The Abject Failure of Reaganomics
Exclusive: House Republicans got next to nothing from their extortion strategy
of taking the government and the economy hostage, but they are sure to continue
obstructing programs that could create jobs and start rebuilding the middle
class. What they won’t recognize is the abject failure of Reaganomics, writes
Robert Parry.
By Robert Parry
Even as the Republican Right licks its wounds after taking a public-opinion
beating over its government shutdown and threatened credit default, the Tea
Partiers keep promoting a false narrative on why the U.S. debt has ballooned and
why the economy struggles, a storyline that will surely influence the next phase
of this American political crisis.
If a large segment of the American public continues to buy into the Tea Party’s
fake reality, then it is likely that both the political damage and the economic
decline will continue apace, with fewer good-paying jobs, a shrinking middle
class and more of the bitter alienation that has fed the Tea Party’s growth in
the first place. In other words, the United States will remain in a vicious
circle that is also a downward spiral.
The pattern can only be reversed if American voters come to understand how and
why their economic well-being is getting flushed down the drain.
The first point to understand is that the current $16.7 trillion federal debt is
about $11 trillion more than it was when George W. Bush took office. Not only
did Bush’s tax-cut-and-war-spending policies send the debt soaring over the
next dozen years but it was those policies that eliminated the federal surpluses
of Bill Clinton’s final years and reversed a downward trend in the debt that had
“threatened” to eliminate the debt entirely over the ensuing decade.
Amazingly, President Clinton left office in January 2001 with the federal budget
in the black by $236 billion and with a projected 10-year budget surplus of $5.6
trillion. The budgetary trend lines were such that Federal Reserve Chairman Alan
Greenspan began to fret about the challenges the Fed might face in influencing
interest rates if the entire U.S. government debt were paid off, thus leaving no
debt obligations to sell.
Thus, Greenspan, an Ayn Rand acolyte who was first appointed by Ronald Reagan,
threw his considerable prestige behind George W. Bush’s plan for massive tax
cuts that would primarily benefit the wealthy. In that way, Bush and the
Republicans “solved” the “problem” of completely paying off the federal debt.
When Bush left office in January 2009 amid a meltdown of an under-regulated Wall
Street there was no more talk about a debt-free government. Indeed, the debt had
soared to $10.6 trillion and was trending rapidly higher as the government
scrambled to avert a financial catastrophe that could have brought on another
Great Depression.
Reaganomics’ Failure
But this debt crisis did not originate with George W. Bush. It can be traced
back primarily to President Reagan, who arrived in the White House in 1981 with
fanciful notions about restoring America’s economic vitality through massive tax
cuts for the wealthy, a strategy called “supply-side” by its admirers and
“trickle-down” by its critics.
Reagan’s tax cuts brought a rapid ballooning of the federal debt, which was $934
billion in January 1981 when Reagan took office. When he departed in January
1989, the debt had jumped to $2.7 trillion, a three-fold increase. And the
consequences of Reagan’s reckless tax-cutting continued to build under his
successor, George H.W. Bush, who left office in January 1993 with a national
debt of $4.2 trillion, more than a four-fold increase since the arrival of
Republican-dominated governance in 1981.
During 1993, Clinton’s first year in office, the new Democratic administration
pushed through tax increases, partially reversing the massive tax cuts
implemented under Reagan. Finally, the debt problem began to stabilize, with the
total debt at $5.7 trillion and heading downward, when Clinton left office in
January 2001.
Indeed, at the time of Clinton’s departure, the projected ten-year surplus of
$5.6 trillion meant that virtually the entire federal debt would be retired.
That was what Fed Chairman Greenspan found worrisome enough to support George W.
Bush’s new round of tax cuts aimed primarily at the wealthy, another dose of
Reagan’s “supply-side.”
The consequences especially when combined with Bush’s decision to rush into two
major wars without paying for them proved disastrous. The federal debt resumed
its upward climb. By August 2008, just before the Wall Street crash, the debt
was over $9.6 trillion, nearly a $4 trillion jump since Bush took office.
And, after the Wall Street collapse in September 2008, the federal government
had little choice but to increase its borrowing even more to avert a global
economic catastrophe potentially worse than the Great Depression. By January
2009, just five months later, the debt was $10.6 trillion, a $1 trillion
increase and counting.
Many of the Republican leaders who stomped their feet during the recent budget
showdown, including House Speaker John Boehner, R-Ohio, were among those who
favored the Bush tax cuts, the costly invasion of Iraq and bank deregulation. In
other words, they were denouncing President Obama for a debt crisis that they
helped create.
But the record of reckless Republican budget policies from Reagan through
Bush-43 was not only destructive to the fiscal health of the government. The
“supply-side,”
“free-trade” and deregulatory strategies including some
facilitated by the Clinton administration proved devastating to the nation’s
ability to create good-paying jobs and to sustain the Great American Middle
Class.
Zero Job Growth
During the decade of George W. Bush’s presidency, the United States experienced
zero job growth. And zero is actually worse than it sounds since none of the
preceding six decades registered job growth of less than 20 percent.
By comparison, the 1970s, which are often bemoaned as a time of economic
stagflation and political malaise, registered a 27 percent increase in
jobs. Yet, in part because of that relatively slow rise in jobs down from 31
percent in the 1960s American voters turned to Ronald Reagan and his radical
economic theories of tax cuts, global “free markets” and deregulation.
Reagan sold Americans on his core vision: “Government is not the solution to our
problem; government is the problem.” Through his personal magnetism, Reagan then
turned taxes into a third rail of American politics. He convinced many voters
that the government’s only important roles were funding the military and cutting
taxes.
Yet, instead of guiding the country into a bright new day of economic vitality,
Reagan’s approach accelerated a de-industrialization of the United States and a
slump in the growth of American jobs, down to 20 percent during the 1980s. The
percentage job increase for the 1990s stayed at 20 percent, although job growth
did pick up later in the decade under President Clinton, who raised taxes and
moderated some of Reagan’s approaches while still pushing “free trade”
agreements and deregulation.
Yet, hard-line Reaganomics returned with a vengeance under George W. Bush more
tax cuts, more faith in “free trade,” more deregulation and the Great American
Job Engine finally started grinding to a halt. Zero percent increase. The Great
American Middle Class was on life-support.
Ignoring Reality
Despite these painful statistics of the past three decades, Reaganomics has
remained a powerful force in American political life. Anyone tuning in CNBC or
picking up the Wall Street Journal would think that these economic policies had
enjoyed unqualified success for everyone, rather than being a dismal failure for
all but the richest Americans. The facts were especially stark for the 2000s,
the so-called “Aughts” or perhaps more accurately the “Naughts.”
“For most of the past 70 years, the U.S. economy has grown at a steady clip,
generating perpetually higher incomes and wealth for American households,” wrote
the Washington Post’s Neil Irwin in a Jan. 2, 2010, review of comparative
economic data. “But since 2000, the story is starkly different.”
As the Post article and its accompanying graphs showed, the last decade’s sad
story wasn’t just limited to the abysmal job numbers. U.S. economic output
slowed to its worst pace since the 1930s, rising only 17.8 percent in the 2000s,
less than half the 38.1 percent increase in the despised 1970s. Household net
worth declined 4 percent in the last decade, compared to a 28 percent rise in
the 1970s. (All figures were adjusted for inflation.)
Despite this record of economic failure from Bush’s reprise of Reaganomics
trillions more in government debt but no net increase in jobs or household
wealth in the last decade many Americans appear to have learned no lessons from
either the Bush-43 presidency or Reagan’s destructive legacy. Any thought of
raising taxes or investing in a stronger domestic infrastructure remains
anathema to significant segments of the population still enthralled by the Tea
Party.
Indeed, across the mainstream U.S. news media, it is hard to find any serious or
sustained criticism of the Reagan/Bush economic theories. More generally, there
is headshaking about the size of the debt and talk about the need to slash
“entitlement” programs like Social Security and Medicare. Instead of paying heed
to the real lessons of the past three decades, many Americans are trapped in the
Reagan/Tea Party narrative and thus repeating the same mistakes.
‘Voodoo Economics’
The U.S. political/media process seems resistant to the one of most obvious
lessons of the past three decades: Simply put, Reaganomics didn’t work. As
George H.W. Bush once commented when he was running against Reagan in the 1980
primaries it is “voodoo economics.”
Yet, the fact that the United States has embraced “voodoo economics” for much of
the past three-plus decades and refuses to recognize the statistical evidence of
Reaganomics’ abject failure suggests that the larger lesson of this era is that
the U.S. political process is dysfunctional, a point driven home by the recent
Tea Party-led government shutdown and threatened debt default.
In the decades that followed Reagan’s 1980 election, the Right has invested ever
more heavily in media outlets, think tanks and attack groups that, collectively,
changed the American political landscape. Because of Reagan’s sweeping tax cuts
favoring the rich, right-wing billionaires, like the Koch Brothers and Richard
Mellon Scaife, also had much more money to reinvest in the political/media
process, including funding the faux-populist Tea Party.
That advantage was further exaggerated by the Left’s parallel failure to invest
in its own media at anything close to the Right’s tens of billions of dollars.
Thus, the Right’s outreach to average Americans has won over millions of middleclass voters to the Republican banner, even as the GOP enacted policies that
devastated the middle class and concentrated the nation’s wealth at the top.
So, even as American workers struggled in the face of globalization and suffered
under GOP hostility toward unions, the Right convinced many middle-class whites,
in particular, that their real enemy was “big guv-mint.”
Though Obama won the presidency in 2008, the Republicans didn’t change their
long-running strategy of using their media assets to portray the Democrats as
un-American. The Right waged a relentless assault on Obama’s legitimacy
(spreading rumors that he was born in Kenya, he was a secret socialist, he was a
Muslim, etc.) while a solid wall of Republican opposition greeted his plans for
addressing the national economic crisis that he inherited.
The Rise of the Tea Party
Like previous Democrats, Obama initially responded by offering olive branches
across the aisle, but again and again, they were slapped down. In mid-2009,
Obama wasted valuable time trying to woo supposed Republican “moderates” like
Sen. Olympia Snowe of Maine to support health-care reform. Meanwhile,
Republicans filibustered endlessly in the Senate and whipped their rightwing “base” into angrier and angrier mobs.
Initially, the GOP strategy proved successful, as Republicans pummeled Democrats
for increasing the debt with a $787 billion stimulus package to stanch the
economic bleeding. The continued loss of jobs enabled the Republicans to paint
the stimulus as a “failure.” There was also Obama’s confusing health-care law
that pleased neither the Right nor the Left.
The foul mood of the nation translated into an angry Tea Party movement and
Republican victories in the House and in many statehouses around the country.
Gradually, however, a stabilized financial structure and a slow-healing economy
began to generate jobs, albeit often with lower pay.
Obama could boast about sufficient progress to justify his reelection in 2012,
with most voters also favoring Democrats for the Senate and the House. However,
aggressive Republican gerrymandering of congressional districts helped the
GOP retain a slim majority in the House despite losing the popular vote by
around 1½ million ballots.
But the just-finished budget/debt showdown has shown that the Tea Party’s fight
over America’s political/economic future is far from over. Through its
ideological media and think tanks, the Right continues to hammer home the
Reagan-esque theory that “government is the problem.”
Meanwhile, the Left still lacks comparable media resources to remind U.S. voters
that it was the federal government that essentially created the Great American
Middle Class from the New Deal policies of the 1930s through other reforms of
the 1940s, 1950s and 1960s, from Social Security to Wall Street regulation to
labor rights to the GI Bill to the Interstate Highway System to the space
program’s technological advances to Medicare and Medicaid to the minimum wage to
civil rights.
Many Americans don’t like to admit it — they prefer to think of their families
as reaching the middle class without government help — but the reality is that
the Great American Middle Class was a phenomenon made possible by the
intervention of the federal government beginning with Franklin Roosevelt and
continuing into the 1970s. [For one telling example of this reality — the Cheney
family, which was lifted out of poverty by FDR’s policies — see
Consortiumnews.com’s “Dick Cheney: Son of the New Deal.”]
Further, in the face of corporate globalization and business technology, two
other forces making the middle-class work force increasingly obsolete, the only
hope for a revival of the Great American Middle Class is for the government to
increase taxes on the rich, the ones who have gained the most from cheap foreign
labor and advances in computer technology, in order to fund projects to build
and strengthen the nation, from infrastructure to education to research and
development to care for the sick and elderly to environmental protections.
In other words, the only strategy that makes sense for the average American is
to reject the theories of Ronald Reagan and the Right. Rather than seeing the
government as “the problem” and higher taxes on the rich as “bad,” the American
people must come to understand that, to a great extent, government has to be a
big part of the solution.
Investigative reporter Robert Parry broke many of the Iran-Contra stories for
The Associated Press and Newsweek in the 1980s. You can buy his new book,
America’s Stolen Narrative, either in print here or as an e-book (from Amazon
and barnesandnoble.com). For a limited time, you also can order Robert Parry’s
trilogy on the Bush Family and its connections to various right-wing operatives
for only $34. The trilogy includes America’s Stolen Narrative. For details on
this offer, click here.