HANG IT ON DUTCH

Governor Schwarzenegger made it official earlier this week: the Golden State is going bust, with a gaping budget hole in the lofty neighborhood of $14 billion. That’s not chump change. About the only place you can find that kind of dough is in the casino safe of your local Indian reservation. There’s historical justice to that, but it’s a story for another day.

The sub-prime mortgage scandal is partly to blame for dragging the Golden State down like a 20-ton anchor. The mainstream press doesn’t describe it in those terms, but in my mind, the real estate bubble that was stimulated by Federal monetary policy, and exploited by creative, greedy and under-regulated lenders, along with buyers eager to get in on the boom, even if they couldn’t afford it, amounts to a first-rate scandal and as the effects sweep across the state, bleed into practically every economic sector, scandal seems the only appropriate word to describe it.

When the pain becomes widespread enough, maybe drags down some of the New Rich who up to now have tapped their sudden paper wealth to spend lavishly on luxury vehicles, jewelry, designer clothing, $100 hamburgers, and first-class hotel suites in Fiji, Las Vegas, Athens and Monte Carlo, people will look for someone or something to blame.

I’ve already found my target: the seed of the mortgage meltdown was planted when Dutch Reagan occupied the White House.

Remember your history? It was Reagan who declared that “Big Government” was our problem, the root of all evil -- an impediment to entrepreneurial zeal, an obstacle to innovation, freedom, clear skin and lustrous hair. Shove Big Government out of the way, Reagan crooned, and the genius of America would be released for the benefit of every man, woman and child, black, brown or white, urban or rural.

Under Dutch Reagan, the regulatory framework that was designed to balance the interests of business and the public began to tilt decidedly in favor of the former. Trust the wisdom of the free market, the Reagan line went, and government oversight is unnecessary. If we just believed, markets would regulate themselves with wisdom as true as Solomon’s.

And moss would grow in the Sahara, armadillos would sprout wings and soar over the Texas Panhandle, the Chicago Cubs would capture five World Series titles in a row, and, of course, social ills such as racism, sexism, ageism, poverty, child abuse, and illiteracy would vanish from the American landscape forever. The Market Myth as related by Dutch Reagan in his dulcet voice elevated business tycoons and Wall Street gamblers to sainthood. Greed bowled over fairness and became our prevailing ethos. All we had to do was make it rain for the rich, the daring, and the strong, and the water would flow for everyone.

Right. In fact, the good, clear water flowed overwhelmingly to those who were not thirsty, creating a huge disparity of wealth in a country that once prided itself on the width and depth of its middle-class. Dutch and Co. let the mad dogs of Capital and Finance off the leash and the rest is history: unions neutered, wages for working folks flat or regressing, jobs shipped to China, employee benefits slashed or eliminated altogether, simultaneous foreign wars and tax cuts, and mortgage lending practices that abandoned every sound business principle known to the civilized world.

Ideology did us in. Reagan’s cheery patter and easy platitudes became religion, and any politician who spoke against the Reagan line was branded a heretic. Big Corporate money flowed to the Republicans who used it to buy the media, fund think tanks, keep the Democrats cowed and, more importantly, out of power. The political class learned to toe that Reagan line, even when it became clear that “trickle-down” economics really was nothing more than voodoo.

Don’t believe it? It’s the reason you hear the Republican GOP candidates trying to ignore reality and wrap themselves in Reagan’s cloak; it’s the reason Democrats cut deals with health insurance companies instead of proposing true universal health care for all Americans.

And it’s the reason Governor Arnold Schwarzenegger swears he can balance the California budget without a tax increase. If that sounds like something you might hear Hillary Clinton say, well, there you have it.