By Manifesto Joe
OK, plus one day. Cut me some slack -- I had to work on Super Bowl Sunday.
Ronald Reagan's presidency seems to have become bogus nostalgia for some people. I suppose that for some, it's appropriate. If you hate labor unions and love union-busting, you'd love Reagan. If you hate poor people and think they ought to be punished for being poor, Ronnie was your man. If you think keeping a country in a state of perpetual war is good for it, then Reagan would happily oblige you.
Let's look at some of the real Reagan legacy.
It's not hard to see that the timing for supply-side theory was right. The America of the late 1970s and early '80s was suffering from demand-pull inflation -- too many dollars chasing too few goods. A correction was needed.
What we got was an overcorrection. The misery index of, at one point, 13% inflation and 21% interest rates gave Reagan what he needed to sell a large dose of snake oil to the public. Economist Arthur Laffer's supply-side theory was that cutting taxes would actually increase federal revenue, because (1) with lower rates, more of the wealthy and big corporations would be willing to pay rather than seek tax shelters or be scofflaws, and (2) the resulting economic growth would in itself create revenue.
Well, in 1981, taxes were cut broadly, with the rich and corporate America as the main beneficiaries. So, we sat back and waited. And waited. Almost 30 years later, I'm still waiting for my trickle-down from the first time. It generally felt more like "tinkle-down."
What this did in reality was create a structural deficit, with too many government obligations (including Reagan's defense buildup that amounted to a 40% increase in military spending) versus too little federal revenue. Deficits ballooned to record numbers.
The second year, 1982, Reagan and members of Congress led by Sen. Bob Dole of Kansas overhauled Social Security, raising taxes on it and thereby mitigating some of the revenue-anorexic effects of the tax cuts of the previous year. At least Social Security would be sound enough for another generation or so. But the effect was to raise taxes on less affluent people, and in a way that most of them had no clue thereof. The Social Security tax, you see, is regressive, ceasing after a certain level of income. Rich people don't pay it past a certain income figure. Apparently this was once gauged as a way of getting them on board with the program. But de facto, when Social Security taxes are raised, it's the working class that pays most of it.
Anyway, we kept waiting, and the deficits just got bigger. All that extra revenue that was supposed to come in -- well, it didn't. Supply-side just turned out to be a massive fraud that greatly enriched the wealthy while the incomes of ordinary people stagnated. The mantra we kept hearing from Reagan was simply that "Congress spends too much."
Looking back, there was method in this madness. If you're a laissez-faire economic conservative, you want, as Grover Norquist said, government to be shrunk down to the size that it can be "drowned in the bathtub." That's one good way of accomplishing that.
Despite the Democratic House of Representives' insistence that much of the social safety net be preserved, big cuts did ensue. The financial deregulation that began during the Carter presidency accelerated under Reagan. Government subsidies for housing and the like were slashed -- the HUD budget ended up something like 40% of what it had been, in real dollars. And regulation of any kind was curtailed as too expensive. What that did was essentially tell all the foxes that the henhouse was theirs for the taking.
Thus, the bromides about government being so inept, being so unable to function efficiently, etc., gain credibility of sorts. Naturally, when you put inept and inefficient political appointees in charge of diminished government regulation, you're going to get inept and inefficient "regulation." With such an approach, government indeed becomes the problem, not the solution, as Reagan famously said.
Reagan appointees became notorious, producing a federal government that had more officials either indicted or under investigation than any in recent memory. I believe that the count was over 100 at one point. With the foxes in charge of all the henhouses, how could we have expected anything different?
But obviously, many Americans don't remember any of that now. What they remember, with hazy nostalgia, is a telegenic actor-president who spoke to them about "a shining city on a hill." Some of us -- unfortunately, not enough -- remember that this hill had a curious odor of dung about it.
The savings-and-loan scandal
I'll lift a bit of material from Wikipedia to cover this:
The deregulation of S&Ls gave them many of the capabilities of banks, without the same regulations as banks. Savings and loan associations could choose to be under either a state or a federal charter. Immediately after deregulation of the federally chartered thrifts, state-chartered thrifts rushed to become federally chartered, because of the advantages associated with a federal charter. In response, states such as California and Texas changed their regulations so to be similar to federal regulations.
More important, however, was the moral hazard of insuring already troubled institutions with public dollars. In the view of a savings and loan president or manager, the trend line was fatal over the long haul, thus to get liquid, the institution had to take on riskier assets, particularly land. When the real estate market crashed, the S&Ls went with it. By insuring the risk, the government guaranteed that desperate S&L owners and managers would engage in ever more risky investments, knowing that if they were successful, the institution would be saved, and if unsuccessful, their depositors would still be bailed out.
The S&Ls went on to do a lot of imprudent real estate lending (sound familiar?), among other things that led to the failure of 747 of them. The Resolution Trust Corp. was created to clean up the mess. We have a family friend who worked for the RTC, taking possession of failing S&Ls on behalf of the government. She told us that at one site, she went to the second floor and found a well-stocked wet bar with cut-glass nudes and such decorating the place. Things like this had been apparently done with depositors' money.
Not all of this occurred on Reagan's watch. But for eight years, he championed the sort of deregulation that led to such gross abuses.
More from Wikipedia:
The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government via a financial bailout under the leadership of George H.W. Bush. The remainder of the bailout was paid for by charges on savings and loan accounts —- which contributed to the large budget deficits of the early 1990s.
Bogus nostalgia for "Doctor Feelgood"
People like to be told bright, glittering things by politicians, and Reagan was undoubtedly a master of that. My wife and I never quite understood the appeal. She hated him as an actor in his Hollywood days, and always commented on that turkey neck. I saw him similarly to Gore Vidal, who bemusedly called Reagan "grandmotherly."
Sadly, the man was almost all shine and very little substance. I understand that President Obama would like to pick up some of that shine, so as to rally faltering support for his programs. But Obama has the misfortune of being an intellectual, so despite also being a fine speechmaker, he usually ends up telling people a lot of grim truths that they don't want to hear. Reagan, about as far from an intellectual as it gets, never had that problem, and that was a major reason for his political success.
Coming soon: Reagan is still 100, third chapter.
Manifesto Joe Is An Underground Writer Living In Texas.