The End of American Spending and Reaganomics

The greatest economic crisis since the great depression did not happen because of Wall Street or predatory lenders. No, the greatest economic crisis of our time has occurred for two reasons - American spending and Reaganomics.

American Spending

We can blame Wall Street, or predatory lenders, or the realtors who kept telling potential home owners to “go bigger.” I’m sure there is plenty of blame to go around, but the true culprit in this mortgage meltdown is the American consumer and its insatiable appetite for more stuff.

American spending has gotten so out of control it’s become a disease, a pandemic that plaques the majority of American households. The fact is, if the mortgage meltdown didn’t happen it would have been something else, the credit card meltdown, the car loan meltdown, or the equity loan meltdown, this economic crisis was bound to take shape in one form or another, and now that it has everyone is in panic mode.

The reality is we have spent ourselves into a state of financial paralysis, there is a negative savings rate in America, which means that the average American spends more than they take home, and most likely are having to resort to credit cards, with ballooning interests rates, or quick and easy refinancing, which have since disappeared, to pay off their excess bills every month.

Everywhere you look in the American economy, the excesses of our poor spending habits are apparent. The government, with the highest national debt in history; Wall Street and it’s heavily over leveraged banks; Americans and their exceedingly high credit card debt. Over spending has become so much a part of American culture that the economy has come to depend on it. On Black Friday, we see lines spanning for blocks at all hours of the night waiting for the electronic stores to open, or on Christmas, with the latest Christmas toy going for unconscionable prices. American spending has become a pandemic, and unless we end it now and learn to live within our means, we haven’t seen the last economic crises of our great nation.

In middleclass China, there is a 30% savings rate, which means 30% of what middleclass china takes home is saved. I wish I could say that. The Chinese government has bought up billions of dollars of American issued bonds which we use to pay for the war in Iraq, and our economy is falling into crippling debt. If we do not do something about our spending, our children will bare the burden of our debts and they will be paying it off for generations to come. Is this the legacy our generation wants to leave behind? A legacy of unadulterated financial excess, a legacy of lack of self control, a legacy of borrowing and never being able to pay it all off.

We, the American consumer, are as much to blame for our economic woes as the CEOs on Wall Street, or the politicians in Washington. How can we possibly expect them to be fiscally responsible with our money, when we ourselves aren’t?

Reaganomics

After almost 30 years of Tax cuts and Tax incentives we’ve finally realized what the most downtrodden of our society have known all along, the trickle down effect does not work. For close to 30 years we’ve been led to believe that cutting taxes is the way to keep our economy strong, we’ve been led to believe that when taxes are low, it helps to stimulate the economy and create jobs. Now we know it was all a lie. The truth is only the rich benefit from tax cuts, the middleclass and the poor end up suffering. The fact is when you cut taxes, as time goes on and inflation drives up the cost of living, those short falls in government spending inevitably lead to the rising cost of government institutions such as our State universities. For example, State universities in the past half-decade have become unaffordable to most middleclass Americans. Cutting taxes lead to budget short falls in cities and towns which inevitably lead to, Municipal issued bonds for new construction of libraries and community centers which lead to even more debt. Only the rich benefit, because they are not concerned with the price of tuition at the State schools because their kids attend an even more costly out-of-state private school. That $3500.00 tax cut, you so eagerly anticipated has led the cost of tuition for the State University to double. Let me do the math for you; that $3500.00 tax break you received just caused tuition to go from, $5000.00 to $10,000; so now you have to come up with an extra $1500.00 in order to send little Timmy off to college. The middleclass has been bamboozled, hoodwinked. Reaganomics is a hoax, a sham, it doesn’t work, it only allows the rich to get richer as individual families bare a greater burden of costs that were once spread throughout the collective.

Taxes are good people. We’ve been led to believe, by the same politicians who are vying so hard for a steady paycheck within the government; that giving your hard earned money to the government is bad; that the government will only use your money to further screw things up. Well if the government is so bad why do you want a job with them? Well if the answer is, as it so often is with these politicians, that they plan to fix Washington, then I should trust that once you’re elected you will do everything in your power to handle my hard earned money responsibly, so why should I be concerned with a tax break.

Taxes help to do for us as a society what the poor and middleclass cannot do as individuals. You see we have been lied to, for almost three decades, we’ve been told that the government is bad, and taxes are evil. But on the contrary taxes help keep the post office running smoothly and keep the cost of a stamp under a dollar, taxes help to build roads, and fund Social Security, and as we watch our 401ks vanish into thin air, Social Security has become that much more important. Could you imagine if Social Security had been privatized? Taxes are good people, it will one day fund Universal Healthcare, and supplement our retirement, it should supplement the cost of State Universities, libraries, museums, and zoos. Taxes aren’t a punishment; what taxes achieve are the spoils of a strong and thriving Nation, which everyone should be allowed to enjoy, not just the rich. All these shortfalls in government spending has forced the middleclass to spend more and more just to maintain the same quality of life their parents were accustom to, which has created this culture of spending that has sent the economy spiraling out of control and collapsing under the weight of it’s on debt. The days of Reaganomics are over.