Dick Cheney: "Deficits Don't Matter."

Did I lose you at “Dick?” Keep reading anyway. Even the notorious veep can let slip a half-truth.

Astute journalists should have pressed the deeply flawed ideologue by asking “When is that statement true? When exactly is it that deficits don't matter?

Now in Cheneyland – (I should explain the purported existence of a capitalist shangri-la. In this unregulated Eden, the powerful cherry-pick data to support economic policies that eliminate the pesky middle class, that voting bloc of citizens that rudely withholds income from speculators. Oh, the audacity. Worse yet, they have the nerve to try and prosper. Transfer a quanta of pure Cheneyland policies to our universe, however, and the economy collapses in nanoseconds.)

The full text of the quote was, “You know, Paul, Reagan proved deficits don't matter.” Cheney was interrupting Treasury Secretary Paul O'Neill, who in December of 2002 was concerned that budget deficits expected to top 500 billion would pose a threat to the economy.

O'Neill clearly didn't believe that Reagan had “proved” anything of the kind, and for having the gall to be a doubting Thomas (the psychodynamics of Reagan-worship is byzantine and paranoid), was fired a month later.

O'Neill had watched the accounting scandals (remember those?) unfolding in Underregulatedland, a colony of Corporatania, and decided to risk his job by suggesting that re-regulation (blasphemy!) would curb the white collar and corporate crime spree. But Bush and Cheney chose their corporate bully-friends over O'Neill, and though he failed the ideological-purity litmus test, O'Neill gained credibility outside the cult.

Cheney was arguing from several premises. He believed that deficit spending (specifically military/defense spending) under Reagan helped topple the Soviet Union. In 1983, Reagan overreacted to Soviet foreign policy (Among other things, the idiots occupied Afghanistan) by proposing SDI, the Strategic Defense Initiative, quickly dubbed the “Star Wars” program because its goal, a satellite-based anti-ICBM missile system to protect the United States, was far beyond the technological and financial means available. Naysayers at the time also dubbed it “The Dungeons and Dragons Defense.” Current readers may imagine some Harry Potter analogies.

Had Cheney been a better student of economics (He was “invited” to leave Yale when a student there, owing to remarkably indifferent scholasticism), or had better, more open-minded listening skills and a higher threshhold for paranoic ramblings spouted by anticommunist doomsayers, aka: Reagan and his handlers, he would have seen how close to collapse the Soviet economy already stood.

A Soviet-style command economy, lacking the imposed discipline of supply and demand in a regulated free market, could never operate as efficiently as a capitalist economy. The Soviets' military spending likely accounted for at least 18% of their GDP (The Bear was never very forthcoming with economic data that might puncture the aura of invincibility.), while the United States spent about 6% of national output on defense and the military. In America, real competition among defense industry companies, acting in self-interest and well capitalized, spurred innovation and fueled efficiencies of production not known in the U.S.S.R. Innovators there were sometimes labeled subversive, and promoted to august accommodations in Siberia. Left to its own devices, the Soviet economy was already close to falling on its own sword.

In response to the Star Wars Program, however, the Soviets did not try to develop a comparable, high-cost, high-risk-to-implement missile shield. They adopted a more economically and strategically efficient program of upgrading existing ICBMs to make them more capable of penetrating U.S. Defense systems, in effect, an asymmetrical response. Economists now agree that elevated U.S. Defense spending had, perhaps, at best, a marginal influence on the collapse of the U.S.S.R., despite inflated claims made by Reagan-worshipers. This is the first of many Cheney premises to be shattered by evidence.

It is important to note the qualifier regulated when discussing a free market, capitalist economy. This is not the kind of economy, or the kind of capitalism, Cheney espoused. The kind of market he wanted to see and was pushing to create is not stable, sustainable, and certainly not equitable. It is the kind of economy we have now. (Any conservative with an ounce of integrity just flinched.)

To Cheney, deficits don't matter if we have what appears to be a booming economy. Appears is the operative word here. Using a supply-side argument that giving tax cuts to businesses and wealthy Americans will spur investment, encourage production, reduce unemployment and promote spending, is to speak a conditional truth. It can marginally improve a regulated free market. But there is a Trojan horse in the bargain. The sucker punch in his sales pitch is the extension of his argument, that this supply-side meddling must include deregulation of the free market, and the concurrent reduction of pesky government oversight of that market.

Deregulate, reduce oversight and, as economists would argue, you reduce market barriers. Some of the more high-minded practitioners of the dismal science will now fall out of their chairs and say, “Wait a minute! We didn't mean nor did we ever intend to imply that less regulation and oversight fosters a market that is superior and more efficient in every aspect!” (They really talk that way.) But, it is easier to enter and exit the market (and, fatally, to misuse the market for purposes it was never intended to serve). More people can play Wall Street investor. But, that's good....right?

No. Not when you see the vermin that crawled out of the Wall Street woodwork. Regulation and oversight had controlled them, but a relaxation of regulatory spraying and the reduction in the quantity and quality of government oversight led to a plague of speculation in various markets. The vermin quickly exploited ways to make a quick buck, ways which had nothing to do with real growth or real innovation or real investment. They made money off of money in increasingly complex and risky ways that resemble nothing so much as a casino, and a mafia-run casino at that.

Soon disciples of Reaganomics were climbing over one another to place their bets, er, I mean invest, in the under-regulated market and economy, the one we were sold at the conservative carnival that was the 1980s. They argued the economic boom would provide the federal government with sufficient revenue to stay ahead of debt obligations, and perhaps chip away at them. Make the economic pie bigger, and even if the government gets a smaller percentage of that pie, a smaller slice as it were, the quantity of revenue in that slice is still higher than it was in the regulated economy. Win-win, goes the theory.

Vital to their plan was the effort to shrink the government. Well, you see, it would then “cost” less to taxpayers. Correction: it would cost less to wealthy taxpayers. Tax cuts under Reagan overwhelmingly favored the wealthy and big business. Corporations would also see a savings: a smaller federal government wasn't up to the task of protecting the environment, or consumers, or of mediating between corporations and unions, or moderating dangerous trends in the growth of complex financial instruments. Income disparity, that difference between what the wealthiest and poorest Americans earn, began climbing. And more of the middle class on that graph was being pushed downward, not upward.

Smaller government also wouldn't be so prone to that tendency which especially irks conservatives: redistributing wealth through entitlement programs. If there's one thing Ebenezer Incorporated can't stand, it's government waste. Not to worry, the wealthy say. Our booming economy will create new jobs and unemployment will shrink to incredible lows. Only the laziest freeloaders will refuse to participate. The elderly and disabled will have their pick of countless private charities when they need assistance. Public sector spending on services and wealth redistribution is wasteful, unproductive, duplicates and competes with private sector entities.

Unemployment during the Reagan years reached almost 11% (1982), and while it did fall to near 6%, this number is still considered high, even by conservative economists. Foreign trade deficits were climbing year after year, and those federal government budget deficits Cheney was emphatically not worried about were leaping higher. A few sages watched the American Dream drift further out of reach of ordinary citizens and spoke out.

So, was this supply-side economics working? Well, for a select group of Americans, it was. Corporate profits soared, Wall Street blossomed, then boomed after the 1990-1992 recession, and the country experienced a ten year long economic expansion. If you didn't look too closely, things seemed to be doing well.

Still, wages for most American workers were not keeping pace with inflation. Deregulation encouraged an easing of credit terms, making it easy for citizens who appeared to be middle class to borrow and preserve the illusion that they were middle class. Financially, too many of them were on shaky ground. Speculators encouraged bubbles in the market, driving up prices but adding no real value to the commodities they hawked at high speed. Think: housing. Retirement investments were exposed to a market that appeared to prosper but was in reality precarious. Only a few economists, financial planners and market analysts had the courage to warn of impending collapse. Their audience was every American citizen who could contact their legislators and voice concern (too few of them were paying attention, distracted by the boom and lured into short-term thinking), but it included those few investors, financiers and speculators who really understood the risks, who knew the warnings were prescient, and decided to gamble anyway. Their strategy: hedge the bets and spread the risk. In Public, they oozed confidence and styled themselves geniuses. At private gatherings they schmoozed and wrangled new sources of gambling money. Among themselves they said, “This Market-Titanic is going to sink soon: grab the passengers and shake'em down for every penny you can get.” The most risk-addicted junkies gambled that they could time the market and flee in advance of any downturn.

Thanks to Reagan and the ideologues who spoon-fed him, the wealthy garnered more of the nation's GDP, more of its disposable income, and had greater ability to push and pull the administration's economic policies to benefit themselves. The resulting economic climate and the widening income disparity began to strongly resemble that found in the U.S. just before the Wall Street crash of 1929.

Cheney benefited from Reaganomics, becoming a millionaire as CEO of Halliburton. The other half of the half-truth he spoke, “Deficits don't matter,” is that if you insulate yourself with sufficient wealth, then yes, government budget deficits, recessions, depressions and market collapse don't matter. He should've said, “Deficits don't matter to the wealthy.” To this, the new republican governor of Wisconsin would add, “We'll blame the budget deficit on public sector unions, call them greedy, and get the private sector to fight our battle against them for us while we stand at the sidelines.”

But this new-found republican obsession with balancing budgets, state and federal, flies in the face of the supply-side economic policies that caused the Great Recession most of us are mired in. Seems the GOP wants to have it both ways.

Cheney half-truth aside, there is a time when deficits don't matter, but you won't hear the GOP admitting this anytime soon. It would cripple their re-election hopes and expose their policies as absurd. Below is a correction of the Cheney half-truth. It happens to fly in the face of the faulty premises he held about deficits.

Government budget deficits don't matter in times of great economic crisis. When unregulated capitalism causes market failure and the economy grinds to a halt, the avaricious entrepreneurs, gamblers and hedge fund managers are nowhere to be found. In their place are identical-looking, wide-eyed clones who sputter, “Wha-wha-wha-what? We didn't see this coming!” as their fortunes pad them from any of the real suffering and dislocation that affects honest American workers and their families.

So while the culprits stand around pointing fingers and having their attorneys craft carefully worded denials, that Federal government they always moan about steps in to rebuild from the rubble. That Federal government, that public sector part of our mixed economy, charged with providing equity for all citizens by regulating the economy, with protecting the environment from corporate avarice, with redistributing wealth in the form of payments and services, that Federal government, the soil from which the legal system springs, that entity which does not exist and act for profit but for public good, that creation which is not a business and not intended to be a business because it can't do the tasks it is charged to do if it is a business, that Federal government steps in to right the wrongs committed by the sociopathic, personality-disordered, ethically and morally disabled cabal of “entrepreneurs” who despite their monumental misdeeds are not summarily lined up and shot, beheaded, hung or electrocuted. Before, during and after their trials they are allowed to spew their economic rot and sanitize the timelines and intents of their actions.

That Federal government steps in and does the grunt work to protect ordinary citizens. It closes banks when necessary, creates public work programs, implements massive infrastructure improvements, re-regulates the market and the economy to prevent creative gambling and speculation, passes new legislation to guard against any repeat of the abuses that caused recession and depression, taxes the wealthy fairly to garner a pool of revenue that is re-injected into the economy. It spends money, even creating government budget deficits, because it has long-term goals and makes long-term investments in the nation. It was called the New Deal, it was Keynsian-style economics, and it worked.

Cheney, Walker, and their corporate supporters hate that Federal government. These neo-conservatives (Too nice a term for weasels) want the power and freedom to jump into speculation without restriction, make a quick buck, and get out. They think and act in the short-term. That Federal government, the one that promotes long-term thinking and investment and looks out for the well being of the nation is the one they want to bribe or cripple. When it is populated with citizens who remember where they came from, who respect themselves and see their service as an act of gratitude to a great country, who serve their constituencies and talk about public good because they are working in the public sector and recognize that Adam Smith's notion of acting in self interest applies to private sector entrepreneurship and not public sector service, when that Federal government resorts to deficit spending to ensure the survival of the nation, then a government budget deficit doesn't matter.

From the low point of the Depression, 1933, the U.S. economy began a steady upward recovery. By May of 1937 it looked like the end of the Depression was near. Despite the government budget deficits, money was circulating in the economy as production of goods resumed, employers acquired revenue which they reinvested in plants and equipment, and workers again earned income to purchase goods. 

Then recovery stumbled. The reasons why are telling. The Federal Reserve Board of Governors somehow forgot that the nation was in the grip of a Depression, though it was clearly climbing out, and decided to tighten credit. Borrowing money became more difficult. The FRBG did so because it had an odd fixation on inflation, a fixation all out of proportion to the larger economic picture.

On top of this the Roosevelt administration came down with an untimely and irrational case of balance-the-budget fever, a malady that has lately caused similar irrationality among republican legislators. In economic boom times the attention to deficit is well-placed, as is the tightening of credit. The two work, in boom periods, to stop prices from rising too rapidly. But during economic crisis (and the unemployment rate still stood near 12% in 1937), it compounds the difficulty of recovery.

So began a short, sharp dip back into depression. Industrial production dropped 30%, and five million workers returned to the unemployment line. Thankfully, Roosevelt reversed course in April of 1938 and the economy turned around in June of that year.

In sum, the stumble in May, 1937 came about when an ill-timed obsession with budget deficit during economic crisis, compounded by irrational concern over inflation, which is a dominant trait common in the republican gene pool, proved to be exactly the wrong mix needed to restore economic growth. Too many people in power were thinking the way current republicans think.

Now fast forward to today. What are republicans acting worried about? What are they speaking about with calculated fear in their voices? Why are they in a hurry to act and unwilling to discuss, openly and deliberately, the problems that affect the middle class, the working class and the poor? Why are they trying so hard to focus attention on the budget deficit and so vague and squirrelly about any aspect of economic recovery, other than tax cuts and incentives for big business? This same avoidance of any discussion about real economic stability and growth is a trademark of Walker's tenure as Milwaukee County Executive.

You guessed it. When open deliberation of the alleged problems happens in real time, the republican talking points are refuted with evidence, and their “economic policy” and “fiscal responsibility” are unmasked as political maneuvering. The real goal Walker and the republican majorities want is to cripple public sector unions, the largest organized supporters of, and contributors to, the Democratic Party. And here's what makes Cheney gnash his teeth: the Democrats are the advocates of economic equity. He, Walker and the like just hate to share any of that economic pie.