When the Losers Write the History

At the heart of this poisonous fog of misinformation is the attack on the very legitimacy of Reaganomics itself. The attack comes from two angles.

The first asserts that the economic ideas espoused by Ronald Reagan came from somewhat disreputable sources, implying that if the messengers are not expert the message must be wrong. Tales about that Reagan listened to (besides himself) only a handful of non-economists — in particular Jude Wanniski and George Gilder. The truth of the matter is that, first, Wanniski and Gilder have said many sensible things about economics, and second, they were not Reagan's economic advisors.

To begin with, Reagan himself was a pretty good economist. He majored in economics in college and studied economic policy for many years, including his eight years as governor of California. But the driving force behind Reagan's economic policy was the large group of economic experts he assembled in 1980. During the presidential campaign there were 461 distinguished policy experts who advised him on everything from welfare reform to nuclear-weapons policy. Of these, 74 were economic-policy advisors, organized into six different task forces, on: 1) the budget, 2) inflation, 3) international monetary policy, 4) regulatory reform, 5) spending control, and 6) tax policy. The most influential of these advisors were on the campaign's Economic Policy Coordinating Committee. Chaired by George P. Shultz, it included Arthur F. Burns, Milton Friedman, Alan Greenspan, Michael T. Halbouty, Jack Kemp, James T. Lynn, Paul McCracken, William E. Simon, Charles E. Walker, Murray L. Weidenbaum, Casper Weinberger, and Walter B. Wriston.

It was this group of experts who crossed every t and dotted every i of Ronald Reagan's economic policy. Reaganomics sprang from the heart of the traditional Republican establishment of policy economists, but you would never know it from reading the academic studies and most of the media coverage. As a consequence, much of the legitimacy of Reagan's economic policy has been wiped from the public record.

The second angle is to misrepresent (and perhaps in a few cases lie about) the substance of that policy. Two falsehoods are particularly egregious. The first is that Reagan claimed that one could substantially reduce tax rates, sharply increase government spending, and balance the federal budget simultaneously. The second, a corollary of the first, is that one could magically increase federal revenues instantaneously by reducing tax rates. The conclusion was rather simple: given the transparent nuttiness of such claims, the economic policy itself must be wrong.

As for the first falsehood, let us go back and look at the record. Yes, Reagan did in September 1980 call for substantially reducing tax rates, sharply increasing defense spending, and moving toward a balanced budget in 1983. And it was an eminently reasonable thing to do, for at the time virtually every economic forecaster in America (including in the Congressional Budget Office) was projecting large, increasing federal surpluses for the next five years. In September 1980 the consensus economic forecasts showed a federal budget deficit of $23 billion for 1981, a surplus of $2 billion in 1982, and surpluses of $50 billion in 1983, $106 billion in 1984, and a whopping $182 billion in 1985.

I know all this sounds unbelievable in today's context of annual deficits in the neighborhood of $400 billion, but that's the way it was in the fall of 1980. The Democratic economists (and many of the Republican ones, for some unfathomable reason) have forgotten this historical fact. Given the huge, mounting surpluses forecast in 1980, there were essentially two choices: 1) spend more of the people's tax money to eliminate the surplus or 2) reduce tax rates and return the money to its rightful owners, the American people. In 1980 Ronald Reagan chose the latter course.

When Reagan was campaigning for the Presidency, the cumulative budget surplus over the next five years was projected at $317 billion. The savings he proposed by controlling the growth of federal spending added $195 billion, and the economic growth that was expected to result from tax-rate reduction added another $92 billion. The grand total was $604 billion.

Reagan proposed to put fully 88 per cent of that surplus tax money back into the pockets of the American people by reducing tax rates. The remainder would probably have been used to pay off some of the federal debt. The Democrats saw it differently. They saw a windfall of $317 billion and were quietly licking their fiscal chops as they thought about spending it on domestic experiments.

Not a single extra penny was promised by Reagan in the fall of 1980 for increased defense spending. The Democrats, trying to put on a strong military face for the election, had already built increases into the future defense budget - from $134 billion in 1980 to a healthy $270 billion by 1985 - that were more than sufficient.

But not everything turned out as planned. By early 1981 the economic indicators had begun to turn down, surprising the economic forecasters, all of whom had missed the kind of damage that recent Democratic economic policies had done. Then the economy went into the tank — a severe recession that could have turned into a bona-fide depression. The tax-rate reductions that Reagan pursued as President became not a luxury made possibly by a surplus, but a necessity to fight off the deepening recession. The major cause of the rapidly growing deficits was the recession, not the tax cuts or increases in defense spending. At the time, there were few economists — not even the reliable left-liberal variety — who opposed the tax-rate reductions.

Finally, there is the myth that Reagan and his top advisors believed it was possible to increase tax revenues instantaneously by cutting tax rates. It is a damaging myth because it suggests that those in charge of economic policy in the early 1980s had a rather tenuous grip on reality.

In fact, in every economic speech and policy paper issued both during the 1980 campaign and during the entire eight years that Reagan was President, any proposed tax-rate reduction always showed immediate and substantial tax-revenue losses. On the other hand — and this is the point most people seemed to miss — total tax revenues were expected to continue to climb, but not as much as they would have if the tax rates had not been cut. The critical phrase here is "not as much as they would have." Some people seem to have become confused by statements to the effect that tax revenues would continue to rise even after the tax-rate reductions. Which, of course, is exactly what did happen. During the Reagan years, in spite of the large 1981 tax-rate reductions, federal tax revenues nearly doubled. The reason why Reagan was able to reduce tax rates and still see revenues rise was that the tax rates were way too high in the first place. And the fact that revenues doubled under Reagan suggests we did not cut tax rates nearly enough in the 1980s.

It should be noted here that the nasty current deficit problem is due entirely to the ingenuity of the federal bureaucracy, the avarice of Congress, and the recent ineptitude of OMB in controlling the growth of federal spending, spending which has managed to outrace the largest increase in federal revenue in U.S. history.

EDITOR'S NOTE: The August 31, 1992, issue of National Review, set out to set the record straight about the Reagan administration's economic record. We reprint the content of the issue here.

Listen to what some of the most influential voices in America had to say:

"For ten years Ronald Reagan taught us there was a free lunch. Folks, he said, we're going to cut your taxes and we're going to spend like there's no tomorrow and you don't have to pay for it." -Sam Donaldson on This Week with David Brinkley, October 7, 1990

"Reagan as Commander-in-Chief, was the military's best friend. He gave the Pentagon almost everything it wanted. That spending, combined with a broad tax cut, contributed to a trillion-dollar deficit . . . Social programs? They suffered under Reagan." -Tom Brokaw, NBC News Special, The Eighties, December 27, 1990

"Bush was saddled with a lot of the supply-side voodooism of the Reagan ear . . . Reagan was not the President of morning in America: he was the President of the free lunch." -Robert Healy, retired Boston Globe Washington Bureau Chief, October 11, 1990

"It is really Ronald Reagan's fault: His steady emasculation of federal domestic programs forced the states to increase spending on essential services although they had no accompanying source of increased revenue." -Marianne Means, national columnist, April 29, 1991

" . . . the evil excesses of the Reagan years." -Nancy Gibbs, associate editor, Time magazine, December 31, 1990

At first glance we could dismiss this as a natural consequence of a press corps dominated by left-liberals. I think the problem lies much deeper. After all, the men and women who write these falsehoods, the professional intellectuals of our land, are - by and large - honorable. The problem is that most of them seem to believe that what they say is true.

But why? I think the prime reason so many in the media persist in retelling the Reagan myths is that our academic intellectuals, those who profess to tell us the comprehensive truth free and clear of political prejudices, have lost their integrity. And when professors from Princeton and Harvard and MIT distort the Reagan economic record, it is not surprising that many in the media get it wrong.

Only part of the story. Reagan signed the pork bloated bills the democrat controlled senate and house served up to him, attached to budgets that he had to sign or shut down the government.

Congress had to be bought off with pork in order to get the military spending through. The dems were even more anti-military then (with a very few notable exceptions) than they are now and they kicked up a huge fuss about the build up.

What's sad is that the thinking at the time doubtless was that if the Republicans had control, the government would be put on a no-pork or even a low-pork diet. The past four years has disproved that, with no objection from the current President.

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