For the last 30 years, Americans have elected Repbulicans to give way goodies, and then, when the cupboard is bare, elected Democrats temporarily to clean up the nation's credit card enough to go on the next shopping spree.
The time for an outbreak of responsibility is soon at hand. The
national debt is exploding, now at
over 25,000 per US citizen. The
trade deficit increasing as well.
This means there is an attack of fiscal responsiblity coming. The next election, 2006, is about who pays for this mess. The Republican answer is Democratic bicoastal voters. Anyone who lives within 100 miles of a major body of water voting for a Republican is "a chicken voting for Col. Sanders." Either the Democrats act the janitor so that the next bouncing baby Bush can promise a borrow and squander binge, or they have to embrace a Surplus Society - one which leaves no road back to profligacy.
This is why Republicans are optimists: they get to squander where ever they wander. Democrats, on the otherhand, have to make the hard choices. Why does the military hate the Democratic Party? Because it blames Democrats for downsizing the military in the late 1980's and early 1990's. Never mind that the bloat had come from Republicans and the failure to raise taxes to pay for expenditures came from Republicans.
The irony is that this high real estate economy is the result of decades of Repbulican tax policy. Money piles up in the very dense areas where there are contacts and business opportunities. This was observed by Adam Smith in 1776, he called it "ground rents" and argued that you could tax ground rents without economic cost. The liberal theory of government from FDR forward is that one taxed inflation in rent, spread the buying power out through the country, and then controlled inflation - either directly through wage and price controls, or indirectly through regressive taxation for Social Security.
In short, progressively tax rent, regressively scale back inflation, and use the money to make more people able to afford the good life. The Democratic Party grew, not only because it spent money, but because this system increased the share of the total pie to be divided. When the public lost faith in this system, the Democratic Party became involved in a bidding war with the Republicans. The Republicans too, cann spend like there is no end. But rather than spending on such unglamorous things as schools, houses. roads and hospitals - the Republicans promised to make everyone rich.
And after all, if you are rich, you can afford to pay for those other things.
::
This is why the Republicans have been the majority party - the borrow and squander, and that gives them a huge base of people tied to corruption. Ironically the people who have been least well served by most of the Reagan Revolution are the base of the Republican Party - once "big government" was out, soo too were all the programs that pushed money out to the country side. The result, a fall in population, buying power and growth. Bush is popular among them, still, because he simply taxes the cities and ships the money out to the countryside in the form of military pork, easier rules for extraction, inflation in resource costs which benefit the mining industries, and in adopting their social system, or some image of it.
Now, however, they have run out of credit, and must actually go back to taxing, and they want to tax - ground rent and inflation. The two things that have driven real inflation internally are housing costs - and health care costs. Guess waht the other deduciton that is on the block to keep the rich protected from AMT? That's right, the employer contribution to health insurance.
So far the Republicans have stumbled over two basic points of liberalism - tax inflation and the protected economy. However, they want to do it with out taxing the very privileged. This is one of the cardinal signs that Bush and his gang are true reactionaries, they want to go back to the neo-mercentalist system of not taxing the rich, but the middle class, for everything. And frankly, when it comes to asset inflation, the money is where the action is.
The second problem with what the republicans are doing is that they aren't giving back what they take away. This is pure taxation, rather than changing the forms. For example, when FDR's system began taxing ground rents, it poured money back into cities in the form of roads, hospitals, schools, sidewalks, museums and civic improvements. In short, while people were paying higher taxes, they were getting back much more.
The reality is that one way or another the housing pension system of the last 30 years is going to go away. It is inefficient and distorting. The question is whether the middle class is going to get any gain for their pain, and whether the privileged will pay their fair share.
This is why Universal - not "guaranteed" or some other wishy washy word for trying to keep the current enormously expensive system in place - Health Care and Retirement reform are the two crucial pieces of the puzzle. If you think about it, the housing inflation system is a kind of profit sharing - as the economy grew, and cities gained in value, a person's home would gain value as well. For most of the period, housing remained pace with inflation, with a few spikes. These produced good times to retire and head south - to the no tax states. The basic plan - sell your 200K house in a bicoastal state, buy a 99K retirement house in a state with no income tax, no economic activity so prices were lower, and low property taxes - meaning no schools, but what do retired people care about schools - has fueled the boom of the sunbelt, and the transfer of wealth from blue states to red states, as the social security checks followed the snow birds.
The problem is, this system isn't working very well any more. The costs of retirees, whether paid as social security, pensions, housing costs or some other mean, are stil lthe same costs. The difference is what the incentive was for them to get those beneifts. The housing system encourages consumption and imports, and does not produce assets which can be used for exports. Pensions encouraged investment, and Social Security encouraged work. Senator John Edwards has it right when the talks about how we have favored "wealth over work". The result is that we have a landscape littered with white elephants, and a congress packed with greedy ones.
Which is why he's also right in saying we have to move beyond the politics of complaint. The reality is that a transformation of the Americna economy is coming, and it will be based on a large shift in how we pay ofr it and what the incentives are.
The Republicans are targetting state and local taxes - which pay for schools - targetting the home interest mortgage deduciton, which is, in effect America's portable pension system - and health care. That is, they are aiming a loaded claymore mine at the middle class, and if they win in 2006 they will pull the trigger. The result will crush America's competitiveness in the long term, it will not only shatter the current economy - already wobbling under the weight of poor fiscal and monetary policy.
If the Democrats don't do anything but sweep up after the 'phants, they will hold power just long enough to get things on track, and will be given just enough power to be good Republicans by a press and an economic elite that will keep them on a tight leash. The phants are blase now about Weapons of Mass Destruction, but they were rabid about the Whereabouts of Monica's Dress.
The alternative is to make sure that that which we have to take away for the purpose of incentives, is given back. The middle class should see no net change in their tax burden - being defined as what they pay and what they get back. While deductions for local taxes, mortgage interest and otehrs will have to be scaled back, there should be changes in health, education and pension funding that give back what is taken away. We don't want to punish the middle class for being middle class, merely change the incentives. Instead of creating the incentive for unequal education, housing inflation and then snow bird flight, we want to create an incentive for work, investing, universal health car and education, and a vibrant and growing metropolitan economy.
The Republicans however, want to punish the middle class for not becoming Republican. And now they have to deliver the pain straight up, rather than givign a small bribe to the middle class in order to get the middle class to vote for huge revenue reductions that benefit the priveleged.
This is why this election is time to turn the corner, argue that we can create a suprlus society with a system the creates incentives for growth and development, and not asset inflation.