Ronald Reagan's Social Experiment
Ronald Reagan was able to accomplish what Goldwater could not. He merged together disparate political ideologies into a machine that allowed him to win a presidential election and create a mythology that all conservatives adamantly believe, regardless of historical reality. (It is noteworthy that not all libertarians buy the Reagan myth, and this proved costly for Ron Paul in the Republican primary "debates" of 2008.)
One reason for Reagan's success was that he spoke a kind of moralistic language that appealed to the superstitiously motivated social conservatives Goldwater hated. Reagan also extolled the greatness of America, something most citizens hungered to hear after their ignoble defeat in Vietnam; he played up a rosy future of more greatness and wealth in the face of an oil embargo, rising inflation, high unemployment and powerlessness before Muslims in Iran who had taken the US embassy hostage. His platitudes played to Americans' sense of God-entitlement. He recalled glorious WWII heroics, often plucked from motion pictures that he remembered as reality. He attacked a Soviet Union that he thought of as a mighty world power, no matter that it was completely dysfunctional and in economic collapse — a reality that drove Gorbachev to approach Prime Minister Thatcher with surrender terms.
He also played to fiscal conservatives by promising to shrink government and cut taxes. He did cut taxes, but he increased government bureaucracy to record size. He ran massive budget deficits and doubled the national debt, making the US a net debtor nation for the first time in history. He blamed Democrats for the budget growth, but analysis of the budgets he submitted to Congress show the growth came from his own policies. He used the Democrats as whipping fodder for his fiscal excesses while calling for "line-item" control over the budget, something Congress might have done well to give him since he had nothing to cut but his own spending programs. Such an economic policy is called Reaganomics, but might better be termed a Reagan scheme.
It is amazing that people continue to claim Reagan increased revenue by cutting taxes. They forget his budget deficit and doubling of the national debt. In reality, he "borrowed" money to raise revenue. This word "borrow" is a euphemism for print, as Milton Friedman points out in his little book Money Mischief. (Fractional reserve banking is not the same as the "printing" of money, by which is created out of thin air so-called "high-powered money." Friedman's book is worth reading if only for the short discussion of how money is created by interaction between the Treasury and Federal Reserve Bank to give the impression it is borrowed from somewhere; as Friedman points out, printing money is the most popular approach to financing a nation.) Reagan printed a lot of money. The inflation since his time in office, much of it regional in local commodities like real estate, is a major issue now. It is apparent that Reagan's printed money created the internet bubble at the turn of century. The local nature of the inflation is mostly due to the fact that the bulk of Reagan-printed money went to a handful of states.
At any rate, analysis of the budgets of the Reagan years indicates that the small increase in revenue was a percentage of the vast sums of freshly printed money returning to the Treasury and not due to tax cuts.
This provides an important reality check. What Reagan enacted was a new form of social engineering. It had been observed by classical economic thinkers like David Hume that printing money does not raise the wealth of the nation. But it does create individual wealth. When combined with tax cuts that lower the burden on the wealthy while doing little for the middle class and nothing for the poor, it creates a society in which most of the wealth accumulates in a few hands. It creates an upper class of extreme wealth, since not everyone shares in the outpouring of freshly printed money from the government. It is more a lopsided distribution of new money than a redistribution of existing wealth. It also creates lavish resources for lending via monetary expansion from fractional reserve banking, which "raises the standard of living" in exchange for economic servitude.
Most of the new money went into expanding the military apparatus of "defense" contractors and extending clandestine control abroad with the beginning of the paramilitary extension of the CIA. Domestic social control through augmented law enforcement grew with the necessity of controlling the underclasses that grew with the money-printing/tax-cutting social experiment as the middle class dwindled.
Certainly one cannot call this approach capitalism, since it makes the government the prime mover in the financial system of the nation. During this time, Paul Volker extended the powers of the Federal Reserve to keep much of this money from showing up immediately because of the already rampant inflation that had persisted despite an ongoing recession. Entire segments of the "private sector" of the US were essentially joined to the government by control mechanisms, mostly through accounting and technical oversight, though the flow was two-way. This has expanded under all the regimes since Reagan, and is seen most clearly within the "defense" industry. Yet people continue to call Reagan a "free-market" capitalist even though he crafted a monopsony feeding an oligopoly of large corporations. This is a taste of the surreal irreality that persists, in fact has grown, over the decades into reality as denial of what is objectively real — as when Reagan had to admit on prime time television that he traded weapons for hostages in defiance of his own stated principles. His surrealistic speech is worth watching, because he admits that though caught red-handed with incontrovertible evidence and personally implicated, he does not believe it. The man was as out of touch with reality as the nation is now. Is it possible for a nation to have something like Alzheimer's disease, as the late Studs Terkel contended? I have had discussions with people who deny this Reagan speech ever occurred. One of them continued denying it when I showed him a video of the speech.
It is difficult to assign Reagan's economic sleight-of-hand trick a name, though perhaps military Keynsianism could serve. Clearly not a free-market apparatus, given the government intervention with constant stimulus (which was understood as such by many Republican politicians (for example, the Honorable Jerry Lewis who spoke of the jobs the government money created in the "defense" industry and the businesses tied to it); certainly Reagan proved that government is able to create jobs to the satisfaction of the Republican Party as it existed then). But for conservatives the only two forms of "economy" are capitalism and socialism, and in the face of such a dichotomy one must call Reagan's economic policies socialist. Which is not to say that the Reagan socialism spread wealth to all, despite Reagan's repeatedly claiming that a rising tide raises all boats (though it is true if the tide be inflation). In fact, as noted above, Reagan's social engineering created a disparately tiered society closer to what is usually considered Latin American third world.
The fact that the government prints money is acknowledged by most libertarians. It was arguably Ron Paul's bringing this into the Republican primary debates of 2008 that caused Fox News to ignore and eventually eject him. Paul's objection to the militarist agenda in foreign policy was problematic, especially his observation that many of the attacks on the US and its interests are due to our colonialist meddling, but nothing pierced the conservative mythos like the fact of the Republican Party printing money to fuel "economic growth." That is anathema to discuss openly. It also points to a problem with libertarian and anarchist thinking that hinges on the idea that cutting taxes can lead to smaller government. Reagan proved that idea false through the mechanism of creating "high-powered" money out of thin air. It makes the idea of a balance sheet for government as irrelevant as it is meaningless.
Reagan established another keystone: he created a new scapegoat. Scapegoats will prove important in forecasting, and this one will also be important because it helps to define the term "liberal," itself a scapegoat for the conservatives.
Reagan scapegoated the poor. Of course, a large portion of those poor were blacks and Hispanics. When unemployment stubbornly remained high in the face of Reagan's verbal coaxing and fiscal stimulus by "defense" spending, he implied that if one were unemployed or poor it was one's own fault. After all, the US was a God-given paradise of limitless equal opportunity and the greatest nation on earth, ever. He read want ads from newspapers, often calling for skills like CICS programmer, something I am sure Reagan himself did not understand. It was implied quietly that for a white man to be unemployed in Reagan's America meant the person had no desire to work, since white unemployment was almost impossible.
This brings us to the word "liberal," which, like "conservative" is not uniquely specified but seems to have a core of signification. With the danger of repetition, we can restate that the political core belief of what is herein called conservative (in the sense of Palin or Cheney and their ilk) is aggressive militarism as a national policy. The core of what seems to be referred to as liberal by most of these conservatives, as well as by libertarians and anarchists, is the desire to have an egalitarian society. Of course, that appears to be in accord with the Declaration of Independence, but the U. S. Constitution as originally written was at odds with the Declaration. And there is ideological difficulty between liberals and conservatives regarding this concept, since conservatives espouse a belief that somehow egalitarian society can be brought about with a magical entity called the "Free Market," whatever that is. It was argued for decades (and still is) that slavery was not in itself inegalitarian and would have ended eventually because of Market Forces, but as no Market Mechanism existed to end it, a civil war ensued that did end it. The same arguments were then applied to the apartheid society of the Southern US and also to segregation and enforced inequality in most other states. (For example, it was illegal in sixteen US states — seventeen if Maryland is counted, which changed its law just prior to the ruling — for blacks and whites to marry, until the Supreme Court ruling of Loving versus Virginia in 1967.) These apartheid mechanisms were formally dismantled by the civil rights movement, not by any market mechanisms.
Those called liberals by the conservatives want to extend government enforced egalitarianism by providing social services like medical care to the poor and by redistributing wealth to the poor: They assume society should be more egalitarian in providing services and distributing wealth. Since an important assumption among the conservatives is that the economy is guided by an Invisible Hand of the Free-Market that will take care of the issues of egalitarianism, the reality that the government constantly prints money is anathema, as then the game is seen to be rigged. It kills the myth that there already exists equality and one only needs the ability and drive to take advantage of it, to grab the brass ring, since the brass ring is not equally accessible if the government provides it in controlled circumstances (a fact which Reagan understood given his ironic talk of a rising tide raising all boats, of trickle-down economics). It is for this reason that libertarians like Ron Paul need not apply within the conservative movement, since libertarians know that conservatives are no more free-market capitalists than are the liberals. (However, were Paul to become President, without a doubt the handful of Republican "teabaggers" (like those hijacking the Republican Party in South Carolina) who are Ron Paul supporters would freak out at his policies, particularly the cuts in "defense" spending and the repeal of drug laws.)
The term "liberal" provides yet one more group for conservatives to demonize. And since to the conservative mentality there are only two sorts of "economies," capitalistic and socialistic, and since they are capitalists in their own minds, then the liberals are socialists, which is synonymous with communist. It isn't clear conservatives understand that among Hitler's targets were the communists, because they seem to confuse Hitler with communism via their misunderstanding of the word socialism.
