The North Coast times-eagle., August 01, 2001, Page 12, Image 12

PAGE 12
THE REAGAN REVOLUTION
1980-1988
BY DAVID A. HOROWITZ
RANDY JONES
Ronald Reagan introduced the most dramatic changes
to the management of the United States government since the
New Deal of Franklin Delano Roosevelt Sensing frustration
with economic stagnation at home and declining world influence,
Reagan sought to mobilize the American people for a new
beginning His two-term Presidency succeeded in winning
the support of a new coalition of conservatives and aspiring
entrepreneurs and professionals by implementing an ambitious
program of government deregulation, lower taxes, reduced
social welfare and increased military spending. Yet Reagan-
onomics failed to compensate for structural weaknesses in the
American economy As trade imbalances and budget deficits
mounted in the 1980s, Congressional Democrats played an
increasingly large role in moderating the popular President's
policies. By 1988 the Reagan program had come under careful
scrutiny and intense debate.
In 1980 President Jimmy Carter used the powers of
incumbency to turn back a challenge from Senator Edward M.
Kennedy who represented traditional Democratic constituencies
associated with labor, civil rights and social reform. But the
President faced a more effective opponent when Ronald
Reagan defeated George Bush (Sr.) in the Republican pnmaries
and won the nomination for the top slot on the GOP ticket. A
minor star in 1940s film dramas and comedies, Reagan had
forged anticommunist credentials as president of the Screen
Actors Guild during the Hollywaod Red Scare. His movie career
declining by the early 1950s, the actor hosted a weekly tele­
vision Western series and then became national spokesman
for General Electric. Moving into politics, Reagan espoused
fiscal conservatism and "traditional values." In 1966 he won
the governorship of California, where he attracted attention as
a militant opponent of student activism and a proponent of the
Vietnam War By 1980 Reagan had become the nation's leading
conservative voice, questioning detente with the Soviet Union
(which had been initiated by the conservative Republican
administration of Richard Nixon), demanding strong defense
and attacking government bureaucracy and inflationary
spending on social welfare Reagan claimed that federal
regulation constituted the major problem of the economy and
promised to cut "waste, extravagance, abuse and outright
fraud"
The Republican candidate also identified with values
promoting family, religion and traditional education. By doing so
Reagan attracted many southern Democrats and conservative
Protestants to his party, particularly the Moral Majority followers
of Reverend Jerry Falwell. Like Falwell, the candidate hoped to
redeem the nation from moral permissiveness and collectivist
values. Following the prepared remarks in his acceptance
speech at the 1980 Republican Convention, Reagan asked
delegates to join his "crusade" to "recapture our destiny" with
a moment of silent prayer "God bless America," he intoned
as the moment passed The nominee's heartfelt performance
complemented his often repeated remark that the United States
was an "island of freedom "
Reagan's campaign won the support of corporate
leaders concerned with declining American influence in the
world economy But he also appealed to blue collar and middle­
class voters \Mio hoped his economic policies w)uld prove more
successful than Carter's In addition, Reagan attracted upscale
professionals and entrepreneurs by refusing to acknowledge
limits to the nation's power to solve economic problems. 'We
do not have to go on sharing scarcity," the candidate proclaimed
in direct response to Carter's notion of economic and ecological
limits Promising that he would "take the government off the
backs of the people" and restore the nation's global power,
Reagan announced that it was "Morning in America " The
message appealed to taxpayers concerned wth inflation,
government spending and the erosion of overseas strength
In an unusual reversal, Democrats stressed issues of
war and peace while Republicans emphasized economics in the
1980 election But Carter's allusions to Reagan as a rightwing
threat to world peace backfired when the challenger appeared
relaxed and amiable in a televised debate wth the President
As Carter and Vice President Walter Mondale waited in vain
for settlement of the Iran hostage crisis, Reagan and Vice
Presidential candidate George Bush took 51% of the popular
vote (nearly 44 million) to the Democrats' 41% (less than 36
million). Representative John B Anderson, a liberal Republican
from Illinois, received less than 7% of the popular tally (below
6 million) as an independent candidate, but scored well with
Jews dissatisfied with Carter's lukewarm approach to Israel.
In the Electoral College, Reagan swamped the President by
an overwhelming 489 to 49 margin. Meanwhile Republicans
captured control of the Senate for the first time since 1952
(the year Republican candidate Dwight D. Eisenhower was
elected to his first term as President). As low Democratic
turnout, particularly in the East, contributed to a less than
50% participation rate for eligible voters, Jimmy Carter became
the second consecutive Presidential incumbent to suffer defeat.
(Carter had won his single-term Presidency in 1976 by defeating
Gerald Ford who had been appointed Vice President by Richard
Nixon and ascended to the Presidency in 1974 with Nixon's
resignation over Watergate.)
George Bush (Sr.) had accused Reagan of espousing
"voodoo economics" during the Republican primaries. But
Reagan insisted that he could reduce government spending
while increasing outlays for defense, lower taxes while balancing
the federal budget and simultaneously restore economic
prosperity. The new President borrowed his reasoning from
"supply-side" economists like Professor Arthur Laffer of the
University of Southern California, who maintained that govern­
ment regulations and high taxes held back production and
pushed up prices. Supply-side policy called for generous tax
cuts and government deregulation to increase employment
and reduce inflation. Reagan insisted that the anticipation of
improvements from his economic program would spur the
market on to recovery Popularizing proposals previously
advanced by Republican Congressional leaders Jack Kemp
and William Roth, the President asked for the largest tax cut
in history. In order to placate skeptical critics, the administration
sent David Stockman, director of the Office of Management &
Budget, to Congress with figures that purported to show that
tax decreases would produce a balanced budget by 1984 even
if offset by leaps in military spending. Despite Stockman's
offhand admission that the reductions served to ease taxes of
high-income supporters of the President, conservative southern
Democrats worked with House Republicans to pass the Reagan
bill.
The Economic Recovery Act of 1981 enacted a three-
year cumulative tax reduction of 23% on individual incomes.
It also stipulated that tax rates would be indexed to inflation in
order to eliminate "bracket creep," a pattern by which people
moved into higher tax brackets without increased real income
The tax bill provided incentives for individual retirement
accounts, reduced profit assessments on small corporations,
and increased investment allowances. Total tax decreases
came to $38-billion by 1984. "Reagonomics" led to a $150-billion
tax reduction for corporations between 1981 and 1986.
As unemployment surged to 10.8% in 1982 and budget
deficits continued to soar, the Democratic Congressional
majority vowed to combat the deepening recession with new
tax legislation. By closing loopholes and enacting stricter tax
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compliance, Congress restored nearly $100-billion in cut
revenues over the next three years The legislators also revoked
about one-third of the 1981 corporate tax cuts. A 1982 provision
requiring withholding of interest and dividend taxes, however,
brought a massive protest organized by banks and financial
institutions and Congressional repeal the followng year.
Congress completed Reagan's tax program, nevertheless,
vtfien it passed comprehensive reforms in 1986 vtfiich
dramatically reduced rates for corporations and wealthy
individuals but eliminated or curtailed many lucrative
deductions.The President's tax overhaul reduced the number
of individual income brackets to three and shifted $120-billion
over five years from individuals to corporations. Despite such
changes, 1980s tax relief reduced the corporate share of total
obligations and sharply increased the percentage of wealth
controlled by the affluent.
Although the economy recovered from the recession
of 1981-1982, huge deficits in the federal budget continued
to trouble economic planners. But the President refused to
go along with a Congressional preference for tax increases and
slower defense buildups Facing a $200-billion budget deficit in
1985, Congress passed the Gramm/Rudman/Hollings Act, which
mandated steady decreases in the deficit until the budget could
be balanced (set for 1991). If deficit targets were not met, the
bill required automatic, across-the-board spending cuts. Despite
this dramatic attempt to control appropriations, Congress failed
to agree on budget reductions and the Supreme Court declared
the automatic cuts unconstitutional in 1986. By fiscal 1987, the
budget of the United States government had risen to $576-billion
and Congress agreed to massive spending cuts.
Despite its pledge to redeem the American economy,
Reagonomics had difficulty in arresting enormous foreign trade
deficits, which mushroomed to $161 -billion in 1987. Part of the
problem stemmed from budget deficits vtfiich compelled the
government to borrow money in international exchanges.
The resulting shortage of dollars raised the price of American
exports. Foreign based manufacture by American multinational
corporations and international competition also contributed
to rising trade deficits, resulting in the loss of thousands of
American manufacturing jobs. Congressional representatives
from beleaguered textile, shoe and copper producing regions
succeeded in passing legislation that curbed imports in 1985,
but Reagan vetoed the measure as protectionist. After Japanese
manufacturers dumped low-priced computer chips in the United
States in 1987 however the President agreed to place retaliatory
tariffs on their electronics products. By then the American trade
deficit with Japan surpassed $50-billion. Congress passed a
second trade bill in 1988 that sought to toughen retaliation
against unfair foreign trade practices and aid American indust­
ries and workers facing overseas competition. But the President
opposed the bill's requirement that manufacturers give 60 days
notice of plant closings and major layoffs and Congress failed to
agree on a substitute.
New jobs in computer assembly and retail and food
service chains contributed to low unemployment rates in states
such as Massachusetts and California. But although they
replaced many of the bluecollar jobs lost to foreign competition,
the new positions usually came in nonunion industries offering
low wage scales and little chance for advancement. More than
half of the 9 million jobs created between 1981 and 1986, for
example, paid less that $7,000 a year, many of them attracting
older Americans unable to get by on social security and
pensions.
Similar paradoxes prevailed in the stock market where
soaring prices created billions of dollars of profits for traders in
the mid-1980s Yet analysts conceded that foreign investment,
projected to reach $700-billion by 1990, accounted for much of
the boom and that Americans would be paying an annual $60-
billion in interest for these obligations by the end of the decade
Meanwhile, Wall Street feared that Mexico, Brazil and Argentina
would default on $250-billion of loans and interest owed to
American banks In 1985 the United States became a debtor
nation for the first time since1914 and the center of international
capital shifted from New York to Tokyo Two years later foreign
investors reacted to the bloated federal budget and continuing
trade deficits by abandoning the stock market On October 19,
1987, the New York Stock Exchange suffered its worst day in
history with a calamitous one-day drop of 508 points on the
Dow Jones Average In eight terrifying days the stock market
lost one/third of its value By the time crash ended the New York
exchange assessed total investor loss at $1-trillion. Fearful of
future assaults on the declining dollar, foreign speculators sold
off American currency By the end of the month the exchange
rate between the dollar and the Japanese yen had tumbled to its
lowest point since the late 1940s Although the market recovered
from its shock in 1988, economic analysts remained nervous
about the $2 4-billion consumer debt and persistent trade and
budget deficits.Economic indices promised continuing prosperity
but Americans seemed no closer to controlling their unpredict­
able and debt-ridden economy than they were when Reagan first
took office.
Supply-side economists saw excessive government
interference as a major constraint on private initiative Influenced
by conservative planners in "think tanks" such as the Heritage
Foundation and the American Enterprise Institute, Reagan
quickly abolished Carter's wage-pricing guidelines Yet the
new administration also welcomed the deregulation begun in
the Carter years Following an anti-monopoly suit filed against
American Telephone & Telegraph (AT&T) in 1978, the corpo­
ration agreed to divest itself of local telephone service. Although
the 1982 divestiture created 23 independent companies it
permitted AT&T and other subsidiaries to compete on an
unregulated basis in the lucrative computer processing and
information service business Similar results stemmed from
Carter's Monetary Control Act of 1980 The law brought nearly
all financial institutions under Federal Reserve protection and