Nearly a half-century ago, a new economic ideology achieved dominance over FDR’s New Deal. Reaganomics – the friendly moniker for a radical notion called supply-side economics – asserted that slashing taxes and regulations would spur rapid growth by unleashing the “supply side” of the economy. After the high interest rates and stagflation of the mid-’70s, Americans were ready to try something new. Today, with rising debt, rising income inequality, and diminished public services, the wisdom of supply-side economics deserves another look.
It can be argued that Reaganomics-boosters never truly believed it would deliver what they promised. Even before 1980, the late Republican strategist and political economist Jude Wanniski created what he called “The Two Santa Claus Theory,” which warned Republicans to not compete with Democrats on government programs (the first Santa Claus), but instead to tout tax breaks to woo voters (the second Santa Claus). Revenue losses from tax cuts would be replaced by new growth, he posited, but it became clear almost immediately that this was not true.
Tax cuts were the rage during the 1980s at federal and state levels, as politicians promised savings for the middle class. The immediate results were exploding deficits and reduced public services. In-state college tuition increased as state legislatures reduced public contributions. Public hospitals were closed. Homelessness increased dramatically as people were literally put out on the street.
Under the past four Republican U.S. presidents, national debt rose dramatically – Ronald Reagan by 186%, George H.W. Bush by 54%, George W. Bush by 101%, and in Donald Trump’s first presidency, by 40% – driven by substantial tax cuts to upper-income classes and corporations, along with the Afghanistan and Iraq wars in G.W. Bush’s presidency.
Despite claiming that “a rising tide lifts all boats,” the last four decades have seen most Americans losing wealth, while that of the top one percent has tripled. Supply-side economics created a new Gilded Age.
Financial deregulation twice led to spectacular market collapses: first in 1987 with the savings & loan failures, and again in 2008 with the collapse of mortgage securities and the consequent Great Recession. In both cases, huge government bailouts were granted to corporations and financial institutions while regular Americans waited years for their savings to recover. While one might argue the bailouts were “necessary,” it is important to point out that the public policy that led to both collapses was avoidable and irresponsible.
Michael Miles is a retired IT analyst with a master's degree in history.Photo courtesy of Michael Miles
The best argument against Reaganomics occurred in the mid-’90s, when House Republicans raised income taxes and trimmed social services with President Bill Clinton. One can reasonably argue over the formula, but that agreement led to years of economic growth and budget surpluses, to the point where Federal Reserve Chairman Alan Greenspan mused about not having enough debt to issue bonds. Unlike the 1980s, the ’90s demonstrated that tax collection needs to be commensurate with spending if we are going to maintain a healthy, stable economy.
With the current Republican budget resolution calling for dramatic reductions in Social Security, health care, veterans’ benefits, and public education, among many other critical programs, in order to extend the Trump tax cuts for the wealthy and corporations, we need to ask ourselves if we are willing to accept the failed legacy of Reaganomics. Is a tax refund of a few hundred dollars worth losing tens of thousands of dollars in health insurance, education, and retirement benefits? But more importantly, how do we want to shape our future? Will it be one where everyone has financial security, or just a few elites getting richer?
Michael Miles is a retired IT analyst with a master’s degree in history. He lives in Shaker Heights.
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