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Reagan Birthday: The Myth

Debtor Nation Status: Under Ronald Reagan, the US went from being the world’s largest creditor nation to the largest debtor nation in just a few years – and we have remained the largest debtor nation ever since. In 1981, Reagan’s first year in office, the US was a net creditor to the tune of $140.9bn. By 1984, that had shrunk to just $3.3bn – and the next year, the US shifted from being a creditor nation to a debtor nation for the first time in almost 70 years. By 1987, the US was a net debtor by $378.3bn – the largest debtor nation in the world. The figure rose to $532.5bn by the end of 1988, when Reagan left office.

De-Industrialisation: While the percentage of industrial jobs in the economy had been declining since the 1950s, with the growth of the service sector, the raw number of industrial jobs continued to increase right up through 1979, just before the 1980/1982 double-dip recession. From that year onward, the number of industrial jobs began declining, with a smattering of years when the number would increase. In addition to the raw number of jobs declining, the number of unionised jobs and the number of jobs with American companies declined even further.

Personal indebtedness: The income stagnation that began under Reagan has had a devastating impact on personal savings. While it fluctuated considerably, the personal savings rate had more than doubled between 1949 and 1982, from 5.0 per cent up to 11.2 per cent. Ironically, one of the main stated purposes of the Kemp-Roth tax cuts, the basis for Reagan’s 1981 tax cut bill, was to boost personal savings. Instead, they plunged precipitously, falling all the way down into negative territory by 2006.

Government Indebtedness: The idea that Reagan was “fiscally conservative” is false. The story of government indebtedness was even more bleak. Before Reagan, debt really wasn’t a problem for America. From World War II to 1981, every president had reduced the debt as a percentage of GDP, except for the divided term of Nixon-Ford, which saw a tiny 0.2 per cent increase.

The debt-to-GDP ratio is much more significant than the debt alone, since the GDP represents the nation’s total capacity to pay off the debt. And from WWII to 1981, the debt-to-GDP ratio fell from almost 120 per cent down to just down to just 32.5 per cent. The sharpest drop came early on, but even during the supposed “big government” heyday of the Kennedy/Johnson years, the ratio fell by over 16 per cent in eight years. Conservatives then might have complained about the debt – and they certainly did – but no one knowledgeable about economics took them seriously, because the debt grew significantly slower than our ability to repay it.

During Reagan’s term, this changed dramatically. The ratio rose by over 20 per cent, and it rose another 13 per cent under his successor, George Bush Sr. It took a Democrat, Bill Clinton, to get the ratio headed down again – by almost 10 per cent during his two terms, before Bush Jr sent it skyrocketing again – by almost 28 per cent. It’s rising fast under Obama as well – but that’s to be expected as a result of the worst recession since the 1930s.

The idea that Ronald Reagan consistently opposed tax increases is false

The idea that Ronald Reagan always opposed tax increases is completely untrue.  He raised taxes dramatically as Governor of California in 1967 – by a whopping 30 per cent. But he also raised them as president – 11 times. Sure, his 1981 tax increase, along with three smaller increases, was much larger than his total tax cuts. But his willingness to raise as well as lower taxes would have made him at least somewhat compatible with President Obama, and totally unacceptable to movement conservatives today, especially Tea Partiers.

Bruce Bartlett was a leading supply-side economist in the 1970s, who helped draft the Kemp-Roth tax bill as a staff economist for Congressman Jack Kemp. He went on to serve in both the Reagan and Bush I administrations. In an April 2010 blog post, listing Reagan’s 11 presidential tax hikes and four tax cuts, Bartlett wrote: “It may come as a surprise to some people that, once upon a time in the not-too-distant past, Republicans actually cared enough about budget deficits that they thought raising taxes was necessary to bring them down. Today, Republicans believe that deficits are nothing more than something to ignore when they are in power and to bludgeon Democrats with when they are out of power.”

Bartlett was obviously overstating his case, given how the debt skyrocketed under Reagan. But things would have clearly been much, much worse if Reagan had never raised taxes. And if Reagan were around today, he would no doubt be denounced as a “socialist” for all the tax increases he signed onto.

The idea that Reagan’s tax cuts spurred job creation is false

As noted in Bartlett’s table of tax cuts and increases, Reagan followed up his 1981 tax cuts with increases in 1982 and 1983. And for good reason: The unemployment rate – already high when Reagan took office – continued to skyrocket after his tax cuts were passed – peaking at 11.2 percent in 1983, when the jobless rate finally started to come down. The exact mixture of cause and effect over such an extended period may be subject to debate. But one thing is certain: Reagan’s 1981 tax cuts did not magically result in job creation in anything like the way that conservatives nowadays mindlessly claim.

The idea that Reagan changed America’s mind about taxes and the role of government is false

Political scientist James Stimson, author of Public Opinion in America: Moods, Cycles, and Swings, has constructed an index of economic liberalism based on hundreds of public opinion questions asked repeatedly over the years. This index reached a low-point in 1980 and rose dramatically for the next seven years, reaching a plateau at levels not seen since Nixon’s first term, as if Reagan’s rhetoric were convincing more and more people of the exactly the opposite of what he was saying.

This rise was reflected, for example, in four questions asked in the General Social Survey, the most-cited data source for social scientists after the US Census. Between 1980 and 1990, the number of people saying the government was spending “too little” nationally increased 27.4 per cent on health care, 32.9 per cent on education, 67.8 per cent on welfare and 46.7 per cent on the environment. The questions all reminded people that increased taxes might be required if more was spent.

What’s more, 20 years after Reagan’s election, in 2000, federal tax receipts as a percent of GDP were up 8.4 per cent over what they had been the year Reagan was elected, indisputable proof that government’s role had ultimately not decreased across that time-span.

The idea that Reagan was a singularly popular president is false

Reagan was quite fortunate in getting re-elected in 1984 when his popularity was particularly high, but that was not true of his record in general. According to Gallup, Reagan’s overall average approval rating was only 52.8 per cent, lower than John F Kennedy (70.1 per cent), Dwight Eisenhower (65 per cent), GHW Bush (60.1 per cent), Bill Clinton (55.1 per cent), and Lyndon Johnson (55.1 percent). It’s only modestly higher than George W Bush (49.4 per cent) and Richard Nixon (49.1 per cent).

Summing Up

Surveying all these lies in a single panorama, it should be clear that neither Reagan’s economic record nor his political one should provide any case at all for embracing conservative economics. Quite the opposite: They clearly point to failure on both counts. What’s more, the only reason his mythology is possible at all is because he significantly backtracked by raising taxes, when doing otherwise would have completely exposed the failure of his principal economic intentions.

Paul Rosenberg is the Senior Editor of Random Lengths news, a bi-weekly alternative community newspaper.

The views expressed in this article are the authors own and do not necessarily reflect Al Jazeeras editorial policy.


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