Dollars and Sense:

• Post by: John D. Mueller
• January 23, 2011

Proven Principles of Economic and Fiscal Sanity When the stock market dramatically and swiftly declined in September 2008, prompting Senator John McCain to suspend his presidential campaign and return to Washington, D.C., to discuss federal action to prevent a financial meltdown, it signaled that something was fundamentally wrong with the American economy. That jittery month did not just mark the twilight of the presidency of George W. Bush. The bear market signaled what no journalist or politician and few economists had predicted: that the Great Recession was here. The Federal Reserve’s initial response actually worsened the situation. But the immediate crisis in the financial markets did pass and the stock market has rebounded. Yet unemployment has remained high, state governments are broke, and the federal government faces a fiscal crisis that is unprecedented in peacetime. To most Americans, the prospects for a brighter economic future still do not seem all that promising. Republicans in general and conservatives in particular blame the crisis on an “out of control” public sector, especially the federal government that spends more than it takes in. Democrats in general and liberals in particular, on the other hand, blame the crisis on an “out of control” private sector that does not serve the common good. While there is an element of truth in each of these assessments, both parties have been equally complicit in moving the country away from the enduring principles of economic policy that made the American economic story an exceptional one. Indeed, both Republicans and Democrats have pushed policies that have violated the principles that undergirded the successful policies of the past, principles which were outlined by James Madison and Alexander Hamilton in The Federalist papers and implemented by George Washington, Abraham Lincoln, Franklin D. Roosevelt, and Ronald Reagan as the country developed.[1] More specifically, the principles in question