Those who forget their inequality are doomed to repeat it.

On the day the first of Bush’s "economic stimulus" tax rebates hit some citizens’ bank accounts, it should be noted that this is the first federal tax rebate in history in a Presidential election year. No one in Washington previously has had the nerve to so openly pander for votes with money. Many economists believe that this will do little to jump start a recession economy, because any boost in consumer discretionary spending will be so short lived. In these tough times, much of this "free" money will simply go to pay off debt or be eaten up in higher prices for groceries and gasoline. (See update.) As a result of increasing the deficit, the government will then have to borrow the rebate money back from rich investors.

Rather than being motivated to use tax cuts and rebates to revive the economy, Bush and his party have a history of using them to pander. In spite of Republican mythology about the 2001 Bush tax cut, it was not about reviving the economy. It was conceived in 1999, when the economy was booming, as a way of getting votes in the 2000 election.

The main reason we have the 2008 rebates is that Republican are hoping lower income people – who have been economically the worst off during the Bush years – will mostly remember the rebate checks they got in July when they go to the polls in November. This sort of appeal worked for California Republican Governor Arnold Schwarzenegger when he unseated the Democratic incumbent in the 2003 recall election. Schwarzenegger promised to roll back a vehicle licensing tax that had been raised due to the state's poor fiscal health. The tax of up to a few hundred dollars per vehicle hit low income people the hardest. Many minority voters chose a Republican for the first time in their lives.

So why did the Democratic Congress go along with this scam? Because, what could else could they do? Once the President proposed and promoted the rebate, opposing it would have resulted in Republicans campaigning against Democrats on the issue in the Fall. Too bad the Democrats did not have the fortitude to just say no.

A Princeton professor of politics recently described his study of the national economic priorities of the two parties over the past sixty years. Under Democratic Presidents, the actual incomes of the middle-class rose more than twice as fast as they did when Republicans owned the White House. The real incomes of the working-poor increased six times as fast during Democratic administrations! The affluent fared equally well with both parties. If Democrats had held the Presidency continuously since 1948, "incomes would be more equal now" than during even the most egalitarian era of the 1950's. The professor notes that "Every Republican president since Dwight Eisenhower presided over increasing economic inequality, while only one Democrat — Jimmy Carter — did so."

Why do many middle class and working poor voters not reward Democrats for their superior economic stewardship? The professor believes that Republican Presidents’ use of their new mandates to cut inflation and social spending – hurting the least well off – wear off after three years, producing a perceived boost in the next election year for those that have suffered the most. Democrats’ policies helping the poor and middle-class also run their course after three years, creating a perceived decline that coincides with the next election cycle. As Republicans know so well, the public has a short memory.

Subprime meets nonprosecution.

Neatly tying together my previous posts about the Bush Justice Department's use of deferred prosecution agreements (nonprosecution) and the subprime mortgage crisis comes speculation that a Republican controlled Justice Department would not prosecute companies accused of wrongdoing in the subprime scandal. In fact, the existence of this corporate diversion program may have fueled the subprime crisis by encouraging bad corporate actors to believe they would not be held accountable for wrongdoing, says the NY Times.

Not a Gramm of change in credit market regulation expected under McCain

Now that an unprecedented 81% of Americans believe the country is on the wrong path, it’s easy to believe that both political parties will deliver change in the upcoming election.

An amazing interview with former Commodity Futures Trading Commission member Michael Greenberger on the NPR show Fresh Air yesterday described how former Senator Phil Gramm from Texas bears significant responsibility for the subprime mortgage and credit market crises and financial meltdown we now face. He cosponsored the Commodity Futures Modernization Act, passed quickly and quietly in the waning hours of the 2000 Congress as rider on a huge appropriation bill, when everyone’s attention was still on the ill fated election. This and other Graham sponsored legislation deregulated much of the financial sector and hastened the growth of risky new markets based entirely on gambling on how other markets will fare.

Wikipedia describes another role Gramm played in the meltdown of financial markets (also detailed here):

Gramm was partly caught up in the Enron scandal when it emerged that his wife Wendy had part written an exemption for Enron from federal oversight while she was serving on the Commodity Futures Trading Commission. She then accepted a directorship at Enron. Gramm was personally involved further when it came to light that he had helped to turn the exemption into law as well as push through the deregulation of energy markets that led in part to the Enron scandal. During this period Enron was a major contributor to his campaigns.

Gramm started out as a Democrat, but realized it would be more profitable to be become Republican after Reagan was elected in 1981. Operating as a spy for the Republicans until the Democrats cast him out, he resigned his House seat and then was reelected as a Republican in a special election. He beat Ron Paul in the Republican senatorial primary in 1984.

Soon to be Republican Presidential nominee John McCain admits he doesn’t know much about economics. His economics advisor is none other than Phil Gramm, now a vice chairman of Swiss Bank UBS, which lost 19 billion dollars in U.S. credit markets and real estate in just the first quarter of 2008! Gramm is rumored to be McCain’s likely choice for Treasury Secretary. Don't expect much change from Bush's economic policy from that ticket.

Update: Michael D. Donovan, a former S.E.C. lawyer, says, "Phil Gramm is the single most important reason for the current financial crisis." Gramm responded by blaming the crisis on "predatory borrowers" - those without the means to pay their subprime mortgages.

Serving government's customers.

One of the most obscene notions perpetuated by the Reagan legacy is that greater government regulation leads to increased corruption and waste. This mantra is part of the Ron Paul libertarian Kool-Aid® that many have drunk. Just get rid of government, and tranquility and efficiency will reign.

This has become a self-fulfilling prophesy for Republican administrations. In order to service their business constituency, they just fill government regulatory agencies with incompetent or corrupt cronies who believe that government serves no useful purpose higher than their personal gain. (See my previous post.) In short order the resulting corruption and waste proves the "truth" of bad big government. The most recent example is the scandal at the FAA over pressure from the top on inspectors to ignore aircraft maintenance violations. Having gone beyond any notion that it serves the people, the FAA refers to the airlines as its "customers." (See my previous FAA post.)

One has only to look at Europe to see the fallacy of this argument. In Germany, Switzerland, and the Scandinavian countries, businesses and banking are more regulated than in the U.S. and there is relatively little corruption. Their economies are leaving ours in the dust. The Euro, Franc, and Krona are strong in part because people have justifiable confidence in their financial markets and in the products they produce. The greatest risk facing these nations is their investments in the U.S. The British, with a more deregulated banking system, are paying the consequences.

Targeted government regulation can increase consumer safety and confidence and create a stronger economy. The extent of corruption and waste is all about the leadership voters choose to implement regulation.