The Sour Fruits of Reaganomics
Brand, H.
Reaganomics represents a new economic policy, one that in principle seeks to curtail or abandon public service and oversight and replace it by presumably more efficient private agents. True, the...
...They stem from the radical tax reductions proposed by the Reagan administration in 1981 and enacted by Congress...
...The decline of manufacturing threatens the entire U.S...
...The social and economic costs of that recession were appallingly high...
...Furthermore, the prospects for business fixed investment appear rather bleak...
...Before pursuing the argument here, let us admit that a sense of well-being pervades much of American society...
...Aiding the Rich THESE EFFECTS, I WOULD SAY, have been intended...
...And the deficit reflects this intent insofar as it can be used as a club to compel federal spending cuts...
...The other, currently much larger, part is termed "structural," because it presumably arises entirely from deliberate increases in expenditures without tax increases...
...Edward Denison, Trends in American Economic Growth, 1929-1982 (Washington, D.C.: The Brookings Institution), 1985, p. XVI...
...In a period of disinflation, that can become problematical...
...Sixty percent of families in poverty in 1984 had one or more workers, of whom 17 percent held full-time, year-round jobs...
...But no less important has been the notion of the social control of business...
...The tax reform proposed by the Reagan administration, and still pending in Congress, would partially reverse the shift, put into effect in 1981, to fit in with "populist" Republican electoral ambitions...
...It is scheduled to increase 2 percent in current dollars this year, spelling a decline in real terms...
...The uncertainty inherent in the relation between debt and asset value is the financial system's profound source of instability and the central bank's headache...
...2 TABLE II Economic growth, average annual rates 1948-73 1973-85 Gross domestic product...
...These arguments, however sincerely advanced, represent but a smokescreen that has obscured a momentous effort to redistribute resources—first to the private from the public sector, and second from lower to higher income groups...
...But it should be noted that all previous postwar administrations have known when and how to get such a recovery going...
...Unlike the balance sheets of business and state and local governments, the federal budget does not distinguish between capital outlays—for which long payback periods can be assumed and for which long-term debt can be justified—and operating expenses, to be paid out of current receipts...
...In the earlier period, productivity improvement contributed 83 percent to the economic growth rate...
...I limit my response to saying that the steady-state, nogrowth economy, whether or not desirable in the abstract, cannot be accommodated within the institutional context of capitalism...
...Denison, op...
...Part of the current deficit...
...Before detailing some of these problems, let me note that to an extent these deficits are but a function of the accounting conventions that frame the budget...
...Such evaluations make any improvement in the economic outlook depend almost entirely on reductions in government spending (i.e., the federal deficit) and the drop in interest rates that is expected to accompany it...
...The "mixed economy" could not be sustained...
...But how was that brought about...
...Denison argues that the nation's saving and investment did not increase in response to the government's actions—after 1981 they dropped, as dissaving by the federal government itself became huge.' Bosworth cites evidence indicating that ninetenths of the increase in physical investment by corporations between 1979 and 1984 went into office equipment (including computers) and automobiles, reflecting favorable price trends rather than being due to lowered taxation.' Favorable price trends likewise played the decisive role in maintaining high replacement investment in equipment...
...It is the performance of the economy that calls Reaganomics into question...
...Table III summarizes these findings...
...To gain perspective, we compare the upswing of 1982-1985 with that of 1975-79, using average annual rates of change (in percent) where appropriate, so as to standardize the two differing time spans...
...record grain stocks and falling agricultural prices that accompany them...
...Thus, influential economists attributed the productivity slowdown to insufficient capital formation (and, by extension, to excessive consumption...
...In line with the Reagan doctrine of noninterference in the "free" financial markets—markets where interest rates are in effect administered prices, owing partly to the massive weight of Treasury borrowings and partly to unceasing intervention by the central bank—no measures to resist the rise of the dollar were instituted (until powerful protectionist pressures compelled this last September...
...3) the redistribution of income toward the higher income groups, and the consequent erosion of the mass consumption power upon which a large part of the economy depends...
...It is likely indeed that the "system" will be salvaged at the expense of smaller firms and of working people...
...Sawhill and Stone estimate the income loss at above $3,300 per household for the years 19811983, with the relative income losses suffered by the working heads of poor families being four to five times as much as the losses for those heading high-income families...
...Goods production includes mining, construction, and manufacturing...
...economy," writes Business Week in a lead article on March 3, 1986...
...In 1985, average wage adjustments under major collective bargaining contracts provided for increases of 2.7 percent annually over the life of the contract —the lowest rate since the Department of Labor first reported the series in 1968, and below the increases in the Consumer Price Index in recent years...
...It may well be that, given the United States' position in the world economy, and the constraints which the financial authorities here are able to impose on the economic system, we will avoid the sort of banking crisis that occurred in the early 1930s...
...If you are a farmer who bought land on credit, and the land's value drops because, say, crop prices drop, you may have to file for bankruptcy...
...income tax receipts Federal debt Federal debt, percent of GNP 1975-79 6.4 12.0 7.5 32.3 (1979) 1982-85 7.0 4.2 12.3 46.9 (1985) *Unless otherwise noted...
...For them, Reaganomics represents a victory and they will cling to its fruits stubbornly...
...TABLE 1 The U.S...
...while during the later period, with price levels rising moderately, the debt ballooned to twice the rate for the GNP The macro-economic implications of the deficit, i.e., that it has fueled the recent cyclical upswing, are contested by no one, although they have not been widely discussed...
...In fact, the $150 billion of equity in the nonfinancial corporate sector that has been retired is equal to an amount that exceeds the net issuance of equity by nonfinancial business over at least the entire post-Korean War period.' The unprecedented rise in private debt must be linked to the Reagan-era climate of permissiveness, which has given free rein to competitive forces in the banking and financial sector to operate in markets in which many of the traditional sources of restraint have been eliminated by a combination of deregulation and technology-driven innovation...
...Nevertheless, the "mixed economy" remains a potent ideological rival of Reaganomics, for the history of the past century teaches that government must intervene to limit the threats posed to the health of society by an unconstrained free market and uncontrolled business behavior...
...The economic expansion has continued...
...The supply of low-wage workers thus appears likely to increase, making it harder to maintain the wage levels that have until now ensured a modest standard of living to the average wage earner...
...Capitalism is synonymous with accumulation, expansion, the forcing of structural change, the search for gain, and hence economic growth...
...See Table III...
...Among the many indications of overcapacity have been declining fuel and raw material prices...
...The unemployment rate has been projected in the latest Economic Report of the President (February 1986) to continue approximating 7 percent of the labor force...
...The rise reflects increased amounts, as well as increasing rates, of interest...
...All calculations by author...
...a surfeit of "high-tech" products, such as many types of computers and their components...
...265 With regard to the economy's capacity to produce —the potential national income in constant dollars—the rate of growth fell from 3.9 percent per year for 1948-73 to 3.0 percent for 1973-79, and 1.8 percent for 1979-83...
...In combination with the income losses from the 1981-82 recession and the reduction in benefit payments received by poorer households, Sawhill and Stone estimate the change in the distribution of real disposable income shown in Table IV...
...The redistributive effects of the 1981 income tax reductions were substantial...
...True, lower interest rates encourage investment in productive enterprise, housing, speculative ventures, etc...
...About one-third of the loss in the pretax earnings of individuals was offset by reduced personal income tax liabilities and increased government transfer payments...
...During the earlier, highly inflationary period, the federal debt grew at only about three-fourths of the rate of growth of the Gross National Product (in current dollars...
...At the same time, most of our key trading partners, who rely on our markets to support their growth, remain mired in high levels of unemployment...
...The economy remains mired in industrial de-dine...
...See my "The Decline of Workers' Incomes, the Weakening of Labor's Position," Dissent, Summer 1985...
...Thus, the continued strong rise in consumer debt, a mainstay of consumer spending on durable goods, is regarded as being unsustainable...
...The rate of fixed investment in producer durables and nonresidential structures (in constant dollars) was slightly higher during the more recent period, but a large proportion of the increased spending here was for such short-term investment as motor vehicles and office machinery...
...So much so that analysts believe that it could prove difficult to service even existing levels of debt in a less favorable economic and interest rate environment.' The growth in debt must be viewed against the indicators of overcapacity mentioned above...
...In 1981 and 1982 legislation reduced this tax rate further, to around 15 percent.' These corporate tax cuts have offset high interest rates, and lessened the cost of capital...
...Table I shows that while the rate of increase of total business output and of industrial production ran lower in the later than in the earlier expansionary period, the utilization of industrial capacity was much lower in the later than in the earlier expansion...
...Many families enjoy good incomes: the average per-capita income approaches $12,000, having risen 8 percent in real terms between 1982 and 1985...
...The 1981-82 recession drove 4.3 million more people into poverty...
...That much is suggested by the earlier rescue operations, and also in the way the current agricultural crisis is being resolved by driving thousands of smaller farmers off the land...
...Reaganomics bears only a superficial resemblance to earlier postwar economic policies...
...The sharp decline in the 1982-85 growth rate of federal personal and corporate income tax receipts, by comparison with that rate's cyclical increase over the 1975-79 upswing, attests to the first-mentioned resource shift...
...Defenders of this policy may argue that the political and economic power of the United States is in no way reduced by its great public—and private— debt, and by the U.S...
...They advocated a shift from consumption to investment, and argued the need to shift the tax burden from business and its owners to households...
...If many farmers suffer that predicament, the banks that hold their mortgages may also face ruin...
...Long-term growth rates, which encompass both the expansionary and recessionary phases of the cycle, have been much lower...
...That appreciation was caused by foreign dollar demand as manifested in a foreign capital inflow of $90 billion in 1984...
...According to the 1985 Joint Economic Report of the Joint Economic Committee of Congress, in 1980 the United States was still a net supplier of capital to the world at large...
...266 sivity of the tax rate structure, and increasing payroll taxes...
...Even the Reagan administration has been compelled to limit its impact by such measures as controlling the dollar exchange rate, and internationally coordinated interest rate policies...
...Capital investment as a proportion of the GNP did not diminish by comparison with earlier decades...
...The political reasons for the transformation of tax and budgetary policy under the Reagan administration have been ably analyzed by Thomas 267 Edsall in The New Politics of Inequality (WW...
...yet noted liberals in Congress voted for the Gramm-Rudman-Hollings Act mandating the "automatic" reduction of the budget deficit, which they knew would spell further severe cuts in the income supports for those families...
...In sum, the public sector was to promote economic growth, but also to lessen its deleterious social effects...
...is due to the fact that the economy is still below full employment," writes Alan Blinder in Business Week (December 30, 1985...
...These claims do not hold water...
...But this is a rather facile view...
...The growth of total and of manufacturing employment lagged...
...Thus, if we had a federal capital budget, the deficit would be reduced...
...In fact, long-term growth rates have been steadily declining, according to a recent Brookings Institution report by Edward Denison...
...Such increases in the number of available low-wage workers represent an additional source of wage pressure, with imports and resistance to union organizing having similar effects...
...The change in status simply confirms the United States as a safe haven for investment...
...According to Denison, "Information up to the end of 1984 does not indicate...
...the next two fifths have at least maintained theirs, and have thus fully partaken in the overall rise in incomes...
...Norton, 1984...
...Isabel Sawhill and Charles Stone give a detailed account in The Reagan Record: These costs translate into billions of dollars of lost income for workers who were jobless or had to accept shorter working hours or lower wages, as well as more bankruptcies and lower farm and business earnings...
...Data for 1985 are official estimates...
...These threats are magnified once again, and not merely because of continuing reductions in income supports and other protective welfare-state measures, nor because of the nearly complete deregulation of banking and the demise of antitrust...
...In line with the thinking of conservative economists, the administration claimed from the beginning that high marginal tax rates on business and individuals have discouraged work, innovation, and the investment needed to improve productivity and long-run growth...
...Ibid...
...As a result, a much lower fraction of the unemployed received benefits than in previous recessions—an estimated 45 percent during any month in 1982...
...And this at the peak of the business upswing...
...Public and Private Debt Accumulation: A Perspective," Federal Reserve Bank of New York Quarterly Review (Autumn 1986...
...The deficit, while in theory supposed to mitigate crises of overcapacity to which a capitalist economy is subject, has itself become a crisis factor...
...Although of benefit to business and upper income groups, Reaganomics has given rise to nearly intractable financial problems, related in large measure to the federal budget deficit...
...This is not, of course, a new problem in economic policy, but Reaganomics has decidedly worsened it...
...Nevertheless, the "safety net" programs that cushion income losses during a recession have replaced a smaller fraction of lost income in this recession than they did in past recessions—the direct result of Reagan cutbacks in Unemployment Insurance, Food Stamps, and other assistance programs...
...Source: Budget of the United States, Economic Indicators...
...A fundamental difference between the 1975-79 and the 1982-85 upswings has been the far greater dependence of the later than of the earlier one upon swollen budget deficits resulting from a much lower rate of increase in tax receipts and a higher rate of federal government purchases of goods and services...
...If there is no theoretical limit to this, there are political ones...
...Victory" Through Defeat IT IS TRUE THAT THE VIRTUAL DEFEAT of inflationary forces is a hallmark of Reaganomics...
...Thus, the effort to privatize—and commercialize —public services will undoubtedly continue...
...268 CONTRARY TO ITS AVOWED INTENTIONS, the competi tive economic policy of Reaganomics has been weakening the industrial base of the country...
...cit., p. XV...
...inflation has abated...
...So much for the arguments by which the tax cuts were rationalized...
...The administration and Federal Reserve policymakers, however, wanted to impose the "old-time religion" —meaning unemployment and insecurity unless workers would accept the going wage for the available job...
...But unlike them, it is reactionary in substance...
...Jobless benefits alone were about $8 billion less in 1982 than they would have been without President Reagan's policy initiatives...
...Overcapacity is now worldwide, exerting deflationary pressures, and making much of the existing debt more difficult, if not impossible, to repay...
...True, the stress Reaganomics places on competitiveness and profitability as regulatory mechanisms is deeply rooted in economic thought...
...This particular success is characterized by problems related to, if not entirely caused by, Reaganomics: (1) the relative weakness in vital respects of the cyclical recovery and expansion that began late in 1982...
...Barry Bosworth, "Taxes and the Investment Recovery," Brookings Papers on Economic Activity (January 1985), p. 4. See also John R. Stepp, deputy assistant secretary of labor, "Emerging Trends in Labor-Management Relations," before a conference on labormanagement relations, Peoria, III., January 21,1986, p. 3. Stepp said, ". [B]etween 1979 and 1984, some 85 percent of new business investment in this country was in computers and office equipment...
...That may well be so, but there is a hitch: Debts are "sound" only so long as the assets for which they were incurred retain their value...
...Thus, 49 percent of heads of households in poverty worked some time during 1984, as did 41 percent of all persons in poverty...
...Government regulation was likewise seen as impeding productivity advance, which in turn lent impetus to the drive to deregulate and thus subject important industries and their workforce to sharp competition...
...This development has turned into a threat to much of American industry and labor...
...having turned from world creditor to world debtor...
...The relation between private debt and the ability to repay it has also become more tenuous...
...The earlier policies by and large aimed at what we might call a mixed economy...
...hence, disposable income did not fall as much as total income...
...3.5% 2.3% Total hours worked by employed workforce 0.7 1.5 Productivity 2.9 0.8 *In constant dollars...
...Nevertheless, their contribution to increasing the investment in plant and equipment is doubtful at best...
...An enormous budgetary deficit has been engendered, partly to sustain the cyclical expansion, partly to hasten the contraction of public service...
...This redistribution has meant an 8 percent decline in the real after-tax income per household in the bottom fifth income group, a 2 percent decline per household in that of the second fifth, and a 9 percent increase per household in that of the top fifth...
...Perhaps the idea of equal partnership between private enterprise and public service in the sense defined here was illusory...
...This, in turn, has done away with much of the sense of uncertainty and malaise that marked the late 1970s...
...Slackening of economic growth gives rise to crises which in time draw all social institutions into their vortex...
...Such interest, very likely, flows disproportionately to the rich...
...The result cost the United States nearly two million jobs in the importcompeting sector of the economy and kept industrial growth 9 percent below what it would otherwise have been...
...The doubling of the hoursworked rate was related chiefly to employment increases in the service-producing industries...
...There are thus solid economic reasons for that sense of well-being, but there are also political reasons for it that are less pleasant...
...Barry Bosworth, Tax Incentives and Economic Growth (Washington, D.C.: The Brookings Institution), 1984, p. 117...
...Household debt has recently reached an all-time high of over 75 percent of disposable income, and consumer debt has increased more rapidly than consumer assets over the past two years...
...As Table IV shows, the top fifth of families has greatly raised its share of total family income during the Reagan administration...
...yet they decisively contributed to Reaganomics, even though they were initially adopted under Carter...
...The unemployment rate was significantly higher in 1982-5 than in 1975-9...
...such a decline signifies a slackening in the need for funds and in the underlying demand for goods and services...
...THE HIGH INTEREST RATES that the deficit has largely brought on meant an appreciation of the dollar by 53 percent between mid-1980 and early 1985...
...While families and persons usually are poor because they do not or cannot work, a sizable proportion do hold jobs, if only parttime or part-year...
...They show that these losses might have been halved, had a milder recession policy been pursued, since food and energy prices and some other components of the Consumer Price Index were declining...
...by 1984, it had become a net user...
...As a result, some measures of credit quality problems are disturbingly high, considering that the problems are occurring during the boom phase of the business cycle...
...It is possible that this will happen, although the overcapacity discussed above makes it doubtful...
...Another observation is that the growth rates shown in the table for the real Gross National Product are high, but this is largely because they reflect the expansionary phase of the business cycle...
...Economy's Performance in Two Cyclical Expansions Average annual rates, in percent* 1975-79 1982-85 Gross National Product, in constant 1982 dollars 4.3% 3.1% Industrial production 6.9 6.5 Production for defense and space activities 1.8 9.2 Capacity utilization (percent of capacity) 85.2 (1979) 80.6 (1985) Fixed nonresidential investment, in constant dollars 8.5 8.8 Output per hour, business sector 1.0 1.5 Employment, nonfarm payrolls 3.9 3.0 Manufacturing employment 2.1 1.1 Proportion of jobs in goods production 29 (1979) 26 (1985) Unemployment rate (percent of civilian workforce) 5.8 (1979) 7.1 (1985) Net new business formations, 1967 = 100 128 (1979) 117 (1985) Ratio, prices received/paid by farmers 107 (1979) 79 (1985) Interest rate, high-grade corporate bonds 9.63 (1979) 11.37 (1985) Federal debt, percent of GNP 34 (1979) 46 (1985) Interest, percent of federal purchases of goods & services 25 40 Merchandise trade balance ($billions) -40.4 (1979) -148.5 (1985) Poverty rate, percent of all families 9.2 (1979) 11.6 (1985) Poverty rate, percent of all persons 11.7 (1979) 14.4 (1985) Real per-capita disposable income 2.9 3.1 Consumer Price Index 7.8 3.7 *Except where otherwise noted...
...It is generally assumed that only part of the deficit is due to economic slack— the part referred to as the "high employment" deficit, because it results from failure to reach high employment, and thus failure of revenues to cover budgeted expenditures...
...The poverty rate was far higher, and if the rate of gain in real disposable income was greater in the later than in the earlier expansion, much of the difference should be ascribed to the steep tax cuts enacted in 1981...
...It also contributes to the downward pressure on wages that has been a primary consequence of the "disinflationary" objectives of Reaganomics...
...high and still rising vacancy rates in overbuilt commercial structures...
...But this reform would not alter the more fundamental stance of contracting public services...
...Over the latter period, tax receipts as defined here rose 18 percent, the GNP 27 percent...
...In 1985, 26 cents of every dollar collected in tax receipts (other than earmarked payroll taxes for social insurance) went for interest on the federal debt held by the public—compared with 13 cents a decade ago, and 19 cents in 1981...
...This article is meant to put Reaganomics in perspective, to stir unease over the injustices it is breeding...
...All calculations by the author...
...They reduced the tax liability of the top fifth of income recipients by nearly 6 percent, but that of other income groups TABLE IV Percent Share of Real After-Tax Income Quintile 1980 1984 Bottom 6.8% 6.1% Second 13.2 12.5 Third 18.5 18.1 Fourth 24.5 24.5 Top 37.0 38.9 All families 100.0% 100.0% Source: Isabel Sawhill and Charles Stone, The Reagan Record (Washington, D.C.: The Urban Institute), p. 322 by much lower percentages...
...At the same time, the effective (as against the statutory) tax rate on capital investment declined from 55 percent in 1969 to around 33 percent during most of the 1970s...
...Like them, it is Keynesian in form, relying on budget deficits to keep economic expansion going...
...About one-third of all bonds and other debt instruments, public and private, is held by the top 1 percent of persons holding tangible assets...
...The distribution of family incomes is probably more skewed today against the most needy families than at any other time during the postwar years...
...About half of the total federal debt is held by individuals and such other investors as money market funds, pension funds, and savings and loan associations...
...Unemployment rates for all sex and age groups have never been as high for an expansionary phase of the business cycle, yet voices protesting these have never been so few...
...It seems unlikely that tax receipts devoted to debt service or the deficit itself can be enlarged indefinitely simply to cover service on the existing debt...
...Take the federal debt: these are not assets in the conventional sense, only the revenue that can be extracted at least to service, if not repay, the debt...
...The redistribution of resources from the public to the private sector, and from wage labor to capital, 270 will also continue as a Reagan policy...
...Another, perhaps more readily understandable way of portraying the problem in quantitative terms is seen in Table II, which highlights the severe decline in the annual rate of productivity improvement over the 1973-85 period—offset only in part by a higher rate in total hours worked...
...q Notes ' Isabel Sawhill and Charles Stone, The Reagan Record (Washington, D.C.: The Urban Institute), p. 82...
...Furthermore, the ballooning of the federal debt has driven up interest paid on the national debt from 32 percent of federal payments for goods and services in 1979 to 47 percent in 1985...
...However, the argument for a federal capital budget (fielded by liberal economists) lacks at present political support and runs counter to the Reaganite intent to privatize public services...
...The question is what will replace the deficit's expansionary force...
...Moreover, "actual output has fallen further below potential output with each succeeding business cycle...
...The enmeshment in international trade and finance that Reaganomics has encouraged makes an early reversal of industrial decline unlikely...
...The Reagan administration, having blamed inflation in its programmatic statement of 1981 on "overly accommodative monetary policies" as well as "excessive" government spending, gave free rein to the Federal Reserve to tighten credit—generating the deepest recession, together with the highest unemployment rates, of the postwar period...
...Table IV points to a fundamental feature of Reaganomics: its economic policy, imposed upon the weakest members of society, is bound to put pressure on wage levels...
...Among the factors underlying this transformation has been the growth in the political influence of business and its conservative spokespeople in the universities and think tanks...
...job insecurity has lessened...
...If the deficit means that more spending power is left in the public's hands for private-sector purchases, then it has still not been big enough to eliminate the difference between actual and full capacity utilization...
...One reason for this rise has been the rapid retirement of equity (i.e., corporate stock), and its substitution by debt, associated largely with "leveraged" buyouts of established firms, and owed mostly to banks or "junk bond" holders...
...That trend is mirrored in reverse for unemployment, whose rate has been higher at each business cycle peak...
...As Thomas Edsall has shown, powerful economic and political interests have benefited from Reaganomics...
...That is indicated, if crudely, by the fact that the ratio of debt to GNP is at an unprecedented level for the private sector as a whole...
...Source: Economic Indicators, Economic Report of the President, February 1986...
...Reaganomics has not overcome the cyclical instability of the economy-this remains a key problem of advanced capitalist societies...
...that the economy has moved out of the pattern of slow growth of potential output...
...Of course, debt can be partly or totally wiped out by inflationary means, but that would gravely threaten the world financial system, and would visit economic disaster upon much of society by rendering its savings worthless...
...The merchandise deficit in 1985 ran three times higher than the 1979 level...
...compared to 75 percent during 1973-1975...
...that has characterized it since 1973...
...Source: Bureau of Labor Statistics...
...and (4) the supposedly uncontrollable "interdependence" of the American economy and the world economy...
...The proponents of the mixed economy viewed the public sector as an equal partner of private enterprise, but with an altogether different function: to mitigate such consequences of the competitive market as unemployment, loss of income, the deindustrialization and economic decline of regions, excessive cyclical swings, the damaging effects of imports from lowwage areas, etc...
...Certain unfavorable or worrisome economic developments, such as slowed productivity improvement and the worsening competitive position of some American industries in world markets, were articulated in a manner promoting the cause of conservative economics...
...such investment may well decline in 1986...
...9 percent of such persons worked full-time, yearround jobs...
...Let us briefly turn to the redistributional effects of the deficit...
...The deficit may have shrunk somewhat in recent months, but its financial and political consequences have made the compensatory fiscal actions that a descending phase of the business cycle would call for much more difficult to take...
...So a comparison of the two cyclical upswings does not argue well for the efficacy of Reaganomicsless so when we examine how fiscal policy has differed between the Ford-Carter and the Reagan presidencies...
...Moreover, that interest rates should decline at the presumed peak of a business cycle is quite unprecedented...
...Such interpretations of the productivity slowdown have by no means been universally accepted...
...Among them is the recent cyclical recovery...
...and a trend in industrial capacity utilization (see Table I) that has shown a steadily lower rate at each peak of the business cycle over the past 15 years or so...
...At any rate, global conflict, uncontrolled expansion of multinational corporations and of international finance, the inflation of the 1970s, disarray within the Democratic party: all caused its political bases to crumble...
...I do not intend to minimize whatever successes Reaganomics has scored...
...264 Let us look first at the recent performance of the economy...
...As public benefits for these persons and families are reduced or eliminated, more of them are compelled to work for wages that do not lift them out of poverty...
...As this is written, interest rates are indeed declining, in the expectation that the deficit, and therefore Treasury financing needs, will contract...
...in the later period only 35 percent—and this to a lower growth rate...
...The defeat of inflation was turned into a defeat for labor, for full employment, and for the notion of a social contract between the major wage- and price-setting parties...
...Appraisals of the medium-term outlook by responsible financial authorities, who are unlikely to be much influenced by shallow Wall Street optimism or electoral considerations, have been exceedingly cautious...
...Some observers may interject here: Why be so concerned with economic growth, whose positive aspects seem ever more to be shadowed by environmental deterioration and social debilities...
...There has been a near absence of voices on the American left that would disturb the consensus of smug satisfaction to which Reagan administration tax, expenditure, deregulatory, and trade policies have given rise...
...2) the enormous federal budget deficits, which, whatever their drawbacks, did fuel the recovery— deficits that may well be a condition of continued economic growth...
...Labor force participation, for example, rose throughout the 1970s despite the rising fraction that taxes took of personal incomes (owing to inflation, the progresTABLE Ill Federal Finance in Two Cyclical Upswings Average annual rates, in percent* Federal gov't purchases of goods and services Personal and corp...
...Intervention of the state on the side of the rich and powerful is inherent in Reaganomics...
Vol. 33 • July 1986 • No. 3
