Exclusive: House Republicans got next to nothing from their extortion strategy of taking the government and the economy hostage, but they are sure to continue obstructing programs that could create jobs and start rebuilding the middle class. What they won’t recognize is the abject failure of Reaganomics, writes Robert Parry.
By Robert Parry
Even as the Republican Right licks its wounds after taking a public-opinion beating over its government shutdown and threatened credit default, the Tea Partiers keep promoting a false narrative on why the U.S. debt has ballooned and why the economy struggles, a storyline that will surely influence the next phase of this American political crisis.
If a large segment of the American public continues to buy into the Tea Party’s fake reality, then it is likely that both the political damage and the economic decline will continue apace, with fewer good-paying jobs, a shrinking middle class and more of the bitter alienation that has fed the Tea Party’s growth in the first place. In other words, the United States will remain in a vicious circle that is also a downward spiral.
President Ronald Reagan, delivering his Inaugural Address on Jan. 20, 1981.
The pattern can only be reversed if American voters come to understand how and why their economic well-being is getting flushed down the drain.
The first point to understand is that the current $16.7 trillion federal debt is about $11 trillion more than it was when George W. Bush took office. Not only did Bush’s tax-cut-and-war-spending policies send the debt soaring over the next dozen years but it was those policies that eliminated the federal surpluses of Bill Clinton’s final years and reversed a downward trend in the debt that had “threatened” to eliminate the debt entirely over the ensuing decade.
Amazingly, President Clinton left office in January 2001 with the federal budget in the black by $236 billion and with a projected 10-year budget surplus of $5.6 trillion. The budgetary trend lines were such that Federal Reserve Chairman Alan Greenspan began to fret about the challenges the Fed might face in influencing interest rates if the entire U.S. government debt were paid off, thus leaving no debt obligations to sell.
Thus, Greenspan, an Ayn Rand acolyte who was first appointed by Ronald Reagan, threw his considerable prestige behind George W. Bush’s plan for massive tax cuts that would primarily benefit the wealthy. In that way, Bush and the Republicans “solved” the “problem” of completely paying off the federal debt.
When Bush left office in January 2009 amid a meltdown of an under-regulated Wall Street there was no more talk about a debt-free government. Indeed, the debt had soared to $10.6 trillion and was trending rapidly higher as the government scrambled to avert a financial catastrophe that could have brought on another Great Depression.
Reaganomics’ Failure
But this debt crisis did not originate with George W. Bush. It can be traced back primarily to President Reagan, who arrived in the White House in 1981 with fanciful notions about restoring America’s economic vitality through massive tax cuts for the wealthy, a strategy called “supply-side” by its admirers and “trickle-down” by its critics.
Reagan’s tax cuts brought a rapid ballooning of the federal debt, which was $934 billion in January 1981 when Reagan took office. When he departed in January 1989, the debt had jumped to $2.7 trillion, a three-fold increase. And the consequences of Reagan’s reckless tax-cutting continued to build under his successor, George H.W. Bush, who left office in January 1993 with a national debt of $4.2 trillion, more than a four-fold increase since the arrival of Republican-dominated governance in 1981.
During 1993, Clinton’s first year in office, the new Democratic administration pushed through tax increases, partially reversing the massive tax cuts implemented under Reagan. Finally, the debt problem began to stabilize, with the total debt at $5.7 trillion and heading downward, when Clinton left office in January 2001.
Indeed, at the time of Clinton’s departure, the projected ten-year surplus of $5.6 trillion meant that virtually the entire federal debt would be retired. That was what Fed Chairman Greenspan found worrisome enough to support George W. Bush’s new round of tax cuts aimed primarily at the wealthy, another dose of Reagan’s “supply-side.”
The consequences especially when combined with Bush’s decision to rush into two major wars without paying for them proved disastrous. The federal debt resumed its upward climb. By August 2008, just before the Wall Street crash, the debt was over $9.6 trillion, nearly a $4 trillion jump since Bush took office.
And, after the Wall Street collapse in September 2008, the federal government had little choice but to increase its borrowing even more to avert a global economic catastrophe potentially worse than the Great Depression. By January 2009, just five months later, the debt was $10.6 trillion, a $1 trillion increase and counting.
Many of the Republican leaders who stomped their feet during the recent budget showdown, including House Speaker John Boehner, R-Ohio, were among those who favored the Bush tax cuts, the costly invasion of Iraq and bank deregulation. In other words, they were denouncing President Obama for a debt crisis that they helped create.
But the record of reckless Republican budget policies from Reagan through Bush-43 was not only destructive to the fiscal health of the government. The “supply-side,” “free-trade” and deregulatory strategies including some facilitated by the Clinton administration proved devastating to the nation’s ability to create good-paying jobs and to sustain the Great American Middle Class.
Zero Job Growth
During the decade of George W. Bush’s presidency, the United States experienced zero job growth. And zero is actually worse than it sounds since none of the preceding six decades registered job growth of less than 20 percent.
By comparison, the 1970s, which are often bemoaned as a time of economic stagflation and political malaise, registered a 27 percent increase in jobs. Yet, in part because of that relatively slow rise in jobs down from 31 percent in the 1960s American voters turned to Ronald Reagan and his radical economic theories of tax cuts, global “free markets” and deregulation.
Reagan sold Americans on his core vision: “Government is not the solution to our problem; government is the problem.” Through his personal magnetism, Reagan then turned taxes into a third rail of American politics. He convinced many voters that the government’s only important roles were funding the military and cutting taxes.
Yet, instead of guiding the country into a bright new day of economic vitality, Reagan’s approach accelerated a de-industrialization of the United States and a slump in the growth of American jobs, down to 20 percent during the 1980s. The percentage job increase for the 1990s stayed at 20 percent, although job growth did pick up later in the decade under President Clinton, who raised taxes and moderated some of Reagan’s approaches while still pushing “free trade” agreements and deregulation.
Yet, hard-line Reaganomics returned with a vengeance under George W. Bush more tax cuts, more faith in “free trade,” more deregulation and the Great American Job Engine finally started grinding to a halt. Zero percent increase. The Great American Middle Class was on life-support.
Ignoring Reality
Despite these painful statistics of the past three decades, Reaganomics has remained a powerful force in American political life. Anyone tuning in CNBC or picking up the Wall Street Journal would think that these economic policies had enjoyed unqualified success for everyone, rather than being a dismal failure for all but the richest Americans. The facts were especially stark for the 2000s, the so-called “Aughts” or perhaps more accurately the “Naughts.”
“For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households,” wrote the Washington Post’s Neil Irwin in a Jan. 2, 2010, review of comparative economic data. “But since 2000, the story is starkly different.”
As the Post article and its accompanying graphs showed, the last decade’s sad story wasn’t just limited to the abysmal job numbers. U.S. economic output slowed to its worst pace since the 1930s, rising only 17.8 percent in the 2000s, less than half the 38.1 percent increase in the despised 1970s. Household net worth declined 4 percent in the last decade, compared to a 28 percent rise in the 1970s. (All figures were adjusted for inflation.)
Despite this record of economic failure from Bush’s reprise of Reaganomics trillions more in government debt but no net increase in jobs or household wealth in the last decade many Americans appear to have learned no lessons from either the Bush-43 presidency or Reagan’s destructive legacy. Any thought of raising taxes or investing in a stronger domestic infrastructure remains anathema to significant segments of the population still enthralled by the Tea Party.
Indeed, across the mainstream U.S. news media, it is hard to find any serious or sustained criticism of the Reagan/Bush economic theories. More generally, there is headshaking about the size of the debt and talk about the need to slash “entitlement” programs like Social Security and Medicare. Instead of paying heed to the real lessons of the past three decades, many Americans are trapped in the Reagan/Tea Party narrative and thus repeating the same mistakes.
‘Voodoo Economics’
The U.S. political/media process seems resistant to the one of most obvious lessons of the past three decades: Simply put, Reaganomics didn’t work. As George H.W. Bush once commented when he was running against Reagan in the 1980 primaries it is “voodoo economics.”
Yet, the fact that the United States has embraced “voodoo economics” for much of the past three-plus decades and refuses to recognize the statistical evidence of Reaganomics’ abject failure suggests that the larger lesson of this era is that the U.S. political process is dysfunctional, a point driven home by the recent Tea Party-led government shutdown and threatened debt default.
In the decades that followed Reagan’s 1980 election, the Right has invested ever more heavily in media outlets, think tanks and attack groups that, collectively, changed the American political landscape. Because of Reagan’s sweeping tax cuts favoring the rich, right-wing billionaires, like the Koch Brothers and Richard Mellon Scaife, also had much more money to reinvest in the political/media process, including funding the faux-populist Tea Party.
That advantage was further exaggerated by the Left’s parallel failure to invest in its own media at anything close to the Right’s tens of billions of dollars. Thus, the Right’s outreach to average Americans has won over millions of middle-class voters to the Republican banner, even as the GOP enacted policies that devastated the middle class and concentrated the nation’s wealth at the top.
So, even as American workers struggled in the face of globalization and suffered under GOP hostility toward unions, the Right convinced many middle-class whites, in particular, that their real enemy was “big guv-mint.”
Though Obama won the presidency in 2008, the Republicans didn’t change their long-running strategy of using their media assets to portray the Democrats as un-American. The Right waged a relentless assault on Obama’s legitimacy (spreading rumors that he was born in Kenya, he was a secret socialist, he was a Muslim, etc.) while a solid wall of Republican opposition greeted his plans for addressing the national economic crisis that he inherited.
The Rise of the Tea Party
Like previous Democrats, Obama initially responded by offering olive branches across the aisle, but again and again, they were slapped down. In mid-2009, Obama wasted valuable time trying to woo supposed Republican “moderates” like Sen. Olympia Snowe of Maine to support health-care reform. Meanwhile, Republicans filibustered endlessly in the Senate and whipped their right-wing “base” into angrier and angrier mobs.
Initially, the GOP strategy proved successful, as Republicans pummeled Democrats for increasing the debt with a $787 billion stimulus package to stanch the economic bleeding. The continued loss of jobs enabled the Republicans to paint the stimulus as a “failure.” There was also Obama’s confusing health-care law that pleased neither the Right nor the Left.
The foul mood of the nation translated into an angry Tea Party movement and Republican victories in the House and in many statehouses around the country. Gradually, however, a stabilized financial structure and a slow-healing economy began to generate jobs, albeit often with lower pay.
Obama could boast about sufficient progress to justify his reelection in 2012, with most voters also favoring Democrats for the Senate and the House. However, aggressive Republican gerrymandering of congressional districts helped the GOP retain a slim majority in the House despite losing the popular vote by around 1½ million ballots.
But the just-finished budget/debt showdown has shown that the Tea Party’s fight over America’s political/economic future is far from over. Through its ideological media and think tanks, the Right continues to hammer home the Reagan-esque theory that “government is the problem.”
Meanwhile, the Left still lacks comparable media resources to remind U.S. voters that it was the federal government that essentially created the Great American Middle Class from the New Deal policies of the 1930s through other reforms of the 1940s, 1950s and 1960s, from Social Security to Wall Street regulation to labor rights to the GI Bill to the Interstate Highway System to the space program’s technological advances to Medicare and Medicaid to the minimum wage to civil rights.
Many Americans don’t like to admit it — they prefer to think of their families as reaching the middle class without government help — but the reality is that the Great American Middle Class was a phenomenon made possible by the intervention of the federal government beginning with Franklin Roosevelt and continuing into the 1970s. [For one telling example of this reality — the Cheney family, which was lifted out of poverty by FDR’s policies — see Consortiumnews.com’s “Dick Cheney: Son of the New Deal.”]
Further, in the face of corporate globalization and business technology, two other forces making the middle-class work force increasingly obsolete, the only hope for a revival of the Great American Middle Class is for the government to increase taxes on the rich, the ones who have gained the most from cheap foreign labor and advances in computer technology, in order to fund projects to build and strengthen the nation, from infrastructure to education to research and development to care for the sick and elderly to environmental protections.
In other words, the only strategy that makes sense for the average American is to reject the theories of Ronald Reagan and the Right. Rather than seeing the government as “the problem” and higher taxes on the rich as “bad,” the American people must come to understand that, to a great extent, government has to be a big part of the solution.
Investigative reporter Robert Parry broke many of the Iran-Contra stories for The Associated Press and Newsweek in the 1980s. You can buy his new book, America’s Stolen Narrative, either in print here or as an e-book (from Amazon and barnesandnoble.com). For a limited time, you also can order Robert Parry’s trilogy on the Bush Family and its connections to various right-wing operatives for only $34. The trilogy includes America’s Stolen Narrative. For details on this offer, click here.
Reaganomics ruined the California school system, once the best in the world. The richest send their kids to private school or live in rich communities that have special deals to fund their own public education. This is part of the rich/poor accelerating divide.
Great article. I wrote up something similar after much research that is a bit more thorough at the end of the last election which I called “Economy in Decline”. Check it out:
http://progressivethoughtsblog.wordpress.com/2012/10/20/economy-in-decline/
https://www.facebook.com/PeopleForProgress
I always find it amazing that seemingly intelligent people are so moronically stupid that they actually belive a flim-flam article like this. Idiots. That’s why we have an Idiot-In-Chief who has doubled the deficit under his watch, but hye’s not to blame. Meanwhile, Congress is the entity that actually creates budgets and spends money and they are either egged on by the policies of the White House or have been begrudgingly accepted. RR was in the latter category (review his speeched online) while Obama is in the former category. Morons following a partisan moron author who cherry picks and distorts a part of history to make folls look like leaders.
Actually the problem that we’ve had since the 80’s is that we are essentially following the same Reaganomics all these years. We are still living in this experiment despite who has been President whether Democrat or Republican, none have reversed the policies of de-regulation of wall street, banks, credit in general, low taxes and also free trade that ran rampant (doing away with tariffs and no VAT system like every other major country which has contributed to our over 5 trillion dollar trade deficit the last two decades)
Also it was Reagan’s budget and the guys that put it together are actually against these same policies today. Both Bruce Bartlett and David Stockman who were architects of supply-side have said that we have to raise taxes now because no matter how much we cut we will not balance a budget without doing so.
Didn’t President Clinton balance the budget, in large measure, by a) disproportionately cutting defense spending? And wasn’t the oft described peace dividend which came about, if memory serves, as A RESULT of Reagan’s aggressive (i.e. expensive) policy with the USSR. Just a bit of context to note. Also, didn’t Clinton twice veto a Reaganesque WELFARE reform law which limited spending in years and dollars? Again, a bit of context just to note. And while it’s true GW Bush spent like a sailor on shore leave, didn’t our current President spend even more and add even more to the debt? Again, just some context to note. Finally didn’t the Reagan “ballooning deficits” as you call them, come about more because spending was not limited as promised? In fact didn’t tax revenues drop initially but then rise to amounts greater than in prior years in which there were higher marginal rates? Again, just a bit of context to help.
Very correct, Mr. Parry. Reagan was one of the worst presidential hucksters we’ve seen in our lifetime, foisting off his (or was it his father-in-law’s?) extreme conservative agenda on the US public as a solution to some moderate economic problems. While he and his ilk ‘solved’ the high-interest rate problems of the 70’s, they did it by driving the economy down (initiating the export of US jobs and destruction of unions), tripling the national debt during his stint in office. So, many middle-class people didn’t have to pay high interest rates but they didn’t have a decent paying job to support the high-ticket items requiring interest payments. His policies were a big step backward toward a rerun of the Gilded Age. Unfortunately, a lot of lightly-informed voters bought into his ideas and successive presidents have had to contend with that, or even go along with it to gain a second term (ie; Clinton, Obama), much to their discredit.
Mr. Parry, it is George Bush’s fault. Are you not tuned in to Mr. Obama’s mantra – everything is Bush’s fault. Come on, get up to date.
Yes, Reaganomics was a failure and is the root cause of most of the economic problems we face today. But while Parry alludes to the complicity of the Democrats in creating this mess he is far, far too easy on the neoliberal Reagan admirers Clinton and Obama and fails to mention that the beginnings of widespread deregulation and abandonment of the full-employment strategy began with the Carter presidency.
The failure of the Democratic Party to offer a meaningful alternative to Reaganomics and their embrace of the broad economic agenda (globalization, “free” trade agreements, free license to the casino economy of the FIRE sector, abandonment of manufacturing) characteristic of Reagan and his acolytes is what the real problem is. The Democratic Party became so obsessed with losing elections (due to their political ineptness) that instead of fighting for their own agenda they decided to co-opt the Reagan/Bush agenda much in the same way Obama has co-opted the Bush/Cheney global war on terror and pervasive national security state thus normalizing the right-wing agenda as a bipartisan consensus.
Its no surprise that Obama’s signature achievement is a right-wing, corporatist health insurance plan devised by the Heritage Foundation, originally championed by Bob Dole and originally implemented by Mitt Romney.
Sure, the right wing has a big advantage in funding and media but since the Democrats are deliberately throwing the game what does it really matter?
Tax cuts don’t cause deficits. SPENDING causes deficits. A lot of the problems today are from Clinton; GATT, NAFTA and the housing bubble. Household debt increased 3X during the Clinton years. Unfortunately, the last true conservative president was JFK.
Both tax cuts and spending on foolish ventures cause deficits and ballooning debt. By the way, Clinton’s tax on the hike rich helped drive down the deficit. Clinton was and Obama is at their worst when they act as right wing presidents.
Complete bull! Research the Kondratiev wave and the reality is self evident.
I have no problem citing Democrats for their contributions to the current mess. Johnson lied us into VN. Clinton listened to Republicans Rubin, Greenspan, and Summers to repeal Glass-Steagall, and NAFTA, but much of what has been mentioned in Parry’s article and my post is on the Republicans can hardly be laid on Clinton. The symbol of Republican middle and lower class voters now should be the ostrich—neither the elephant, nor the ‘don’t tread on me’ rattlesnake. The symbol for the rich should be the collective mau of 1000 baleen whales—for money, not plankton.
Another excellent article that accurately summarizes the state of our country from the days of RR. The fundamental question is, “When is enough enough?” How much money, wealth, power do the 1% need before they feel good about themselves? This rampant desire for “mo money” reminds me of a crack addict – if you give the a rock, they smoke it; give them two, they’ll smoke both. Seriously, there is something wrong with this picture, something wrong in the soul of folks who think it is OK to jack up their neighbor to gain a few more basis points on their investments.
One problem with an argument like this is that a large portion of the revenues the Chilton administration was bring in was from all the out of control spending and lending that was going on during the 90s. Doesn’t matter who assumed office after Clinton, that fact would eventually lead to the deficit growing.
“Trickle-down” economics always conjures in my mind that acrid stench of naphthaline and ammonia produced by deodorant cakes in the urinals of bus terminals. It’s the smell of poverty, familiar to anyone who’s been there. I might be preaching to the choir, but I don’t think Americans understand how all this works. Some of you at Consortium News probably should write a “Dick and Jane” version, so everybody understands.
Why would Alan Greenspan be worried that the “National Debt” could get paid off? The answer to that question is the last thing they want Americans to understand. Apparently, thousands of Ph.D. economists don’t understand either, because I can only think of two or three who have mentioned it it the last twenty years.
Basically, interest on the “National Debt” insures a steady welfare check to the rich. Like mob bosses, “they gotta get their cut”. The Federal Reserve acts as a loan shark, and the interest payments go to millionaires. Politicians (bookies) work to drive up the debt (bets) so the payoffs get bigger, and millionaires happily pay “protection” money in the form of campaign contributions. Anywhere else, that’s called bribery. The politicians shake down the taxpayers so the government can pay off, but the “protection” money keeps the millionaires from getting tax hikes. This worked fine until they got so greedy the government couldn’t “make book”. The only way they could keep the scam going was to print money. In the real world, that’s called counterfeiting. As too much phony money started threatening the millionaires’ bottom line, they sent in Tea-Party “enforcers”. They want the government to rob the people’s piggy bank – Social Security – to maintain this protection racket. But if the national debt gets paid off, the mob bosses no longer get their “cut”.
So far, not one single measure has been passed in Congress that will improve this situation. The jobs moved off-shore will not come back. Tax revenue continues to diminish as low-wage jobs replace those lost. The rich continue to exploit tax loopholes and move their assets out of the country. More and more Americans will come to recognize that aroma: “Eau de Greyhound”. That’s not the worst thing the impoverishment of America has in store for us. There are things that smell a lot worse. The mob boss “job creators” have the solution. But it’s not trickle-down, it’s “lock-down” in one of those “for profit” prisons. They’re gonna make sure some patsy takes the rap, because they’re “too big to jail”.
I had no idea. Thanks, F. G.
For a broad view of what happened under Reagan’s presidency, I highly recommend John W. Dean’s excellent book, “Broken Government.” Dean’s personal testimony of the destructive effects that took place under the Gipper bear out the observations in Parry’s article and the insightful comments already posted here by others. Americans have been victimized for a long time under an ideology from the right that is nonsensical and hurt the people who (and whose parents) built this country. Sad but true.
I forgot unemployment compensation, and there is a bunch I cannot think of.
To Reagan’s credit he finally did realize his tax cuts were contributing to the rising debt (which Carter warned would happen). But Reagan could not raise the withholding tax rate or lose face. So, under the guise of ‘saving Social Security’ he got together with JJJ Pickle from TX and raised, substantially, the FICA tax rate in 1983. That came out of the pockets of the working poor and middle class, of course, so it was OK. Too many in the middle class were so enamored with Reagan they took the masochistic stance: hit me again. Then Reagan raided the FICA fund and in essence turned it into the general fund, which is why the SS trust funds are out of money. Obama has the bully pulpit. He ought to make public all that is in this piece by Parry.
Let’s see CN readers, help me out. We have lost 3-4 trillion based on Bush II tax cuts alone. I have no figure on how much we have lost since Reagan. We have wasted at least 4 trillion on the Iraq wars. Another trillion on the feckless war on drugs. I do not have any idea how much the Republicans cost us with the unfunded Medicare fiasco. Then we bailed out the banks to the tune of how much? Nearly a billion in stimulus that we would not have done had the bank robbers (presidents) not gambled with investor money. Add to this the loss of taxes gained from thousands thrown out of jobs. And as Parry points out the taxes from the higher paying jobs that are not being replaced because workers are returning to lower paying jobs. We are getting close to wiping out the debt and that does not even count the 20-30 trillion in the Caymans.
Me again. Sorry. “He ought to make public all that is in this piece by Parry.” That should be, “He ought to make public AWARE OF all that is in this piece by Parry.
Make public? You seriously think the “public” cares about truth?, “unemotional” and “dispassionate” truth?. The average American is too stupid and emotional to be influenced by articles like this.
I second your motion.
Another great article, Mr. Parry. Thank you! Two things that keep getting left out even in this superb media channel:
1. As a rule, the super rich are not “creating” the wealth they give themselves credit with, in boisterous Randian style. They pretty much just take it through legal artifice of purported property and IP rights from the workers that create it–no one alone can create and amass the stratospheric wealth the super-rich have artfully staked for themselves.
2. It is even more rare to see addressed the true nature of us humans, which is developmental. And as can be seen, we are developing in ever more toxic environments, with the expected result that later generations becoming are more infantalized, radicalized, bullish and prone to violence and obstruction if they don’t get their way.
Leon, most of today’s 1% wealth was earned the old fashioned way – they either stole it or inherited it.
HEY HAY TAKE IT AWAY.WE BETTER LEARN AND TAKE IT BACK ON THE DOUBLE.