Paul Craig Roberts
July 23, 2012
What causes some people to feel compelled to make uninformed digs at President Reagan? Is it just that they are brainwashed or, if they are thoughtful people, just too involved with other matters to be well informed about Reagan? How many of the digs at Reagan are deflective activity by Clinton/Bush/Cheney/Obama shills diverting attention from the real causes of our woes?
Reagan and his administration are not above criticism, but Reagan most certainly is not to blame for the financial crisis or for the neoconservative wars for American hegemony.
The Reagan administration’s interventions in Grenada and Nicaragua were not, as is sometimes claimed, precursors to Clinton’s war on Serbia and the Bush and Obama wars on Iraq, Afghanistan, Libya, and Syria, with more waiting in the wings. Reagan saw his interventions in the context of the Monroe Doctrine, not as an opening bid for world hegemony.
The purpose of Reagan’s interventions was to convince the Soviets that there would be no more territorial gains for communism. The interventions were part of Reagan’s strategy of bringing the Soviets to the table to negotiate the end of the cold war. Reagan believed that getting the Soviets to negotiate would be more difficult if they were still making territorial gains or gains that the Soviets might perceive in that way. Possibly, Reagan’s advisers were wrong to put a Marxist interpretation on political events in Grenada and Nicaragua, but that is the way Reagan understood them.
When Reagan understood what the Israelis had lured him into in Lebanon, he pulled out. Reagan opposed war as an instrument of American hegemony. It is the neoconservatives who use war to achieve hegemony. Reagan was not a neoconservative.
The left-wing is more interested to blame Reagan for the financial crisis than to understand the crisis. The left-wing accuses Reagan of deregulating the financial system and of setting up a “Plunge Protection Team” to rig financial markets.
I have found that giving people information that they do not want to hear is a frustrating experience. Heaven forbid that anyone would have to overcome their ignorance or rethink their prejudices. But I keep trying.
First, however, I want to answer two questions: What is the source of the left’s animosity toward Reagan, and “why does Roberts keep defending Reagan?” The latter question is usually answered for me by people who know nothing of my motives but are nevertheless comfortable in answering for me: “He was part of it and can’t admit he was wrong.”
The left’s animosity toward Reagan is a mystery. Consider Reagan’s economic and foreign policies. The stagflation that Reagaonmics cured was hurting the poor, not the rich. The rich raise prices; the poor pay the higher prices. There is always a risk of a cold war going hot. Negotiating the end of the cold war did not please the military/security complex, and apparently not the leftwing peaceniks either.
The first business of the new Reagan administration was to complete the Carter administration’s plan to save autoworker jobs by imposing quotas on imports of Japanese cars. Reagan did this even though it demoralized his conservative free trade supporters. Reagan got no thanks from the left who denounced him instead for bailing out his Republican buddies in the auto business.
I still hear from Readers hostile to Reagan that Reagan’s firing of the illegally striking air traffic controllers is proof that he was a “union buster.” One sometimes feels sorry for people who have so little grasp of politics. For a new president to let himself be rolled up by a poorly-advised, illegally-striking public sector union would have rendered Reagan impotent and without the power to achieve his ambitious agenda of changing the economic and foreign policies of the US. Even Reagan’s court historians do not realize Reagan’s extraordinary achievements in economic and foreign policy.
It wasn’t Reagan’s agenda that was anti-left; it was the rhetoric Reagan used in order to keep the conservative base in line. Conservatives did not understand supply-side economics any better than did the economics profession and Wall Street. Conservatives wanted a balanced budget, which is their solution to every economic problem. Reagan was talking about a 30% reduction in marginal tax rates (the rate of tax applied to increases in income) and about faster depreciation schedules for capital investments.
What this meant to conservatives was more budget deficits. Wall Street never lobbied me to repeal Glass-Steagall, but Wall Street did lobby me to water down the Reagan tax rate reductions.
On the cold war front, conservatives were very suspicious of negotiating with the Soviets. Some conservatives put out the story that Gorbachev was the anti-christ, that he would take Reagan to the cleaners and we would all end up living under the red flag of communism.
All of this was over the heads of the left-wing. Being creatures of words, the left was moved by Reagan’s words, not by his actions. Whatever words David Stockman and others put in his speeches about cutting back government and the welfare state, the record is clear that Reagan did not cut back government or abolish the welfare state.
I defend Reagan because I am fair and believe people should be judged on their real record, not on a fabricated or demonized one. More importantly, although people seem unable to learn from history, a lack of understanding can lead to the wrong lessons being drawn from the past.
For example, by the time of George W. Bush’s presidency, jobs offshoring by US corporations had reduced US GDP growth and employment opportunities in manufacturing. The Bush administration’s solution was to reapply the Reagan solution–tax rate reductions. However, Reagan’s tax policy was directed at increasing the supply of goods and services relative to demand in order to stop the rise in inflation and unemployment. Supply-side economics is not a cure for declining employment opportunities and GDP growth due to jobs offshoring. From a policy standpoint, the Bush tax rate reduction was pointless, and it was ineffective as an answer to an economy in decline from jobs offshoring.
The Republicans, however, misreading the past, thought that tax reductions and de-regulation were the stimulus that the economy needed. Their mistake has left us with a hollowed out economy with the once prosperous middle class in decline and with an ongoing financial crisis that is held off with the Federal Reserve’s policy of negative rates of interest on overpriced bonds.
If all the uninformed people who ranted about “Reagan deficits” and “tax cuts for the rich” had bothered to educate themselves about the policy that they so desperately wanted to demonize, a wider understanding of the Reagan era might have created an audience among Washington policymakers for writings by myself and others who stressed, to no effect, the adverse impact of jobs offshoring on the economy. Instead, this cancer, masquerading as the benefits of free trade, has gone untreated for 20 years.
I agree that this is a lot of history in a few words, but it suffices to make the point. Now to get on with Reagan’s non-responsibility for the financial crisis and war on terror.
The Presidents Working Group on Financial Markets, created in the last year of the Reagan administration, was labeled the “plunge protection team” by the Washington Post. The Working Group consists of the Treasury Secretary, Federal Reserve Chairman, and the financial regulators.
I do not know the reason the Working Group was formed other than it appears to be a response to the October 19, 1987 stock market decline. I suspect that there was concern that speculators either drove down the market by short selling or took advantage of a decline in the market to make money by short selling that worsened the crisis. If speculators were indeed gaming the market at the expense of pension funds, IRAs, and long term investors, the government might have felt obliged to come up with new regulations or to use moral suasion or even direct intervention in order to protect legitimate investors from the greed of speculators. If speculators short the market and the Federal Reserve buys long, the shorts don’t pan out for the speculators.
How the Working Group has evolved since 1988 I do not know. The Treasury itself seldom has any money, especially these days when it lives hand-to-mouth from bond auction to bond auction. It is the Federal Reserve that can create money. It would be easy for the Federal Reserve to offset the effect of short sales on the market average by purchasing stock index futures.
Whatever the original purpose of the Working Group, it was not to help protect the foreign exchange value of the dollar from a low interest rate policy that the Federal Reserve regards as a necessary response to the 2008 financial crisis in order to maintain the solvency of banks too big to fail, and it was not to disguise the exit of investors from the stock market. The purpose of the Working Group was to prevent private speculators from gaming the market or to make them pay a price if they did.
The Federal Reserve’s use of the Working Group has probably evolved with the crisis, just as the Federal Reserve has used its balance sheet in new ways that go beyond its normal operations. However, it is absurd to blame Reagan for the Federal Reserve’s different use or misuse of the Working Group twenty-four years later, if that is indeed what is occurring.
What explains the left-wing’s obsession with Reagan to the neglect of the serious war crimes of the Clinton, Bush, and Obama regimes and to the neglect of the destruction of the civil liberties guaranteed by the Constitution? Reagan is not responsible for any of this. Reagan had no war on terror, no PATRIOT Act, and no police state. Reagan neither assassinated nor put in indefinite detention any US citizen.
As for financial deregulation, it began two presidents after Reagan with the Clinton administration’s repeal of Glass-Steagall.
By curing stagflation, Reagan gave the economy a new lease on life. By ending the cold war, Reagan made it possible to curtail Pentagon spending and to balance the budget. It is not Reagan’s fault that Washington responded to the Soviet collapse with a new militarism in pursuit of world hegemony. That goal appeared with the neoconservatives’ “Project for the New American Century” a decade after Reagan left office.
Yet, the left-wing remains obsessed with Ronald Reagan, wasting its energy in uninformed tirades against an administration that many leftists are too young to have experienced and know nothing about.
This article first appeared at Paul Craig Roberts’ new website Institute For Political Economy. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His Internet columns have attracted a worldwide following.
This article was posted: Monday, July 23, 2012 at 12:57 am