Tuesday, October 24, 2006

The Regan Era

After Ronald Reagan’s sweeping victory in 1984, one of his most vigorous critics, House Speaker Thomas (“Tip”) O’Neill, told him, “I’ve never seen a man more popular than you are with the American people.” Reagan maintained that popularity throughout his second term, even though he failed to effect promised changes in social, judicial, and environmental policies, and failed to find solutions for growing budget deficits, declining American productivity, and a widening gap between the rich and poor.

In 1980, his political opponent, George Bush, had ridiculed Reagan’s promise to cut taxes (and thus reduce government income) while boosting military spending and at the same time balancing the budget. Bush called this “voodoo economics.” He nevertheless gladly joined up as Reagan’s vice-president and shared the glory of the “Reaganomics” boom. The U.S. gross national product (GNP) mushroomed to $5 trillion, nearly twice the size of the Soviet and Japanese economies.

Some Americans grew very rich. In 1982 there were thirteen billionaires; by 1988, at least fifty-one.

For various reasons, however, the economy’s health was less rosy than it appeared. First, Reaganomics, especially the tax laws of 1981 and 1986, badly skewed income distribution. The share of the nation’s total after-tax wealth enjoyed by the top 10 percent of the nation’s families rose from 67 percent in 1979 to 73 percent in 1988. By 1990 the richest 2.5 million Americans had enjoyed a spectacular 75 percent income increase during the 1980s. They had nearly as much income as the 100 million Americans who had the lowest incomes.

By the end of the Reagan years, 31.5 million people of the population lived at the poverty level.

A second problem with Reaganomics also appeared. The President argued that his tax cuts would leave wealthier Americans with money that they could invest in productive enterprises. Instead these Americans spent their money on personal goods.

A third problem was that Americans demanded more from their government than they were willing to pay in taxes.

In 1986 alone, Americans spent $150 billion more than they produced. Private borrowing and indebtedness approached $9 trillion. Between 1984 and 1989 they bought $100 billion to 150 billion more each year from overseas than they sold.

Such spending led to a fourth problem: to cover the gap between what they spent and produced, Americans borrowed from foreigners-especially the British, Canadians, Japanese, and Germans. In 1981 the United States had been the world’s largest creditor, the globe’s main source of money. By 1986 the United States had suddenly become the world’s largest debtor. Because of its spending spree, it owed others a half-trillion dollars by the end of the 1980’s. It was the first time in seventy-five years that Americans had owed money to foreigners.

It would be “our children,” as one economist wrote, who would have to pay off the 1980’s debts, or sell off U.S. properties “our kids would otherwise have inherited.”

By 1990, Americans had less control over their economic future than at any time in the twentieth century. Foreigners controlled one-third of all U.S. savings and investments. In addition, Americans dependence on imported foreign oil rose to historic highs in 1990.Americans were the most energy-guzzling people in the world. The Japanese, who had begun radical energy-saving measures after the 1973 oil crisis, were two and one half times more energy saving than Americans. This meant that the Japanese could produce two and one half times more goods per unit of energy than could Americans.

The nation’s economic difficulties meant not only increasing problems at home, but they also meant that U.S. officials had less power to control powers abroad. The days when America enjoyed a large superiority in nuclear weapons, the economic strength to rebuild and control key regions of the world, and the ability to land troops, or CIA agents, to prop up or throw governments against little opposition-all that seemed to be over.

(Quoted from “The American Century” by Walter LaFeber, Richard Polenberg and Nancy Woloch)



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