Reagan Legacy Myth Persists in Contravention to Facts

Conservative extremist Grover Norquist's Republican Party movement undertook, in 1997, an active, mapped-out, audacious, extraordinarily successful campaign to transform Reagan into one of the greatest presidents in US history through totally false, conservative, history revisionism. This concerted operation--pushed even harder today--eliminated facts, failures, and scandals that would otherwise relegate Reagan's reign to an unremarkable, less-than-transformational presidency; excruciatingly exaggerated positive achievements; and reinvented a legacy of new conclusions and triumphs, particularly economic--which indoctrinated even the liberal press. Paul Ryan/Eric Cantor/Kevin McCarthy's September 2010 Young Guns--A New Generation of Conservative Leaders incorporates Paul Ryan's proposed budget for the future of the US economy, Roadmap 2.0. Ryan's Roadmap has been thoroughly analyzed by the Center on Budget and Policy Priorities (CBPP) in 2010, which concluded it was not workable (see http://www.cbpp.org/cms/index.cfm?fa=view&id=3114 and Young Gun Rep. Paul Ryan Lies About His "Roadmap For America's Future," Political Correction, September 13, 2010, http://politicalcorrection.org/factcheck/201009130010). CBPP is an institution with a richly-deserved reputation for doing its work with great care.   Since the short-on-details policies and extrapolations perpetrated in Young Guns also emanate from the "Reagan Revolutionary" era, this book cannot be taken seriously without first examining the realities of the Reagan legacy--best performed by honest conservatives: The Free Market [published by Ludwig von Mises Institute--named for one of most ultra-conservative economists who ever lived] Volume VI, No. 10 October 1988 THE SAD LEGACY OF RONALD REAGAN By Sheldon L. Richman . . .Ronald Reagan's faithful followers claim he used his skills as the Great Communicator to reverse the growth of Leviathan and inaugurate a new era of liberty and free markets. Reagan himself said, "Government is the problem--not the solution." Yet, after nearly eight years of Reaganism, the clamor for more government intervention in the economy was so formidable that Reagan abandoned the free-market position and acquiesced in further crippling of the economy and our liberties. In fact, the number of free-market achievements by the administration are so few, they can be counted on one hand--with fingers left over. Let's look at the record: SPENDING In 1980, Jimmy Carter's last year as president, the federal government spent a whopping 27.9% of "national income" (an obnoxious term for the private wealth produced by the American people). Reagan assaulted the free-spending Carter administration throughout his campaign in 1980. So how did the Reagan administration do? At the end of the first quarter of 1988, federal spending accounted for 28.7%of "national income." Even Ford and Carter did a better job at cutting government. Their combined presidential terms account for an increase of 1.4%--compared with Reagan's 3%--in the government's take of "national income." And in nominal terms, there has been a 60% increase in government spending, thanks mainly to Reagan's requested budgets, which were only marginally smaller than the spending Congress voted. The budget for the Department of Education, which candidate Reagan promised to abolish along with the Department of Energy, has more than doubled to $22.7 billion, Social Security spending has risen from $179 billion in 1981 to $269 billion in 1986. The price of farm programs went from $21.4 billion in 1981 to $51.4 billion in 1987, a 140% increase. And this doesn't count the recently signed $4 billion "drought-relief" measure. Medicare spending in 1981 was $43.5 billion; in 1987 it hit $80 billion. Federal entitlements cost $197.1 billion in 1981--and $477 billion in 1987. Foreign aid has also risen, from $10 billion to $22 billion. Every year, Reagan asked for more foreign-aid money than the Congress was willing to spend. He also pushed through Congress an $8.4 billion increase in the U.S. "contribution" to the International Monetary Fund. His budget cuts were actually cuts in projected spending, not absolute cuts in current spending levels. As Reagan put it, "We're not attempting to cut either spending or taxing levels below that which we presently have." The result has been unprecedented government debt. Reagan has tripled the Gross Federal Debt, from $900 billion to $2.7 trillion. Ford and Carter in their combined terms could only double it. It took 31 years to accomplish the first postwar debt tripling, yet Reagan did it in eight. TAXES Before looking at taxation under Reagan, we must note that spending is the better indicator of the size of the government. If government cuts taxes, but not spending, it still gets the money from somewhere--either by borrowing or inflating. Either method robs the productive sector. Although spending is the better indicator, it is not complete, because it ignores other ways in which the government deprives producers of wealth. For instance, it conceals regulation and trade restrictions, which may require little government outlay. If we look at government revenues as a percentage of "national income," we find little change from the Carter days, despite heralded "tax cuts." In 1980, revenues were 25.1% of "national income." In the first quarter of 1988 they were 24.7%. Reagan came into office proposing to cut personal income and business taxes. The Economic Recovery Act was supposed to reduce revenues by $749 billion over five years. But this was quickly reversed with the Tax Equity and Fiscal Responsibility Act of 1982. TEFRA--the largest tax increase in American history--was designed to raise $214.1 billion over five years, and took back many of the business tax savings enacted the year before. It also imposed withholding on interest and dividends, a provision later repealed over the president's objection. But this was just the beginning. In 1982 Reagan supported a five-cent-per-gallon gasoline tax and higher taxes on the trucking industry. Total increase: $5.5 billion a year. In 1983, on the recommendation of his Social Security Commission-- chaired by the man he later made Fed chairman, Alan Greenspan--Reagan called for, and received, Social Security tax increases of $165 billion over seven years. A year later came Reagan's Deficit Reduction Act to raise $50 billion. Even the heralded Tax Reform Act of 1986 is more deception than substance. It shifted $120 billion over five years from visible personal income taxes to hidden business taxes. It lowered the rates, but it also repealed or reduced many deductions. According to the Treasury Department, the 1981 tax cut will have reduced revenues by $1.48 trillion by the end of fiscal 1989. But tax increases since 1982 will equal $1.5 trillion by 1989. The increases include not only the formal legislation mentioned above but also bracket creep (which ended in 1985 when tax indexing took effect--a provision of the 1981 act despite Reagan's objection), $30 billion in various tax changes, and other increases. Taxes by the end of the Reagan era will be as large a chunk of GNP as when he took office, if not larger: 19.4%, by ultra-conservative estimate of the Reagan Office of Management and Budget. The so-called historic average is 18.3%. REGULATION For all the administration's talk about deregulation (for example, from the know-nothing commission which George Bush headed), it has done little. Much of what has been done began under Carter, such as abolition of the Civil Aeronautics Board and deregulation of oil prices. Carter created the momentum and Reagan halted it. In fact, the economic costs of regulation have grown under Reagan. Some deregulation has occurred for banks, intercity buses, ocean shipping, and energy. But nothing good has happened in health, safety, and environmental regulations, which cost Americans billions of dollars, ignore property rights, and are based on the spurious notion of "freedom from risk." But the Reagan administration has supported state seat-belt and federal air-bag requirements. This concern for safety, however, was never extended to the Corporate Average Fuel Economy (CAFE) rules, which, by imposing fuel-efficiency standards, promote the production of small cars. The shift to small cars will cause an estimated 10,000 to 20,000 highway deaths over the next ten years. BUREAUCRACY By now it should not be surprising that the size of the bureaucracy has also grown. Today, there are 230,000 more civilian government workers than in 1980, bringing the total to almost three million. Reagan even promoted the creation of a new federal Department of Veterans' Affairs to join the Departments of Education and Energy, which his administration was supposed to eliminate. TRADE The Reagan administration has been the most protectionist since Herbert Hoover's. The portion of imports under restriction has doubled since 1980. Quotas and so-called voluntary restraints have been imposed on a host of products, from computer chips to automobiles. Ominously, Reagan has adopted the bogus fair-trade/free-trade dichotomy, and he was eager to sign the big trade bill, which tilts the trade laws even further toward protectionism. RESULTSReagan's fans argue that he has changed the terms of public-policy debate, that no one today dares propose big spending programs. I contend that the alleged spending-shyness of politicians is not the result of an ideological sea-change, but rather of their constituents' fiscal fright brought about by $250 billion Reagan budget deficits. If the deficit ever shrinks, the demand for spending will resume. This is the Reagan legacy. He was to be the man who would turn things around. He didn't even try. There has been no sea-change in thinking about the role of government. -------------- Sheldon Richman is editor of The Freeman, published by the Foundation for Economic Education.  _________ Another accurate analysis from David Stockman, Reagan's budget director of OMB, 1981-1985, speaks directly to phony Reaganomic platitudes set forth in Young Guns: The New York Times  FOUR DEFORMATIONS OF THE APOCALYPSE By David Stockman July 31, 2010  If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation's public debt--if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015--will soon reach $18 trillion. That's a Greece-scale 120% of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation's wealthiest taxpayers be spared even a three-percentage-point rate increase. More fundamentally, Mr. McConnell's stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. Republicans used to believe that prosperity depended upon the regular balancing of accounts--in government, international trade, on ledgers of central banks, and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers since Reagan, has amounted to little more than money printing and deficit finance--or Keynesian economic malpractice robed in the ideological vestments of the prosperous classes. This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one. (1) The first started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit--the combined shortfall on our trade in goods, services and income--has reached nearly $8 trillion. That's borrowed prosperity on an epic scale. It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will self-correct. It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely. But that does not absolve Friedman's $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors. In fact, since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain--from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve. (2) The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious Reagan doctrine that deficits don't matter if they result from tax cuts. In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration's hastily prepared fiscal blueprint, however, was no match for the primordial forces--the welfare state and the warfare state--that drive the federal spending machine. Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget--entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans' fiscal religion. Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about 40 percent of the original Reagan tax cuts. But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts. By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too--signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy. (3) The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008. But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities, and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn't been able to obtain virtually free money from the Fed's discount window to cover their bad bets. (4) The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology, and the professions has shrunk by 12%, to 68 million from 77 million. The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels, and nursing homes. It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1% of Americans--paid mainly from the Wall Street casino--received two-thirds of the gain in national income, while the bottom 90 percent--mainly dependent on Main Street's shrinking economy--got only 12%. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy. The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing--as suggested by last week's news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it's a pity that the modern Republican Party offers the American people an irrelevant platform of the myth of Reaganomics when the old approach--balanced budgets, sound money, and financial discipline--is needed more than ever. _________ See also moderately left-of-center writer Joshua Green, Reagan's Liberal Legacy, Washington Monthly, January/February 2003 (http://www.washingtonmonthly.com/features/2003/0301.green.html) and conservative writer Dan Ackman, Presidents and Prosperity, Forbes.com, July 20, 2004 (http://www.forbes.com/2004/07/20/cx_da_0720presidents_print.html). _________ Additional observations on Reagan adapted from Tear Down This Myth, by Will Bunch (Pulitzer Prize-winning journalist), Free Press, 2009:   (i) Reagan was not the most popular president. Reagan's approval rating leaving office was 63%, while Clinton's was 66%. Bush, Jr., reached 90% and Reagan's never exceeded 68%. (ii) Reagan's presidency was rated "Average" among 41 presidents after Great, Near-Great, and High-Average, by Arthur Schlesinger, Jr.; Clinton was ranked Average but scored higher than Reagan; the 2009 (center-right) C-SPAN historical ranking places Reagan at 10th, Clinton at 15th, and ranks Bush 7th from bottom; and Siena College Research Institute (SRI) 2010 Survey of U.S. Presidents ranks Reagan 18th, Clinton 13th, and Bush 5th from the bottom. (iii) The American people did not support many of Reagan's policies. As Reagan left office with 63% approval rating, 62% of Americans reported country was "off on the wrong track." (iv) Reagan was not tough on terrorists. During GOP presidential primaries, Giuliani claimed in 1980 Iranians "looked in Ronald Reagan's eyes, and in two minutes they released the hostages." Facts are Carter's Secretary of State Warren Christopher had already secured hostages release before Reagan took office, but Iranians delayed in last show of defiance. In August 1982, Reagan sent US Marines as peacekeeping force between Christian and Muslim factions in Lebanon's civil war. When Hezbollah blew up Marine barracks killing 229, Reagan "cut and ran." As Reagan's envoy to Middle East, Rumsfeld sold arms/chemicals to Saddam Hussein to gas his own people and war with Iran.Reagan authorized Oliver North to get around Congress prohibiting aid to Contras. North took profits from selling arms to Iran and funneled funds to Contras. Weapons to Iran were directed to Iranians sponsoring Hezbollah terrorists in Lebanon. Terrorists would not release American hostages until arms were delivered.  Reagan maintained he would not trade arms for hostages, but later was forced to admit that was exactly what he did. Iran-Contra scandal brought Reagan's approval rating to low of 40% with 32% believing he should resign. (v) Reagan was not tough on dictators. Reagan refused to do anything about Panamanian dictator and drug lord Noriega. In ridiculous show of force, Reagan authorized invasion of Grenada and bombing of Libya.  Reagan's conservative critics and media labeled him "pussycat" because of his inability to take strong measures against America's real enemies. (vi) Reagan gave amnesty to illegal aliens. 1986 Immigration Reform and Control Act provided amnesty for undocumented aliens already in country. (vii) Reagan's deregulation lowered safety standards, harmed the environment, and led to S&L and other financial scandals. (viii) Reagan raised taxes. Reagan economic advisor Bruce Bartlett states, "The 1982 Tax Equity and Fiscal Responsibility Act [was] the largest peacetime tax increase in American history," and Bartlett goes on to list tax increases for every year from 1982-1987, and Reagan's tax cuts lowered the tax rate for the wealthy from 70% to 28%. (ix) Reagan proved deficits do matter by creating the largest deficit by a president until Bush, Jr., and inherited by Obama. (x) Despite cuts to domestic spending, Reagan increased spending on entitlements and defense, thereby increasing size of federal government. Rather than eliminate the Departments of Education and the EPA as he set out to do, he added Department of Veterans Affairs. (xi) Reagan did not "win" Cold War. Reagan stood at end of economic collapse of failed communist ideology and Gorbachev and Reagan agreed to end war peacefully and diplomatically. (xii) Reagan presidency did not produce unusual economic prosperity; and Reaganomics (and Bush, Jr.) disproved Laffer curve, Hassan law, and supply-side economics. Average growth in GDP over eight years was 3.5%--same average growth in GDP produced by Clinton presidency, while Reagan left deficit of $1.9 trillion and Clinton left surplus of $219 billion. _________  Upon release of the Republican Party's joke "Pledge" that contained nothing new, when asked for specifics, Boehner replied 'we're going to continue doing what we've been doing' -- a double entendre quite scary. Since FY1962 (Kennedy's first budget), history has proved that Democratic policies are better for US economy than Republican policies. Look it up. __________ The Supreme Court's 2010 Citizens United v. FEC decision that allows corporations to use profits to support or oppose candidates and buy political campaign ads (without disclosing information) will ensure the Republicans' ascent to power where they can do anything they want. The Reaganomic-based policies and extrapolations proposed in Young Guns are made to sound like so much common sense, but they deceptively hide the fact they are for the benefit of the wealthy and that they will inflict further, wider-ranging, disastrous effects and financial consequences on the US economy and the middle class.

by Cleatus Pomazal-Smith

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