What Reaganomics Did For Us Or To Usby
THE SEVEN FAT YEARS
By Robert L. Bartley
Free Press $22.95
AMERICA: WHAT WENT WRONG?
By Donald L. Barlett and James B. Steele
Andrews & McMeel $6.95 (paper)
THE BANKRUPTING OF AMERICA
By David P. Calleo
A quick quiz. The 1980s were: (a) the decade the middle class got shafted; (b) the decade America went broke; (c) the best years of our lives; (d) all of the above.
Perhaps not since the 1920s has the economic history of a decade been so controversial. Were the '80s a time when a profligate society borrowed from its future to finance LBOs and BMWs? Or did the era break the cycle of inflation and recession and set the stage for a generation of prosperity?
Navigating these crosscurrents can be treacherous. And books with complicated themes rarely sell well. So it's not surprising that two of three new retrospectives of the decade are more caricature than serious analysis.
The most upbeat book comes from Robert L. Bartley, boss of The Wall Street Journal's editorial page and from 1978 to 1982 arguably the nation's most influential journalist. Bartley is an old-style partisan pamphleteer who made supply-side economics part of the American lexicon. During the Reagan Presidency, Bartley was semiofficial publicist for the supply-side revolution. These days, he spends most of his time grousing about the apostate George Bush.
In The Seven Fat Years: And How to Do it Again, Bartley tries to convince readers that the years 1983-89 were the prelude to "a new Belle Epoque of peace, prosperity, and progress." He fondly recalls a period when economic malaise was replaced by seven years of uninterrupted growth, the manufacturing sector was rejuvenated, marginal tax rates were slashed to their lowest level in 50 years, and frightening inflation was brought to heel.
Most of all, for Bartley, it was a time when the theoretical musings of a small group of supply siders--economists and journalists alike--changed America's domestic-policy debate. From every page, he fairly cries out: We were right.
As a polemicist, Bartley rates an A+. Trouble is, he dismisses matters that simply cannot be ignored.
For instance, Bartley argues that the radical corporate restructuring that largely defined the '80s was both inevitable and good. He has a point. By the late '70s, U.S. manufacturing just couldn't compete in world markets. Its workers were paid too much, its equipment was obsolete, and it was stifled by management that did little but protect itself from change. The restructuring was agonizing but probably necessary.
That didn't make it any easier for workers caught in the transition. Some lost jobs they had held for years. Many ended up in lower-paying service jobs. Yet Bartley blandly dismisses all this as the "leaning of payrolls."
If the phenomenon of stagnant incomes is insignificant to Bartley, it's the obsession of two Philadelphia Inquirer reporters, Donald L. Barlett and James B. Steele. Indeed, for them, the very tax cuts that Bartley praises set the stage for a gigantic rip-off of the middle class.
They argue that the political system is corrupt, the Japanese have been eating our economic lunch, and the Mexicans soon will be doing the same. Wall Street money changers raped our companies and looted our pensions. Washington stole what was left through misguided tax legislation and deregulation. Even tax reform took from the middle class and provided a huge windfall to the rich.
America: What Went Wrong is filled with heart-rending anecdotes and reams of statistics. It, too, wins an A+ for polemics. But like Bartley, the Inquirer reporters tell only part of the story. In their simple world, the sole measure of tax policy is fairness. Economic growth is not an issue, nor is the fact that while the middle class pays billions in taxes, it also receives billions in federal benefits.
Last year, for instance, the government shelled out about $450 billion in benefits to the nation's elderly, many of whom are middle class or have middle-class children. And an additional $100 billion went to depositors of failed banks and thrifts--most of them also middle class.
The questions of whether society should care for its elderly or insure bank deposits are important and complex. But they're not examined by Barlett and Steele.
Both books target Reagan tax policy. And both suffer serious cases of astigmatism. For instance, Bartley praises the Reagan rate cuts of 1981 but ignores provisions that set the stage for the decade's wild real estate speculation. When that bubble burst, so did economic expansion. Similarly, Bartley ignores the huge tax hikes in 1982, '83, and '84 that neutralized much of the '81 stimulus.
For the economy as a whole, the federal tax burden actually changed very little over the past dozen years. And despite Barlett's and Steele's claims to the contrary, the tax code is about as progressive now as it was in the late 1970s.
Johns Hopkins University Professor David P. Calleo brings yet a third view to the party. The Bankrupting of America: How the Federal Budget is Impoverishing the Nation is often rough going. But it makes an important point dismissed by both Bartley and the Inquirer writers. Calleo argues that federal red ink is the principal cause of the underlying weakness in the U.S. economy. His message is hardly unique, but as a specialist in European studies, Calleo provides a broader-than-usual view of Washington's deficit spending.
The Reagan tax cuts, he argues, were a fiasco--not because they were unfair but because they were combined with huge increases in spending and a "stop-go" monetary policy that attempted to both accommodate big deficits and restrain inflation. That policy mix in the early '80s sent the dollar soaring, made U.S. goods so costly that American manufacturers could no longer compete globally, and ultimately drove American manufacturing offshore. That's a controversial theory, but at least it recognizes the complexities and the often-unintended consequences of policy.
Calleo has a clearheaded view of the deficit's causes. It was not so much Reagan's tax cuts, which pretty much kept federal revenues steady, as it was big increases in spending--for defense, health care, interest on the debt, and deposit insurance. As Calleo sees it, the public "balked at paying a higher price for the federal government's package of goods and services. A fiscal deficit was the path of least resistance."
The worldwide economic boom of the mid-'80s meant there was plenty of money sloshing around the economy. All those dollars readily financed the deficit, private capital investment, Wall Street paper-shuffling, and golf-club memberships for overpaid chief executives.
But did all that spending set the stage for a new round of economic growth? After all, an improved standard of living should be the true measure of economic policy. If Reaganism succeeded, all those workers Barlett and Steele worry about will come out O.K. If it didn't, the '80s may have seen the most colossal waste of resources in U.S. history. Bartley asks the right question--how does fiscal policy make the economy grow?--but refuses to admit how complicated the answer is. Barlett and Steele, with their exclusive focus on fairness, are just barking up the wrong tree. It is Calleo who provides the most satisfying view of what really happened in the '80s.