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Celebrating Reaganomics

In his best-selling 1981 book, Wealth and Poverty, the conservative author George Gilder offered a spirited defense of laissez-faire capitalism and bluntly stated the underlying premise of supply-side economics.  “A successful economy depends on the proliferation of the rich,” he wrote, “to help the poor and middle classes, one must cut the taxes of the rich.”

What transpired throughout most of Reagan's time in office was a patchwork of fiscal measures designed to blunt the negative budgetary effects of the original 1981 ERTA, and shift the tax burden from the wealthy to the working and middle classes.  The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 closed some of the loopholes and raised specific taxes that the ERTA had dropped.  Richard Darman, a top White House aide, labeled the $37.5 billion in new taxes contained in TEFRA, (along with the Highway Revenue Act's $3.3 billion), “the single largest tax increase in history.”  The 1983 Social Security Amendments raised payroll taxes and imposed new restrictions on workers' benefits.  The Deficit Reduction Act of 1984 and the Omnibus Budget Reconciliation Act of 1987 both found ways to raise revenues while cutting social spending.  In addition, Congress stepped in with its own initiatives in the form of the Gramm-Rudman-Hollings Act of 1985, followed by the Gramm-Rudman Act of 1987, which set fixed deficit targets and a means of theoretically achieving them.

During the Reagan years labor unions suffered their most precipitous decline in the post-war period.  The share of private sector workers who belonged to unions fell from close to 20 percent in 1980 to 12.1 percent in 1990.  (By the 2000s it had dropped to about 7 percent.)  This decrease in private sector unionization is sometimes attributed to changing attitudes among the workers themselves, but public employee unions grew steadily during this period and accounted for most of the new unionization.  It was far more difficult for governmental institutions to practice the kind of aggressive anti-union tactics that have become the norm in the private sector since the 1980s.

The Harvard economist, Benjamin Friedman, calculated that the portion of national income invested in plant and equipment during the Reagan administration averaged about 2.3 percent.  During the previous three decades it had averaged three percent and had never reached that number in the 1980s.  Friedman’s analysis undercuts the view that supply-side tax cuts had produced greater investment in domestic plant and equipment.

Throughout the post-World War II period the United States had run modest trade surpluses.  But on September 16, 1985, the Commerce Department announced that the United States had become a debtor nation.  For the first time since 1914 the United States brought into being a situation where it had to borrow money from abroad to pay for its imports.  In 1980, the U.S. still kept up a trade surplus of $166 billion, but by 1987 the nation owed foreigners $340 billion.  The trade imbalances were, in part, the product of “neo-liberal” trade policies that rewarded American companies that outsourced production to low-wage countries.

In early 1981, Reagan’s Secretary of Human Services Richard Schweiker caused a stir when he called for reducing Social Security benefits for those who retired before the age of sixty-five and imposing new requirements to punish early retirees.  Reagan had been a harsh critic of Social Security throughout his public career, which he considered a "coercive" government program.  Reagan appointed a fifteen-member "bipartisan" commission headed by one of the administration’s favorite free market economists, Alan Greenspan, to examine the condition of Social Security and make recommendations.

Greenspan had been a close associate of the free-market guru and Atlas Shrugged author, Ayn Rand, and, along with Milton Friedman, was among the academic economists most famous for holding an almost religious devotion to the precepts of laissez-faire capitalism.  The Greenspan Commission imposed higher payroll taxes on working people, which accounted for about half of the hike in taxes from 1984 to 1989.  The Commission’s work was widely praised because the legislation that sprung from it was bipartisan.  But the higher payroll taxes, along with the regressive tax increases contained in the TEFRA and other acts of Congress during the 1980s, constituted nearly a 50 percent tax hike on lower-and middle-class workers. 

Cash-strapped state and local governments also raised taxes to offset the reductions in federal assistance.  When viewed in the context of the substantially lower tax rates for the highest income earners, the changes in the tax structure associated with Reaganomics amounted to one of the largest redistributions of wealth upward in U.S. history.

By 1984, Reagan had largely succeeded in realigning the economic debate away from Keynesianism with its positive view of the role of government and toward a culture that valued deregulation and free markets over all else.  Large swathes of the public had become suspicious of social programs and contemptuous of government.  In 1987, Reagan appointed Greenspan to chair the Federal Reserve Board, which was a post he held for the next eighteen years, thereby institutionalizing many of the tenets of Reaganomics.  Deregulation, along with "free trade" and cutting welfare spending, became bipartisan orthodoxy in Washington as domestic policy moved definitively in the Republicans’ direction.

What came after Reagan were bipartisan “free trade” agreements, NAFTA, GATT and the WTO, which ended up outsourcing millions of good-paying American jobs to low-wage countries.  Then came the bipartisan deregulation of the Telecommunications industry that gave us Fox News, and at the close of Clinton’s second term, the bipartisan deregulation of the financial services industry that took a mere eight years to bring the nation’s economy to its knees.

Now, out of the wreckage from the last thirty years of bipartisan Reaganite economic policy designed to serve the richest of global elites, we have the bipartisan calls for shredding what’s left of the social safety net, including Social Security, as a way to “make hard choices” to tackle the deficits that were produced by more or less the same politicians that brought on the catastrophe in the first place.        

Today, with states, counties, and municipalities reeling under a load of debt, brought to us by failed Reaganomics, the public sector, by which I mean health care services for the poor and elderly, schools, libraries, police and fire fighters, child protective services, as well as social programs of all kinds that help people, are being cut back past the bone and into the marrow.  What we’re seeing at the state and local levels is nothing short of the systematic dismantling of public institutions that took decades to build.

“Jobs, Jobs, Jobs” is a nice slogan but it tells us nothing about the quality of those jobs.  Today, what’s happening all over the country are across-the-board layoffs of public employees who had decent jobs with okay benefits and in their place are either McJobs or no jobs at all.  What we’ve seen happening over the past three or four years is a further deskilling and downgrading of the living standards of the average American worker.

The legacy of Reaganomics continues with the aggressive attempt to turn public school teachers into Wal-Mart workers.  Put in its context of austerity and debt reduction, this concerted attack on teachers is just the latest onslaught against the American working middle class.  They’ve already wiped out the manufacturing workers and their unions, now they’re going after public employees and their unions.  Across the country, right-wing Republican governors are teaming up in a spirit of “bipartisanship” with clueless “education reform” zealots like Michelle Rhee to eliminate teacher tenure, slash pensions, and generally make public school teaching a profession that someone would have to be crazy to want to join.

If you like the way things are in the United States today—with Gilded Age levels of inequality, weak labor unions, low-wage service jobs for most of the workforce, and a public sector that’s dying on the vine—then you can thank Ronald Reagan.

If you could have seen the parade of disabled people (many of them severely) who came to the California State Capitol in Sacramento on February 3 begging their elected leaders to block a proposed cut of $750 million from programs that help them live better lives—one by one, approaching a microphone at a recent hearing, speaking eloquently and poignantly, and calling out for human dignity and compassion—you’d have a better idea of the kind of suffering that this brand of heartless economics have wrought in this country.  That’s the true Reagan legacy.

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