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Thursday, Nov 26, 2009
"Did you see Leonard Silk in today's Times?" Murray asked, referring to the New York Times' economics columnist. I hadn't. "Well Leonard says there's plonking in our report. Do you know what plonking is?" I didn't.
"Well, Leonard says there's plonking Type I: a little wild-eyed obfuscation. And he quoted something Bill Niskanen wrote." (Niskanen was the Council of Economic Advisors' supply-sider, more or less.)
"And then he said there was plonking Type II: the stupefaction of the blindingly clear. And he quoted something Jerry Jordan wrote." (Jordan was the CEA's monetarist; today he's one of the last survivors of that breed.)
Then Murray grinned. "And finally Leonard said there was something sensible in our report, and quoted something I wrote!"
Amusing Reagan's economists could be; coherent they were not.
Supply-side economics held that the rich would work harder if they were taxed less, while the poor would work harder if they were taxed more. Monetarism held that interest rates should go as high as necessary to kill inflation. This combination proved toxic in 1981-82 as the economy imploded. But the effects were even worse abroad. There, high interest rates stalled world development and triggered crises across Latin America and Africa and in much of Asia. Around the developing world, imports and living standards crumbled. So did fragile public education and health services -- just in time for the global AIDS epidemic.
Full recovery never occurred in many parts of the world. But no supply-side effects were ever observed here at home, and the poor still work harder than the rich.
Savings-and-loan deregulation was another Reagan initiative, spearheaded by a task force led by Vice President George H.W. Bush. What did we get from that? A wave of criminal takeovers, leading to failures that ultimately cost taxpayers over $150 billion and resulted in more than 1,000 felony convictions. Ed Gray, Reagan's appointee to the Federal Home Loan Bank Board, saw what was coming and tried to sound the alarm. But his superiors were deaf or did not care. Gray -- a forgotten hero -- was destroyed.
The New York Times headline at Reagan's death read that he "Fostered Cold War Might." But that too was largely transient. Where is the 600-ship Navy of then Navy Secretary John Lehman's dreams? We couldn't afford it. The MX missile, dubbed the "Peacekeeper"? We didn't need it. The Soviet Union was already decrepit, as its experience in Afghanistan was to prove. Star Wars, Reagan's missile defense system, did frighten the Russians -- they feared, correctly, that it fit into a strategy for "preventive" nuclear war. But Star Wars under Reagan was a costly illusion, a waste of talent and technology on an impossible dream, a diversion then as now from our true security needs.
Eventually, things did get better. Reagan's allies were beaten in the House midterm elections of 1982, and the Republicans and conservatives lost dominance there. Thereafter, Reagan became more pragmatic and economic performance improved.
Monetarism was completely abandoned. Large tax increases in 1982 and 1984 took back much of the 1981 tax cut, over supply-siders' objections. What survived kicked in, in 1983 and 1984, to produce a reasonable expansion. This happened on completely Keynesian principles, and it was better than nothing, even though the benefits were skewed to the rich.
