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.