No Rags, No Riches -- Finding a Fiscal Policy That Makes Sense

During my twelve years in the White House, circulating within that hot house of bustling politics, I met a lot of people. By the age of fifteen I was pretty jaundiced; I had met "everybody" -- from U.K. Prime Minister Winston Churchill to Broadway star Mary Martin. It wasn't that I lacked respect for Cabinet members, Supreme Court justices, members of Congress -- even Harvard professors. But I wasn't in awe.

As I look around today at people in high places, "not being in awe" would be putting my feelings mildly. I haven't entirely lost my respect for senior figures in government, business, or academia. However, given the economic crises we are headed for, not just in my own country but worldwide, I question the values -- the priorities -- these leaders have. I wonder how they can all be so blind to the impending crises towards which our present style of life propels us.

It may not carry much weight with our citizens to trumpet that John Maynard Keynes was right, as Krugman did recently. This was echoed by Charles Wyplosz, a professor of economics at the Graduate Institute of Geneva in a New York Times article: "Every government in Europe with the exception of Germany is bending over backwards to prove to the market that they won't hesitate to do what it takes... We're going straight into a wall with this kind of policy. It's sheer madness." Robert Reich puts it simply, and pungently: "The real question is how to stop this austerity train wreck."

Even the Davos World Economic Forum cites as the Top Risks in 2012 "Severe income disparity and chronic fiscal imbalances are the two risks facing business leaders and policy makers this year." Politically speaking, it appears that Davos is crawling into bed with the 99 percenters of the OWS!

Recently, in Berlin, Chancellor Angela Merkel had a visitor. As the New York Times reported:

Italy's technocratic prime minister, Mario Monti, arrived in Germany on Wednesday with a sharp message for Chancellor Angela Merkel that austerity alone was not the answer to Europe's sovereign debt crisis. Said the Prime Minister, "I cannot have success with my policies if the E.U.'s policies don't change."

So, what makes these leaders so blind? Why continue draconian austerity when its history of curing sick economies is so dismal? Europe's prime ministers and finance ministers -- and their host of well-trained advisors -- are intelligent people, not dummies. Nor are they simply mean. So what makes them not only ignore history but also turn a blind eye to the current results of austerity measures in Greece, Ireland, and Spain?

In America it cannot be said that "austerity" has been imposed. But our efforts to meet the economic crises should be characterized as "too little too late." And worse, it has been focused on bailing out financial institutions and major enterprises. The nods given to the unemployed, or those losing their homes, has been pitiful, certainly not up to alleviating the pain of at least twenty percent of our citizens.

What sustains this rigid rationale on both sides of the Atlantic? Are our leaders getting all their cues from the elephants circling the Republican Party's presidential nomination?

Several explanations come to mind. First and foremost: our governments continue steadfastly to give preference to the interests of the business and financial sectors. This is not new. Go back to President Hoover and his reverence for free enterprise, careful avoidance of government intervention, and reliance on voluntary discipline. He held the private sector sacrosanct, saying, "The sole function of Government is to bring about a condition of affairs favorable to the beneficial development of private enterprise."

Herbert Hoover had a good grasp of economics (much better than FDR's), but his "belief" in the entrepreneurs' role in the development of America led him astray. He believed in the system, Capitalism, and the long-standing American love affair with private (free) enterprise. The American dream is of the unfettered individual moving from rags to riches.

This vision blinded Hoover from seeing that human beings, when left to themselves in a system without regulation but brimming with opportunities, will always succumb to temptation. But Hoover finally did come around. When leaving the White House he quipped to a reporter's question: "You know, the only trouble with capitalism is capitalists: they're too damn greedy."

Another explanation for the attitude of our political leaders -- and the policies resulting from their mindset -- is their concentration on debt, shrouded with a false morality. Hoover again: "The course of unbalanced budgets is the road to ruin." Our national debt, otherwise known as overdrawing at the bank, is made a priority over any human considerations including the obvious pain economic recessions cause in the lower and middle classes.

Is Capitalism at fault, a flawed economic system? No. The system (and all other "isms" as well) responds to the self-interest of people exploiting it. The problem is the way people use the free market, a system that readily responds to the compulsive appetite of greed. Without government imposed regulations we run amok.

Chancellor Merkel, Prime Minister Cameron, and President Sarkozy need to join President Obama in reviewing just how President Hoover finally came to put aside his pious beliefs and acknowledged the full dimensions of human self-interest. While not condemning capitalism, our leaders and their advisors need not to "believe" in Capitalism, any more than they would "believe" in Socialism or Communism.

Is it asking too much that our highest elected officials shift away from prioritizing the banking community and name as their first priority the people who elected them?