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.

[For more on these topics, see Robert Parry’s Secrecy & Privilege and Neck Deep, now available in a two-book set for the discount price of only $19. For details, click here.]

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book,Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & ‘Project Truth’ are also available there.

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25 comments on “The Dark Legacy of Reaganomics

  1. Donald Schulze on said:

    The “Dark Legacy”? It should be called the “Dark Ages”.

  2. For those interested in seeing exactly how wealth and power have shifted to the top over the 30 years since Reagan was inaugurated, take a look at

    http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

  3. Reagan also increased the use of “outsourcing” government and military operations to private companies. This much ignored part of his legacy is worth exploring and adding to the list of “Tales From the Dark Side” of our history: In October 1985, Arrow Air was awarded a contract to fly charter flights for the military. With American outsourcing at work, 248 young American soldiers died in December 1985 when an Arrow Air DC-8 crashed in Canada. The cause: Negligence by Arrow Air in de-icing the plane before take off.
    While I’ve never heard of a military jet crashing after take off due to icing, it still happens in the private sector, where procedures and equipment cost standards are servile to profit mathematics. Outsourcing – it’s not the way to run a country, a military, or a country.

    Thank you again for your important work.

  4. David Rosen on said:

    If you really want deep insight into why we’re in the fix we are today, check out Morris Berman’s new book, “Why America Failed.” It will be available in a month or so, and you can pre-order it at Amazon.

  5. I blame the corporate, conservative media for the lionizing and deification of St. Ronald Raygun, who our most overrated president. Reagan was a failure because Reaganomics was a flawed system of “recovery” for any economy; it only serves to transfer wealth from the most poor to the most rich in a society. Does anybody remember how severe the recession was in 1982? The unemployment rate was also at 9.5% as a result of Reagan’s decision not to create a jobs bill because he insisted on not raising taxes in 1981 as his first order of business after getting shot (he did nothing to decrease the amount of guns in spite of almost getting killed by one). Of course, Reagan also increased the defense budget which did not help our economy either; this served to exacerbate the Cold War with the Soviet Union until it bankrupted them. The greatest Republican president of the 20th century was President Dwight Eisenhower. The greatest Republican president in the history of the United States was Abraham Lincoln. A tenuous case could be made for Reagan being our 4th (fourth!) best Republican president after Teddy Roosevely at #3 on the list. However, the greatest president in the history of the United States, as agreed upon by historians and erudite scholars, was Franklin Roosevelt. B-movie actor Ronald Reagan was our greatest president? My fellow Americans, tear down this myth!
    Paul Haider, Chicago

  6. Rick Vance on said:

    What I wonder is, why isn’t this (the abject failure of “supply side” economics) as glaringly obvious to ALL Americans as it is to us who at least seem to have an I.Q. higher than our shoe sizes? Two thirds (and quite likely more) of our current federal debt can be laid squarely at the feet of the last three Republican presidents (and the Congresses who allowed them to spend like drunken sailors on shore leave). All of the current problems the working class of Americans are now facing can be directly attributed to the anti-government, deregulatory, reverse Robin Hood policies of the Republican party (with the help of a handful of Vichy Democrats). When will the Joe Six Packs and the Hockey Moms (to borrow from that whack job from Wasilla) wake up and realize that electing idiots like Eric Cantor, Paul Ryan, John Boehner and (God forbid) voting for even bigger idiots like Rick (Ponzi Scheme)Perry or Michelle (I Hate History and Science) Bachmann is essentially committing economic suicide? I guess when the religious nuts and the tea baggers (and there ain’t a whole hell of a lot of difference between them) finally get the country they lay awake at night and dream about, we’ll see if they truly enjoy a society of “let him die” social Darwinism where (certain) churches and Corporate Big Brother makes all the rules and rules with an iron hand. Unfortunately for those of us with the aforementioned higher I.Q.’s (or just a boatload more common sense) we’ll get dragged into their warped vision (kicking and screaming the whole way) right beside them.

    • A large part of why these morons get elected is the biased media. The media, owned by millionaires and billionaires with an agenda are not going to report of the failings of trickle down economics or the hypocrisy of the above mentioned characters. The media is a built in campaign machine for these idiots. They also don’t report on the progressive movement because to them we are the enemy. When one hundred thousand people show for a anti war protest do we hear about it in the mainstream newscasts? Of course not. It’s the old tree falling in the forest bit. If the majority doesn’t hear about the progressive movement, does it exist? You can bet however if 30 Tea Partiers held a rally complaining about some bogus issue,the major networks especially FOX, is all over it. Word of mouth may be the starting point to get people off the media teat and turn them onto sources such as this one. The truth is out there, you just have to dig for it these days.

  7. Jym Allyn on said:

    Don’t forget that the problems started when Lyndon Johnson pissed away half of the 58,000 American soldier’s lives and and billions of dollars to enrich his finances and the finances of Brown&Root (owned by Lady Bird Johnson).
    And Nixon had Haldeman and Ehrlichman disembowel the National Science Foundation while he was in office.
    Part of the economic stagnation we face is that we have reached a plateau after benefiting from the increase in productivity from computerization. That increase in productivity due to computers was a major reason for the prosperity under Clinton and had very little to do with government policies or politics but more in Bill Gates spreading the use of a universal data system because it was good for his business.
    (Remember that Ray Kroc got into the hamburger business so that he could sell more milkshake machines.)

  8. Two points:

    1.) There a huge difference between government funding basic research through Universities and handing out money to politically favored companies like Solyndra.

    2.) What does any of this have to do with stealing money from hard working people and handing it over to people who want to sit a watch their belly’s grow on unemployment for 99 weeks? What does any of this have to do with stealing money from struggling families and handing it over to wealthy retirees so they can putter around the gold course in their lime pants without a care a in the world?

    The FACT is that government doesn’t have any money to invest in basic research and infrastructure because it wastes trillions of dollars a year paying off special interests like the Unions, Greedy Geezer Lobby, and politically favored companies like Solyndra and GE (who made $14 billion in profits last year but paid ZERO U.S. federal income taxes).

    • Johnathan Mann on said:

      There is nothing factual about anything you have said, just republican rants. Aparently this article, based on facts, has done nothing for you.

      • What facts? This writer has bought into the same myth that the conservatives have, that government was massively downsized during Reagan’s term. Fact, only the CETA program was eliminated, overall spending went up for every fed department. The deregulation that did occur was mostly the result of Federal Court decisions during the Carter administration (check Justice Ginsburg’s record). Cutting top marginal rates was bad when Reagan did it, what about Kennedy, who introduced the concept? And don’t forget, Clinton’s budget projections included massive deficits. He should kiss New Gingrich’s butt for doing the actual cutting necessary to get the balanced budget. Typical laundry list of “this happened, that happened,” and blaming or crediting the qb in the game at the time.

  9. Finger pointing and blame. Who cares? Sitting behind a computer screen with latte in hand and pointing fingers is nonsense. I say let it all fail. Let’s Balkanize and get on with real living and dying. Can’t stand the heat? Get out of the kitchen. Want to change the world? Get out there and DO it already and quit whining.

  10. Drayton Hamilton on said:

    I’m about half way through a re-read of Winner-Take-All politics by Joseph S. Hacker and Paul Pierson. I recommend it enthusiastically. Their brief is that the decline of the U.S. middle class set in full sway by Ray-Goon (but actually starting in the 1970s)has been the deliberate and conscious work of politicians, rather than impersonal, ineluctable socio-eeconomic forces, such as bad education, the usually accused culprit. The details of their story are too numerous and subtle for summary, but one thing that can be said simply enough is that the political dirty work led by the Repulsing Party, but closely abetted by the Dems has uniformly been aimed at augmenting the wealth of the already ultra-wealthy. One stat, among many cited: in one very recent year, the top 0.01% of income “earners” in the US (according to income tax returns analyzed in a revolutionary kind of economic study pioneered by Thomas Piketty and Emmanuel Saez)took in an average of $35 million. That is, this tiny sliver of the population collectively took in 1 out of every 17 U.S. dollars earned (or “earned”). 0.01% — that’s about 15,000 families. What we now have is an outright plutocracy, or oligarchy, it having replaced democracy in the U.S., with no other rich country even coming close to the American level of economic inequality. As Hacker and Pierson indicate, it will be extremely difficult to dislodge this crushing heavy iron anvil on our backs, but we have no choice.

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  12. WDRussell on said:

    This nation was successful for 200 years under trickle UP economics, then Reagan and his corporate goonsquad changed it. America has been in a decline ever since.

  13. Gregory L Kruse on said:

    My three older brothers display the same blank spots in their thinking that Dick Cheney does. They are proud of how they got jobs with the military, the government, and defense contractors, but they don’t give their unions or the government credit for the great working conditions and high wages they enjoyed and benefit from to this day. And heaven forbid that anyone else should benefit as they have. To them, those other people are on their own to live or die as fate would have them. It is the same blank spot that Mr. Parry’s pointed out in his review of Cheney’s book in which Cheney speaks admiringly of his father who pulled his family out of nearly feudal poverty they were in before the New Deal by taking a good-paying government job. What? Does Dick Cheney think that job was given to his father because Dick somehow deserved to have an opportunity to become rich and powerful? No, it was just good government policy, and we must get back to it.

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  15. My main problem with Perry’s otherwise excellent article is all the rah-rahing for the industrial growth paradigm without mentioning that particular experiment, regardless of some of the minor conveniences it provided, is about to bring life on Earth to an end. While rightly pointing to the sloth, narcissism and greed of the leisure class and uber-rich, we the people bought in to it without question, or at least without the necessary hard questions. We bought the lie that we could have it all, too. I mean, how can there ever be enough available for _everyone_ to have it all?

    We keep allowing ourselves to be distracted by superficialities. The main point of the New Deal was to save capitalism from socialism (the major banks were in danger of never reopening as local currencies were doing an excellent job of meeting needs), and while I give kudos to Nixon for environmental laws what we actually allowed to be created was a regulatory environment that licensed the “right” to pollute and regulated what people could do about it. The national highway system was the beginning of the housing bubble and an economy based on a way of living (suburbia) that has no future–partially because it is destroying the very environment we need for our own health and sanity.

    “Advances” in pharmaceuticals and agriculture are another case in point. If we didn’t have rampant industrial disease the pharmaceutical giants wouldn’t exist, and the main thing the “green” revolution in agriculture did was poison our food (a boon to the pharmaceutical companies, I must admit) and deplete productive topsoil while allowing population to expand well into the overshoot range of planetary carrying capacity. We managed to extend lifespan (for a while, it’s dropping again) while lowering quality of life and convincing people that standard of living was an acceptable substitute.

    And all the while the elites have managed to keep us arguing about who is less evil, the Republicrats or the Democans, scapegoating some minority or another for whatever the problem of the hour is, and have kept the totally unnatural class hierarchy firmly in place while simultaneously keeping us convinced that doing anything about it is class warfare… well, duh!

    This, to me, provides a very strange (to put it mildly) demonstration of progress.

    Of course, there have been some positive advances. Sanitation, nutrition, the ideal of democracy, computers and the Internet. But let’s start being honest about both the positives and negatives, as well as who they actually benefit. Even with computers, the toxic byproducts of their manufacture must be dealt with. Which we could do, if it didn’t impinge on profit–which is another whole rant.

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  17. George Renaud on said:

    Under Reagan I was declared insane. I always thought he was. The military brigs were full to capacity of officers who were also declared insane. May 22, 1982. Reagan honored SS troops in Bitburg, Germany. Made my father cry because some of his friends were executed at Malmady by these SS troops. He couldn’t belive that Reagan would honor these criminals.

    • There is a theory going around that during and after WW II the U.S. military and intelligence community actually admired the Nazi movement especially the SS and have attempted to emulate them over the last few decades. Call me a conspiracy idea starter but I have always been disturbed by the newer helmet design our military (and a few other countries as well)adopted. The troops even call it the “Fritz” because of it’s similarity to the German helmets of WW II. Reagan, in my opinion, opened the floodgates of an even larger military industrial complex than what Eisenhower predicted. Reagan was probably a closet Nazi and it’s not really a surprise that he honored some of the most vile people our species has ever turned out.

  18. Tom Neiman on said:

    This article is nothing more than the rantings of a Marxist who sees the government redistributing wealth as the panacea for all of the country’s economic problems.

    • No, sorry but this is the real history of our country over the last 30 years. Your comment is a statement by a Right Wing troll. Honestly, I have no problem with redistributing wealth from the top down because my wealth has been redistributed upwards for the last 25 years.

  19. I think changing the system is not a realistic proposal. So what do we do? Work within the system and find ways to eventually leave it behind and start something new. Infiltration is the starting point. George Carlin said, “If you can’t beat them join them and then beat them. They’ll never see it coming”. If we can’t break the system altogether, then weaken it to the point when people walk away from it, the system is powerless to really do anything about it. One idea is to actually join your local Democrat or Republican party.

    What do I mean by walking away? Look for alternative ways of obtaining goods and services (legally of course) by taking the time to brainstorm and do research. My brother lived in Arkansas in the 70′s and 80′s. Most of the people in his town were very poor and they bartered. My brother said the system worked very well and his neighbors were very honest in their dealings. If you have a backyard or can get permission from your apartment manager consider growing a vegetable garden or even a community garden. The grocery industry is on par with oil companies as far as profits and the markup is incredible. I thinks its safe to say that other than rent or a house payment, food is the next biggest monthly expense. If you go this route, research how do it properly or it will become a waste of effort and money. Try to buy as often as possible from smaller and or local businesses. You will do your part to weaken the large monopolistic corporations. Don’t give in and buy the latest gadgets and toys. Honestly, look around the house. What percentage of your stuff do you really use? How much is just gathering dust? The large corporations want us to continue buying and buying and buying. We need to break the consumer lifestyle because realistically 95% of Americans really can’t afford to keep it up without using the credit card.

    These are just a few ideas and they are financially based. We also need to look at protecting the environment on an individual and community level because were up against industry that sees lower operating costs when they pollute. Lastly, speaking from experience, signing petitions do work. If you haven’t done this before I suggest you start. There are many online sources that offer petition signing opportunities.