Was Ronald Reagan Really the Patron Saint of Tax Cuts?

It’s time to dispel another myth about the modern folk legend Ronald Reagan. I hate to be the bearer of bad news, but Reagan was not the patron saint of tax cuts. Contrary to popular belief, Reagan actually raised many taxes. In fact, he presided over the largest tax hike in modern American history. But don’t take my word for it. Listen to what Jerry Tempalski, tax analyst for the U.S. Department of Treasury, has to say:

“TEFRA was the biggest tax increase of the period [1968-2006] measured in constant dollars and as a percentage of GDP.”

Now, I’m sure some of you are asking yourselves: What the hell is TEFRA? Well, we’ll get to that in a moment. First, allow me to bask in the irony and point out that this information will continue to challenge assumptions. Because throughout the course of this article, I’ll also illustrate many other tax increases under Reagan.

And for those of you still convinced that Reaganomics saved the day, how do you explain the tax hikes Reagan enacted throughout the 1980's? I thought tax increases were supposed to kill the economy?

The following table represents the net effects of major legislation enacted during the Reagan Administration on the receipts. This table is from the Reagan’s own Budget of the United States Government report for the fiscal year of 1989.




Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-4.

Clearly, the Economic Recovery Tax Act of 1981 had the greatest negative impact on the receipts because this Act was Reagan's huge tax cut package. However, the Tax Reform Act of 1986 was his historic Act that most people are familiar with. This was the legislation that had the largest role in flattening the progressive income tax brackets. But notice all the other legislation that had positive net impact on receipts? This was due mostly to tax hikes and expansions of the taxable bases. Let’s take a closer look:

1. Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

According to the U.S. Department of Treasury, this was the largest tax increase between 1968-2006.

*Increased airport and airway trust fund taxes
*Increased cigarette excise taxes
*Increased telephone excise taxes
*Increase of Federal unemployment taxes and taxable base
*Extension of social security hospital insurance taxes to Federal employees
*Instituted 10% withholding on dividends and interest paid to individuals


2. Highway Revenue Act of 1982

The highlight of this legislation is the tax on gasoline and diesel fuel went from 4 to 9 cents per gallon.

3. Social Security Amendments of 1983

* Accelerated scheduled increases in Social Security payroll tax rate
* Instituted taxation of some Social Security benefits
* Raised self-employed OASDHI rate to combined employee-employer rate, with SECA credit
* Extended mandatory Social Security coverage to non-profit and new federal employees

(Yup, that's right... Reagan expanded Social Security entitlements.)




Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-20.

For more info, check out:
http://www.ssa.gov/history/1983amend.html

4. Railroad Retirement Revenue Act of 1983

* Increased railroad retirement payroll taxes and railroad unemployment insurance taxes.
* Taxed railroad retirement pension plan benefits.

5. Deficit Reduction Act of 1984

*Increased distilled spirits excise tax
*Extended telephone excise tax.
*Restrictions on leasing. Reduced benefits from tax-exempt leasing and postponed effective data of liberalized finance leasing rules.
*Increased depreciable life of structures from 15 to 18 years.

6. Tax Reform Act of 1986

Most notably, this legislation consolidated the earned income tax structure. However, in doing so, Reagan proceeded to raise the taxes on the lowest income brackets while simultaneously decreasing the marginal rates of the top brackets quite substantially.




Source: http://www.taxfoundation.org/files/federalindividualratehistory-200901021.pdf


7. Consolidated Omnibus Budget Reconciliation Act of 1985

*Permanently extended 16 cents per pack cigarette excise tax.
*Enacted new excise tax on smokeless tobacco.
*Increased excise tax on coal production.
*Extended Medicare coverage to new state and local employees (This wasn't a tax hike, I just wanted to point out an expansion of entitlements.)

8. Superfund Amendments and Reauthorization Act of 1986

*Enacted excise tax of 8.2 cents per barrel on domestic crude oil and 11.7 cents per barrel on imported petroleum products.
*Enacted new broad-based tax on all corporations equal to 0.12 percent of alternative minimum taxable income in excess of $2 million.
*Enacted a 0.1 cent per gallon excise tax on gasoline, diesel fuels and other special motor fuels to finance cleanup of wastes from leaking underground petroleum storage tanks.

9. Continuing Resolution for 1987 (and 1988)

*Increased Internal Revenue Service funding for staffing and equipment.

Although, this isn’t necessarily a tax hike, it is still an interesting development in tax legislation that generated additional revenue.

“Increase in Internal Revenue Service (IRS) Funding – Funds were provided to the IRS for additional examiners; additional staff to handle appeals and litigation related to tax shelters; an automated examination system; and a system to match information documents supplied by third parties against taxpayer returns. These increases in staffing and equipment will help IRS ensure the smooth implementation of tax reform, improve tax law enforcement, and reduce the gap between taxes owed and taxes paid.”

Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-12.


10. Omnibus Budget Reconciliation Act of 1987

There is a lot of information in this one, but here are some highlights:

* Extended telephone excise tax
* Eliminated ESOP estate tax deduction loophole
*Occupational taxes imposed on the producers and manufacturers of alcohol, tobacco, and firearms products
*Increased taxes on the dealers of alcohol and firearms


Many other corporate tax loopholes and such were plugged up in this legislation. For more information check out:
Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1987), p. 4-5.

11. Medicare Catastrophic Coverage Act of 1988

* Passed new supplemental premium tax on all persons eligible for Medicare. Premium rate was 15 percent of individual income tax liability in excess of $150, increased to 28 percent in 1993. Premium limited to $800 in 1989, raised to $1,050 in 1993, with future premium cap dependent on medical care costs after 1993.
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Now don't get me wrong, I'm not demonizing Reagan for raising taxes. I'm simply pointing out that Reagan wasn't the patron saint of tax cuts that conservatives are led to believe (or claim). In fact, there was a time when Republicans actually did what was necessary to rein in the deficit. Although Reagan never technically balanced the budget, quite the opposite actually, he at least tried. These days the GOP and the teabaggers would have crucified him.

I’d also like to take a moment to discuss the Laffer Curve. This is an interesting model because it essentially illustrates a theoretical equilibrium of the tax rate that will generate the most revenue for the government. The premise of the model basically states that if the government taxes firms and labor 0%, the government will not collect any money. Conversely, if the government has a tax rate of 100%, they will not generate any revenue because there would be no incentive for productivity. Therefore, a happy medium needs to be reached somewhere in between that maximizes revenue and incentive to earn. Makes sense, right?



This is the model that Reagan used to justify lowering the tax rates to (unsuccessfully) appease budgetary critics. Essentially, this model suggests that at a certain point taxes are too high and need to be cut. The cuts will then create incentive to earn and ultimately more tax revenue will be collected because of increased productivity. In other words, tax cuts pay for themselves. However, the assumptions of this model have yet to prove themselves because tax cuts have never been empirically shown to increase revenue for the government. In fact, in 1989, the net effect of Reagan's tax cuts were -$568B (ERTA + Tax Reform Act of 1986). Obviously, something went horribly wrong somewhere in the logic. But in all fairness, the model doesn't actually provide equilibrium rates. It is left up for the politicians to decide.

I would also like to point out that by broadening the tax base, closing corporate loopholes, and taxing various areas in service, we could then lower everybody’s rates and spread the risk of massive revenue loss due to a recession and widespread unemployment.

This is what Reagan was trying to accomplish and I agree that the government is too heavily leveraged in personal income and payroll taxes. But these concepts are lost in the minds of pundits, politicians, and consequently the populace. I miss the days when the Chamber of Commerce ran the GOP. The GOP should be taking cues from Frum and not Fox.

In the end, I know that this information makes conservatives squirm. How could their beloved Reagan possibly raise taxes? Most will probably just ignore these data and continue living in bliss. Others will try to justify and rationalize it. Perhaps arguing that it was never really Reagan who raised the taxes and subsequently claim it was congress. Well, by that rational, Reagan never lowered the taxes to begin with and the whole basis that defines his presidency is inaccurate. The truth is, the president sets the tone for the country through actions and words. Not to mention, signs the legislation into law.


Sources:

Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1987)

Office of Management and Budget, Budget of the United States Government, Fiscal Year 1984 (Washington: U.S. Government Printing Office, 1984)


http://fraser.stlouisfed.org/publications/usbudget/

http://www.taxpolicycenter.org/legislation/1980.cfm#Highway1982

http://www.taxfoundation.org/files/federalindividualratehistory-200901021.pdf

Was it Reaganonomics or Monetary Policy?

This blog post is for those of you who are blinded by ideology and all the glory that is Reagan. However, my goal here isn’t to rant about Reagan’s quantifiable destruction to the economy (I’ll save that for another day). My goal is to show all of you a brief glimpse of the Great Inflation during the 1970s and the shift of monetary policy reasoning that manifested as a result. In other words, I’m here to show you what Reagan cannot take credit for. Believe it or not, Reagan's tax cuts were not responsible for the upswing in the economy during 1980s. Therefore, I will challenge some of your assumptions by illustrating the profound influence monetary policy has on shaping our economy. Unfortunately, this is an area often overlooked in the political arena.

Still interested? Well buckle up and enjoy the ride. However, I must warn you that this trip might be a little wonkish…


When G. William Miller was appointed Fed Chairman in 1979, the economy was suffering from OPEC coordinated oil price shocks throughout the 1970's. These sustained high prices began reducing aggregate production possibilities because of all the markets directly and indirectly influenced by crude oil (e.g. plastics, transportation, shipping, heating, etc). Moreover, the increasing price of crude oil also began compounding inflation (i.e. typical inflation + oil price inflation) and raising the expected rate of inflation.

However, Miller believed that this reduction in production was an indicator that there was a negative shock to aggregate demand. In other words, he believed the economy was going to into a recession. Therefore, he lowered the real interest rate and increased the supply of money to bring production back to what he thought was potential output. This is what the Fed would typically do in a recession.

The truth is, there was no aggregate demand shock and lowering the real interest rate boosted production beyond potential output. As a result, firms raised their prices beyond the original rate of inflation to ease the pressure and to keep up with “expected” inflation.

Moreover, up until this point, conventional wisdom (and Miller’s main strategy) stated that there was a permanent trade-off between unemployment and inflation. The short-run models based on the Phillips Curve during this time period were incorrect. The models reflected the belief that output could be permanently held above potential and unemployment could be held permanently low by pegging the inflation rate around 5%. However, this was proving to be counter intuitive because firms began “expecting” the increases and adjusted accordingly.

While we know now that there IS a trade-off between unemployment and inflation, it is not permanent. Milton Friedman and Edmund Phelps adjusted the Phillips Curve to reflect changes in inflation and to show that keeping output above potential is inherently doomed to fail.




In 1979, after Miller’s short term as Fed Chairman, Volcker aggressively used Friedman and Phelps’ newly adjusted model and “forced” the country to go into a recession and ultimately bring down inflation. To do this, Volcker raised the real interest rate which created unemployment. Once inflation was brought down to a manageable level, the real interest rate was lowered and employment began to rise. The economy was once again soaring. In effect, modern monetary policy was born.

This lesson in inflation not only caused a major downswing during the Carter administration, but it also created a major upswing during the Reagan Administration.

Contrary to popular belief, Reaganonomics or Trickle-Down economics was not responsible for the upswing in the economy. Let's take a closer look.




This graph shows the timeline of when Reagan’s infamous Economic Recovery Tax Act was enacted and when Volcker expanded the money supply after inflation was brought under control.

During 1981, Reagan slashed taxes under the premise that bourgeois entrepreneurs would then take their money and invest it in production. In effect, the rich would then shower us with their extra money in the form of jobs and higher wages.

However, there was actually a sharp decline in the rate of personal investment in 1981 and again in 1982. At the end of 1982, Volcker expanded the money supply. Shortly afterwards, there was a sharp increase in the rate of personal investment and job growth. Who was responsible Reagan or monetary policy?

Some make the argument that this occurrence was actually a lag effect from Reagan’s tax cut. That’s fine. But then could somebody please explain to me why there was an aggregate decline in the rate of investment during the entire Reagan Administration?




Source: http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=GPDI&s[1][transformation]=pch (percent changes of GDPI annual sum)
*The aggregate data was downloaded and analyzed in Microsoft Excel.

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Update
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My GDPI trend-line does not show a decline in gross investment. This is a graph of percent changes and illustrates something much different. I used percent changes to show how investment has moved over time. While gross investment was still increasing, it was doing so at a decreasing rate. In other words, private investment rates were higher in the 1970's before Reagan's tax cuts.
_

For those of you who I haven't lost by now, I leave a final illustration of my point. The following graph shows another timeline of the Economic Recovery Tax Act of 1981 and when Volcker expanded the money supply. Except this time it is in relation to GDP growth and the unemployment rate.



The graph clearly illustrates an immediate reduction in unemployment with a concurrent increase in GDP growth after Volcker loosened monetary policy by dropping the real interest rate and increasing the supply of money.

In the end, it is fairly obvious to see that Volcker manufactured the upswing in the economy that defined Reagan’s presidency. On a theoretical plane, I can see how people could believe that tax cuts for the rich will create jobs. However, Reaganomics simply doesn’t pass the test of empirical observation.

*******
Update
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I would also like to quickly mention another concept correlated to investment: savings.



Clearly, the rate of savings and investment went down under Reagan. Where exactly did all the money go that was supposedly "freed up" from the tax cuts for investment? I just report, you decide!

Are We Witnessing the Decline of America?

Are we witnessing the decline of America?

This is a very serious question that seems to beg itself when people like Charlie Sheen take the spotlight and bask in idiocy. Now don’t get me wrong, I enjoy the lowbrow entertainment of Two and a Half Men. The problem here isn’t Sheen. The problem is us. We enable people like him to flood our lives with rants and mindless entertainment.

We, as a society, place this sort of mass entertainment on a pedestal. Somehow, actors and professional sports players have become glorified to epic proportions. They are idolized and paid exorbitant amounts of money. Meanwhile, a large portion of the country shows indifference towards areas like education.

Currently, Fox News is on a warpath of demonizing public school teachers. It’s no secret that the right-wing loves to bust up unions every chance they get. In my opinion, teachers should get paid much, much more. The stipulation being that their performance needs to be held to a higher standard. Why don’t we want the best and brightest teaching our kids? Not simply those who are willing to work the cheapest. But I won’t lecture on supply and demand and I’m beginning to digress.

The mass entertainment industry is corrosive to our society. Americans have been slowly moving towards a state of stagnant activity. It is no secret that obesity rates are high and participation in activities beyond watching television is low. TV is America’s favorite pastime, whether it’s sports, movies, reality shows, or cheesy sitcoms.

This isn’t the first time in history where mass entertainment has dumbed down the masses either. Mass entertainment during the Roman Empire eventually led to its decline. Rome was once a great nation with a peculiar work ethic. In the early days of Rome, each person had a civic duty to defend and expand the empire. Originally, leisure and entertainment were viewed as utilitarian and didn’t serve much of a purpose beyond recuperating. In other words, relaxation wasn’t an end in itself, it served a purpose: rest up and expand the empire.

As time went on, politicians running for Rome’s senate became fiercely competitive. They had an incentive to become senators because they would have access to Rome’s vast wealth. To gain favor with voters, the politicians began staging “games.” Gladiators were created to appease voters and subsequent arenas were constructed as viewing spectacles. Eventually, the famous Coliseum was built and the grandeur of the games skyrocketed.

Historians also argue that the Roman politicians created the games to keep the masses occupied during a time of mass unemployment and underemployment. They were afraid of an uprising due to the huge socio-economic gap between the elite politicians and everybody else. Therefore, mass leisure and mindless entertainment were used to divert attention away from the poor conditions.

Either way, the games in Rome became an integral part of society. Generation after generation remained reliant and fixated on this mindless mass entertainment. As time progressed, the games also had to become more and more extravagant to keep the attention of viewers (sound familiar?). It worked, the masses stayed preoccupied.

Eventually, Roman citizens became overly lazy and didn’t have the ability to handle the excessive leisure lifestyle. They shifted from a proactive society with minimal recreation to a spectator society of couch potatoes. Towards the end of the empire, they became so lazy that most of their army was outsourced to mercenaries. This set the stage for the ultimate decline of Rome.

In the end, Rome should have been more like Greece. The Greeks took a much different approach to recreation. To the Greeks, leisure was an end in itself and had no other purpose. They created the Olympics and philosophy in the name of recreation (that’s right, philosophy was a pastime, not a burden). Intelligence was revered and the body was a temple. They valued intellectual pursuits and physical fitness greatly. The Greeks were artisans, poets, mathematicians and scientists, but also warriors. They were well rounded and their contributions to humanity and culture live on today.

(It is fair to note that the origins of Rome were in fact influenced greatly by Greek culture. However, they obviously lost their way.)

Now let me put Rome’s fall into perspective by explaining a little conventional economic wisdom. In the field of macroeconomics, we have various growth models that attempt to explain the rate at which an economy grows. Factors such as labor, capital supply, inputs, etc are generally considered. In a famous model, the Romer Model of Growth, another concept is added: ideas.

The concept of ideas is based on the age old adage of “working smarter, not harder.” However, ideas do not stop simply with production efficiency. Creative minds spur innovation in all areas. As a result, the Romer growth model illustrates that ideas grow an economy faster than just simply brute labor.

This is where Rome went wrong. They stopped valuing ideas and grew lethargic. They were the first great society of couch potatoes hooked on mindless mass entertainment. The rest is history.

The concept of ideas can then be transferred to present day America. We live during a time when America primarily manufactures big ticket items (e.g. space equipment, aircraft, defense technology, etc) and is overly reliant on services that are becoming outsourced at alarming speeds. In other words, we need all the ideas we can get to stay competitive.

However, that is not to say all ideas are good. The idea of busting up teachers unions is bad. These are the people who are laying the fertile ground from which the seeds of creativity are to sprout. In what world is it a good idea to demonize these people? In the aggregate, if education was more highly valued, this would not even be a topic.

With the comparison of the Greek and Roman empires put into perspective, it is not hard to identify the direction America is heading. Like Rome, America too has become a spectator society. We watch television, we watch sports, we watch movies, etc etc etc. Americans collectively do not value intellectual pursuits as a form of entertainment. As such, our ideas are becoming less dynamic and less involved. This has set the stage for the Republican party to launch a full fledged attack on the bargaining rights of teachers. Why is marginalizing education acceptable in this day and age? Why does this topic even compete for news coverage with Charlie Sheen? American life as we know it is not sustainable with this sort of mentality.

Here are some fun facts to part with:

• According to the A.C. Nielsen Co., the average American watches more than 4 hours of TV each day (or 28 hours/week, or 2 months of nonstop TV-watching per year). In a 65-year life, that person will have spent 9 years glued to the tube. (For even more frightening stats visit: http://www.csun.edu/science/health/docs/tv&health.html)

• 18.93 %, or 785,682, Wisconsin adults, age 16 and older are not enrolled in school and do not have a high school diploma. (http://www.wisconsinliteracy.org/literacy_facts.php) (And this is ground zero for the demonizing of public school teachers!!!!!)

• 42% of adults between the ages of 25 and 67 have, at most, a high school education (U.S. Census 2000).

• The 2003 National Assessment of Adult Literacy (NAAL) estimates that 30 million adults in the U.S. –14% of the country’s adult population – have only the most minimal ability to read and write in English. (That’s almost the entire population of Canada)

• 63.1% of adults in the U.S. were either overweight or obese in 2009. (http://www.webmd.com/diet/news/20100210/percentage-of-overweight-obese-americans-swells) (That’s roughly196 million Americans)

• 111 million people watched the 2011 Super Bowl. (The Nielsen Co) (That’s about as many people in all of Mexico!!!)

• In 2009, the United States ranked 30th in Math, 23rd in Science, and 17th in Reading out of 65 of the world’s most industrialized nations (http://www.oecd.org/dataoecd/54/12/46643496.pdf)

The decline in America is here and it is certainly quantifiable. Ironically, the expression “ending like a Greek tragedy” would apply here, but in bad taste. Because, we should take the Greek approach and treat intellectual pursuits and physical fitness as a form of recreation. The phrase “fall like Rome” seems more fitting of the state of America. And the bigger they are, the harder they fall (I’m just full of clichés today)!

What do you do in your free time?

Apartheid in Arizona

Arizona’s new immigration laws remind me of the Apartheid in South Africa. No, Arizona isn’t proposing an outright segregation of Hispanics. But the legislation is, in fact, causing a segregation of civil rights. Now immigrants, and consequently anybody of Hispanic decent, in Arizona are required to carry their documents. This is strikingly similar to the pass laws that required blacks to carry the pass books in South Africa. Obviously, failure to produce the necessary paperwork is a crime and punishable as such. And just like the UN’s subsequent trade embargo as a result of the Apartheid of South Africa, various states and cities are already boycotting and cutting contracts from Arizona.

Now in reality, segregation was already a standard in South Africa since colonial times, but when they wanted put it into law the UN was forced to address the matter (although segregation still went on for a good 50 years). The same, more than likely, holds true in Arizona. I’m sure law enforcement was already racially profiling potential illegal immigrants. But now that it’s law, the country can’t help but to address the issue.

At any rate, I believe something should be done about the countries overall immigration policies. I don’t know what though. I’ve heard the amnesty and the “building a wall” arguments. I doubt building another Great Wall of China will work. It did a poor job of keeping the Mongols out. As an economist, I say make the illegal immigrants legal citizens, and then tax them. Beyond, that I have no opinion.

My State of the Union Address

THE BUDGET IS OUT OF FUCKING CONTROL! OBAMA AND THE DEMOCRATS ARE BANKRUPTING AMERICA! I'm sick to death of hearing this incessant dribble. Newsflash people: Bush turned a $250 billion surplus into over half a trillion dollar deficit. He cut taxes for the rich, expanded entitlements to Medicare recipients for prescription drugs, started two wars, passed out stimulus checks, and allocated $700 billion to the Wall Street banks for CEO compensation and investment spending... and that's just the icing on the cake. Anybody who thinks the Obama administration, or anybody else for that matter, can miraculously rein in the deficit in one year is a victim of their own delusions.

Bush, Paulson, Greenspan, Bernake, AIG, the banking industry, and others generated what we now know as the Great Recession. The Fed kept interest rates artificially low for an extended period of time which set the stage for the inflated housing bubble and monumental consumer debt. The lack of banking regulation paved the way for sub-prime mortgages being wrapped up in A-rated mortgage-backed commercial paper securities and a derivative market driven by gambling. The consolidation of commercial banks after the savings and loan crisis during the 80s created banks “too big to fail.” All the indicators point to a pretty obvious failure in our banking system. And the partisan bickering and right-wing obstruction is only increasing the severity of the situation.

Sure, we will overcome this recession, but without increased oversight and regulations, there will just be another financial crisis within 10-15 years. It's beginning to look a lot like clockwork. It's not a coincidence that there weren't any major financial meltdowns for the 50 years between the New Deal regulations and the Reagan administration. Once the fibers of banking regulations started being plucked away the industry has transgressed into a frightening steady downward spiral.

For some reason (political gain perhaps?), the Republican obstructionists are only concerned with the increasing size of the deficit and not the inherent problems with our banking industry. I'm curious as to where these people were when Bush was making irresponsible budget decisions. Surely, the CBO cost projections told us that cutting taxes, increasing entitlements and starting two wars would increase the deficits and debt exponentially. Oh yea, the CBO did warn us.

Under normal circumstances, a balanced budget with a “pay-as-you-go” agenda is ideal. But in the midst of the Great Recession, the federal government must step in and pick up the slack in the economy. The automatic stabilizers we have in place are insufficient for the depth of this recession. I think the 10% unemployment, bleak outlook of job creation, and the 50 million Americans without health insurance speaks for itself. Fiscal policy is required to offset this catastrophe. With that said, the GDP is up, the stock market is regaining traction, and the unemployment rate is holding steady. Once the unemployment comes back down to the natural rate, then and only then, will balanced budgets be in order. As it stands right now, many state governments are legally obligated to run balanced budgets. So when a crisis hits and massive unemployment is hindering revenue, states are required to make detrimental cuts to schools, prisons, and the rest of their employees who participate in the basic functioning of government. Ergo, “fiscal policy is required to offset this catastrophe.”

Now, of course, we do need to worry about the government's debt/revenue ratio. If nothing else, this financial mess has illustrated the fact that the federal and state governments are overly reliant on income taxes. Once widespread unemployment hit most of the revenue vaporized. It is called putting all your eggs in one basket. Diversify! We could flatten the income tax structure and expand taxes to areas of consumption. This in-effect will spread the burden of taxes and in the long-run will ultimately help us the next time America has a crisis. However, tax reform is a very touchy subject and probably should not be overhauled in the current economic climate. It's just a little food for thought.

To bring down the deficit we MUST have a combination of increased taxes and spending reductions. Sorry people, but if the United States insists on having this little “War on Terror,” we the tax payers are required to fund it. There is no such thing as a free lunch. Otherwise, we need to reduce military spending on futile causes. However, the cuts cannot simply stop there. America has a huge entitlement problem and we need to start conducting means-testing in some of these programs. Rich people and groups should not be receiving federal subsidies (and more and more tax breaks). This is a disgusting misallocation of precious resources. We need to take a closer look at some of these special-interest subsidies in areas such as agriculture and reduce these useless entitlements. Something else I find interesting is the fact that state and federal employees receive pensions. Wouldn't it be more cost effective to put these people on 401k plans and be at the mercy of the markets like the rest of us? Some cities in California have had to declare bankruptcy (and many are on the brink) because they could no longer afford to pay exorbitant pensions to the retired state employees. However, these suggestions would only be the start to a controlled budget. Tough decisions, beyond my pay grade, would have to be made.

The following graph is a gross simplification of the federal budget. But a brief glimpse at it clearly defines the sectors draining our resources: defense at 23%, health at 22%, other + welfare at 35% (this is where the entitlements and special interest funds are allocated to), and pensions at 21%. Sorry folks, but our defense spending is what is OUT OF CONTROL. Sure, I highly value a strong country with our interests well protected. But how much of that 23% is being inefficiently allocated to defense contractors? This goes back to the age old “guns or butter” argument. In our current broken economy, I think we need more butter right now.



What about the 22% of the budget going to health? Believe it or not, the federal and state governments subsidize more medical insurance than the media would lead us to believe. Between all the state and federal employees, the military and the VA, those under Medicare and Medicaid and, of course, their entire immediate FAMILIES, a great portion of Americans are already receiving government funded health insurance. Although, I don't hear them complaining about their health insurance half as much as Faux news does. Quite the opposite actually... With that said, it is fairly obvious that the government is already spending quite a bit of money on health.

The tricky thing about health care is its inelastic demand (much like the demand for gasoline). What this means is that no matter how high the costs of health care rise people will still demand the services. This is the setting for a bubble that can withstand sustained growth. It's obvious that our medical industry is experiencing a market failure. The costs outweigh the benefits. Hell, my insurance went up 46% last year alone. And that's for bottom-of-the-barrel coverage.

The landmark health care reform bill that the Congress recently passed is a step in the right direction (but far from perfect). The bill will achieve its goal of increasing coverage and the CBO said it would reduce the budget deficit. However, the bill does little to thwart the long-term increasing costs of health care. I preferred a public option that would have created the necessary competition to put downward pressure on prices. Instead, we're given a plan that spreads the risk pool by mandating every citizen to purchase health care through exchanges. Theoretically, the scope of the exchanges will create competition. This assumes that the exchanges will eventually allow cross-state competition and break up the current health insurance monopolies and oligopolies of each state. But this plan still makes me feel uneasy because it requires us to purchase services in the free market. The Republicans should love this bill but they instead oppose it simply because it is Democrat initiative. Ironically, this plan is almost identical to Mitt Romney's health care scheme currently implemented in Massachusetts. And even though our current health care reform bill is greatly a republican vehicle, not one Republican voted for it. This goes to show how perverse and polarized our political landscape has become. Why weren't the “tea baggers” out in Massachusetts boycotting the pilot run of our health care reform?

Half of our nation is being force fed fear mongering by extremists. Rational republicans do still exist but they're a dying breed. Look at David Frum. Frum is a complete ideologue who praised Bush for the job he was doing in multiple books he's written. Ok, perhaps this guy isn't the best illustration of rationality, but recently Frum did have a ray of coherent logic. Frum has been arguing that the Republican legislative defeat in regards to thwarting health care reform was due to “follow[ing] the most radical voices in the party and the movement.” Furthermore, Frum acknowledges that the current health care reform package was basically created by conservatives. But because of the fiery conservative media no Republican leader would negotiate with Democrats to inject their ideas into the legislation. Instead, they went for all or nothing, and ended up with nothing. Frum also went on to say that the current “Repeal and Replace” scheme being voiced by party leaders will never work. Even if Republicans ended up winning every seat in Congress during the November elections they still wouldn't have the two-thirds vote in both houses to overturn the President's signature. And what was Frum's voice of reason greeted with? His Republican reality-check was not welcomed with gratitude. Instead, Frum was ejected from the American Enterprise Institute (AIE) the conservative think-tank with whom he was employed with for roughly seven years.

http://www.frumforum.com/waterloo

I would like to add something about the student loan changes made in the health care bill as well. The government will now make the loans directly instead of backing private loans made by banks. This will reduce spending by billions from cutting the subsidized interest payments made to banks on the behalf of students. Furthermore, the interest from the loans will help cover the costs of expanding coverage. I think this was a great move. The savings of this initiative will also be recycled back into the student-loan program in the form of increased Pell grants and increased size of loans. Bravo.

With that said, Obama really has not done or said much else to convince us that the budget deficit will be reduced significantly in the medium or long run. Obama's announced freeze to discretionary domestic spending seems completely like a “good faith” political stunt. However, the amount of the freeze is trivial to the size of the deficit. We must not forget that these deficits are not funded by student loans or borrowed money from Granny. China and Japan are capitalizing on our irresponsibility. Not to mention the amount of money we actually owe ourselves. The government has been siphoning money from the Social Security pot for ages.

Politicians lie, but the numbers do not. That is the beauty of economics. The dismal science adds objectivity for those who actually care about the truth. The politicians in office have only one goal: Get reelected and maintain their grasp on power. Short-term near-sighted bills and legislation are enacted to boost popularity. Organized groups and lobbyists control our politicians like puppets. They're the ones who bring in the money and votes. Furthermore, “survival politics” and partisanship divides Americans to the point where we actually vote against our own interests. I seriously want to bang my head against the wall.

These days it seems like the Republicans are trying to revert back to the cowboy capitalism that caused the Great Depression. They seem to prefer a world without accountability or regulations (especially on banks). That's not fiscal responsibility. That's a get-rich-quick scheme. However, thus far it does not seem like Obama is doing much for banking regulations either (although I hope he proves me wrong). Let us also not forget that Glass-Steagall was repealed under Clinton... There is a reason that our banking industry is the most heavily regulated. Lack of oversight created the cooked books in Enron-type scandals, the Savings and Loans crises and the subsequent consolidation of the banking industry, and of course, the current sub-prime mortgage-backed security scheme and shady derivative market. It blows my mind to see one of the major political parties campaigning on a platform of less (or no) regulation and actually convincing the lower and middle class that these laws aren't in place to protect them. Businesses need rules just like we as a society do. Without order there is chaos. Our society is too complex and the sectors of our economy are too interrelated with each other. Not to mention a world economy that shares the booms and busts. If we intend to continue the trend of leading the free world, we as a people and as a nation need to educate ourselves so that we're not oblivious to marginalization. America used to be a country where the working-class was protected. The leaders of industry recognized that the working-class were the primary consumers and the driving force of the economy. The average wage of the working-class steadily increased until the “logic” of the “Reagan Revolution” stagnated wages and began dismantling the middle-class. 70% of our GDP is personal consumption and with stagnant wages, in the face of inflation and the devaluation of our currency, this percentage is unsustainable and I worry about the day we will truly see this bubble burst.

The reality is that many traditional right-wing concepts do indeed adhere to economic theory and I welcome them into debate. The Republican Party needs more David Frums and less Faux News. The conservative movement is no longer driven by rationality and facts. Instead, the base is rallied through fear and hate. Actual debate from the Republican Party without asymmetric information is a thing of the past. For every one relevant argument there are four shifty talking points clouding the particular debate. In this political landscape the Republicans have drifted so far to the right that I find it difficult agreeing with them on any issue. The majority of their arguments simply aren't coherent. The Republicans won't even vote on legislation they themselves have created. Talk about a flip flop. I guess the only thing these people can agree on is contradicting everything the Democratic Party says.

And that's my State of the Union Address.

The Fight is On

It is no secret that our country is under intense economic pressure. The credit is frozen, GDP is falling, unemployment is rising, bankruptcy is at historical highs, 1 out of every 200 homes will be foreclosed upon, and banks are holding at least $2 trillion in troubled assets. We are in deep shit and have been in a recession longer than the Bush administration wanted to admit. Meanwhile, Obama is telling us that “we can't go back to an economy that's built on a pile of sand.” But that's easier said than done. People's lives hang in the balance with an unemployment rate at 8.5% and growing closer and closer to double digits.



So what have the powers to be been doing to get us back on track? Currently, we have three main tools to fight recession.

The first tool to fighting a recession is to have the Federal Reserve use expansionary monetary policy to increase the money supply. This is accomplished by the Fed purchasing bonds from the open market and by lowering interest rates. More money in the system tends to increase investment and output. Unfortunately, not much economical traction resulted from the Fed slashing interest rates down to 1% and by buying up bonds. Creditors did not lower their interest rates or begin loaning more freely. So at this point. expansionary monetary policy is useless. This comes to a great shame, since credit makes the world go 'round.

The second tool is an economic stimulus package. Many economists believe that a successful stimulus package should be around 4% of the GDP. The current stimulus package is only around 2.5%. Assuming these statistics are correct, two things can be said. One, this current stimulus package won't do enough to stimulate the economy. Two, there's probably going to be another stimulus package within 12-18 months. But we all know that the Republicans will obstruct the process every step of the way. Ironically, 40% of the current stimulus package is in their beloved tax cuts that they themselves helped orchestrate, only to vote against it! Don't forget we're in two wars and we should be RAISING taxes. But I digress. The Obama administration should be focusing their efforts on a proper stimulus package. We cannot forget that the purpose of a stimulus package is to stimulate demand and it's no secret that our infrastructure has been neglected for going on a decade. But that's a story for another day.

The third tool is to bailout the troubled institutions. Also known as Bush's Troubled Asset Relief Program (TARP). Remember that $700 billion bailout that Bush shoved down our throats last year out of nowhere? Congress passed this bailout bill under the pretense that the money was supposed to be used to buy up toxic assets (investments that hemorrhage value and not generate it) and get them off of the banks' books. However, Bush spent almost half the money buying up Wall Street bank's stock, not toxic assets. This is called recapitalization. Basically, this strategy is when the government buys up a bunch of preferred stock with the intention of injecting enough capital into banks so they can unfreeze the credit and begin loaning again. It's fair to say that this approach has indeed worked in the past (USA during WWII, Sweden in the 1990's, Japan in 1998). But even if the entire $700 billion was spent on buying up stocks it still wouldn't be enough because that figure is just too low relative to our GDP (Krugman 2009). That is why I'm saddened to see the Obama administration following in Bush and Paulson's footsteps. Obviously, this approach is just burning money and the fact that credit is still frozen is evidence enough.

Econ 101 teaches us that mismanaged and inefficient companies are supposed to fail so that their assets can be absorbed by more efficient and profitable companies. That's the law of the jungle. Right now, it's like we're giving life support to an antelope that was just mauled by a lion. One day when that antelope can get up and stand it will still just be a weaker version of its former self and an even easier meal. Some of these institutions should indeed be allowed to fail, but certainly not all. I understand that at this point the administration is trying to avoid further lack of consumer confidence in our markets. Many tough decisions need to be made and I agree something needs to be done. However, an underfinanced recapitalization effort is clearly not the way to go. Good thing there's a new plan in the works.

Recently Obama has added a new dimension to his bailout plan that I'm optimistic about. His plan is more or less to attract private investors to buy up around $1 trillion of these mortgage backed (toxic) assets. His plan includes loaning the investors up to 85% of the money to use towards purchasing these assets and matching every investor dollar with up to six dollars of tax payer money. Using private capital to handle these toxic assets will shift much of the burden off of tax payers, even though the government will certainly subsidize the losses (and profits). I don't have all the details on this plan quite yet and I'm sure these figures are subject to change. However, it definitely sounds better than simply buying shares of stock.

It is also probably pretty relevant to discuss our debt here as well, because there's no free lunch. The stimulus packages and TARP funds cost money. Money we don't have. So we need to raise the capital, mostly by selling bonds (creating debt). As of right now, when most people think of U.S. debt, China comes to mind. But you'd probably be pretty surprised to find out who we actually owe the most money to. The answer is: ourselves. As of right now over 50% of the our debt is to different branches of the government and the Federal Reserve (remember the Federal Reserve is as federal as Federal Express). For example, the money that is collected from the Social Security (FICA) tax is, by law, required to be held in government bonds. These bonds account for 23% of our total debt (as of 2006, however the statistic is higher today) and are used to finance much of our current deficit. In fact, as of right now, only between 25-30% of our total debt is owned foreignly. Furthermore, China only owns about 23-24% (Dec 08) of that debt. Or in another words, 6.5% of our total debt. So rest assured that it is virtually a statistical impossibility that China can bankrupt us by calling in our debt. We also have to remember to compare our debt relative to our GDP. Because this is the best measure we have when considering how much of a debt we can accumulate and manage to pay back. When we consider the size of our GDP (also the fact that it increases 1.5-2.5% annually) and the amount of debt we actually owe ourselves, we reach the conclusion that we can still safely borrow trillions without much concern in our ability to make interest payments and eventually pay back the principal (Colander 08). With that said, we also need to keep in mind that deficit spending is absolutely critical right now and the ideology that “government should quit spending” is a detrimental concept. Especially when this notion is backed by “intimidating” figures that do not carry very much weight in proportion to our GDP.





Something else we need to realize is that many of our current problems are due to a lack of regulation or good old fashion deregulation of the financial system. The shady derivative market (the main source of the toxic assets) would have never happened with regulations and the commercial banks would have never acquired these investment risks under Glass-Steagall... I think we're going to regress back into the constant boom and bust business cycles that were dominant prior to the Great Depression, before major financial regulations. It's obvious that since the financial system has been in the process of being deregulated problems have continuously arisen. The Savings and Loan crisis, the dirty accounting of Enron and others, the derivative and subprime market are all fine examples. It's not a coincidence that these sorts of issues didn't happen between the New Deal and Reagan's administration, and that it was only after the Reaganomic trend that all these banking problems surfaced. That's what deregulation does. It's a get rich quick scheme for politicians and bankers, usually at the expense of the tax payers and working Americans.

In the end, citizens and policy makers will have to make some hard decisions. Many of these problems will not correct themselves. Not to mention Republican obstruction will be flagrant every step of the way. But the bottom line is that we can't let everything fail while crossing our fingers and hoping we can restructure after the dust has settled. Hoover's laissez faire approach, balanced budget agenda, and late actions catapulted us into the great depression. So we can imagine what will happen if we do nothing. Economists who were whistle blowing on the housing bubble were marginalized. It's time to start listening to the people who know how markets work, not politicians, lobbyists, bankers, or news commentators. Disagreements will exist and that is normal, especially with problems of this magnitude. However, listening to “socialism” and “anti-government spending” rhetoric right now is just a distraction from the real issues plaguing us. As new plans and suggestions are proposed, we can't just look at the nominal values and say “it's too much money” without comparing the figures to our GDP. A billion dollars sounds like a lot, but it's only .007% of a $13.84 trillion GDP. Yes, that's right, not even a hundredth of a percent. How much of a dent do you think that billion will make? But that doesn't mean the billion should be pissed away. Our economic moves must be planned and concise. Hit and miss right now is bad for business, like an inadequate stimulus and underfinanced recapitalization plans. It's a waste of money if we're not going to do it right. And that's the bottom line.




Works Cited


Andrews, Edmund, and Er. "U.S. Expands Plan to Buy Banks? Troubled Assets." The New York Times - Breaking News, World News & Multimedia. 01 May 2009 .

Andrews, Edmund, Eric Dash, and Graham Bowley. "Toxic Asset Plan Foresees Big Subsidies for Investors." NY Times. 20 Mar. 2009.

"Bureau of Labor Statistics Data." Databases, Tables & Calculators by Subject. 01 May 2009 .

Colander, David. Macroeconomics. 7th ed. New York: McGraw Hill, 2008.

"Foreclosure Statistics." FDIC: Federal Deposit Insurance Corporation. Mortgage Bankers Association. 01 May 2009 .

Krugman, Paul. The Return of Depression Economics and the Crisis of 2008. New York: W.W. Norton and Company Inc., 2009.

"Nobel Prize Krugman says US and EU stimulus packages insufficient MercoPress." MercoPress South Atlantic News Agency. 01 May 2009 .

"Ownership of the Debt." Financial Management Service: A Bureau of the U.S. Department of the Treasury. Dec. 2006. U.S. Department of the Treasury.

"PolitiFact | Columnist Will correct that initial TARP money did not buy toxic assets." St. Petersburg Times Online. 01 May 2009 .

"Stimulus Watch: Government Responses to the Financial & Economic Crisis | US Budget Watch." US Budget Watch | A Project of the Committee for a Responsible Federal Budget. 01 May 2009 .

The Campaign of Fear

When did the Republican base become such cowards? Weren't these supposed to be the fearlessly patriotic guys and gals ready to selflessly fight off the evils of the world? These days it seems as though the rank and file Republicans are being intimidated into submission. The right-wing media and party leaders have been perpetually subjugating the base with petty bickering and fear mongering for quite sometime. Socialism and terrorism are part of the pay dirt being mined lately. Granted, these are issues that should be approached with genuine concern. But nowhere near the degree of fear that Republican Party leaders and right-wing media have been exploiting.

Unquestionably, a certain amount of fear is required for basic survival. Otherwise we would be doing things like taunting stingrays. However, purposely inducing fear and panic for political gain is not only unethical but dangerous. Make no mistake, fear is in fact being manufactured and peddled to anybody who will listen. The right wing-media and party leaders have been exploiting cultural resentments with fear to win elections. And, frankly, it works reasonably well. Let's explore a brief history of the Republican's use of fear for political gain.

Reagan can take much of the credit for the current Republican use of fear in politics. In 1964, Reagan gave the famous “A Time for Choosing” speech (more commonly known as “The Speech”) at the RNC for Goldwater's presidential nomination. Subsequently, this speech was the catalyst in Reagan's political career. During the speech Reagan used “code” language to take jabs at groups and stir up fears in people. He subtly raised points about black welfare recipients to appeal to (racist) people who believed that was where most of their tax dollars were going. He reaffirmed their fears and played into this stereotype. Reagan also used this opportunity to begin the “smaller government” rhetoric we're familiar with to this day. He convinced the growing Republican base that government programs were inherently wasteful by giving misleading statistics like: “Federal employees number 2.5 million, and federal, state, and local, one out of six of the nation's work force is employed by the government.” This particular statistic was misleading because in 1964 the majority of federal employees worked in the postal service or the defense department. Furthermore, the majority of state and local employees were school teachers, policemen, or firemen (Krugman 2007). Reagan also used Communism as leverage in the new Republican fear movement. Granted, a nuclear armed Soviet Union was nothing to sneeze at. It was still just a play designed to inflict fear of Communist interests coming to America and taking away our things.

However, let us not forget Nixon's contributions to the “campaign of fear” in the 1968 election. As Nixon himself so eloquently put it, “people react to fear, not love.” He played on the fear of the increasing crime rates (between 1957 and 1970 the crime rate more than tripled) and the expanding hippy population. Nixon's catch phrase “law and order” rallied support to the conservative movement. Nixon blamed “liberal permissiveness” as the cause for the increasing crime rate, radical demonstrations, and antiwar protests of the era. Smear tactics, however, were nothing new to politics. But mainstream fear tactics were. Consequently, the Republicans saw an opportunity to build their base through fear. Unfortunately, for the new conservative movement, Watergate would set them back a bit, but not for long. After Carter's term, Reagan would reclaim conservative ground with the full force of his fear mongering agenda and win the 1981 election by a landslide. Nevertheless, it was truly the mid to late 60s where the “campaign of fear” really began to take form.

In recent days, the Socialism card has been being dealt by Republican Party leaders and right-wing media to stir up fear in the unenlightened. Sadly, most of the protesting Republicans that are lashing out against socialism do not fully understand what it even is. Simply put, socialism is when the government controls the means of production and distribution. There is relatively no evidence for a current socialist agenda coming from the Obama administration. This rising fear of socialism is being produced by news commentators like Rush Limbaugh and the Fox News crew. A recent argument by Glenn Beck was the rise of socialism due to the fact that our government put a cap on CEO bonuses in some of the recently bailed out companies. The cap was clearly a populist move. Furthermore, when AIG bonuses were not capped a populist outrage cried out. It's obvious that taxpayers do not want their money going to the greedy corporate executives who helped create our current financial crisis. It's not socialism. Moreover, the redistribution of wealth to the poor is grossly over exaggerated by conservative proponents. Currently, the government takes approximately one out of every seven dollars citizens earn and redistributes it to someone else. That statistic does seem pretty significant. However, only about one-sixth of that is directed towards the poor. In other words, about 17 cents out of every 7 dollars actually goes to the poor. The other five-sixths of the redistributions go to well organized groups like businesses, labor union interests, the elderly, and various subsidies. Moreover, the people receiving these redistributions often have incomes well above the average person (Gwartney 2008). But I don't see how this redistribution of wealth is moving us toward socialism. It's not doing anything to destroy the class structure or an attempt for government to control the means of production and distribution. It's just more pandering to lobbyists and other special interest groups. What's more capitalist than that? There are, however, a great deal of arguments within the "redistribution of wealth." But, as far as I can tell, socialism doesn't really apply. This whole socialist agenda that the Republicans are trying to pin on the Democrats is a complete farce that is designed to instill fear into all who will listen.

What about terrorism? Ultimately, Bin Laden accomplished his goal of bankrupting America. Our fear of radical Muslims gave the Bush administration the power it needed to drag us into a war with Iraq without provocation. They convinced us that Iraq was our main problem even after they couldn't make a connection between Bin Laden and Saddam Hussein (shockingly, a great deal of the nation still is under the impression that Iraq actually had something to do with 911). The alleged “weapons of mass destruction” were found to be nothing more than a trumped up intelligence report orchestrated by Cheney himself. The administration continually pinned our fears against us and got legislation like the Bush Doctrine and USA Patriot Act passed. They used our fear to strip our constitutional rights and dictate our foreign policies. Our country was waist deep in Iraq before the general public figured out that we invaded wrong people. Once the initial panic attack for most of the country was over, who were the ones still living in fear? Just about anybody who watched Fox News religiously, namely conservatives. Fox News glorified the war in Iraq as our mission from God and condemned all who opposed it as unpatriotic. But let's face facts, radical Islam has no state or formal army. They're a pack of wild strays and barely warrant a response much beyond total annihilation. Our country should not have been dragged into Iraq and down into the gutter over this. We, as a nation, let 911 cloud our judgment. We demanded retribution and all we got was the shaft (and a big bill). Bush used our fears to pursue his own oil-ladened agenda. To top things off, in one of the final interviews Bush did as president, Larry King asked him whether U.S. Forces ever came close to capturing Bin Laden. Bush replied, “I don't know -- I can't answer that. I really don't know. I'm not trying to hide anything." And I believe him. I bet he really had no clue. It just goes to show where his priorities really were. They weren't anywhere near 911 retribution.

The right-wing media gets much of the credit for distributing the propaganda in the “campaign of fear.” By right-wing media, I mean the news commentators that spread grossly biased views and misinformation. Fox News and Rush Limbaugh are at the top of the mainstream right-wing media. Lately, many people who have been watching Fox News really believe the world is coming to an end. In fact, just last week Fox News released an article titled Five Ways the World Can End. The possible scenarios, according to them, are: massive asteroid impact, massive volcanic eruptions, nuclear war, a black hole, or the expanding sun. Under the nuclear war scenario the article states:

“The odds of total nuclear war between the U.S. and Russia seem remote now, and no other nations currently have the thousands of warheads it would take for such a doomsday scenario to occur. But there's always a chance of a full-scale nuclear exchange between future superpowers.”

The article is pleasantly reminding us of all the loose nukes from the Soviet Union which are now, more or less, in the hands of Russia. A country we've had shaky relations with. Interestingly, the article mentioned that global warming would not be a “doomsday scenario.” Evidently black holes are more dangerous than greenhouse gases tearing holes in the ozone.

Beyond blatant end of the world scenarios, Fox News also breeds contempt for the Democrat Party. Show me somebody who watches Glenn Beck, Bill O'Reilly, or Sean Hannity regularly that doesn't think Obama is a radical Islamic, terrorist, or socialist. Your search would be in vain. The fear mongering being displayed by these guys has truly captivated a large portion of the Republican base. What I find even worse is the party leaders are taking their cues from Rush Limbaugh. Nobody stirs up more hate and fear than this guy. That's how far off base this party has become. Even RNC chairman Michael Steele spoke out about Rush, calling him a mere "entertainer" whose show is "incendiary" and "ugly.” But then almost immediately retracted his statement with an apology.

For the past 30 some odd years the Republican Party has been using scare tactics to win elections. From the days of Nixon and Reagan to the recent days of George W. Bush, fear has played a critical role in the manipulation of the Republican base. The media and party leaders have been bombarding the public with a “campaign of fear” designed to keep them docile and submissive. And it's been working. I, however, will not argue against the freedom of speech. It is our constitutional right to say what we like. I can only hope that the people being intimidated by these fear tactics will eventually wake up and pay attention to the events unfolding around them. If we let other people do the thinking for us we'll never progress as a nation (ironically, progressive is an antonym for conservative). None of us should let ourselves be controlled through fear. We are Americans. We freed ourselves from British tyranny and gave birth to a nation. We stood in the face of real Communist threats during two World Wars and a Cold War. We landed on the moon and invented nuclear weapons. How did the Republican Party leaders and right-wing media make so many of us become afraid of our own shadows? How did we collectively lose our cool and let the Bush administration drag us into a war with a country that had nothing to do with 911? The answer is too many of us take information at face value without evaluating it critically. We must learn to question our fears and the motives behind the people trying to perpetuate them. Because if we don't, we really are just a herd of sheeple. I, for one, cannot accept that fate.


http://www.foxnews.com/story/0,2933,477084,00.html