Politics & Policy

When The Losers Write The 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.

There is a great deal at stake in the writing of the history of the Reagan Presidency. For the past 25 years most of the men and women on the political Right–conservatives, non-conservatives, libertarians, and traditional Republicans–have focused their energies on creating new policies, forging political coalitions, electing Presidents, and fomenting peaceful worldwide revolution. They have been successful far beyond their wildest fantasies.

But while many of us have been basking in warm contentment and self-satisfaction, those who were beaten have been busily writing our history. Perhaps we should not be so surprised to read and hear with increasing frequency that the decade of the 1980s was a decade of greed and corruption, that the U.S. economy–after posting the greatest economic expansion in the history of the world–was a failure, that Communism fell because of the benevolence of Mikhail Gorbachev, and that American itself (now the most prosperous nation on earth, the most powerful military force on the globe, and the moral leader of the world) is a troubled nation, a terrible place to live–and all because of Mr. Reagan and his dreadful policies.

“Well . . .” as President Reagan might say, we have no one to blame but ourselves. We have largely let the Left write our recent history. A serious mistake. The future of this country will be powerfully affected by how well young men and women learn which policies were successful in promoting and securing liberty and prosperity and peace–and which policies were not. It is time to set the historical record straight.

The raw economic facts of the Reagan years are clear. From 1982 to 1990 the United States experienced 96 straight months of economic growth, the longest peacetime expansion in its history. Almost 20 million brand-new jobs, most of them high-paying jobs, were created. Inflation fell dramatically to low levels and stayed there as the American dollar once again became sound. Interest rates also fell dramatically and stayed down. The stock market soared, nearly tripling in value. Government revenues–at the federal, state and local levels–nearly doubled, making possible the largest increase in social-welfare spending in history. And, almost incidentally, we financed an enormous buildup in America’s military power, checkmating the evil intentions of the old Soviet Empire, and ultimately causing the disintegration of Communism throughout the world.

But listen to what some of the most influential voices in the Americans in recent years.

“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.

Poisonous Fog

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.

In the Heart of Academe

But the myth that the Reagan Administration thought it could raise more revenue immediately by cutting tax rates persists in the heart of the academic economic community, among intellectuals who pride themselves on separating fact from myth. Their false charge of Reagan’s economic stupidity has been repeated in scholarly articles and at scholarly conventions. In my 1988 book, Revolution, I spelled out in some detail how men like Martin Feldstein of Harvard, Walter S. Salant of the Brookings Institution, Herbert Stein of the American Enterprise Institute, Alan S. Blinder and William Branson of Princeton, and Robert Solow of MIT had all essentially made this damaging and false charge. When I asked Feldstein, Stein, Salant, and Blinder then if they had any evidence to back up their charges, they could not produce any. Four years have now passed, and still not one of them has deigned to correct the mistake.

After a while it makes you wonder. When scholars with distinguished reputations can make false statements to large audiences of their peers and not a murmur is heard, and when they can produce no evidence to support their false claims and yet they do nothing to correct the record, then one has to raise the possibility that something more may be afoot here than simple carelessness.

Finally, a Reaction

A case in point. In August of 1991 the Wall Street Journal ran an article consisting of the several pages from Revolution that dealt with some of these false statements. Although I had not heard a word from any of these scholars when the book was published in 1988, the article in the Wall Street Journal incited Professor Alan Blinder, the chairman of the economics department at Princeton, to respond with a furious letter-to-the-editor.

In his letter Blinder repeated the charges he first made in his 1987 book Hard Heads, Soft Hearts. He then deftly changed the subject by accusing me of a “rank violation of trust, manners, and the canons of scholarship” for printing what he had sent to me in response to my request for information, which I had specifically indicated would be used for my book. Although my patience was wearing a bit thin I responded with my own letter to the Wall Street Journal, again explaining that Professor Blinder had committed serious errors in his 1987 book and pointing out that in four years he still has not produced any evidence to support his charges.

That really set Blinder off. A few days later I received a rambling letter in which he accused me of being “short on content and long on malice,” said I had called him “a liar,” and said that I was a “liar.” Furthermore, said Blinder, “every hearing person in America has heard Ronald Reagan claim that tax hikes lose revenue dozens of times,” which is an interesting comment if only because it has nothing to do with Blinder’s original false statements. The letter concluded by accusing me of writing “content-free invectives,” and saying my motive was “all too apparent” and “none too admirable.”

Realizing that Princeton professors are might busy and may not have time to do the necessary research, I carefully put together a packet of materials for Professor Blinder that included 1) quotations of the passages from his 1987 book that contained the false statements, 2) Reagan’s economic-policy speeches and fact sheets that spelled out the tax-revenue losses that were expected to result from the tax-rate reduction, and 3) the official 1982 budget documents from OMB that detailed the expected tax-revenue losses. I sent these materials to Professor Blinder with a letter that asked this question: “In the light of the evidence contained in the attached documents, don’t you believe you should retract the false assertions you make in Hard Heads, Soft Hearts?”

A month later I got my answer. “I do not carry on correspondence with people who publish highly selected portions of my personal letters out of context,” said Professor Blinder. Interesting. Not a word about the documents. Not the slightest attempt to defend his false statements. Not the slightest hint that he would retract his charges because of the documentary evidence provided to him. Just a new false charge that I was quoting him “out of context.”

It is on thing to make an error or false statement unintentionally. It is quite another thing to let it stand uncorrected in the literature despite documentary evidence to the contrary. For to do so converts a simple false statement into a deliberate lie. Such actions from a person in a position of high trust seem inexplicable. But perhaps there is a simple explanation.

In 1983 Professor Blinder gave a long, personal interview that was published in a relatively obscure book called Conversations with Economists. In that interview he spoke passionately about his political views and bragged openly about how he intended to use economics as a political weapon. Here’s what he said a few years before he wrote about President Reagan’s economic policies:

I guess I’m naturally a loudmouth. Part of it goes back to the attitude I had when I was 18 years old and first discovered economics. I saw social problems and thought the economics could contribute something to overcoming them. I feel more passionately involved recently because of the movement to the right, the election of Reagan, and the politics that Reagan has brought in. I have become more of an activist that I ever was before. . . I am involved in an organization called the National Policy Exchange, which, while it doesn’t want to be described as a Democratic think tank, really is . . . I used to keep quiet, but if we keep quiet and the right-wingers keep yelling, what has happened will keep happening.

Professor Blinder is not the only member of today’s academy who, while professing scholarly objectivity, writes about Reagan’s policies with a bias and disregard for the truth that would make even a staff member of the Democratic National Committee blush.

Mr. Anderson, a Senior Fellow at the Hoover Institution, was President Reagan’s domestic and economic policy advisor, 1981-82. He is the author of the recently published Imposters in the Temple.

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