Sunday, January 4, 2009

The Reagan Legacy

There are a lot of Ronald Reagan fans who read the CW, and I am also clearly in that category. Recently, in a response posted in another threat, one of our frequent readers (JPH) put forward a different view of the Reagan Legacy. I'll repeat a large portion of it below, then spend some time thinking about what was said:

"Let’s talk about the long term effects of the great communicator, who by the way i voted for. He vowed to put America's economic house in order. He said "You and I, as individuals, can, by borrowing, live beyond our means, but only for a limited period of time. Why then should we think collectively, as a nation, we're not bound by that same limitation?" Reagan reiterated an oft-made promise "to check and reverse the growth of government." And as Bacevich tells us "he would do none of these things. In each case, he did just the reverse. During the Carter years, the federal deficit averaged $54.5 billion annually. During the Reagan era, deficits skyrocketed, averaging $210.6 billion over the course of his two terms in office. Overall Fed spending nearly doubled from $590B to 1.14T. The Fed government did not shrink. It grew the bureaucracy swelling nearly 5% while Reagan occupied the WH." Additionally, Bacevich does a good job of mitigating the often cited conservative argument of the positive effects of the positive GDP growth during this period. We’ve mortgaged our future, now I hope we can pay for it...i am strongly starting to believe our current economic condition, which i liken to a house of cards started with Reagan's explosion of federal deficits and thus his fiscal irresponsibility."

While JPH goes on to say that he admired Reagan personally, it is clear that he lays a good bit of our current economic woe squarely at the feet of modern conservatism's patron saint, and his charges must be responded to or accepted. First though, a little background on JPH so that we all might be on a similar page. He leans Democrat, and he serves in the military. He's got a soft spot for unions, and for the little guy. He's NOT a bleeding heart liberal...he's a tough critic of profligate spending. He believes that we receive MUCH more in government than we pay for, which is of course, why we have a yearly budget deficit and an astounding national debt. He is a debt hawk, and he cannot abide by the federal government's living above its means. My sense is that he's a bit agnostic about how to reconcile that difference....I honestly don't think he cares whether taxes are raised or budgets are cut or both, so long as the checkbook balances. He is not an adventurist when it comes to the use of US military power, and he believes we have to have SERIOUS national interests at stake when we do use our power. So now, let's move away from background and onto the questions at stake.

JPH points to what deep down inside has bothered many devoted conservatives for a long, long time. The Presidency of Ronald Reagan was one of incredible inconsistencies and downright failures. He was a small government conservative who grew the government. He preached living within our means and then spent like a drunken sailor. As Governor of California he talked tough on illegal immigration and then (as President) signed into law a HUGE amnesty program. By and large--and such as they are--our poster's numbers are true, and they are not in dispute. But as Mark Twain said (or maybe it was Will Rogers--most American quotes come from one or the other), there are "...lies, damnable lies, and statistics". JPH is clearly a fiscal hawk, and by that measure, the Reagan Presidency was not a success. What his view lacks though is context, and that is what I seek to provide. Finally, I'll deal with the question of whether our current financial woes can be laid at the feet of the Gipper.

1. The economy that Ronald Reagan inherited was a mess, and it got worse in his first year before getting better. Does anyone remember double digit inflation, interest rates, and unemployment ALL AT THE SAME TIME? Does anyone remember Jimmy Carter talking about national "malaise"? The top marginal tax rate when Reagan took office was 70%, and when he left office, it was 38.5%. Yes, the Reagan tax cuts reduced government revenue--there is no question about it. But they unleashed capital to be used by productive Americans in growing the economy out of a grinding recession. Saint Franklin of Roosevelt, when facing his economic crisis? Started office with top marginal rates at 25%, and died in office with a top marginal rate of 94%--while he too managed to bring deficit spending to a high art. "But", you may say, "FDR had to fight WWII--deficit spending was appropriate." Which brings me to point #2.

2. Ronald Reagan was a war-time President; he considered the Cold War a war to be won, not a war to be tolerated. He recognized our main battery in the dispute with the Soviets was not our hundreds of thousands of troops in Europe--but the productivity of our economy at home. The Reagan Tax cuts (as claimed above) unleashed capital to grow the economy. Additionally, dramatically increased defense spending helped hasten the victory in the Cold War by reinforcing for our Soviet friends that their demand economy could NEVER provide military power they wanted AND the dynamic economy necessary to support it. Ronald Reagan was the first President to find the concept of "containing" Communism anathema. He wanted to defeat it. The "Peace Dividend" enjoyed by Geo Bush I and Bill Clinton was purchased with the deficit spending that supported defense investments in the 1980's.

So let us now turn to the question of whether Reagan's Presidency set us up for what we now face. My up front answer is this: to link Reagan's Presidency with today's financial problems makes about as much logical sense as blaming today's problems on FDR, and it bespeaks a level of historical, financial, economic and analytic misinterpretation that borders on character assassination.

Today's financial crisis is not the result of an "explosion of federal deficits". It is the result of the melt-down in world credit markets driven primarily by the crash of the US housing market and the risky derivatives that underpinned it. We are in the midst of working our way through an almost perfect storm of greed, good intentions, bad policy, and non-existent oversight. While I would agree that federal deficits are generally not good things, there are times when they should be run. I believe what Ronald Reagan faced in the early 80's was just such a time. Though left unstated, it sounds to me as if JPH longs for the fiscal responsibility of the Clinton Administration (I'm serious here--this is one of Bill Clinton's major accomplishments). I would suggest that the structural changes made during the Reagan Administration--doubling down when the economy was in the crapper--set the stage for the "explosion" in federal revenue experienced during the Clinton Administration. Bill Clinton balanced the federal budget--this is no mean feat. But he did it on using the tax money collected on an economy that had been changed to reward capital. That change occurred during the Reagan Administration. Interestingly enough, Clinton further recognized this by LOWERING the Capital Gains rate. JPH's complete and thorough blindness to the historical record of the Clinton Administration is at the heart of my criticism of his charge. It is almost as if he would have us believe that eight years of Reagan were followed by eight years of Bush. Just didn't happen that way.

So the charge that where we are today is a legacy of Reagan simply doesn't hold water for two reasons: 1) Reagan style deficit financing did not cause our current problems and 2) Reagan style deficit financing STOPPED in the 90's as Reagan style capital investment began to grow the economy (the much pooh poohed by our author "gains in GDP")to the point where revenue exceeded expenditures. My suspicions are that JPH would have preferred that the Clinton model of revenue exceeding expenditure continue until the entire NATIONAL DEBT were paid off, and that is an honorable position. As it would turn out, the American people disagreed with him twice and elected a man to office who ran promising to redress the imbalance in revenue and expenditure with tax cuts--which was also an honorable position given the recession we were in following the tech bubble--a recession he inherited.

I find JPH's views on the deficit, the debt and fiscal responsibility gratifying. I wish more people felt as he does, especially within the Democratic Party. I wish more of them (within the Democratic Party) truly understood the relationship between taxation and productivity. I wish more Republicans were horrified at the growth of spending in the past eight years. I look forward to seeing where PEBO takes us in this struggle, and my sense is that it won't go in a direction loved by our deficit hawk poster.

Ronald Reagan's Presidency deserves thoughtful criticism, and the fawning adulation most Republicans shower upon him springs from a very shallow understanding of his presidency. But laying today's financial crisis at his doorstep just doesn't stack up.


Mudge said...

I still miss our "greatest" president in my lifetime. What he did was to lead in the wake of a series of leaders who merely managed this country. I was but a young lieutenant when he took his oath of office and I can tell you that, for me, the turn around in our Navy and our nation was dramatic. PEBO waxes eloquently about how he yearns for a USA that is respected throughout the world, a place that is a beacon for freedom and opportunity. That is exactly how I (and at least a few other citizens at the time) felt following years of Johnson, Nixon, Ford and Carter (each of them with their very strong suits and their very weak suits, but none of them with what I would call greatness). The change in our national mood was rapid, dramatic, and infectious when Reagan assumed office. And while it came largely from a national hunger for such a mood change, that hunger existed for some time and it wasn't until we got a courageous, leader whose convictions were sacrosanct when it came to such things as winning the Cold War and being a beacon for freedom. As if to say, "We are America. We stand for freedom and we make no apologies for that stance." Say what you may about people giving President Reagan a thoughtless (believe "mindless" was your choice of words) pass on the accountability for his shortcomings or even failures, but as someone who has always thought courage in leadership to be one of the most important attributes of great people, I thusly find President Reagan to be without peer in his "greatness" as a President. I was inspired under his leadership. If being inspired comes without deep thoughtful contemplation, then I too am quite guilty of allowing myself to find his greatness absent such thought. I thought he screwed some things up to be sure, but so did GW, Lincoln, Ghandi, MLK and even the CO of USS BULKELEY. But that doesn't make them less great. By God they all led and they all led with passion and conviction as if there was nothing more important in the world, as if their own lives depended on it. I think so many of RR's predecessors, all possessing the ability to be great leaders, allowed themselves to get side-tracked into subordinating leading to managing. Yes, he mismanaged. But he led unlike any other in my lifetime.

Anonymous said...
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Dan said...

I happened to be in Israel during Desert Storm with the PATRIOT battalions that were called into action there. I still remember what our Brigade Commander said to visiting Senators Nunn, Inouye, Warner, Stevens:
"Gentlemen, this is as close to a political statement as I will make. We could not have accomplished the rapid strategic deployment of two PATRIOT battalions all via C-5 aircraft without the build-up of our military provided by President Reagan. I think my fellow colonels in Saudi Arabia would offer the same."

Anonymous said...

JPH Here... CW, thanks for using my posting as your key note entry for the first Sunday of the New Year. I am honored.

Couple of points -- Dan and Mudge, I absolutely agree with your praise for RR. He was a fine man who led by inspiring, more than just his party but the citizens of the country. Moreover, he CONTINUED the military build up that actually started in the last year of the Carter Presidency. So, I cannot be sure if the C-5s you mentioned were a result of the 79 budget increase or the Reagan tenure. Probably the latter, but Carter is often maligned, sometimes justly and other times unfairly, for his gutting of the military. Regardless, I never questioned RR’s military build up credentials or inspirational leadership.

As CW properly stated, charges are either accepted of addressed. I chose the latter. First, your characterization of me is almost spot-on, with two caveats -- my wife was shocked to read that i have a soft spot for unions -- she's heard me slam them many times and will continue to – your assessment is based on conversations ten years ago when defended them from your strongly held anti-union convictions/attacks. Second, the government coffers are best supported by a robust economy coupled with an appropriate taxation policy. An appropriate policy that encourages and stimulates economic growth, however dissuades adventurous speculation. However, the purpose of this entry is to address CW’s use of context to shield RR from today’s economic woes. Obviously I disagree and suggest CW's use of context is all too limiting.

RR and Tip O’Neil came together in a bipartisan fashion in 1984 and solved the pending social security implosion for some 60 years. This was a master stroke and one that deserves mentioning here. But like most good policies it was a compromise that allowed both sides to win and subsequently benefited all citizens. Bravo, my hats off to both these statesmen! This Reagan policy is clearly helping us today. However, CW would have you believe, it is impossible to link today’s financial situation to RR. Once again I disagree, because its simply not true. Moreover, I will attempt to link them to FDR as well!

What is the greatest economic storm coming our way? Could it be the perfect storm of massive debt and the coming due of the policies of the Great Society? (entitlements – where outlays far exceed intakes - social security, Medicaid, medicare) Many of today’s scholars correctly assess these problems are coming at us like an iceberg toward the Titanic. FDR implemented these policies and it has cost the taxpayer massively. But i believe these policies have benefited our society 10 fold over the past 70+ years. However, to say FDR isn’t linked to them today is nonsense. Frankly, today’s politicians haven’t made or been force to update these policies by making the tough calls.

A warning from an old hat – Niebuhr once wrote “ One of the most pathetic aspects of human history is that every civilization expresses itself most pretentiously, compounds its partial and universal values most convincingly, and claims immortality for its finite existence at the very moment when the decay which leads to death has already begun.” I throw this into the discussion as a warning – there are no guarantees that America will continue to be great. Each time we pronounce our greatness we must soberly assess and address our weaknesses in order to maintain our lofty international position. Too many believe our future position of greatness has already been bestowed. It hasn’t and the overly popular and populist conservative message suggesting our divine greatness is dangerous. I digress...

Let me address CWs two primary criticisms: Through the 1970s, economic growth had enabled the US to reduce the size of national debt (largely accrued during WWII) relative to the overall GNP. I contend that the issues within the 70s had more to do with energy shortages, post Vietnam syndrome and the initial effects of oil dependency, (in 73 we started our decline as a major energy producer) then of poor presidential leadership. In 79 Carter recognized this. The Carter malaise speech of July 1979, which conservatives love to bring up, sealed his defeat, is worth examining. For citizens stuck in the doldrums of the 70’s this speech was not what they wanted to hear. American’s did not want to be told “too many of us now tend to worship self indulgence and consumption. Human identity is no longer defined by what one does, but what one owns.” The politically astute Reagan seized on this immediately and went on to crush Carter in the general election. I am not describing the effectiveness or popularity of the Carter presidency; rather I use this as a point of origin from whence to deliver my economic criticism of RR. However, was Carter wrong? (Regardless you don’t get elected for being right, you get elected by getting more electoral votes)

CW and I have already discussed the deficits and national debt accumulated during the RR years. We are in violent agreement here, although, like Hamilton I believe certain types of debt are both necessary and good. My criticism lies else where. I partially blame RR for fanning the flames of a consumption society and for leading the charge of deregulation. Both of which I contend lead directly to the crisis’s of today.

Was there and are there positive economic outcomes due to RR’s policies? Absolutely… but the point I hope to make is that you must review the RR legacy in full context and understand the long term positive and negative effects of his tenure. For example, as CW and others points out, RR deserves great credit for his role in winning the Cold War and stimulating our economy. However, if you consider him the father of our Cold War victory and our economic expansion you must acknowledge his role as perhaps the God father of today’s Middle East mess/dependency and fiscal condition of our citizenry and government. Despite Carter’s warnings RR chose policies that grew our economy by indulging ever more on M.E. fossil fuels. This Reagan Policy decision inextricably tied us deeper to a part of the world that is home to the folks who wish to do us the most harm.

In the malaise speech Carter acknowledged the consequences of our Middle East oil dependency. However, Reagan wanted none of it. Hence his policies increased this dependency and increased the massive transfer of US wealth to that part of the world. I think there is a solid connection today with Reagan’s policies.

Second CW claims that today’s problems are partially the result of failure to oversea the capital markets. Who do you think started that deregulation? Yup, RR scored again and reinforced by marginally by Clinton and the SEC was wholly emasculated by GW.

To address a CW charge “complete and thorough blindness to the historical record of the Clinton Administration is at the heart of my criticism of his charge.” First, GB the elder followed RR, not Clinton. Let me remind you that Bush raised taxes to pay for the indulgences of RR. This sage act was good for the country, and helped mitigate RR's damaging fiscal initiatives, however, ultimately costly to Bush I – I believe his tax increases and misunderstanding of the American populace, not the economy, caused his defeat. However, GB the elder’s prudent fiscal policies were a gold mine for Clinton, who wisely reaped the benefits of Reagan’s economic (consumption) policies and Bush’s sound fiscal decisions. (on aside Eisenhower often stated – they want to sacrifice our economic health on the alter of military readiness – don’t they realize that we build out lasting strength through sound economic practices? Military readiness is subjective and often fleeting – our economy cannot waiver” Thus he embarked investing in our economy - the Eisenhower Intersate system being one example) Lastly, my final economic link from RR to the today’s economic woes is one of leadership and GWB is following Reagan’s example all too closely. The current President thought he could play the Reagan hand and be equally successful, or rather I suggest popular – could he be guilty like the general fighting the last war? Perhaps….

Lastly, I am all for a National debt and would be concerned if we didn’t run one. However, I believe in Hamilton’s form of debt – “incurred to promote economic growth and for the good of all citizens” not as a means to satisfy a short term demand of consumption. I hope Reagan’s assertion that our best days lie ahead comes true; if not Niebuhr’s prediction could hit entirely too close to home.

Mudge said...

Anon JPH - Thanks for the thorough explanation. I learned a few things, despite having lived through that era, that help illuminate how you arrived at your position. Gave me some things to consider. Also, couldn't agree more about warnings that this country is not endowed with permanent greatness. To believe otherwise is a "rest on your (or your predecessors') laurels" mentality that never causes increases or even sustains greatness in any endeavor, least of all global greatness. Again, thanks for your thoughts. Nice work.

Anonymous said...

Mudge, thanks -- I appreciate the fact that you took the time to respond in the manner that you did. Very gracious of you. JPH

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