Wednesday, March 18, 2009

Why the GOP Nurtures Lies and Myths about Ronald Reagan

by Len Hart, The Existentialist Cowboy

Until Reagan, the GOP, like grinches, snarled and toiled amid memories of Eisenhower's recession and, earlier, Herbert Hoover's 'Great Depression'. It was Democrats who were associated with labor, prosperity and, under LBJ, civil rights! It was the Democratic party that often stirred our better natures. The GOP never tried nor gave a shit! Eisenhower's crowning achievement was his prescient warning of the rise of a 'Military-Industrial Complex', a warning that fell on deaf ears. After that, it has been all down hill for an increasingly corrupt and morally moribund party, a party adrift, bereft of new ideas, in fact, contemptuous of the very words 'liberal', 'progressive' or creative.

Reagan cut taxes but not spending. Years following 1982 were deficit years. Thus: 'Supply-side' economics was and remains a fraud. By fiscal 2000, the share of GDP collected by the federal government as taxes amounted to 21%, up from an average of 18.7% in the last five pre-Reagan years 1976-1980. These facts alone reveal both the hypocrisy and the lie behind 'trickle-down' theory. As this unwelcome outcome was revealed, the CIA had likewise compiled a chart of world 'Current Account Balance[s]'. The US is at the very bottom of the list with the world's largest NEGATIVE current account balance, a negative balance about four times that of the runner up debtor --Spain. If, as classical economists believed, that recessions are caused by 'contractions' of both monies in circulation and total productivity, then 'supply-side economics' is not merely bunkum and bullshit, it has left us on the brink and about to fall off the cliff.

How did this come to pass? As the ink was drying, Reagan-heads were pointing accusing fingers at one another. It was not always the fore finger! Budget Director David Stockman, famously, blamed a 'noisy faction of Republicans' for Reagan's tax cut and, more specifically, the 'trickle down' theory with which it was sold. Stockman called it a 'Trojan Horse'. No one in the Reagan administration or the GOP wanted to take the rap for the growing deficit. They would still have you believe that it was no one's fault. Or --more absurdly --it was because Clinton got a blow job!

Domestic Policy Advisor Martin Anderson resorted to GOP form, blaming Congress for the deficit. House and Senate leaders, however, pointed out that had Congress merely rubber stamped Reagan's plan, about 90 percent of the deficit would have remained. But rabid righters will not easily or willingly give up delusion. In the mid-1990s, so-called right-wing intellectual Irving Kristol, an early champion of 'supply side economics', tried to exculpate Reagan. The mistake, he said, was in the implementation! Supply-siders divided themselves four ways depending upon to whom they were devout li'l cultists --David Stockman, Robert Dole, Martin Anderson or Irving Kristol.

While only a truly bored person is fascinated by GOP in-fighting, there is to be had a satisfying sense of Schadenfraude when evil goppers turn on themselves. There is also satisfaction in the knowledge that the GOP is dead wrong and incompetent. There is frustration, however, that most folk just have not yet connected Reagan's policies with the impending collapse. Even now GOP consultants are spamming threads and 'forums' with buzzwords and focus-group approved slogans and claptrap. That these paid and rabid amateurs are soooooo adamant in dead Reagan's defense should set off alarm bells. What are the implications for this utterly failed party should the truth be known about Reagan?

One of their first victims may have been the late Steve Kangas, who was found dead in a bathroom stall in Richard Mellon Scaife's office building. What Kangas was doing in the belly of the beast has never been addressed or answered. I think his unlikely presence is relevant to his equally unlikely death! I am convinced that Kangas, like many another 'liberal", was murdered because he dared to challenge the oligarchs; he dared to tell the truth. Nevertheless, Kangas who had angered a teeth-gnashing Scaife, left us an impressive body of statistical work with respect to the 'Reagan Years'.
Tax progressivity was highest in the decades after World War II, when the rich were taxed a stratospheric 88 percent for nearly two decades. This was also an era in which the U.S. economy was a juggernaut, and the American Dream was indisputably alive and well. Because of this, most economists do not believe that high tax rates on the rich are bad for the economy.

The following chart shows the effectiveness of a progressive tax system. When the top rates were truly high from 1950 to 1978, American income at all levels grew at about the same pace. But when progressivity was lost in the 80s, the income of the poor began falling, while that of the rich continued growing.

Income Growth by Quintile2

Quintile 1950-1978 1979-1993

Lowest 20% 138% -15%
2nd 20% 98 -7
3rd 20% 106 -3
4th 20% 111 5
Highest 20% 99 18

--Steve Kangas, The Reagan Years: Income and Wealth Inequality
The consequences of all deficits are slower economic growth accompanied by pressure to raise taxes. For the increasingly tiny elite of Americans who grew very, very rich because Reagan paid them off would, as expected, dig in to defend their booty with every dirty trick in the book. Most often, they just lied and expected you to believe them. They are, after all, rich and you are dirt poor even if you live in Sugar Land, TX. What the fuck do you know? If you were truly as rich as you think you are, you wouldn't be mortgaged up to your ass in Sugar Land, TX. You would be living next door to Khalid bin Mahfouz in River Oaks! You don't have bread? Eat cake! And --by the way --shut up!

So --by the early 1990s deficit forecasts were 'pessimistic and horrifying'. There were pressures to increase taxes. By 1994-95 federal revenues as a share of GDP match those of the oil embargo years in the 1970s.

In the Clinton years, the end of the deficits lowered interest rates. This was concurrent with a flourishing IT sector that Clinton is accused of 'funding'. Hey! Even if that absurd 'accusation' were true, so what? Every other American industry --steel, electronics, manufacturing of all sorts --had already been exported, primarily to China. We have Nixon and Bush to thank for that!

The IT boom may have been our last hurrah! Asset prices increased. Those made richer by Reagan/Bush tax policies seized upon the opportunity to cash out and count their gains. These 'paper' gains are not GDP which is, to be precise, the total value of newly produced goods and services. The paper value of assets already on the books doesn't count. Clinton most certainly benefited when the IRS collected taxes on the capital gains. He left to Bush a surplus that Bush would piss away by cutting taxes for his 'base'.

As to be expected, the GOP turned a whopping surplus into a deficit, just as the GOP routinely turns positives into negatives, phantoms into 'threats to national security'! The GOP had a 'base' to appease, a population to terrorize into compliance.

In the late 70s many people worked hard to elect Ronald Reagan who would cut federal spending and roll back the 'safety net'. Selfish and self-absorbed, the Reaganites could not, or would not foresee the consequence of Reagan's disastrous regime: deficits without end, the dissolution of American industry, the export of American jobs, the Nixon-Bush sellouts to China, the deterioration of infrastructure, and the rapid decline of once proud, industrial powerhouse cities like Detroit!

This time, it would appear that the GOP has, at last, left to a Democrat a disaster of such monumental proportions than not even Obama can undo! Given what he was left, Clinton worked miracles but, for his efforts, he was accused by grinches of lying about things that were not even crimes.

There are several reasons the GOP lies about everything and especially 'economics'. Because the record is consistently against the GOP, it is getting harder to get away with lying. But as 'economics' is often dull, dry and full of numbers and abstruse terminology, GOP insiders are lulled into thinking that they can get away with bald faced lies. Who's gonna bother to look up the truth in a computer printout, a data base at the BEA, or the myriad of stats from the Bureau of Labor Statistics?

Looking up the truth may not be a dirty job but it is almost always thankless. The truth is: the GOP is not a political party and should not be treated as one. The GOP is a crime syndicate and a kooky cult! If the truth about the US economy were ever widely known, the GOP would never get a vote outside the ever dwindling 1 percent of the nation, the GOP base of filthy rich elites. The GOP has castrated itself.

Addendum: for a comprehensive statistical survey of US eocnomics since WWII, it is hard to beat the work of the late Steve Kangas who left us a treasure trove of cold, hard official stats that indict the axis of the GOP/right wing.

The following chart shows the effectiveness of a progressive tax system. When the top rates were truly high from 1950 to 1978, American income at all levels grew at about the same pace. But when progressivity was lost in the 80s, the income of the poor began falling, while that of the rich continued growing.

Income Growth by Quintile2

Quintile 1950-1978 1979-1993
Lowest 20%     138%          -15%
2nd 20% 98 -7
3rd 20% 106 -3
4th 20% 111 5
Highest 20% 99 18
Economists have a standard measure of income inequality, called

the Gini Index. In this index, the higher the number, the greater
the income disparity between the rich and the poor. (0 = perfect equality,
1 = only one person in the economy has all the income.)

Gini Index of Income Inequality3

        Before   After
Taxes Taxes
1979 0.403 0.352
1980 0.401 0.347
1981 0.404 0.350
1982 0.409 0.359
1983 0.412 0.368
1984 0.413 0.372
1985 0.418 0.381
1986 0.423 0.404
1987 0.424 0.380
1988 0.425 0.384
1989 0.429 0.387
1990 0.426 0.381
1991 0.425 0.379
1992 0.430 0.381
As mentioned earlier, the U.S. economy slowed in 1973 for reasons
still not completely understood. The average weekly earnings of nonsupervisory workers -- about four-fifths of the civilian workforce -- peaked in 1973, and have been falling ever since:

Average weekly earnings of nonsupervisory workers, total private industry,
1982 dollars4

1965  $290
1970 297
1973 315 (Peak)
1975 292
1976 297
1977 299
1978 301
1979 291
1980 274
1981 271
1982 267
1983 272
1984 274
1985 271
1986 271
1987 269
1988 266
1989 263
1990 259
1991 255
1992 255 (Nadir)

The above chart is especially useful in rebutting supply-siders who use other measures to argue that everyone's incomes rose during the 80s. For detailed refutations of these other measures, see More.

Average hourly earnings also fell over the 80s:
Average hourly earnings, total private industry (1982 dollars)4

1973 $8.55
1980 7.78
1985 7.77
1990 7.52
1993 7.39

Presidents Reagan and Bush froze the minimum wage for 9 years, essentially
giving those workers a pay cut each year as inflation bit into their paychecks.
In 1992 dollars, the 1963 minimum was $5.74 -- or 35 percent more than
it is today.

Raises in the Federal Minimum Wage5


                  Percent of average
Year New rate production earnings
1950* $0.75 54%
1981 3.35 43
1990 3.80 35
1991 4.25 38
1994 -- 35


*For brevity's sake, this chart omits the 15 minimum wage increases between 1950 and 1981. No newly introduced minimum wage has ever been lower than 35 percent of the average wage, although old minimum wages have certainly gone below this. For a fuller chart, see More.

Economists previously believed that raising the minimum wage would cost jobs, especially among teenagers. However, recent research suggests that the truth might be a bit more complicated than this, and that when the minimum wage falls too low (due to inflation), it can be raised safely. For more on the controversy stemming from the Card/Krueger study, see More.

On the other hand, the salaries of executives skyrocketed during the 80s:

Salaries and benefits of corporate CEOs as a multiple of the average factory worker's6


1980   30 times
1991 130-140 times

And these super-salaries did not come primarily from greater profits, but from a larger slice of the profits: (More)

Executive Compensation as a Share of Corporate Profits7

1953   22%
1987 61

The following chart shows the growth in the number of millionaires and billionaires during the 80s. Notice that their numbers skyrocketed in the years 1985-87.

Approximate number of millionaires and billionaires in the U.S., 1978-19888

Year  Millionaires  Decamillionaires  Centamillionaires  Billionaires
1978 450,000 1
1979 519,000
1980 574,000 ?
1981 638,000 ?
1982 38,885 400 13
1983 500 15
1984 600 12
1985 832,000 700 13
1986 900 26
1987 1,239,000 81,816 1,200 49
1988 1,500,000 100,000 1,200 51

Percent Increase of Combined Salaries by Income Bracket, unadjusted for inflation (1980s)9

Income Bracket       Percent Increase
$20,000 - 50,000 44%
200,000 - 1 million 697
Over $1 million 2,184

Viewing the above chart more broadly, the total wages of all people who earned less than $50,000 a year -- about 85 percent of all Americans -- increased an average of 2 percent a year from 1980 to 1989, which did not even keep pace with inflation. By contrast, the total wages of all millionaires shot up 243 percent a year.

Defenders of the Reagan era claim that income mobility in the U.S. is great enough to overcome income inequality. That is, if people move up and down the income scale to a significant degree, then, over a lifetime, your average income is going to match my average income. However, there are a few flaws with this argument. First, income mobility in the U.S. is not even close to making this a reality. (More.) Second, one could hardly justify slavery on the basis that, for 1 percent of your life, you, too, will be the master.

So who gets ahead, and who gets left behind? The single most decisive factor is education:

Education, Experience and Wages10

Percent change in earnings
New Workers (1-5 years experience)      from 1979 to 1987
Less than 12 years of school -15.8%
High school degree -19.8
16 or more years of school +10.8

Old Workers (26-35 years of experience)
Less than 12 years of school -1.9
High school degree -2.8
16 or more years of school +1.8
Some people claim that if the poor want to get ahead, they should just return to college. However, the job market can bear only a limited percentage of educated professionals, and there is already a glut of college grads in most fields. This makes competition the hallmark of today's meritocracy, which critics call destructive in its extreme form. (More)

Although the following chart is one of the largest, it is also one of the most important. This chart shows how the incomes of most American families stagnated or fell during the 80s, with gains posted only by the top 20 percent. It also reveals how supply-siders lie with statistics, but more on this in a moment. For those unfamiliar with the term "decile," the 1st decile is the poorest 10 percent of the population, the 2nd decile the 2nd poorest, and so on.

Average Income Level and Effective Federal Tax Rates in Each Family Decile by Year, in 1988 dollars (Corporate income tax allocated to capital income)11


                                                 Percent change:
1977- 1980- 1985-
Decile 1977 1980 1985 1990 90 90 90
1st $4,277 3,852 3,568 3,805 -11.0% -1.2 6.7
2nd 8,663 7,982 7,717 8,251 -4.8 3.4 6.9
3rd 13,510 12,530 12,230 13,110 -3.7 4.6 7.2
4th 18,980 17,240 17,010 18,200 -4.1 5.6 7.0
5th 24,520 22,380 22,070 23,580 -3.8 5.4 6.9
6th 30,430 28,100 27,620 29,490 -3.1 5.0 6.8
7th 36,880 34,370 34,620 36,890 0.0 7.3 6.5
8th 44,820 42,050 43,370 46,280 3.3 10.1 6.7
9th 56,360 53,660 56,190 59,860 6.2 11.6 6.5
10th 111,100 107,900 123,200 133,200 19.9 23.4 8.2
top 5% 149,500 146,000 172,100 187,400 25.4 28.3 8.9
top 1% 319,100 321,400 415,700 463,800 45.4 44.3 11.6
All 34,830 32,850 34,480 37,050 6.4 12.8 7.4

As you can see, the majority of American families were worse off in 1990 than they were in 1977, at the beginning of Carter's presidency!

When supply-siders talk about family income in the 80s, they are always careful to use 1980 as a benchmark for their comparisons, and never 1977. This is because the recession of 1980-82 was the worst since World War II -- perfect for comparing the later Reagan years in their best light. But comparing the Reagan recovery to the non-recession year of 1977 puts everything in perspective: most Americans lost ground, even at the end of the recovery.

Which leads to the question: are presidents responsible for creating recessions and recoveries? If yes, then Reagan deserves credit for rescuing the economy from Carter's mismanagement. But if not -- which is what almost all mainstream economists believe -- then the supply-sider's praise of the 80s rings hollow. In that case, it is natural for recessions to be followed by recoveries, and supply-siders might as well take credit for the incoming of the tide. In reality, the Chairman of the Federal Reserve Board is far more responsible for influencing recessions and recoveries. (More)

Supply-siders have a partial rebuttal to the above chart. They point out that family size decreased during the 70s and 80s, which means that less family income would cover fewer people, and therefore not lower their standard of living. The following chart shows the long-term decline in average family size:

Average Family Size12


1970   3.58 persons
1975 3.42
1980 3.29
1985 3.23
1990 3.17
But this counter-argument runs into a few others. First, falling individual income is responsible for declining family size, so to say that families are maintaining their standard of living despite everything is missing the point. (More) Second, the rather small decline in family size does not explain or justify the massive income gains seen by the top 1 percent, while 80 percent of all families are treading water.

The following chart shows how large a slice of the economic pie everyone is getting. More specifically, it shows how much of the total national income that each 20 percent of American families are making. As you can see, everyone's slice of the pie grew smaller in the 80s except the top 20 percent, which grew. And the top 1 percent was responsible for most of that quintile's growth, as the last chart reveals.

Percent of National Aggregate Income Received by Each Quintile (by Family, in 1992 dollars)13

Quintile       1980   1992
Lowest 20% 5.2% 4.4
2nd 20% 11.5 10.5
3rd 20% 17.5 16.5
4th 20% 24.3 24.0
Top 20% 41.5 44.6

Top 5% 15.3 17.6
Shares of Pretax Adjusted Family Income14
Quintile        1977     1980    1985    1988    1989
Lowest 20% 4.7% 4.3 3.7 3.5 3.5
2nd 20% 10.8 10.5 9.5 9.1 9.2
3rd 20% 16.3 16.0 15.1 14.6 14.7
4th 20% 22.9 22.9 22.2 21.7 21.7
Top 20% 45.6 46.7 50.1 51.4 51.4*

Top 1% 8.3 9.2 11.6 13.4 13.0

*Table reads that 51.4 percent of all adjusted pretax family income in 1989 belonged to families in fifth or highest quintile. Quintiles are weighted by persons.

A common defense of these charts runs something like this: "How equally the pie is sliced is not as important as the fact that the pie itself is growing. Our GDP grows almost every year, so everyone benefits." But this argument becomes incoherent when paired with the claim that America should be an unrestricted meritocracy. If competition is the primary basis of American society, then how equally the pie is sliced becomes significantly more important than the size of the pie itself. (More)

An even stronger refutation is that, over the 80s, as the pie has grown, 70 percent of the extra growth has gone to the top one percent, with the rest going to the next 5 percent or so. The middle class share has simply stayed the same size.15 This means that the average American worker is working harder, producing more, and creating overall growth, but is not seeing any of the rewards. And this largely explains why middle class anxiety, voter anger and economic uncertainty are gripping the nation today. (More)

Next Section: Taxes

Return to The Reagan Years Home Page

___________________

1 Internal Revenue Service.

2 U.S. Bureau of the Census, Current Population Survey.

3 U.S. Bureau of Labor Statistics. The "before tax" column is Measure 1 of the Gini Index. The "after tax" column is Measure 15, which measures inequality after all taxes and government transfers.
4 U.S. Bureau of Labor Statistics, Bulletin 2445, and Employment and Earnings, monthly, June and March issues.
5 U.S. Department of Labor, Employment Standards Administration, Minimum Wage and Maximum Hour Standards Under Fair Labor Standards Act, 1981, annual and unpublished data.
6 Kevin Phillips, Boiling Point

(New York: HarperPerennial, 1993), p. 251.

7 Internal Revenue Service.
8 The statistics and estimates for millionaires are drawn from multiple sources, according to Kevin Phillips in The Politics of Rich and Poor (New York: Random House, 1990), Appendix A, p. 239. The decamillionaire data for 1982-88 comes from Thomas J. Stealey, Marketing to the Affluent (Homewood, Ill.: Dow Jones-Irwin, 1988). The remaining data comes from Forbes and Fortune surveys of the richest Americans during the 1980s.

9 Internal Revenue Service.
10 Calculations based on L.F. Katz and K.M. Murphy, Changes in Relative Wages, 1963-1987: Supply and Demand Factors (Cambridge, Massachusetts: National Bureau of Economic Research,1990).

11 Congressional Budget Office, House Ways and Means Committee, 1992 Green Book.

12 U.S. Bureau of the Census, Current Population Reports, P20-477.

13 U.S. Bureau of the Census, Current Population Reports, P60-184; and unpublished reports.

14 Congressional Budget Office tax simulation model, cited in U.S. House Ways and Means Committee, 1992 Green Book, p. 1521.

15 This is the so-called "Krugman calculation," which has successfully resisted various statistical challenges by supply-siders. See Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (W.W. Norton & Company, 1994), p. 138.

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