Bill George, the press secretary for Congressman Tom McClintock protests that in some previous editorials, I’ve maligned his boss with “utterly preposterous charges.” Unfortunately, I’ve done my homework, and Mr. George’s specific answers are either wrong, or misleading.
Here are his statements and my answers:
Bill George (BG): A rambling post by Adam Eran of the leftist blog LA Progressive … hurls utterly preposterous charges against Ronald Reagan and then accuses Congressman Tom McClintock of “mendacity” for suggesting what everyone knows: that Reagan’s administration marked a period of economic recovery and prosperity. Let’s go over Mr. Eran’s claims point by point:
Adam Eran (AE): Mr. George is welcome to his opinions, most of which I’ll debunk below, but “rambling”… now that hurts!..;-). Notice also he skips the points he can’t answer. For example, McClintock claims taxes and regulation are driving people from California, but the Census bureau reports nothing but year-over-year population increases.
As for mendacity, Mr. George’s boss, Congressman McClintock fabricates facts just to keep in practice as far as I can tell. See McClintock”s Neocon Morality Tortures the Truth” for a list of such falsehoods.
BG: 1. [Quotes AE:] “Reagan’s ‘regulatory burden’ reduction led to the Savings and Loan bailout.” Most economists agree that the S&L crisis was primarily caused by a real estate collapse amplified by a combination of factors, including the tax increases of 1986 which dramatically reduced the value of real estate investments, the Federal Reserve’s anti-inflation policies, and the elimination of moral hazard by the government insuring troubled institutions.
AE: That unspecific “most economists” apparently does not include those who have actually examined the S&L Bailout. Also, Mr. George entirely overlooks the big mistake in that 1986 tax law: the retroactive revision of what could be depreciated in rental property. Even rental properties that had been successful until then failed, if they had relied on that write-off. Enough of these failed to make their lenders suffer (sound familiar?).
The charities dealing with the increased number of homeless (e.g. “Loaves and Fishes” in McClintock’s neighborhood) often began their work a few years after Reagan removed that small Federal depreciation subsidy for rentals. Homelessness is not just a shame, it’s a public policy.
As for the Savings & Loans: Brookings scholar Martin Mayer’s book The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry outlines the accounting shenanigans enacted by the Reagan administration that led to the worsening of the S&L failures that occurred in the wake of the property failures resulting from that tax law. These were designed to help the S&L’s “grow their way out of trouble.” Actually, they allowed S&Ls to keep bad loans as assets, hoping that even riskier investments would bail them out.
These loopholes significantly worsened the failure and fraud. Without these de-regulatory accommodations for fraud, the scandal might have remained relatively small, but it ballooned into the largest political and financial scandal in U.S. history — that is until the Bush 43 financial scandals, also produced by deregulation.
To cut to the chase: Such bank failures were unknown since FDR regulated them, but they somehow magically reappeared on Reagan’s deregulatory watch! What a coincidence!
The Democrats were complicit, but Reagan campaigned as a deregulator. That deregulation, along with the 1986 tax law which Reagan signed, certainly were prime causes of this second-worse ever scandal. Reagan and his deregulation were responsible, just as much as the Harding Administration’s negligence produced the orders-of-magnitude smaller Teapot Dome scandal.
BG: 2. [Quotes AE:] “The Reagan administration had so little respect for regulations that its members received 29 indictments for malfeasance in office…Clinton’s administration has zero such indictments.” Zero such indictments? Has Mr. Eran forgotten Clinton Housing Secretary Henry G. Cisneros who was indicted on 18 counts of conspiracy, obstruction of justice and lying to the FBI? Or Clinton’s Agricultural Secretary Mike Espy, indicted on 39 corruption counts? Or Clinton Associate Attorney General Webster Hubbell, sentenced to 21 months in federal prison? Or the obvious fact of Clinton’s perjury to a grand jury for which he was impeached in the House of Representatives? Need I go on?
AE: Mr. George fails to understand the phrase “malfeasance in office.” It means mixing the *public’s* business with criminal activity, not private malfeasance, which can happen in or out of office. Malfeasance in office looks like this: the Reagan administration fought an illegal war in Central America funded with drug money and weapons sales to an enemy of ours, Iran. Now that’s malfeasance in office! The fallout from Iran-Contra made Reagan second only to Nixon in the malfeasance-in-office category.
As for Mr. George’s Clinton administration citations: Web Hubbell was imprisoned for his personal tax peccadilloes, not his official actions. Cisneros was indicted for lying about his mistress in the FBI background check before he got in office. Espy was indicted (and later acquitted) for taking bribes, not for his actions as secretary of agriculture.
The Espy indictments were particularly egregious. Says Wikipedia of the Espy prosecution: “One of the jurors stated ‘This was the weakest, most bogus thing I ever saw. I can’t believe Mr. Smaltz [the special prosecutor who spent more than $20 million prosecuting Espy] ever brought this to trial.’ At least four other jurors echoed this view, though with softer words.”
And somehow, no matter how much it disappoints the neocons, Clinton lying about Monica Lewinsky doesn’t quite rise to the “malfeasance in office” standard of performing criminal acts in the president’s public capacity, killing people in Central America, or selling weapons to Iran, even if Clinton was located in a government office when he did his private malfeasance.
Notice, also, that far from being acquited, the Reagan administration’s malefactors had to rely on presidential pardons to avoid prison.
BG: 3. [Quotes AE:] “And Reagan just cut taxes? What about the eight tax increases that he signed–-all regressive, that is, all falling most heavily on the poor.” Actually, the major Reagan tax increase was the Tax Reform Act of 1986 and it was an economic disaster (as discussed above). Mr. Eran ignores the 1981 Economic Recovery Act , the core of which provided a 25 percent across the board cut in personal marginal income tax rates which comprised the biggest single tax cut in the nation’s history and produced what was then the biggest peace-time economic expansion in the nation’s history.
AE: Mr. George needs to read Nobel Laureate economist Paul Krugman’s book Peddling Prosperity which debunks the claim that Reagan’s policies produced “the biggest peace-time…expansion.” Krugman takes some pains to disclose that this widely touted expansion (called “Morning in America” by the Wall St. Journal editorial page) was an average business cycle recovery with flat capital spending. Unlike the neocon defenders of Reaganomics like Bruce Bartlett, a Kemp staffer who had a hand in authoring the 1981 tax reduction (“Kemp-Roth”), and Jude Wanniski, apologist for Supply Side economics, Krugman is an actual economist.
Mr. George’s contention is as credible as saying tax revenues increased because of Reagan’s policies, even though Reagan presided over record deficits. Reagan did promote a crank theory known as “Supply Side” economics to justify these tax cuts, and the Supply-Siders promised increased government revenue because of the exceptional recovery that would result from the tax cuts, but the promised revenue boom never appeared, and the economic recovery was average, not extraordinary.
Incidentally, even cutting 25% “across the board,” as Reagan did for the income tax, favors the wealthy. Cutting 25% from the 70% tax bracket (a reduction of 17.5% in the rate) favors the wealthy more than cutting 25% from the 15% tax bracket (or 3.75%).
No matter how Mr. George tries to slice it, the Reagan tax cuts favored the rich far more than the poor.
BG: 4. [Quotes AE:] “Reagan cut taxes on the richest roughly in half. Poor folks got a tax hike.” According to a 1996 report by the Congressional Joint Economic Committee: “The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988. .. Between 1981 and 1988, the income tax burden of the middle class declined from 57.5 percent in 1981 to 48.7 percent in 1988.”
AE: Note that, typical for neocon talking points, Mr. George distorts this picture by only citing income taxes. He both ignores that the top tax brackets were roughly halved by Reagan’s tax policies, and ignores the effect of increasing payroll taxes.
Meanwhile, back in the U.S.A. on planet earth, in paychecks for the middle class — say for those making roughly $50K — payroll taxes roughly equal the income tax deductions. Omitting the payroll tax distorts the shift in that total tax burden beyond the bounds of credibility.
So we can accept Mr. George’s invitation and enter neocon bizarro world, otherwise, we must acknowledge that the bottom 90% of real incomes have been in decline since Reagan’s policies became law, while the top incomes (the 99.99th percentile of real incomes) have increased roughly fivefold. See the New York Times article for the footnotes.
But hey, who are you going to believe? Neocon shills for voodoo economics, or your lyin’ eyes?
BG: 5. [Quotes AE:] “McClintock ignores the actual biggest expansion in history. That occurred after the Clinton administration balanced the federal budget by raising the top rates a mere 3%.” Again from the 1996 report of of the Congressional Joint Economic Committee: “The 1993 Clinton tax increase appears to be having the opposite effect on the willingness of wealthy taxpayers to expose income to taxation. According to IRS data, the income generated by the top one percent of income earners actually declined in 1993. This decline is especially significant since the retroactivity of the Clinton tax increase in that year limited the ability of taxpayers to deploy tax avoidance strategies, temporarily resulting in an increase in their tax burden. Moreover, according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89). Furthermore, according to a study published by the National Bureau for Economic Research, the Clinton tax hike is failing to collect over 40 percent of the projected revenue increases.”
Furthermore, Mr. Eran ignores the factors that actually produced the Clinton expansion: Clinton’s welfare reform act and NAFTA and the aspects of Clinton’s fiscal policy that embraced significant tax cuts, including ending the “retirement test” for social security benefits (a huge tax cut for elderly workers) and signing the largest capital gains tax cut in history which exempted owner-occupied homes from any capital gains tax and reduced government spending as a share of GDP by an amazing 3 ½ percentage points – all conservative policies that leftists like Mr. Eran normally disdain.
AE: The “Congressional Joint Economic Committee is a Republican house organ, not an objective source, but even if what it says is accurate, Mr. George ignores the neocon prophesy that the Clinton administration raising that marginal tax rate by 3% would produce economic disaster. Instead, Clinton’s was the only administration since Reagan’s to balance a budget, no matter whether it collected all promised revenue or not, and the economy was not disastrous, as predicted by Newt Gingrich and Grover Norquist.
Unanswered: If it’s true that taxpayers in the top brackets reduced their tax liability by, say, keeping money in their companies, wouldn’t the resulting increased productive capacity make the economy as a whole grow?
As for reducing capital gains on homes…wouldn’t this be one critical element of a future housing bubble? I’m not sure praising this is in Mr. George’s interest.
…And could government spending fall as a percent of GDP if that GDP grew? Gee, I wonder!
Such mathematical tricks are common in the world promoted by neocon think tanks, but Mr. George still hasn’t managed to make them convincing, at least to me.
Several cited reasons for the expansion are too small to matter. The economic impact of the entire federal welfare budget could not equal a single weapons system (e.g. the non-working “Star Wars”), and the NAFTA-induced Mexican imports / exports were and are an insignificant portion of the entire U.S. economy. These are so small they couldn’t possibly produce anything like a difference-making effect on GDP, and certainly no impact so great as to explain the actually exceptional prosperity of the period.
Economists still debate whether NAFTA was an economic positive or negative, and when its effects appeared. “NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification.” says Wikipedia. So NAFTA didn’t have an (agricultural) impact until after Clinton left office.
Incidentally, in the wake of NAFTA Mexican real incomes declined 34% (roughly the equivalent of U.S. GNP declines during the Great Depression), and Mexican subsistence farmers were bankrupted by the imported, subsidized U.S. corn. (See Ravi Batra’s Greenspan’s Fraud for the footnotes.) Predictably, the economic refugees have come streaming northward in search of jobs to feed their families. This is particularly egregious because roughly half the Mexican population got by on less than $4 a day. (Source: Juan Enriquez’ “The Untied States of America: Polarization, Fracturing, and our Future”)
Furthermore, if NAFTA was such a good idea, why did the U.S. have to come up with $20 billion to lend Mexico so it could manage the capital flight that immediately followed its enactment?
Note: The Bush 41 administration authored NAFTA, Clinton added the (seldom enforced) labor and environmental standards, and Newt Gingrich mustered the votes to pass it.
BG: 6. [Quotes AE:] “McClintock also ignores Reagan’s record as California governor. There, he raised taxes far more than the current sales tax rise (inflation adjusted), and, of recent governors he presided over the largest spending increases.” True, in what Reagan later called his biggest mistake as governor, he raised taxes by roughly $6 billion in current, inflation-adjusted dollars. That is significantly less than the $10 billion increase (inflation-adjusted) by Pete Wilson and the $13 billion increase last April by Arnold Schwarzenegger. More to the point, at the time Reagan agreed to the tax increase, the state was spending just $1,100 per capita, inflation adjusted – less than half what it is spending today. In other words, if we had a Reagan-sized budget today we could cut taxes by more than half!
AE: First, give Mr. George his due. Reagan’s tax hike was only the biggest at the time he signed it, not bigger, inflation adjusted than Wilson’s or Schwarzenegger’s tax hikes.
The source for the “largest spending increases” statement is the San Francisco Chronicle.
I’ve answered the other contentions, with footnotes to sources in this LA Progressive article.
Notice that Mr. George distorts the argument when he cannot answer it. I didn’t say Reagan spent half of today’s per-capita, state spending. I quoted McClintock’s contention that “a generation ago” the state spent half what it does today. Here’s what I actually said:
“McClintock says that a generation ago, the state ‘spent about half what it does today AFTER adjusting for both inflation and population growth.’ California’s official data says otherwise. Per-capita spending in 1986 was $1,459.47 ($2,812.99 in today’s dollars), and in 2009, $3,553.76 — an increase of roughly 1% a year, assuming that the inflation adjustment is accurate for state spending where more rapidly increasing components like health care and education predominate. In the last decade even the inflation-adjusted increase has been roughly 1/8% a year–hardly ‘double.’
Mostly, Green’s figures don’t agree with the official budget numbers, and he does not argue accurately.
BG: 7. [Quotes AE] “The economy after Reagan ‘cut’ taxes experienced an average business cycle recovery with one small exception: Capital spending–the engine of future real income and productivity growth–was flat” The average annual growth rate of real gross domestic product (GDP) from 1981 to 1989 was 3.2 percent per year, compared with 2.8 percent from 1974 to 1981 and 2.1 percent from 1989 to 1995. According to the Cato Institute: “On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
- “Real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years.
- “Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.
- “Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
- “The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.“
AE: The Cato institute is a libertarian “think” tank. Lumping Ford and Carter together, what effect does that have? And which are the pre- and post-Reagan years? Are they carefully selected to make Reagan look good? Who knows?
The neocons, and their think-tanks like Cato have a history of employing non-economists to simply shill for whatever convenient snake oil they are selling. Here’s what Wikipedia says about Bruce Bartlett, one of these lost souls, and a Cato fellow in 1993:
“In January 1977, Bartlett went to work for Congressman Jack Kemp (R-New York) as staff economist. Bartlett spent much of his time on tax issues, helping to draft the Kemp-Roth tax bill, which ultimately formed the basis of Ronald Reagan’s 1981 tax cut. Bartlett’s book, Reaganomics: Supply-Side Economics in Action appeared in 1981 (New Rochelle, NY: Arlington House Publishers). He also co-edited the book The Supply-Side Solution (Chatham, NJ: Chatham House Publishers, 1983).”
If you look at Bartlett’s biography, you’ll see that, far from being an economist who submits his theories to peer-reviewed publications, he was educated as a historian. In other words, he’s a hired marketer (who recently lost a think-tank position because he criticized Bush 43).
In answer, I suggest Nobel Laureate actual economist Paul Krugman’s Peddling Prosperity. Interestingly enough, it also provides an answer to the general trend to accept slanted, non-peer-reviewed economics (or climate or energy science) as scientific truth. In clearly-written detail, Krugman demonstrates the Supply Siders are snake-oil salesmen, not scientists, and provides the footnotes to back it up.
For a briefer answer, we need go no further than Reagan’s own running mate, and hand-picked successor, Bush 41, who called Reagan’s proposals “voodoo economics,” or Reagan’s own budget director, David Stockman, who said, on the record, that Reagan’s tax proposals were a hoax (actual words: “Trojan horse.”).
Recommended reading for an enlightening look at the effects of tax cuts: “Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole.”
BG: 8. [Quotes AE:] “Reagan deficits exceeded all previous administrations deficits combined.” True, under Reagan, the federal deficit expanded from 2.6 percent of GDP to 5.3 percent in 1986 before it began falling, adding more than $1 trillion in red ink to the national debt. Yet in just a single year, the Obama administration has posted a $1.4 trillion deficit – more than 10 percent of GDP. Mr. Eran deplores the former while ignoring the latter – a gross exercise in intellectual dishonesty. And the difference between the two deficits (in addition to their order of magnitude) is this: Reagan devoted the deficit to tax cuts and Obama to spending increases. Reagan’s approach worked. So far, Obama’s has failed.
AE: Really? You mean that by continuing the bailouts and programs of the Bush era (whose illegal Iraq war is estimated to cost $3 – 7 trillion, ultimately), and by managing the awful economy left him by Bush 43, Obama has spent more than Reagan? And his policies have had time to work?
Let’s call this one a tossup. I wouldn’t defend a man I didn’t vote for (Obama).
Update: George suggests that Obama’s policies, a whole year into his presidency have failed, while Reagan’s worked. He may not remember, but I do: In 1982, two years into Reagan’s presidency, oil prices spiked at $42 a barrel, and the prime rate was 21% (mortgages were 16% – 18%). Imagine the economic effects of a gigantic energy “tax” coupled with astronomical interest rates! And you think we have a real estate bust now!
BG: 9. [Quotes AE:] “The truth is that the U.S. economy performed best during periods when the top progressive rates were very high” Perhaps Mr. Eran should broaden his understanding of the economy with a 2007 study whose authors summarize: “The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment.” Who were these right-wing economists? None other than Christina Romer, Chairman of Obama’s Council of Economic Advisors with her husband, David Romer. cuts and Obama to spending increases. Reagan’s approach worked. So far, Obama’s has failed.
AE: Obama’s economic advice is just one of the many reasons I didn’t vote for him. Geithner, Summers, Romer, et. al. are firmly convinced of many wrong-headed notions. One excellent answer to their opinion is Larry Beinhart’s article “Why the Economy Grows Like Crazy Amid High Taxes“.
Full disclosure: Beinhart is not an economist, any more than Jude Wanniski, a promoter of Supply-Side, voodoo economics, was. Nevertheless, Beinhart makes the basic point that high marginal rates mean outrageous CEO compensation isn’t possible — it’s taxed away — so businesses spend their profits on productivity improvements for their businesses, not Ken Lay’s $4,000 shower curtains or John Thain’s $1,200 wastebasket.
During times of high marginal taxes, CEOs get (as they do now in Europe) 50 – 75 times what the line workers get, not 500 times more, as they do in the post-Reagan U.S.A. Spending our treasure on increasing productive capacity means that the makers of $4,000 shower curtains and $1,200 wastebaskets do not prosper, but unless we yearn for the return of Marie Antoinette, I think most people are OK with this.
To state the obvious: The 1950s and 1960s were times when you could work part-time and pay your way through college. I dare you to try that now. Wives could work, but didn’t have to. (See Elizabeth Warren’s Two-Income Trap for the modern implications.)
Pre-Reagan, far more workers had defined-benefit plans — which return roughly twice as much in retirement as the Reagan-promoted defined-contribution 401Ks. McClintock even laments that California no longer has free college for all (Reagan terminated that when he was governor).
BG: Reagan’s approach worked. So far, Obama’s has failed.
AE: Again, I won’t defend Obama. I didn’t vote for him. But I still contend “worked” is far too generous an adjective for voodoo economics. Reagan’s policies turned the U.S. from the world’s largest creditor to the world’s largest debtor, reversed a positive balance of trade, produced an average business cycle recovery at the cost of record-breaking deficits, and removed alternative energy programs from the federal research budget. Reagan even took the solar collectors off the White House, and stopped demanding U.S. auto makers increase their fleet’s gas mileage. How have those policies worked out? Our dependence on foreign oil has roughly doubled since the Reagan years.
That record-breaking deficit is nothing to sneeze at, yet it is a cornerstone of the neocon policy called “Starve the Beast.” If the deficits are big enough, no tax hike could save otherwise untouchable programs — which explains the way Bush 43 tried to privatize Social Security immediately after running on a platform of unrelated issues. If we could only stop having any sympathy for those widows and orphans, and simply be self-reliant! Then the feudal lords in charge of the Republican party would save us!
Face it, deficits are just taxes you haven’t paid yet, plus interest, and no Republican administration since Reagan has had anything but deficits.
As far as foreign policy goes, Reagan traded arms for hostages with our enemies in Iran, prosecuted illegal wars in Central America for which the U.S. was convicted of state-sponsored terrorism by the World Court (for illegally mining Nicaraguan harbors).
Reagan famously asked the Mexican president to endorse the U.S. attack on Nicaragua, one of the poorest nations in the hemisphere, because the Nicaraguans were a threat to the U.S. The Mexican president replied that he would be happy to if there was any way he could comply without being laughed out of office.
Elsewhere, Reagan performed the famous cut-and-run maneuver from Lebanon, and had his greatest military triumph in routing that horrific threat, the nation of Grenada.
Mr. George can try to defend this ludicrous record, but he’s not too convincing. His agenda trumps reality in too many places. Of course, one can expect that from an apologist for the mendacious Mr. McClintock. Again, see my article “McClintock Mendacity.”
For more about the real Reagan legacy, you might try “Tear down this myth : how the Reagan legacy has distorted our politics and haunts our future” by Will Bunch. An excerpt from TruthOut is here.
Mr. George has already sworn his allegiance to right-wing propaganda — he works for McClintock — so I don’t hold out much hope to persuade him of any of the above. After all, Cato, Heritage and AEI have intelligent people on payroll whose sole job it is to ignore the increase in payroll tax. Like many people, it’s hard to get Mr. George to understand things when his paycheck depends on his ignorance.
On the other hand, I must confess, at least in this piece, I do ramble.