Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

To ease these imbalances, the obvious solution, as the Hamilton Project demanded, was fiscal restraint. Reduce the federal deficit, squeeze domestic demand, reduce the import of Chinese goods and Chinese money. But the Bush administration didn’t seem to care. In 2004 former Treasury secretary Paul O’Neill, fired from the cabinet in 2002, released his revealing exposé of the early Bush administration. It contained a nugget that haunted the economic policy community. In November 2002 O’Neill tried to warn Vice President Dick Cheney that the surging “budget deficits . . . posed a threat to the economy.” Only for Cheney to cut him off with the following remark: “You know . . . Reagan proved deficits don’t matter.” The Republicans had won the congressional midterms; tax cuts were the Republican “due.” Within the month O’Neill was fired.36 From the perspective of the Rubinite Democrats, this was not just economically illiterate, it was also a political scandal. Following in the footsteps of George Bush senior, they had spent agonizing years working off Reagan’s deficits. If Cheney’s version of Republicanism prevailed, it undermined the basis for turn taking in America’s two-party system. How could the Democrats conduct responsible “national” economic policy if the Republicans viewed the economy as a resource to be milked for the benefit of its privileged constituency? As Brad DeLong, deputy assistant secretary for economic policy in the Clinton-era Treasury, ruefully remarked: “...