Conventional wisdom says that the Republicans are the party of business and that the economy is in more able hands if they are in control. Well, this is a myth and conventional wisdom has been wrong for a very long time. So let’s dig deeper into that myth, which the recent events in the housing market and now those on Wall Street have started to crack.
Not only are Republicans not good at helping small businesses (as discussed in the section Time for Change), it turns out they actually aren’t even really good for big business as well, as evidenced by the collapse of all those major Wall Street firms and the economy as a whole. The reality is that Democrats have been far better for jobs and therefore the economy than Republicans and there is ample evidence to support that.
For more proof about Democrats being better for the economy, let’s examine the actual results of the last 60 years of both Democrat and Republican administrations. We find that the reality is that jobs have been created by Democratic administrations at more than twice the rate of Republican ones.*
Since Truman was elected in 1948, Democrats have presided over the creation of 53.2 million new jobs during their 24 years they have controlled the White House, and the Republicans created 38.3 million during the 36 years of Republican administrations. This turns out to be an average of 2.217 million jobs a year under Democrats and 1.064 million a year under Republicans – more than twice as much.
And not a single Republican president succeeded in creating more jobs in his administration that his Democratic predecessor. So much for the myth that Republicans are better for business.
(*Source: The Bureau of Labor Statistics seasonally adjusted for non-farm payrolls. The job increases for George W. Bush are through August 2008, but don’t reflect that over 600,000 Americans have lost their jobs since January and given what is taking place on Wall Street at this time, most economists expect many more job losses before the end of this year.)
And as if that wasn’t bad enough, we now find ourselves caught up in the further exploding of that myth, by the breakdown of the economic system controlled by big business. Under the influence and control of the de-regulating Republicans, beginning with Reagan and culminating with the Bush 43 presidency and his Republican Congress, we see the real results of their drive for a near total absence of any government oversight, in their quest for profits and free market capitalism. This form of business has become personified with value based almost completely on speculation and not on any underlying real value.
The speculative value proposition under their model of capitalism has realized its penultimate expression (and ultimate folly) in the form of something called a “derivative” with the corresponding derivatives markets.
Derivatives are various financial instruments whose value were derived based on the value of something else, and in and of themselves represented no direct value in the form of real goods and services. Nonetheless, they represent means by which huge “profits” (and losses) can be realized and the use and trading of such instruments has became a massive gambling casino wherein paper value chased paper value. And with the exception of the gamblers, there was essentially no other direct benefits to society and the planet.
And frequently these instruments get compounded by derivatives on derivatives on derivatives, in a long complicated chain. The problem with this entire system is that once the original asset upon which these derivatives are based loses its own inherent value (think sub-prime mortgages for example), and that long chain of derivatives all begins to collapse.
And unfortunately, huge amounts of money have moved into these instruments, whose collective “market value” has grown to over 10 times the value of the entire world’s value in real goods and services (GDP). The Bank of International Settlements, the world’s clearinghouse for central banks in Basel, Switzerland (which tracked such transactions) reported that by the end of 2007, the total derivatives market was estimated to be at least $516 trillion.
This is what we are seeing unraveling before our eyes. The underlying assets upon which all this paper value has based is no longer worth what their paper empires presumed it was worth, and the whole system is falling apart because of that. Even Alan Greenspan, one of the chief enablers of this system, has declared that he believes it will get much worse before it gets better.
Which leads us to the question – What can be done about it? The next President and Congress will face a daunting task on reversing this economic catastrophe (which could actually be worse than the Great Depression), and instead will have to lay the foundations for a new economy, based on sound economic principles and systems.