What Has Reagan Wrought?

Blog Post #4

Prompt: What was a historical figure, event, or detail that particularly stuck out to you or interested you? How did the author use this figure, event, or detail to support his/her overall argument or interpretation?

Source: Judith Stein, Pivotal Decades, Chapter 11 “Age of Inequality,” Sections “Right Turn” and “What Reagan Wrought: Consumption, High Dollar, and Trade Deficits.” 

Preface: Having covered FDR and the New Deal in my previous post, I will now cover what I see as being in many ways the undoing of the New Deal by Ronald Reagan. Reason I have this view is due to the evident manipulation of currency and consumer spending, as well as the governmental spending and the subsequent debt that ensued, which Stein describes through the first sections of the chapter. I will focus especially on Ronald Reagan in this blog post as I am learning about his administration’s economic policies and practices in depth for the first time, previously having very limited knowledge on the time period. I find the comparison between FDR and Reagan to be especially interesting due to only a few decades separating the two, yet their policies were polar opposites. 

Answer: Beginning the chapter, Stein summarizes the following about Ronald Reagan and his approach to the economy, “A new recipe for economic growth prescribed freeing capital from taxes and unions and liberating markets from government rules.” (Stein, p.262) This is a polar opposite approach to both the FDR agenda and the previous presidential administration of the Democrat Jimmy Carter. For many, the Reagan years are characterized by strong sentiments of conservatism, yet not protectionism. Going over the general characteristics of the Reagan terms, Stein also adds the following, “Reagan reduced taxes on capital, dismantled business regulations, privileged the fight against inflation, tolerated high unemployment, fought unions, promoted an expensive dollar, and championed free trade.” (Stein, p.262) Again, a clear opposite approach to that of the New Deal. To start off, the core purpose of the New Deal was to eliminate unemployment and to promote unions, the government essentially established unions with programs such as the National Recovery Act, and the Tennessee Valley Authority Act. The New Deal also promoted an expensive dollar, but only after inflation proved to be an issue as government spending coupled with the removal of the gold standard devalued the fiat currency. 

Continuing on with the theme of dismantling New Deal ideals, Reagan also held as a core principle that the government has become too large, being in turn burdened unnecessarily, thinking that “The nation’s ills were rooted in a bloated federal government that overtaxed and overregulated and generated inflation by spending too much and printing too much money, which discouraged work, risk- taking, saving, and investment.” (Stein, p.263) Staying true to the modern interpretation of American Republican ideals, Reagan was not for a massive government that was involved in all facets of the economy. Understandably so, if the government imposes itself and its authority and begins to regulate sectors and industries, it also assumes responsibility for the shortcomings of their decisions. One thing to note is that this is also the opposite thinking to Roosevelt, who pushed for widespread taxation which in turn would pay for an individual’s savings and retirement. Here, however, we see a rejection of taxation on the grounds that it hinders saving and investment, simply a different economic philosophy. The return to a more hands-off way of governance was rationalized as “U.S. society was too complex to be managed and markets were so rational that they anticipated and thus annulled government interventions.” (Stein, p.264) This is a fairly logical stance, as free market capitalism prides itself on its ability to adapt to any sort of intervention. What does indeed confuse me, is that although this was the mentality of the Republicans at the time, they nonetheless tried to manage the market not directly, but through influencing taxation and the citizens themselves, which influenced the markets in turn. Backwards in a way. What this then resulted in was the strengthening of the dollar and the eventual outsourcing of manufacturing as the companies did not want to pay wages in the highly prized dollar which gained value in part due to renewed foreign investments. 

Unions were dealt a massive blow, definitely undoing the great push towards workers rights which was seen during the New Deal. In 1981, over “…thirteen thousand members of the Professional Air Traffic Controllers Organization (PATCO) walked off their jobs. Reagan then fired them, and they were replaced by managers and air controllers from the military.” (Stein, p.267) This may seem as a no-nonsense answer to a complex issue, which it was, airports and in turn the nation could not function without such a large portion of airport staff having walked out. The greater effect of Reagan stepping in and firing all those employees, is that “Political morality had changed, and private sector unionization plummeted from 20 percent in 1980 to 12.1 percent in 1990. No longer were consensual agreements between workers and employers necessary.” (Stein, p.267) This was a huge blow for workers rights, a consequence that is unfathomable to have occurred during Roosevelt’s terms. The political morality that Stein describes, is an interesting choice of diction, as in just a few decades the advancements towards workers rights have seemingly been set back with one simple act. Corporations and large institutions who were in the essential public sector, could simply hire replacement workers, regardless of previously made non-contractual union agreements. 

Having covered the economic policies, what were the outcomes? Well, Stein presents the following data, that “Every form of saving—personal, business, and public— fell during the 1980s. Investment did not rise. During the 1970s investment was 18.6 percent of GDP; in the 1980s it was 17.4 percent.” (Stein, p.268) Investment is crucial, it signifies the public’s trust in the economic future of the nation, for it to be so low after the relatively turbulent 1970s shows that a rebound was not widely believed to be coming in the future decade. What is more striking however, is that savings in general fell throughout the 1980s. This can be attributed to consumerism, as well as the ever changing taxation policies of the Reagan terms. Generally speaking, it is worrying for the savings of the population to fall, during Roosevelt’s terms we saw the opposite, a rise in savings as well as overall national economic investment. Another outcome of Reagan’s economic policies was the previously mentioned “high” dollar, whose “…overall value rose 63 percent from 1980 to March 1985—the equivalent of taxing U.S. exports by 63 percent and providing U.S. imports with an equivalent subsidy.” (Stein, p.269) Both of these analogies offered by Stein show that the expensive dollar was not capitalized on as much as it should have been by the government. A very strong currency allows a nation to be comfortable with its relationship between imports and exports, yet the opposite was seen, “Non- oil imports rose from 5.9 percent of GDP in 1979 to 7.5 percent in 1986. On the other hand, exports fell from 9 percent of GDP in 1979 to 7.2 percent in 1986.” (Stein, p.269) The strong dollar also planted the seeds of outsourcing, as the strong value of each dollar having to be paid to workers was also a great value of each dollar that could be saved if the production of a company or industry were to be moved abroad. To go back to the New Deal, Roosevelt in a way had the opposite problem, that after taking the dollar off the gold standard he had to build up its value simultaneously with a seemingly infinite barrage of government spending. 

Overall, Stein brings up many specific statistics to demonstrate her argument in this chapter, that the economic policies during Reagan’s two terms were experimental with massive future implications, similar to those of Roosevelt. I think Stein’s interpretation of this short period of American economic history is quite accurate, especially her numerous comparisons to the post Great Depression and WWII America. My key takeaway is that it is fair to say that Reagan’s economic policies were polar opposite to Roosevelts. Furthermore, I believe that it is Reagan’s two terms which drove the Republican-Democrat divide on the matter of economic policies further than ever before, to this day even.