Reagan’s 100th Birthday: Revisiting the nightmare
They say it’s not good to speak ill of the dead, but I’ll have to violate that stricture and talk about Reagan. All around the web, people are commemorating his 100th birthday and looking back on his presidency with nostalgia and believing that he presided over “morning in America”, when in fact he was the principal actor in our current trip down the road to the fiscal nightmare that now besets us. It was the Reagan administration’s implementation of a new economic theory known as supply side economics that put our nation on this path. Supply side theory was based on the counterintuitive notion that tax cuts actually resulted in the government raising more revenue and was attended by all sorts of additional economic theories, most notably what’s known as the Laffer curve named after economist Arthur Laffer. Basically, Laffer posited that there was an optimal tax rate at which the government would maximize tax revenues and if rates were too high, tax avoidance activities would lessen the government’s tax collections. (I should point out here that tax cuts haven’t eliminated tax shelters and offshore tax havens, so the idea that tax cuts would lessen tax avoidance can be dismissed as pure bunk). I remember all of this all too well as I was in business school when Reagan got elected. This supply side nonsense was all the rage with the economics professors and they force fed us this pabulum to indoctrinate us to this particular view. Apparently, this indoctrination was effective as tax cuts have been a mantra that’s been expressed with near hypnotic frequency by the republican party for every economic ill we face.
In 1981, Reagan and his band of supply siders took over, wrote their tax cuts for the rich and greatly expanded military spending to “defeat” the Soviets. By the end of his two terms he had nearly tripled the national debt to $ 2 trillion. Basically, what occurred here was a massive wealth transfer to the wealthy fueled by debt. But that’s not the end of it. All of this was made much easier by a accommodative money printing policy by the Federal Reserve. The Fed’s constant creation of inflation effectively reduced the debt in real terms by a constant devaluing of the currency. That worked just fine until we hit the skids with the current crisis. Reagan started us down this road and rather than being commemorated, he ought to be pilloried. The main thing he needs to pilloried about are the Big Lies. These are the one’s he told about small government, fiscal restraint and threats to the freedom of Americans. He talked one game and ran another.
It’s funny how this significant bit of history is absent from the current debate over the debt. Reagan got elected by claiming alarm over the national debt and it’s interesting how the republicans have reassumed majorities in the house using this same tactic. How dumbed down can the American public be? The chart above really ends all debate about who’s responsible for our national debt and provides a context for the current political scene.
The following excerpt sums it up well:
Revisiting the Reagan Nightmare
Friday 04 February 2011
“Now that he is safely dead, let us praise him.” poet Carl Wendell Hines wrote of Martin Luther King Jr, after his assassination. Ronald Reagan has been “safely dead” for just under seven years, but the economic impact of his policies remain with us.
In a sense, it’s highly appropriate that the centennial of Reagan’s birth falls upon us in the midst of a economic nightmare from which it is uncertain when — or if — the nation will awaken. Though we will be inevitably awash in conservative praise and hagiography of Reagan, his 100th birthday is also an occasion to remember how America’s long economic nightmare began.
It’s a story told many times, but it bears telling again, and again, as David Johnson did last year as he explained how the “Reagan Revolution” came home to roost. He even told it in charts.
As Dave said in his post. take a look at a chart of almost anything, and you’ll notice that right around 1981, things take a sharp turn in the wrong direction — that is, for just about everyone but the wealthiest 1%.
Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years.
And it started with Reagan. Anyone who’s wringing their hands about America’s debt and China’s ownership of it has Reagan to thank, as Reagan’s former budget director David Stockman recently explained to David Corn.
Here’s how Stockman tells the tale. In the ’80s, Reagan and his White House crew were eager to cut income taxes across the board. The aim, he asserts, was to fix the slumping economy, not to starve the beast of big government. Republican leaders on the Hill were initially skeptical—they insisted that the White House pass spending cuts before Congress tackled the tax side. “The honest-to-goodness fact,” Stockman says, “is that in February 1981, there wasn’t close to a Republican majority for tax cuts without any accompanying or coupled spending cuts. The idea of supply-side in its purest form”—that tax cuts fuel economic growth that yields increased tax revenues—”was only embraced by a handful of junior Republicans, plus Jack Kemp.”
The Reagan administration hardly minded proposing massive cuts to both taxes and spending. But then things went haywire, Stockman notes. The tax cut ballooned from $500 billion over five years to $1 trillion after lobbyists added special-interest tax breaks for various industries. And on the spending side, the Reagan administration went hog-wild throwing money at the Pentagon. The inevitable happened: The deficit ballooned.
…The new doctrine got a boost when it turned out you didn’t have to match tax cuts with spending cuts: The Federal Reserve was able to sell the nation’s growing debt to China and others. “It totally anesthetized the political system to the costs of deficit spending,” Stockman says. “Therefore the simplistic and reckless idea that the way to stimulate the economy is to cut taxes anytime, anywhere, for any reason, became embedded [in the GOP]. It has become a religion, it has become a catechism. It’s become a mindless incantation.”