Sunday, September 25, 2011

The Dark Legacy of Reaganomics

The Dark Legacy of Reaganomics

Exclusive: For half a century – from the depths of the Great Depression until the rise of Ronald Reagan – the U.S. government invested in building the nation and funding key research. And the country flourished. But Reagan then reversed those priorities. The results are in, writes Robert Parry.

By Robert Parry

It may be political heresy to say so, but a strong case could be made that the greatest American “job creator” over the past 80 years has been the federal government – or put differently, the government built the framework that private companies then used to create profits and jobs.

This heretical view also would hold that it was Ronald Reagan’s deviation from this formula for success some 30 years ago that put the United States on its current path of economic decline – by starving the government of resources and providing incentives for the rich, through sharply lower taxes, to get super-greedy.

Rather than continuing a half century of policies that made smart investments in research and development – along with maintaining a well-educated work force and a top-notch transportation infrastructure – Reagan declared “government is the problem” and built a political movement for deconstructing it.

That movement, which boasts powerful right-wing media outlets and well-funded think tanks, now dominates the American political landscape. And, today it presses even harder than Reagan did for dismantling government programs while rejecting the slightest revenue enhancements, like closing tax loopholes for corporate jets or any other tax advantage favoring the rich.

In the future – if the American Right and its Tea Party foot soldiers have their way – the federal government would be reduced to doing little more than paying the Pentagon’s bills and eliminating regulations.

According to the Right’s economic orthodoxy, the rich – or the “job creators” as the Republicans like to call them – would then be freed up to create millions of jobs. That’s their plan, even though the available economic data indicates that the reason for corporations not hiring is a lack of demand because so many Americans are out of work or deeply in debt.

Almost certainly, if the Right’s economic prescription is filled again, there will just be more retrenchment among companies, big and small, and large corporations will continue sitting on the sidelines with trillions of dollars in cash. Economic times will likely get appreciably worse.

The hard truth for the Republicans and the Right to swallow is that a three-decade experiment with historically low tax rates on the rich has done little more than concentrate America’s wealth at the very top and leave everyone else either stagnating or falling backwards.

Yet, what is ironic about this dilemma is that none of it needed to happen. Without doubt, there were painful economic dislocations in the 1970s – caused largely by Middle East oil price hikes and inflationary effects from the Vietnam War – but the United States was on the cusp of what could have been a new golden era.

A half century of wise policies by the federal government – from the depths of the Great Depression through Franklin Roosevelt’s New Deal, Harry Truman’s Fair Deal, Dwight Eisenhower’s Interstate Highway System, John Kennedy’s Space Program, Lyndon Johnson’s civil rights laws, Richard Nixon’s Environmental Protection Agency and Jimmy Carter’s commitment to renewable energy – had created momentum for a resurgent middle class in which average folk could have enjoyed a level of comfort and security unparalleled in human history.

That was the potential payoff from all the achievements and innovations that had been accomplished through investments by the American taxpayers and their government, in collaboration with U.S. industry. Productivity was about to skyrocket.

National Progress

Government-backed projects had extended electricity and communications to all corners of the nation; created a transportation infrastructure that was the envy of the world; spurred development of microprocessors for computers; funded advances in pharmaceuticals, agriculture and science; and opened the door to a new information age with the early development of the Internet.

Despite the tough challenges of the 1970s, the jump in productivity from these technological advancements could have been shared broadly with the American people, who had after all paid for them with their tax dollars.

And even if most productivity gains did go to the top percentiles of wealthy Americans, a robust and progressive tax system could have ensured that the profits were recycled through the country, via the government, in the form of middle-class jobs to upgrade the infrastructure, improve quality of life and keep the nation competitive.

Instead, Reagan and his insurgent right-wing Republicans arrived in Washington in 1980 bearing false promises of how drastically lower tax rates on the rich would produce more revenue. They also claimed that slashed government spending would make almost everyone better off.

Reagan fronted, too, for ideological assaults on unions, de-regulation of banks and corporations, and scrapping plans for solar and other alternative energy sources. Reagan combined these strategies with a massive military build-up even though the chief U.S. rival, the Soviet Union, was in rapid and irreversible decline.

Contrary to Reagan’s assurances, the promised surge in tax revenue never materialized and the deficit swelled to then-record levels. Other negative effects of Reagan’s “trickle-down” strategy were quickly apparent with homeless people wandering the streets and with the decay of once thriving industrial cities.

But other consequences were slower to materialize because the United States had so much wealth that the nation could absorb misguided policies for brief periods.

Thanks to Reagan’s political skills, however, his strategies became deeply entrenched in Official Washington. “Free-market” orthodoxy was in; crank philosophers like Ayn Rand and cruel economic gurus like Milton Friedman were cool. Even middle-class Americans began to worship the “market,” increasingly risking their hard-earned money on Wall Street.

Reagan’s personal appeal helped sell this anti-government philosophy even to many people who were being savaged by the policies. Especially working-class white men were encouraged to blame their declining status on programs that were helping to correct historic discrimination against women and racial minorities.

Even during the eight years of Democratic President Bill Clinton, when there was a counter-surge of government activism, there was still a growing Washington consensus about “the magic of the markets,” further deregulation and continued exporting of American factory jobs. Too many insiders, both Republican and Democrat, were getting rich from the Wall Street gold rush.

Another important turning point came in Election 2000 when American voters narrowly favored Democrat Al Gore but instead – thanks to the intervention of Republican justices on the U.S. Supreme Court – got George W. Bush.

Back came the Reaganesque orthodoxies of tax cuts for the rich, disdain for alternative energy, and even more corporate deregulation, plus – after the 9/11 attacks – another jump in military spending for two unfunded wars. From a budget surplus under Clinton, the United States was back deeply in debt under Bush.

A Legacy of Despair

The Reagan/Bush legacy is now painfully apparent for many Americans. As the nation’s wealth was concentrated in the top few percentiles, the middle class stagnated and shrank – and the ranks of the desperate poor swelled.

A new survey by the Center for Labor Market Studies at Northeastern University found 37 percent of young families with children stuck in a life of poverty last year. That level was even worse than the survey’s previous high of 36 percent in 1993, the end of the first round of Reagan economic policies.

Under President Clinton, the percentage of young families in poverty declined to 25 percent by 2000. But it then started up again with the resurgence of Reaganonomics under President George W. Bush, reaching the 37 percent mark in the wake of the 2008 financial crisis, which led to the worst economic recession since the Great Depression.

The United States also has squandered much of its technological leadership. Solar panels, which Carter proudly placed on the White House roof and which Reagan defiantly ripped down, are now being made in China with U.S. firms hopelessly behind in the competition.

Even some thoughtful billionaires have begun lamenting the mess that Reaganonomics has caused. The likes of investor Warren Buffett and Google’s Eric Schmidt have warned about the dangers from extreme economic inequality and stressed the need for greater consumer demand.

That consumer demand could be brought about by using a progressive tax structure to divert some of the excess wealth from the top – money that was generated from opportunities created by the government’s investments during much of the 20th Century – to put Americans back to work rebuilding the country’s roads, bridges, airports, schools, etc.

The idea would be to recreate, as much as possible, the virtuous cycle that existed from the post-World War II era until Reagan’s presidency. Though it is surely true that some of those conditions can’t be replicated – global competition is much stronger today – the dramatic advances in technology and productivity should be able to support a vibrant middle class.

This course of action is increasingly obvious to policymakers and is reflected modestly in President Barack Obama’s latest comments about the need for higher taxes on the rich and greater investment in jobs for struggling Americans.

However, the national political framework that Reagan left behind – an intense right-wing media, an interlocking network of think tanks shaping Washington’s “group think,” corporate-funded “grassroots” organizations like the Tea Party, and a Republican Party wedded to the most extreme interpretation of Reagan’s anti-government message – makes it almost impossible to change the country’s direction, short of an electoral revolt.

While the Right deserves most of the blame for putting the United States into this mess, the Left, the Democrats and the broad public are not without fault. They have either failed to build counter-institutions that can make the case for a return to the pre-Reagan economic policies that worked – or they have let themselves be easily duped into abandoning their own interests.

Only a revitalized democratic process can change the nation’s dangerous course – and that will require speaking some heresies, like acknowledging the federal government’s central role in creating the prosperity that Americans came to take for granted.

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