Conservative pundits hold that if the current Federal Government followed the policy set thirty years ago by the then President Ronald Reagan of cutting taxes across the board—income taxes, payroll taxes, corporate taxes, capital gains taxes, death taxes, and every other kind of tax—the invisible hand of capitalism would be free to work its magic, unemployment would drop, productivity would rise, tax revenues would increase, and our feeble economy would regain its legendary strength in short order. But if the solution were that simple and self-evident, why haven’t subsequent administrations followed the Reagan model? Because it’s a myth.
Macroeconomics 101 texts warn students to guard against the post hoc ergo propter hocfallacy, the false assumption that because one event occurred before another event, the first event caused the second event. The notion that the economic prosperity of the 1980’s was triggered by the Reagan’s tax cuts offers a good example. After the cuts went into effect, unemployment did indeed fall, from 7.6% when Reagan took office, to 5.5%, and the GDP grew 32%, from $4.1 trillion to $5.4.
But what really made that possible were the strict Keynesian measures implemented by Federal Reserve Chairman Paul Volker to check the 13% inflation triggered caused by the Vietnam War and the Great Society spending of previous administrations. By raising interest rates and drastically reducing the money supply, by creating, in effect, an inflation-busting recession, at the height of which employment reached 9.7%, Volker brought inflation down to a sound 2.2%, thereby setting the table for Reaganomics.
Another factor that Reagan votaries neglect to mention is that while cutting taxes on the one hand, Reagan disproportionately increased spending on the other. During his eight-year term in office, the national debt grew 18%, at a greater rate than under any president since (though under Barack Obama the debt is on course to break that record.) So the other side of the ledger shows that the economic growth attributed to Reagan’s free-market boosting tax costs was in large measure financed by government deficit spending.
As governor of California, Ronald Reagan was notorious for his propensity to tax and spend. During his eight-year term as governor (1967-1975) the sate budget was balanced, not by cutting taxes and spending, as he had promised, but by promoting the highest tax hike in California history. Not until he was elected President and came under the influence of his supply-side economic advisor, Arthur Laffer, did Ronald Reagan became a true believer in advocating for tax cuts.
Also unfounded is the notion that Reagan won the Cold War. His famous “Mr. Gorbachev, tear down this wall” speech was all theatrics, a performance worthy of the Hollywood actor that he had been before entering politics. Gorbachev had already informed Reagan, months in advance, that he was planning to dismantle the Soviet Union, which had long been deteriorating under its own dead weight. So Reagan did not make history that day. He just happened to be in the right time and place when history was being made, and seized the moment to aggrandize his image.
Nor was Ronald Reagan the God-fearing man that conservative Christians think His occasional church attendance was also an act. (As was the case with Bill Clinton and many other politicians.) And unlike the “buck-stops- here” Harry Truman, the arm-twisting Lyndon Johnson, and the micromanaging Jimmy Carter, President Ronald Reagan tended to relegate the grind of governing to his advisors and staff. Actually, he was more of a figurehead, a ceremonial presence, than a chief executive—which explains why he was able to distance himself from the many scandals that marred his presidency. Though over 130 administration officials were investigated and many convicted for violation of national or international law, Reagan in each case was absolved from blame by swearing under oath that he was unaware of what his underlings were up to. Not for nothing did the news media dubbed him “the Teflon President.”
Egregious among those scandals was the illegal sale of weapons to Iran, an enemy nation, under the pretext of trading arms for American hostages, and the proceeds channeled to guerillas mercenaries, the Contras, fighting to overthrow the Communist regime of Nicaragua. One of the players in the covert deal, Colonel Oliver North declared years later that the Reagan had been duly briefed and given his approval. Another player in the scandal, Robert McFarlane, tried to commit suicide. Had Reagan been a hands-on leader and owned up to his administration’s failings, he would not be the mythical figure that he has become.
During his last year in office, at age 76, Reagan waxed even more aloof, often turning off his hearing aid and dozing off in cabinet meetings, a symptom of his advancing Alzheimer’s disease. But by then it didn’t matter, as the business of governing had been discretely assumed by his wife Nancy and his close advisers.
Ronald Reagan, to be sure, was a likeable, charismatic fellow, a poster figure of the red-blooded American. His upbeat press conferences and speeches were a welcome change from the negative moralizing of his Born Again Christian predecessor. But the notion that he was one of our great presidents, worthy of a place on Mt. Rushmore, is totally groundless.
But even if Ronald Reagan was the great man that his votaries claim, he is ancient history. The world has changed radically since he occupied the White House. In his day, Communist China and Brazil were still underdeveloped nations, the European Union did not exist, and, except for the surging Japanese auto industry, the American economy had no foreign economic competition or entanglements to speak of. Even if Reagan’s supply-side model worked wonders back then, in today’s global economy that model is not just wrong, it’s irrelevant.
The complex problems facing our nation in this new century call for fresh ideas and solutions, not hero worship.