A False Prophet
RonaldReagan
In our 21st century dominated by the growth of government, one often hears Republicans invoking the words of Ronald Reagan railing in favor of smaller government.  Reagan most famously said “government is not the solution to the problem, government is the problem”.  On policy issues Reagan is praised for “tax cuts” that ended a severe recession and a tough foreign policy that imploded the cold war threat from the Soviet Union.

Yet, all three premises are belied by the actual impact of the Reagan Presidency.  Eight years of budget proposals from the Reagan White House increased federal spending by leaps and bounds while exploding the national debt during peacetime.  Those on military active-duty during the Reagan years (such as your editor) witnessed the greatest tide of wasteful government spending ever recorded (till now).  After tripling the national debt with Keynesian nonsense then called supply-side economics, Reagan’s America in 1988, his last year in office, was paying a greater percentage of personal income to fund government than ever before by far.

Many find the Reagan years as the root of irresponsibility that led directly to the Greatest Depression thirty years on with its distorted economy rigged to create massive inequality among citizens.  Contrary to myth, many scholars conclude the Reagan defense buildup affected the policies of the Soviet Union little. Here are three examples from Reagan critics.


Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people and the underlying scam is still alive and well more than a quarter century later.  It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built.  Essentially, Reagan switched the federal government from what he critically called, a “tax and spend” policy, to a “borrow and spend” policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills.  The results were catastrophic.  Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt.  By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!
 Allen Smith, Historian

Ronald Reagan and Alan Greenspan saw big government as an evil, and they saw big business as a virtue.  They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich.  If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected.  But that is exactly what Reagan did, with the help of Alan Greenspan.  Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to roll in, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything.  The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

5) President Reagan nominated Greenspan as the successor to Paul Volcker as chairman of the Federal Reserve Board.  Greenspan continued as Fed Chairman until 2006. 

 6) In 1990, Senator Daniel Patrick Moynihan of New York,  a member of the Greenspan Commission, and one of the strongest advocates for increasing payroll taxes, became outraged when he learned that Reagan, and then President Bush, used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers.  Moynihan locked horns with President Bush and proposed repealing the 1983 payroll tax hike.  Moynihan’s view was that if the government could not keep its hands out of the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus Social Security revenue for the government to loot. President Bush would have no part of repealing the payroll tax hike.  The “read-my-lips-no-new-taxes” president was not about to give up his huge slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day.  The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers.  But the trust fund is empty!  It contains no real assets.

That is how the largest theft in the history of the world was carried out.  300M people worked and saved their whole lives to set aside $2.5Tn into a retirement system that, if it were paying a fair compounding rate of 5% interest over 40 years of labor (assuming an even $62Bn a year was contributed), would be worth $8.4Tn today – enough money to give 100M workers $84,000 each in cash!  The looting of FICA hid the massive deficits of the last 30 years in the Unified Budget. Presidents and Congresses were able to reduce taxes on the wealthiest Americans without complaint from the deficit hawks, because they benefited. The money went directly from the pockets of average Americans into the pockets of the rich.  Philip R. Davis, Wall Street Analyst

The Vatican said, "Ronald Reagan obligated the Soviet Union to increase its military spending to the limits of insupportability." When the Soviet Union could no longer afford the competition, its leaders decided to end the Cold War. A modified version of this argument holds that the American military buildup simply worsened the Soviet economic quandary; it was the straw that broke the camel's back. Neither the strong nor the weak version of the proposition that American defense spending bankrupted the Soviet economy and forced an end to the Cold War is sustained by the evidence.

The Soviet Union's defense spending did not rise or fall in response to American military expenditures. Revised estimates by the Central Intelligence Agency indicate that Soviet expenditures on defense remained more or less constant throughout the 1980s. Neither the military buildup under Jimmy Carter and Reagan nor SDI had any real impact on gross spending levels in the USSR. At most SDI shifted the marginal allocation of defense rubles as some funds were allotted for developing countermeasures to ballistic defense.

A far more persuasive reason for the Soviet economic decline is the rigid "command economy" imposed by Stalin in the early 1930s. It did not reward individual or collective effort; it absolved Soviet producers from the discipline of the market; and it gave power to officials who could not be held accountable by consumers. Consequently much of the investment that went into the civilian sector of the economy was wasted. The command economy pre-dated the Cold War and was not a response to American military spending. The Soviet Union lost the Cold War, but it was not defeated by American defense spending.


Gorbachev felt free to make a series of proposals for deep cuts in his country's nuclear arsenal because he was confident that the United States would not attack the Soviet Union. In conversation with his military advisers he rejected any plans that were premised on war with the West. Since he saw no threat of attack by the United States, Gorbachev was not intimidated by the military programs of the Reagan Administration. "These were unnecessary and wasteful expenditures that we were not going to match," he told us. If both superpowers were to avoid the growing risk of accidental war, they had to make deep cuts in their strategic forces. "This was an imperative of the nuclear age.

President Reagan continued to regard the Soviet Union as an "evil empire" and remained committed to his quest for a near-perfect ballistic-missile defense. To break the impasse, Gorbachev tried at the two leaders' summit meeting in Reykjavik to convince Reagan of his genuine interest in ending the arms race and restructuring their relationship on a collaborative basis. For the first time, the two men talked seriously about eliminating all their countries' ballistic missiles within ten years and significantly reducing their arsenals of nuclear weapons. Although the summit produced no agreement, Reagan became "human" and "likable" to Gorbachev and his advisers, and the President, convinced of Gorbachev's sincerity, began to modify his assessment of the Soviet Union and gradually became the leading dove of his Administration. The Reykjavik summit, as Gorbachev had hoped, began a process of mutual reassurance and accommodation. That process continued after an initially hesitant George Bush became a full-fledged partner.

The Carter-Reagan military buildup did not defeat the Soviet Union. On the contrary, it prolonged the Cold War. Gorbachev's determination to reform an economy crippled in part by defense spending urged by special interests, but far more by structural rigidities, fueled his persistent search for an accommodation with the West. That persistence, not SDI, ended the Cold War.

Copyright © 1994 by The Atlantic Monthly Company. All rights reserved.
The Atlantic Monthly; February 1994; Reagan and the Russians; Volume 273, No. 2

 
For more than a generation now Republican office-holders have combined the words of liberty with policies that amount to class-warfare imposed by an all-powerful federal government.  Ronald Reagan is the enduring blue-print.  The fearsome dividends for the Nation are only now being delivered in full force.    EDITOR