The Failure of Reaganism

It’s difficult for the Republicans these days.   They are on the verge of losing another Senate seat as the Norm Coleman challenge to Franken’s recount victory looks ever more hopeless, and President Obama is riding high after a very successful state of the union speech.  The supposed up and coming GOP superstar Bobby Jindal gave a very boring and even condenscending Republican response, giving me the impression that right now the Republicans are at rock bottom.  They have suffered extensive defeats in the last two elections, and in the fight over the stimulus package they appeared whiney and out of touch with reality, not even acknowledging that it was in part Republican policies that brought us here.   They pointed to the lack of GOP support for the stimulus as proof that President Obama didn’t engage in bi-partisanship.  However, that evidence is just as much proof that the Republicans refused to engage in bi-partisanship.   Those who did — Senators Specter, Collins and Snowe — managed to have a major role in shaping the result, even to the point of angering Democrats in the House.

The good news for the GOP is that when you hit bottom, there is nowhere to go but up.  But to do so, they need to rethink just what their policies and priorities are.   Most importantly, they need to at least privately recognize that this crisis represents the failure of Reaganism.

In 1981 Ronald Reagan became President in the midst of a recession caused in part by Democratic policies.   Indeed, what’s happening the Republicans now is a lot like what happened to the Democrats in 1980 with the “failure of the Great Society.”   Reagan offered a very seductive and apparently pain free solution:  cut taxes, increase spending, and reduce regulations.   Many economists shook their head at this approach, and David Stockman, Reagan’s first budget director, concluded by 1985 in his book The Triumph of Politics that the Reagan administration had failed — that the Republicans were simply exceeding the Democrats in  both spending and in budget deficits.  Indeed in the 80s the total debt doubled in terms of percentage of GDP, from 30% to 60%.

Yet inflation went down.  Unemployment went down.  The economy grew.  It appeared that Reagan’s policies were effective.  The GOP said budget deficits don’t matter, trade deficits are OK because it means foreigners are investing in the US to finance those deficits, and that deregulation was behind the economic expansion.   Now we see the results of that binge and can clearly point to some hard facts.

First, tax cuts are not the solution.  Tax cuts to the wealthy have been proven to be ineffective in terms of increasing economic production and prosperity.  In the last quarter century increasing tax cuts to the wealthy have led to speculative bubbles, investment abroad, and wasteful consumerism.   It meant we were not effectively investing in the economy, but we were building an unsustainable set of deficits — living beyond our means.

Second, deregulation is not a solution.  The myth that all regulations choke innovation and are unnecessary has been proven absolutely false by the corruption and scandals of the last few years.   Over-regulation is counter productive, but so is under-regulation.   Humans are greedy, and many will do what they can to cheat others or circumvent market mechanisms.    Regulations are necessary for a market to function well, and for people to have reliable information and protection against fraud and abuse.

Third, America’s de-industrialization, beginning with the downfall of the steel industry in that last major recession, was not a shifting of comparative advantages to a more high tech productivity, but rather a dangerous contraction of America’s productive capacity.    This created a kind of  ‘fake economy,’ with people and government running up debt and deficits while speculative bubbles created the illusion of wealth.   Now that this has collapsed, our lack of productive capacity means a structural imbalance that threatens to dramatically weaken America’s role in the world.

Reaganism has failed.   The idea that budget deficits were no big deal, trade deficits were fine, and that tax cuts and deregulation meant a more prosperous and growing economy has been falisified by history just as surely as the communist view that government planning and control would lead to equality and justice has been falsified.   Until the Republicans grasp that, they’ll be floundering.

This happened to the Democrats too.   Their great society view of government as the solution to all problems proved false as well.   While action to help the poorest of the poor did real good, most government programs designed to end poverty and create opportunity failed.  Inner cities remained poor, minority prosperity grew only slowly, and over-regulation created a myriad of red tape and obstacles to innovation.

That’s why we need two healthy, viable parties.   Each party checks the mistakes of the other party.   When one party’s ideas grow stale or ineffective, that creates an opening for the other party.   But the challenge for the GOP now is to figure out how to come up with an alternative to the Reaganist mantra of  “lower taxes and deregulate.”   Moreover, except for certain pockets of the country, the religious right that helped Reagan to power is now weaker and increasingly marginalized.   It has become more of a harm to the GOP image than a aid, especially given the kind of libertarian culture shift we’ve experienced.   Today even born again Christians are increasingly pro-gay rights and oppose the old agenda of the so-called ‘moral majority.’  The Republicans limped into the 2008 election and economic crisis with a message and style crafted in the 1980s.   That doesn’t work anymore.

President Obama vows to cut the deficit in half, develop major health care reform, and address the structural imbalances in our economy.   Voices of fiscal conservatism, skepticism of bureaucracy, and belief in the importance of decentralization of decision making to state and local government need to be heard, and need to be part of shaping how this plays itself out.   The Republicans can come up with these sorts of alternative approaches, and following the lead of the more pragmatic wing of the party, compromise with the Democrats and work towards policies that can have broad support.   In so doing, the GOP can shift from its now failed Reaganism towards a new conservatism, one more pragmatic and less ideological.

But for now the Democrats represent the party with new and bold ideas, and they are in the drivers’ seat.   Barack Obama enjoys tremendous support, and the public is looking for a way out of this mess.   It will take awhile for the Republicans to regroup and recognize the need to change their approach, just as it took awhile for the Democrats to shift their thinking after their loss in 1980.   But that’s the pendulum of politics, and that’s why despite the challenges and crises, our system works, new ideas develop, and problems get solved.

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  1. #1 by henitsirk on February 28, 2009 - 2:53 am

    As you pointed out, people are greedy. That’s probably the root of the failure of the “trickle down” theory. I’d like to see our government model the fiscal responsibility we should all be striving for, which does not include massive debt. I’m not sure what I think about wealth redistribution per se, though of course increasing taxes on the wealthy does just that. Maybe because people are greedy, it’s the only way to make sure the needy are taken care of.

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