Learning the Lessons of Reaganomics

By Gus Tyler

Published June 11, 2004, issue of June 11, 2004.
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President Ronald Reagan, who presided in the White House from 1981 to 1989, pursued an economic course that, in his time, was tagged “Reaganomics.” It was not an original invention of this Hollywood star, who used his theatrical talents to win the hearts of Americans. It was the eternal theme of conservatism not only in the United States, but also in many other lands. Put bluntly, it was a fervent faith that the enrichment of the richest will lead to the enrichment of everyone — including the poorest.

The logic was simple: If the rich are enriched, they will have the means to build factories, open stores and employ employees who will have the income to buy things and services and would thereby stimulate the entire economy.

Indeed, it would enrich Uncle Sam himself. If the rich are enriched and employ workers who will have the money to provide a market for our “market economy,” money would come pouring into the U.S. Treasury in the form of taxes. Indeed, such a flood of money would allow the federal government to reduce its debt of almost a trillion dollars and thus relieve Uncle Sam of a bothersome burden and relieve future generations of the burden of servicing that debt.

Reagan’s method of enriching the richest was very simple: He cut their taxes. And he did not worry about the loss of those necessary and precious dollars, because he expected that the enrichment of the richest, as noted above, would stimulate the economy and thereby spin off income for Uncle Sam.

But what Reagan expected did not happen. In fact, quite the opposite occurred. The federal debt of nearly a trillion dollars in 1980 rose to nearly two trillion four years later. And by the end of Reagan’s second term in 1989, the debt rose to almost three trillion.

In eight years, Reagan added more to the federal debt than had been accumulated in two centuries. What happened? A Midwest newspaper editor, Oscar Ameringer, summed it up in earthy terms. “Money is like manure,” he said. “Spread it out, and it makes things grow. Let it pile up in one place, and all it does is make a big stink.” Put in more elegant terms, in a market economy, what is needed is the massive buying power of the masses, without whom the richest of the rich can find no useful outlet for their wealth.

That’s the lesson that the New Deal taught us. But apparently, Reagan (and his advisers) never learned it. And now history is repeating itself.

When the senior George Bush succeeded Reagan to the White House, he made it clear that he would pursue the Reagan philosophy, commonly called “trickle-down economics.” “Read my lips,” he said, “No. New. Taxes.” But very quickly, Bush discovered that the Treasury was headed for disaster, and he did, indeed, raise taxes.

Doesn’t his son, our current president, know any of this? Perhaps not. Regardless, the pressure is on to do something about the huge deficits, but instead of repealing the huge gratuities to the richest, the GOP is once again moving to cut social programs upon which veterans, children, residents in public housing and others in need depend.

Maybe the moral of our story is that one of history’s lessons is, some people do not learn anything from the lessons of history.






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