The flashy roller-coaster most people call the stock market recently hit an historic bump far larger than any of the massive potholes on Clergy Street: the twin rascals of fiscal irrationality and greed-engulfed Bear Sterns & Co., which was quickly snapped up by JP Morgan Chase & Co. for a fire-sale pittance. With guidance being provided by the U.S. Federal Reserve, Morgan paid $2 a share, less than one-fifteenth of Bear Stearns value a week earlier.
As Bear Stearns tanked and stock market bears roamed unchecked through the financial wilderness, at least two things were clear. First, the crisis of confidence that began in earnest with the overheated sub-prime mortgage fiasco represented a payback for the irrational financial exuberance that has dominated the thinking of elites at least since the 1980s.
This illogical fervour, an enthusiasm epitomized by the unprecedented accumulation of wealth in the hands of fewer and fewer citizens, reflected the hubris of what novelist Tom Wolfe would call "men in full," self-anointed captains of merchant banking thrilled by their cornucopia of funds sloshing around the world like so much Guinness on St. Patrick's Day. With Wall Street flirting with the possibility of the Dow cracking the 15,000 mark, all seemed possible.
But within the sub-prime disaster - at base another example of rich Americans exploiting the poor and the beleaguered middle class - lurk echoes of the savings and loan debacle of the 1980s and '90s, the self-destructive greed of World.com and Enron, and, not least, the unbelievably inept fiscal policy of a U.S. administration that is headed by a Harvard MBA.
Second, the current credit crisis comes as merely the latest example of a long skein of national fiscal mismanagement. George W. Bush does not stand alone. Indeed, he is a kind of sum of all the problematic parts of the past four decades. In the mid-1960s, Lyndon Johnson failed to raise taxes to pay for his war in Vietnam, concluding wrongly that he could have guns and butter and a Great Society at home and abroad.
Richard M. Nixon extended that futile conflict as he spied on his political opponents. Ronald Reagan dragged the government into huge debt, as defence spending exploded, half-baked economic theories ("voodoo economics") took hold and the fictional Gordon Gecko proclaimed "Greed is good" as he spoke for all Wall Street financial swashbucklers. Among other initiatives, Reagan cut social services severely, ushering in an era of enforced self-help unseen since the late 19th century. Skewing tax laws in favour of the wealthy, he also corroded Americans' sense that the federal government had a positive role to play in the life of its citizens.
Bush and his cronies extended the Reagan program, adding a couple of wars for good measure. These wars have all but destroyed the American economy, threatened the democratic right of dissent and now endanger the global financial system as well. Bush's war on terror, an open-ended global conflict, carries a price tag that beggars any estimate. Economists - conservative as well as liberal economists - point to the war in Iraq as evidence that our contemporary economic upheaval owes much to the amount of national treasure squandered in a lost cause.
We've been there before, in Southeast Asia, but Santayana's dictum that those who disregard history are fated to relive it has not reached the inner sanctums of government. On the contrary, the Bush administration has spent more money in Iraq - much of it money that it does not have - than the amount spent on any American war except the Second World War. Five years into the conflict, with 160,000 American military personnel still in theatre, the United States is spending $12 billion every month.
The Bush administration has spent more than $500 billion in Iraq so far, primarily on military operations. But as Nobel laureate economist Joseph Stiglitz and Harvard University's Laura Bilmes revealed recently, that amount is a pittance when compared to the larger bill that future taxpayers will face.The Iraq war not only places great strain on the economy; it underwrites the instability and volatility of the market economy generally. In a book entitled The Three Trillion Dollar War, Stiglitz and Bilmes argue that because the United States has had to borrow much of the money to pay for the war, future interest payments may add another $615 billion. To repair its worn-out military materiel - now often National Guard materiel borrowed from the states - another estimated $280 billion will be needed. Finally, Stiglitz and Bilmes assert, health care and disability benefits for war veterans may add another half-trillion dollars over their lifetime.
If these prospects are insufficiently frightening, it is undeniable that the war has undercut the global economy by exacerbating instability. The irony, in the face of the Bush administration's unacknowledged craving for control of the Middle East oil supply, is that oil prices have been driven to record highs. The American dollar has been sapped, and it has become harder for citizens today, and for future generations, to confront recession, repair social security, or meet other national needs - things like floods, fires and pestilence.
In sum, when we hear the election-campaign phrase, "It's the economy, stupid," the clear retort must be, "It's Iraq as well." For the two items are inextricably intertwined.
For Canadians, there should be no glee at America's brush with Bush. That sound you hear is the sucking sound made by the black hole of the gargantuan American economy. If that economy goes, we'll follow.
Geoff Smith, a former professor of American history at Queen's University, is usually a bull, but he feels a bit bearish these days. This article originally appeared in the Kingston Whig-Standard 25 March 2008.