Reagan v. F.D.R.

fdr reaganI recently heard my Congressman, Tom McClintock, opine that “the only proven way to revive an economy is to cut the top marginal tax rates.” But such statements are evidence of neocon amnesia, not historical fact.

The contrast between the fruit of public policies in the decades following F.D.R.’s New Deal and post-Reagan couldn’t be clearer, as the first graph below indicates. The New Deal included high marginal income tax rates, while Reagan cut taxes on the rich, but raised payroll taxes. The steadily rising blue line of median family income appears in the wake the New Deal, which included higher taxes on the rich (the red line), from the 1940s to the advent of Reagan’s “trickle-down” economics in the 1980s and beyond.

median family incomeThe “Reagan revolution” that reduced those top tax rates starts in the early ’80s with the second large drop in marginal income tax rates (Kennedy reduced top rates to around 70%, but tightened many loopholes). Before Reagan, median family income rose essentially without interruption from the late ‘40s until 1973, when oil shocks changed the economic playing field. Post-Reagan, the median income rise was considerably less vertical, and was interrupted more often, until most recently it went virtually flat. In addition to debunking the meme that Reagan produced some miraculous “morning in America” recovery for most of us, this graph actually understates the loss of income most families experienced because of another factor: Women entering the workforce.

Between 55-58% of women joined the workforce until just before the Reagan years (1980). After that, women’s employment outside the home really took off. So the “family income” in the first graph came at the cost of an additional worker, and the loss of some stay-at-home moms.

civilian employmentThe philosophical differences behind these two approaches to public policy are also clear. One premise of the New Deal was that better public amenities would profit everyone. Farm-to-market roads, for example, insured produce would reach consumers unspoiled by transportation delays. For F.D.R., tax revenues could produce everything from victory in World War II to world-class infrastructure, public amenities and research.

Reagan believed the U.S. population consisted of consumers, not citizens. We don’t owe each other anything — and we certainly owe nothing like a safety net to the widows and orphans, why they’re just welfare queens! To Reaganites, taxation is legalized theft (of “your money”), and public amenities are wasted on the undeserving.

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It’s also instructive to remember where Reagan began and ended. Before his administration, the U.S. was the world’s largest creditor. After: the world’s largest debtor. Before: the U.S. had a trade surplus; after: a trade deficit. Until the recent financial scandal, Reagan also held the record for the largest political and financial scandal in U.S. history (the S&L bailout). To be fair, the Democrats were complicit, but Reagan campaigned as a deregulator, and deregulation is what led to this scandal that was orders of magnitude larger than, for one example, Teapot Dome.

The worst part of the Reagan legacy, however, was that it made such historical amnesia respectable. McClintock can, and often does, spout the Reagan memes. It would be comical if so many people weren’t suffering because of it.

Adam Eran

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Comments

  1. Adam Eran says

    Interesting points, Joshua. Let’s just say your accuracy is less-than-optimum. How, pray, did FDR’s policies not work in the “long term” given the graph of incomes at the beginning of this article? And what’s revised about the cited history? [crickets]

    You can say *anything* “didn’t work,” but the graph is pretty compelling and something that’s actually accurate. Your citations, on the other hand — e.g. the “Cash and Carry” article cited — have factual problems (at the top of the Wikipedia page is a big notice “This article’s factual accuracy is disputed.”)

    The economic revival following FDR came from what was, in effect, a gigantic public works project, funded with lots and lots of borrowing. You may remember it; we call it “World War II” (see http://krugman.blogs.nytimes.com/2008/11/10/fiscal-fdr/). You can also credit Keynesian, not voodoo, economics which was demonstrated to be correct.

    As for the actual “voodoo” (AKA “Supply Side”) economics, even Reagan’s budget director (David Stockman) called it, on the record, a “trojan horse”–i.e. a hoax. The “Morning in America” Reagan revival was an average business cycle recovery bought at the cost of record-breaking deficits. Read Krugman’s “Peddling Prosperity” for all the details and citations.

    As for the postwar import/export-driven revival, imports and exports actually *follow* domestic slumps and revivals. You apparently believe the tail wags the dog here.

    In any case, exports (or loan repayments), particularly to/from bombed-out post-world-war-II combatants were not large enough to prompt the postwar recovery, especially into the 1960s, as the graph indicates. (See http://krugman.blogs.nytimes.com/2010/07/10/hayek-trade-restrictions-and-the-great-depression/). You can also read Krugman’s “Pop Internationalism” for more details. Also recommended: http://www.nybooks.com/articles/archives/2010/may/13/our-giant-banking-crisis/

    As for “Private Property Rights”: Let’s just recall the things you personally do NOT own or provide privately, and yet find essential in your daily life. These include: currency, the farm-to-market roads (your food would spoil otherwise), the safety of products (cars, building codes, etc.), personal safety (police, courts), the vetting of food and medications, regulation of trade, commerce and contracts, water and sewage treatment, etc., etc., etc.

    You can claim these aren’t essential or enforced, but typhoid Mary was a real person, and such un-safety preceded FDA regulations no matter how they were enforced.

    You can complain regulations are onerous, unnecessary, stupid, not enforced, etc., and I’d agree with you about many of them. But public policy, including regulations has saved your personal bacon many, many times.

    The problem I have with your complaint is that you’re just complaining, not providing solutions. The common meme is to throw the baby out with the bath water here. We must have intelligent, effective public policy. Where’s your call for that?

    Even Meg Whitman couldn’t bring ebay to Russia. The mail service was too poor. (for reals)

    So here are the questions you must answer before you sit at the big people’s table:

    1. Do you have some other system by which you want to decide public policy. Instead of democracy, would you prefer, e.g., monarchy, with yourself as king?

    2. Given your undisputed, complete and utter dependence on the infrastructure and human capital provided by public policy, do you honestly expect it will be administered by perfect angels or by the same flawed humans who have brought us BP, Enron, etc. in the private sector?

    3. And finally, must you will always agree with the public policies produced by the government?

    The truth is that something like a public swimming pool is orders of magnitude cheaper than private swimming pools for all, and probably more fun to play in. You can complain that it’s not kidney-shaped, as you would wish, or that somewhere in America there’s a crooked public pool manager, but buddy, you need to be taller to ride on this ride if that’s what you think.

    So I understand you *believe* that regulation and taxation is onerous. And I’ll bet you have some anecdotes that describe perfectly awful abuses of power by government. It’s like shooting fish in a barrel to find these; after all, the meetings and documents are public, unlike, e.g., Enron.

    But nobody likes a whiner…8^)

    One other recommended reading, essential for where you are, is my next-to-last blog post here: http://www.laprogressive.com/progressive-issues/human-nature-prejudice/

    Take it to heart.

  2. Joshua says

    Wow another Strawman article! wicked shocker there;)

    I love revisionist history as much as the next guy but..

    http://en.wikipedia.org/wiki/Cash_and_carry_(World_War_II)

    You think this might have stimulated the Pre-WWII economy maybe just a little, how about the lend lease repayments after the war or the manfacturing giant that the war had created when everyone else was a bombed out wreck. Saying that FDR / New Deal saved the economy is one the most intellectualy dishonest statement going.

    FDR and Regan had one thing in common…Voodoo economics that just didn’t work in the long term.

    Much of our current economic woes are not due to lack of regulation but due to lack of enforcement of existing regulations. (ie corruption for those who can’t keep up).

    High taxation during a recession or depression is a recipe for disaster , so is low taxation during a boom. Taxation is another brake on the economy, just like interest rates (though Regan disagreed with that concept).

    By what right do you take the property of a citizen, who has not commited a crime, to provide goods and/or services to another , who has NOT provided any service to the former or the body politic?

    Why are Progressives so generous with other peoples stuff? Do you not believe in Private Property Rights?

  3. Don Duitz says

    Good evidence of the Reagan folly. I approve of Obama generally but, his keeping Geithner and Summers are anti Roosevelt in approach to financial controls, as shown above; and, dead on wrong! . He MUST do better.

    • joseph bell says

      that is correct ,but if you know of Reagans dirty little Social Security Tax that is still in place today , you know he royally screwed the usa … WSJ said so , i say so … If you made 400$ your S.S.Tax would be more than your combined Federal and State Tax … no kidding Ronald the clown ,, if they dropped it now , giving workers in effect a good pay raise maybe it would help a little but as he said above , Sommers and WINTERS (Geithner ,bernanke Sacks gold must all go ,now thank Sharon and Dick …

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