The conservative economic ideology that arose in the late 70s and early 80s was a lot bigger than just "tax cuts and more tax cuts." It included a sort of latter-day Protestant work-ethic - rich people were rich because they worked hard, and taxes were bad because they discouraged people from working hard. It was hawkish on inflation - after all, inflation redistributes money from the hard-working responsible rich folk to undeserving profligate borrowers. It despised regulation, which stops the John Galts (in the financial sector and elsewhere) from reaping the full rewards of their inborn genius. And yes, it included an element of racism; black people were poor because they didn't work hard and didn't make smart decisions (if you're sick of hearing me mention this, it's only because you're sick of hearing the truth). All in all, it was a very internally consistent approach.
The policies suggested by this Reaganite paradigm were clear and simple: low taxes, especially on labor and on ownership of capital; low levels of regulation; low inflation; and little or no government redistribution of wealth. Crucially, the Reaganites argued that their approach would not just be "fair," but would actually boost our economic performance. Compared to communism, Reaganism certainly seemed like a safe bet.
The problem was, it didn't work. We can never know exactly why Reaganism failed, but we can know for certain that it was insufficient to produce what we have come to think of as satisfactory economic outcomes. In the Reagan/Bush years, growth, productivity, and the stock market were all OK but unimpressive.
But it wasn't until the Bush II years that the inadequacy of the Reagan approach really made itself apparent. As Daniel Gross explains, we just lived through a "lost decade":
Let's start with the single most important economic number: jobs. Over the past 10 years, job creation has been extraordinarily weak. In September, on a seasonally adjusted basis, there were 108.5 million private (nongovernment) payroll jobs in the united States—almost precisely the number there were in June 1999. (To see the data, go here and then check "nonfarm private.") In the past decade, in other words, the private sector hasn't created a single job. That's awful, especially when you consider that the population grew 9 percent during those years, from 282 million in 2000 to 308 million today.
The stock market performed like somebody running on a treadmill. A lot of energy was expended to travel the tiniest of distances. As this depressing 10-year chart of the S&P 500 shows, stocks went precisely nowhere in the past decade, despite all the efforts to help the market, from slashing capital gains and dividend taxes to keeping interest rates extremely low to bailing out just about everyone...
Meanwhile, Americans seem to have lost their interest in investing. Between 1992 and 2000, the percentage of households owning mutual funds doubled, from 24.4 to 49 percent. And between 1992 and 1999, the percentage of Americans owning equities—either through mutual funds or as individual stocks—rose from 36.7 percent to 47.9 percent. To build on that impressive growth, in this decade, George W. Bush made the "Ownership Society" a theme of his presidency, suggesting that investing in securities could be the solution to everything from Social Security's long-term insolvency to the health care crisis. But Americans largely ignored these calls. According to the securities industry's Equity Ownership in America 2008 report, the proportion of the population that owned stocks or bonds fell from 57 percent in 2001 to 48 percent in 2008. And in 2008, 45 percent of U.S. households owned stocks—inside retirement programs and in brokerage accounts—down from 49 percent in 1998.
Investors may have been turned off by the market's poor performance. Or it may be that Americans didn't have much leftover cash to deploy into the stock market. Incomes were basically stagnant during the decade while the costs of vital goods and services—education, health insurance, energy—spiked. The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data that show that median household income in 2008, at $50,303, was below where it was in 1998. The same report shows (see Table B-1 on Page 44) that both the number and the percentage of people living below the poverty line rose, from 11.9 percent in 1999 to 13.2 percent in 2009.
Now, defenders of the Reaganite economic philosophy may argue: "External conditions were just so bad during the Reagan/Bush/Bush years that no policy could have made our economy do well; without Reaganism we'd have done even worse." In other words, that luck smiles on Democratic presidents. And I can't argue with that, really.
Or they may say: "Reagan, Bush, and Bush weren't true Reaganites." And I guess I can't argue with that either (hey, there are people who say that Stalin and Mao just implemented communism incorrectly), though it's hard to say how we'll ever get anything closer to true Reaganites than Reagan himself and Bush II.
Or they may say: "Who cares about economic results; what's important is that it's fair to let rich people earn and keep whatever they can." And of course I can't argue with that moral judgment.
But what I can say is: Reaganism is not sufficient to bring about prosperity. Maybe nothing is. But, given the vast array of alternative policies out there, it makes a lot of sense to me to try other stuff. Maybe there's some policy out there that is sufficient to bring about growth.
Conservatives need to stop idolizing Reagan, face the reality of the limitations of the Reagan approach, and start looking for alternatives. Simply pumping up the Glenn Beck crowd with paranoia and dark hints of race-war will not be sufficient to revitalize the conservative movement. In the long run, you need economic results. Even the communists found that out.
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