater next week.   

Disappearing manufacturing base – By offshoring, company executives make out like bandits. All others are robbed – and they lose their jobs.   

Hollowed out cities – No middle class = no middle-class income = no middle-class spending = no vibrant cities.   

Wealth gap / income inequality – According to Forbes statistics, US income inequality is skyrocketing.   

Financialization of the economy – In the US in particular, wealth nowadays is derived not from production, but from money. That is, the economy has been largely financialized, and if you do not have much money, you cannot make much money. Since this financialization generally involves rigging of markets, you can be sure that you are on the losing end. 

Rigged markets ­– Forex, Libor, precious metals are all undeniably rigged. Not in your favor, so again, you are on the losing end. 



Gush-Up Economics  

With voodoo economics, all the wealth has been trickling upwards increasingly faster, such that it is now gushing up. The top 1% have benefited, most of the top 10% have benefited to a slightly lesser degree, and some of the top 30–40%% may have benefited a little. But when you get below the 50% point, few benefited, and most were screwed. Many people have lost not only their homes and jobs, but also any hope of a return to prosperity.

In the wake of voodoo economics, we have the societal and economic destruction detailed above.   

Now America has another deluded leader who has promised to make the US great (again?). But his prime strategy to bring about a new morning involves building a massive wall.    

Good night, America. Let's hope you wake up without a horrible hangover. 




Images sourced from Google Images