The Plutocrats Go Wild by James K. Galbraith
http://www.washingtonmonthly.com/features/2004/0409.galbraith.html#byline
Bush's top economic priority has always been to cut taxes on the wealthy; as he famously said, the "have-mores" are his political base. The marginal income-tax rate, the estate tax, the tax on dividends, and the proceeds of the profits tax all fell sharply in his first term. His second term could finish the job, shifting the tax base to consumption, perhaps even abolishing the income tax for a value-added tax (as Republican Speaker Dennis Hastert now suggests). Virtually the whole tax burden will then fall on the middle class, on working Americans, and on the poor.
As revenues fall, spending programs will come under new attack. But not defense spending: The Pentagon's budget will remain inviolate. Indeed, the military may demand still more spending, as the true costs of stabilizing Iraq gradually become clear. New arms races--with North Korea over missiles and missile defense--and new conflicts, perhaps with Iran or China, may come into view. We will need many more soldiers and much more money if such conflicts occur.
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Indeed, the Fed is driving blind. Greenspan is aiming for a "natural interest rate" |...| The concept is a throwback to the economics of a century ago and is the basis of almost no modern research. But we do know that higher interest rates will mean more pressure on debt-ridden households, slower consumer spending growth, and stagnant or falling stock prices--as anyone can see.
Bush's second term may see a crisis of the dollar, now heavily reliant on reserve-asset stockpiling by China and Japan, which own a huge proportion of our debt paper. In effect, those countries are sending us cheap goods in return for expensive paper, working hard for no current material reward. Will they continue this odd behavior for four more years, even if tensions erupt over Korea or Taiwan? Or will China, especially, diversify into euros, or perhaps into commodities, aggravating global inflation? Will the neglected states of Latin America, increasingly alienated from the United States, set off a banking crisis with debt defaults? We'll see. The dangers are real, and we are totally unprepared.
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All of this brings to mind the late 19th century |...| George Bush and his allies have been modeling themselves on William McKinley, the champion of vested interests in the Gilded Age.
Fortunately for America, McKinley was succeeded by Teddy Roosevelt, a progressive Republican who fought the monopolies and favored the environment, |...| True, it took another generation to break finally with rule by the corporate rich. But eventually, there did come the Great Depression and Franklin Roosevelt, who gave us public works, Social Security, the National Labor Relations Act, and the SEC.
The cozy plutocracy of McKinley and his successors--Taft, Harding, Coolidge, Hoover--could not stand before the needs of the modern world. It can't be brought back now. Bush's effort to do so will bring misery for many, perhaps for many years. But the final outcome is not in doubt. Bush's second term, if it comes, will fail, and America will thereafter change course; democracy and common sense will assert themselves in the end.