The economic system Tom is talking about has never ever worked successfully in human history. It seems he is very quick to criticise what does work, so why shouldn't he shoulder some of the burden of proving that what he says actually works? Tax cuts for the rich don't work, this has been proven historically, though it can be said they work for the rich quite well. The rest of the economy needs capital and money to make it work. The more that is absorbed into the wealthiest 10% the less there is to go around for the other 90%. Since you then have less money in everyone's pockets you then have a contraction in the economy which is either recessionary or deflationary. The recession can occur simply because people can't afford to buy as much. The deflation can occur because people demand to buy cheaper and cheaper to get more with the money they have left.
Giving money to the rich has an identical economic effect to giving it to the French for example. Let's say you gave all the the tax cut money to people outside the country. This is equivalent because the rich don't spend it. How do we know this for a fact? Because the percentage of the total wealth of the country owned by the top 10% doesn't drop, if anything it rises. Since it doesn't drop there can be no trickle down. For the rest of the population then giving money to the rich just makes the rest poorer.
Of course the rich will invest it, but that does no good either. How do we know this? Because the wealth of the top 10% doesn't drop so any investing they do is not resulting in the other 90 % making money, because if it did the percentage the rich have would drop. Besides there is plenty of money around to borrow but the other 90% are no better of with that opportunity. We know that because again the percentage the top 10% doesn't drop. We also know there is no wealth creation being made, intangibles that means the person buys more or ends up with more assets. We know this again because the percentages don't change.
It's a zero sum game, the rich can't have more money without the rest having less money. There was a famous book in the late 80's called the Great Depression of 1990 I think. In it the author said the west would have a recession because the wealth was too concentrated in the top and so people couldn't afford to buy products from the rich and so the economy would stall. Of course this is exactly what did happen.
The situation is exactly the same now, the concentration of wealth is going back up now, and massive amounts of money are being withdrawn from the lower and middle classes. This cannot stimulate the economy properly because the money has gone to the rich, and so people can't buy things to end the recession and make jobs. The tax cuts went to the wealthy and to compensate the states had to spend vastly less on their services, so there was a tremendous transfer to the rich at the worst possible time, in a recession. The idea of a deficit in a recession is to inject money to get people doing business again. Here they are just giving it to people who will hard it, and whether they invest it is irrelevant as there is plenty to capital around already.
Money is a proxy for wealth, it is not wealth itself. Its function in an economy is like blood in the body, it circulates around and acts as an intermediary step in transactions so we don't need to barter. Where there is no money people have to either barter or they can't make exchanges and the transactions dry up. That's why the money has to be recirculated, to act as a lubricant.
To reverse this then requires getting rid of the tax cuts and giving cuts to the middle and lower classes to give them money to make transactions with, and that's good for the rich because then the poorer people can go out and buy new cars, etc.
People were pretty lucky Clinton came along when he did, because he understood this. They are also lucky someone like Dean understands this as well. I do not believe unfortunately that this time it will be enough. One reason is that people will start retiring en masse very soon and then repaying debt will be much much harder. Then the temptation will be to reduce social security but that reduces the vital lubricant of money in the lower classes, which can lead to a Brazil like rich/poor divide. Another problem is Bush is very unlikely to reverse course, as ideologically he seems unable to doubt his ideas, and he has promised money to special interests. So in all likelihood the continued concentration for wealth will accelerate.
The Argentina scenario is also possible because that was caused by people taking money out of the country. Bush encourages companies and the rich to incorporate overseas and use tax havens. If it gets bad then they could do like the rich always do in these situations, send the money somewhere safer. At the same time people would be less likely to invest here, fund the deficit and trade imbalance. That can raise interest rates and make the dollar fall, which makes the debt even larger.
In effect this is the same trap Reagan and Bush 1 fell into, and the recession is following the same path. It should never have been tried again because it failed so badly the first time. For what it's worth I think there is a fair chance of Dean getting in with the intent of concentrating on balancing the budget but I don't think he will succeed because with a Republican congress there would be gridlock. If everything went perfectly they could repair a lot of the damage but I believe it has already gone to far to restore the economy back to the 2000 level.
Unfortunately economics is a complex art and it cannot be run successfully with ideas that don't work. It's just too dangerous and yet again we are seeing the same results. The dramatic change in the economy brought on by these tax cuts underscores the probable fact that the economy is extremely fragile and that it was fragile even in the late 1990's with Clinton. He did a good job of repairing the grievous damage brought on by Reagan, but the economy started hemorrhaging so fast after the transfer of the money to the rich that something is still very seriously wrong. Bush has the worst job record since the Great Depression and he calls that a victory, there is little chance of him doing the right thing.
If that weren't bad enough the money to be spent on Iraq will never be recovered, it will be a dead loss. Any profits Halliburton and Bechtel make won't come back to the US, but to tax havens. The taxpayer will never get a dime out of Iraq.
I might be a year or two early in saying this, but many others are starting even now. There won't be a recovery in the next year and then people will be really starting to worry.