Archive for May 9th, 2011

Getting Real about Ronald Reagan

Former President Ronald Reagan’s name gets bandied about as either a mythic hero for the GOP or a dottering old bogeyman for many Democrats.   The reality, of course, is that he was neither, and the fallacies of both the left and right can be shown by looking at two especially misguided myths about Reagan.   The first is that Reagan’s economic policies brought the US a period of economic growth and prosperity, proving that smaller government works best, and the second is that Reagan shifted US foreign policy to be tougher on the Soviets, thereby hastening the end of the Cold War.   Both myths are dead wrong.

The truth about Reaganomics:   Ronald Reagan and the Democrats in Congress had an implicit deal:  taxes would be cut and spending would increase.   This meant that the economic boom in the 80s was built on debt.    The debt to GDP ratio went from 30% when Reagan took office to just under 60% when he left.   Given that the GDP grew during that time, this is a doubling of debt.    That is a stimulus package that puts Obama’s 2009 effort to shame.  If you double your debt it’s not hard to have an economic boom — but it was built on a house of cards.   Moreover, oil prices decreased dramatically during this time frame, meaning that the government stimulus of the economy was augmented by declining oil prices.

Simply: the supposed prosperity of the 80s was an illusion.   It was the functional equivalent of any one of us taking out credit and living very well for awhile.   It feels good while it lasts, but when it ends you’re left with debt.   It was unnecessary too — falling oil prices would have stimulated the economy naturally.   Moreover, this is the time frame when the US went from having a current account surplus (being a net investor in the world, with trade in balance) to a current account deficit (mostly a trade deficit).   We shifted from producing as much as we consumed to consuming more than we produce — with credit coming mostly from overseas.  This was the start of the great crisis we’re now enduring.

Yet Reagan doesn’t deserve all the blame.  The Congressional Democrats and Republicans found this path easy in the short term.  Just as Reagan didn’t veto spending (indeed, his administration famously said budget deficits don’t matter — something Dick Cheney would repeat in 2005), both parties of Congress found the ‘cut taxes, increase spending’ formula politically convenient.   This was a bi-partisan effort.

Still, the fact is that Reaganomics was a myth.   Government grew massively, debt grew, and so did spending.   All the 80s proved was that if you increase debt you can stimulate the economy.   We knew that already.

The truth about the end of the Cold War.   When the Soviets invaded Afghanistan in December 1979 President Carter announced a massive shift in US policy.    This included an increase in defense spending which he projected to be at higher levels than actually occurred under Reagan.   Moreover the Carter doctrine, announced on January 23, 1980, made it clear that the US would, for lack of a better term, fight a war for oil.   Keeping the flow of Persian Gulf oil going was made a primary national interest.

The shift of policy towards the Soviets was bi-partisan, with Reagan continuing the policies Carter put in place.   He did increase the amount of aid to the Afghan “freedom fighters,” something Carter didn’t want to do because he wasn’t sure it made sense to get in bed with Islamic extremists.  Reagan also shifted US policy in Nicaragua, supporting the Contras trying to overthrow the Sandinista government (Carter hoped to win the Sandinistas over).   Still, those changes did not lead to the collapse of the USSR.

The Soviet Union, stymied by a lack of leadership from 1981 to 1985, as Yuri Andropov and Konstantin Chernenko were both ill and ineffective in each of their brief tenures, imploded from within.   In Eastern Europe the crisis was worse, and by 1989 Hungarian and Polish Communists started a path to undo communism out of economic necessity.   Regardless of what US foreign policy would have been in the 80s, communism was collapsing and could not be saved.   Communism was an utter and completely failure on its own terms.

However, if Reagan didn’t cause the end of Communism, he also doesn’t get enough credit for helping assure Gorbachev could succeed.   As I noted in an earlier post about the two of them, Reagan should get credit for recognizing that Gorbachev was the real thing and acting in ways that helped him stay in power.   In 1986 the US military build up halted, as US defense spending stopped rising (in real terms).   In 1987 Reagan and Gorbachev signed the treaty eliminating intermediate nuclear missiles from Europe after the Soviet military concluded that SDI (the Strategic Defense Initiative designed to try to protect US strategic missiles from Soviet attack) was not a threat.

At that time, Reagan’s most vocal credits were from the right wing of his party.   Few remember how Reagan was attacked for ‘going soft,’ with some on the right claiming that Weinberger and Shultz weren’t letting “Reagan be Reagan.” Others thought Reagan was being fooled by Gorbachev who was just a slicker and more effective Communist.   True to his principles, Reagan shifted from a hard line to a helpful line when he saw that Soviet reform was real and a chance existed for Communism to either reform and die from within — a war wasn’t necessary.

This wisdom and insight of Reagan gets lost if one focuses on the myth of Reagan’s toughness somehow bringing down the USSR.   Many on the left attack Reagan as a hard core war monger whose approach was disproven by Gorbachev’s ability to push change.   In reality, Reagan and Gorbachev were a team, each needing the other.

In the fog of historical amnesia, Reagan’s rhetoric has become reality for most, both right and left.   Few realize that the 80s saw a doubling of US debt, with massive deficits during a boom — something that makes no economic sense.   Few realize that Reagan’s wisdom was not in standing tough against the Soviets (Carter started that policy) but shifting course after correctly understanding that Gorbachev was the real thing.   The ideological rhetoric used by Reagan covers up the fact that at base he was a pragmatist and a deal maker, someone who had the notion that he could reach an agreement with just about anyone.   He’d start with a tough sounding stance, but then negotiate.   People remember the former and forget the latter.

Historical reality shows that almost all Presidents and leaders are far more complex than the myths that survive.   Nuance, complexity and paradoxical information gets swept away in favor of a packaged simple narrative.   But it can be dangerous; those who say they want to be like Reagan on the economy don’t realize that means embracing more debt and economic stimulus.   Those who focus on Reagan’s alleged toughness don’t see his ability to shift when an opponent appears willing to embrace change.   Those who focus on Reagan as principled miss that he was also extremely pragmatic.    And as far as  I’m concerned the real Reagan was a far better President than the mythic Reagan ever could have been.

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