Yesterday, Steve Kornacki, co-host of MSNBC’s show “The Cycle,” gave a most curious presentation on his “Steve Speak” segment. He begins the segment by showing video of Mitt Romney stating that President Obama is not following President Clinton’s lead on tax cuts. As Kornacki points out, Obama is doing almost exactly what Clinton did in 1993, which was offer tax cuts to small businesses and raise taxes on the upper-income earners (Clinton raised taxes 1.2%, whereas Obama’s figure is the top 3%).
Kornacki also gives credit to George H.W. Bush for raising taxes on upper-income earners during the last year of his presidency, a move which, coupled with Clinton’s tax cuts, brought more money into the Treasury coffers, shrunk the deficits and gave the U.S. a budget surplus, but which enraged GOP leaders like Newt Gingrich and John Kasich.
What Kornacki fails to note—assuming, of course, that he even considered it before taping his segment—is that what we know now about the last twenty years is that the U.S. economy, helped along by Clinton officials such as Secretary of Treasury Robert Rubin and Federal Reserve Chairmen Alan Greenspan, rode a series of bubbles throughout the ’90s and ’00s that eventually culminated in the Great Recession of 2008. And the money generated by these bubbles, which we should describe as almost economic illusions, helped pour even more money into the Treasury because of the tax cuts on the wealthy.
In the ’90s the U.S. economy was heading full force into the Dot-com Bubble. Anyone with an Internet idea and nothing to show as far as profitability could attract greedy Wall Street bankers to help them make an IPO (Initial Public Offering) by hyping the business to its richest investors, knowing full well that it was probably shit, then selling that shit downstream to lesser investors. The scheme made the banks and their top flight investors a lot of money, which was then subject to capital gains taxes.
As Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, said in Matt Taibbi’s famous Rolling Stone article on Goldman Sachs,”In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future.”
Nearly the same was true of the housing bubble, which lifted the U.S. economy out of the Dot-Com crash and into another eight years of illusionary economic strength. By now we all know the narrative of sub-prime mortgages and credit-default swaps, so there’s no need to cover the details again. Needless to say, those financial instruments kept the illusionary economy going until it collapsed under the weight of its own artifice in 2007.
During the ’00s President George W. Bush compounded Clinton, Rubin, Greenspan and Larry Summers’ irresponsible financial policies with his own profligate defense spending, the creation of Homeland Security, and tax cuts for the wealthy, which helped create the massive deficits and debt over which this country’s partisans are currently squabbling.
Kornacki misled his viewers by not considering the role of the Dot-com and housing bubbles in dumping large amounts of upper-income taxes into the Treasury. For that, Democrats and Republicans should be shamed, and Kornacki given an intellectual spanking.
Watch the Kornacki segment below.