Seriously? Reaganomics?

Today I once again heard the battle cry of many that claim Ronald Reagan was a genius economist, or more reasonably his ad visors and handlers. That their financial capacity and plans saved our country and brought us the greatest success in modern history, economically at least. While I won't contend that Reagan had an influence on our country's economic policy I would like to suggest that the blank check that seems to be afforded him in hindsight should be looked at a little more critically especially given the current state of economic affairs in our country. As most I believe would agree the warning signs looking back should have been much easier to see by not only professional financiers but by everyday Americans as well.

Let's just consider two major tenants of Reagan era economic policy. First tax cuts primarily for the most wealthy (generally expressed as the top 1% based on income) and deregulation of financial markets.

Consider the Reagan era tax cuts. The effect was primarily a change in the composition of tax revenue, towards payroll and new investment away from higher earners and capital gains on existing investments, with comparatively small effect on overall tax revenue: the changes "reduced the federal revenue share of GDP from 20.2 percent in fiscal 1981 to 19.2 percent in fiscal 1989," a 1% reduction. What this means is that a 1% drop in the overall tax received was generated entirely by changes made to existing savings and investment from the well heeled and a shift from tax burdens on the top 1% of earners to the middle and working classes. Considering the impact of the movement as a whole one may not recognize the sweeping nature of the reform or the impact it would have on its benefactors but when we consider the very small number of individuals who benefited from the swing of revenue it's quite sobering.

The theory at the time was labeled as "trickle down economics" and that by saving the greatest earners and investors even more they would generously pour those savings and more into better working conditions, wages, and bless the lives of all those they oversaw. Clearly at the time it was a tough pill to swallow realistically but even more so now that we've witnessed the slow disintegration of America's middle class.

Outsourcing middle class jobs to save companies bottom lines did not improve the lives of those whose responsibility it was to cover the shortfall and despite many claims to be anti big gov't Reagan and his policy makers did not decrease spending over his terms.

While I do agree that as in virtually all situations a case can be made that the era had some benefits I think critically thinking we must examine and accept the failures of our economic decisions during this time as they had a great impact on where we stand now and what we might consider moving forward.

More specifically reaching into current events in our country the Reagan era deregulation of the financial markets needs to be addressed as it has led to significant turmoil in our country. The housing mess.

Seeing the housing mess from the inside has been quite an amazing process. Working for the subprime lenders on a wholesale side and structuring capital on the secondary markets has given me a little perspective while I will still not claim that I am not constantly surprised by new information that seems to trickle out month after month I can say what I've seen is criminal, deceitful, and just plain wrong in many instances.

I won't venture into the deregulation time frame at this point while I would like to point out that no matter how you choose to affiliate yourself politically there is ample blame to go around on every side. For every Phil Gramm there is a Barney Frank that can bear equal but separate burdens.

The dismantling of the financial regulations began shortly before we began seeing the boom and bust cycles of specialized markets. Oddly the overseer of many of these was Alan Greenspan yet his record seems oddly unblemished. Even if we only address his two biggest unseen collapses, the tech bubble and the derivatives bubble (mortgage backed) we would have enough to seriously question the planning and pace at which our economy was handling its new freedoms. Add in the savings and loan scandal and the commodities fiasco's and we really should have been more aware but it appears gov't, business, and the treasury were all oblivious and completely unaware of the underlying issues associated with the new boom and bust cycles.

This is my opinion, but I'm fairly certain based on the risk vs. reward system in place for those same individuals who benefited from the original Reagan tax cuts were also the ones who benefited from the bubbles and their eventual collapse. The bankers and finance professionals reaped massive rewards for the selling and marketing of these securities both ".com", commodities, and housing. The manipulation of these markets has been shown in both previous cases and is coming out now in our latest bust. The latest collapse is a little more personal for many because it didn't stop at their wallet and their savings account balance it followed them home and took a toll on their families and personal lives.

The point needs to be made that for the past 30yrs we've had a particular approach to business and regulation including taxation and that has brought us to where we are good or bad. I'd contend that a much greater portion of us see it as bad while only a select few have reaped the reward of lack of constraint and pedal to the floor risk taking with no consequence or recourse. Shouldn't we think critically for a minute instead of throwing out our favorite pundits quip of the week? It seems we are all too tired to think for ourselves anymore but if we don't we are doomed to keep getting run over by the machine that has run us down several times already. Isn't it obvious that trickle down theory is flawed at best and a tool for the most advantaged to benefit off the rest of us at worst? Isn't it obvious that an unregulated market allows those in power to steal from those without?

Everyone is mad at the bonuses being paid to the executives that ran the their trains into a ditch. Being rewarded in tremendous excess for being completely inept or more likely just being intentionally self serving and unconditionally greedy at the expense of everyone else is not what we as a country should be rewarding. Pandering to those with great wealth and selling out position and influence in order to rub shoulders with the financial elite should not be what we desire from our representation.

The American people have been bamboozled and it's about time to put an end to it and restore the American dream to everyone and not just to those with influence, connections, and power.