Source: Bruce J. Schulman. The Seventies - The Great Shift
in Culture, Society, and Politics (2001)
in Culture, Society, and Politics (2001)
When Reagan took office, the US economy seemed to be sliding down a cliff face, since there was a recession, the prime interest rate was over 20%, the federal budget deficit was $50B, and the national debt was $1 trillion, a mind-boggling number in 1981. Reagan’s top priority was to regain the economic health of the US. Reagan held that it was the size and spending of the federal government that needed to be tamed in order to restore the economy, laying the blame squarely on DC. Reagan wanted federal micromanaging to disappear, to be replaced by the private sector that would have the incentive to produce results.
This so-called revolution can be divided into three parts. First was to dramatically lower taxes, proposing an income tax reduction of 25% over 3 years. Reagan also proposed cutting taxes for the very wealthy, and to index the tax brackets to inflation in order to end “bracket creep”. Secondly, Reagan wanted to shift the power balance between business, labor, and the government, favoring business in the equation. Deregulation was a strategy, which not only increased competition, but also weakened the federal government bureaucracy’s power and influence. Reagan’s rhetoric against unions in large part eroded public backing for labor, which was beyond-necessary in labor negotiations. Thirdly, Reagan declared war on the federal government, promising to end its interference in US economic life, but to also shrink its bureaucracy, in particular targeting the welfare state.
This so-called revolution can be divided into three parts. First was to dramatically lower taxes, proposing an income tax reduction of 25% over 3 years. Reagan also proposed cutting taxes for the very wealthy, and to index the tax brackets to inflation in order to end “bracket creep”. Secondly, Reagan wanted to shift the power balance between business, labor, and the government, favoring business in the equation. Deregulation was a strategy, which not only increased competition, but also weakened the federal government bureaucracy’s power and influence. Reagan’s rhetoric against unions in large part eroded public backing for labor, which was beyond-necessary in labor negotiations. Thirdly, Reagan declared war on the federal government, promising to end its interference in US economic life, but to also shrink its bureaucracy, in particular targeting the welfare state.
Reagan also vowed to end deficit spending, promising to balance the federal budget by his second year, and to produce a surplus by his third year in office. Reagan’s basic strategy was to set loose the market forces, relying far less on Keynesian macroeconomic principles. During February 1981, Reagan spoke to a Joint Session of Congress to preview his economic plan, which included a 30% tax cut over three years, slashing more than $40B from Carter’s final budget, and to eliminate many social programs and business regulations. The plan was viewed as so radical by Capitol Hill that even the Republican leadership declared the budget proposal dead-on-arrival.
On 29 July 1981, Congress passed the Economic Recovery Act, with more than 60 House Democrats defecting to the Republican aisle in the vote. The act cut taxes by 25% over three years and cut taxes on the wealthiest citizens. Carter had started the process of deregulation before Reagan, especially in trucking, air travel, and telecommunications. Reagan greatly expanded and accelerated the deregulation process, relaxing Great Depression Era federal controls over banks, savings & loans, and brokerages.
Reagan also let loose energy prices and allowed greater oil/natural gas exploration to federal lands, as well as dropping restraints on drilling for oil offshore and logging restrictions. Reagan appointed business leaders and opponents of government regulation to the federal bureaucracies that oversaw assigned realms. The Justice Department became far more friendly to large-scale mergers, which started a wave of corporate buyouts, which was Manna from Heaven for US corporations.
On 29 July 1981, Congress passed the Economic Recovery Act, with more than 60 House Democrats defecting to the Republican aisle in the vote. The act cut taxes by 25% over three years and cut taxes on the wealthiest citizens. Carter had started the process of deregulation before Reagan, especially in trucking, air travel, and telecommunications. Reagan greatly expanded and accelerated the deregulation process, relaxing Great Depression Era federal controls over banks, savings & loans, and brokerages.
Reagan also let loose energy prices and allowed greater oil/natural gas exploration to federal lands, as well as dropping restraints on drilling for oil offshore and logging restrictions. Reagan appointed business leaders and opponents of government regulation to the federal bureaucracies that oversaw assigned realms. The Justice Department became far more friendly to large-scale mergers, which started a wave of corporate buyouts, which was Manna from Heaven for US corporations.
Reagan used SecInterior James Watt
to in essence declare war on the conservation movement concerning federal lands. Watt authorized businesses to drill, dig, and cut down trees to open up federal lands for recreation, and he privatized the National Park Service as much as possible. The EPA quietly relaxed enforcement of federal pollution laws, and in a Nixonian move, Reagan in most cases didn’t eliminate programs or repeal regulations. Unlike Nixon, Reagan cut the budget line, leaving agencies too short-staffed and ill-funded to actually do what they were authorized to do. During Reagan’s first two years in office, the enforcement part of the Department of Energy had its funding cut by 2/3’s.
Reagan also made the business world beyond-giddy in opposing organized labor, starting in August 1981 when Reagan fired all the striking air traffic controllers. The government union of air traffic controllers had legitimate concerns over wages, hours, work stress, etc. The air traffic controllers union expected support from the government and the public, especially since that union supported Reagan in 1980 when almost every other union was in opposition. The union expected support from Reagan, who led a strike as President of the Screen Actors Guild (SAG) many years prior.
When his imposed deadline to return to work passed, Reagan fired all the striking air traffic controllers, decertified their union, and ordered military air traffic controllers into the towers for the interim. The air traffic control system did not get back to where it was until 1988. The public mostly supported Reagan and his principled stand, blaming the striking union for the flight delays. Meanwhile, the business world realized that they haid their man in the White House, and the heat was really turned up against organized labor. As a side note, the USSR leadership was very impressed at what Reagan did with the striking air traffic controllers.
to in essence declare war on the conservation movement concerning federal lands. Watt authorized businesses to drill, dig, and cut down trees to open up federal lands for recreation, and he privatized the National Park Service as much as possible. The EPA quietly relaxed enforcement of federal pollution laws, and in a Nixonian move, Reagan in most cases didn’t eliminate programs or repeal regulations. Unlike Nixon, Reagan cut the budget line, leaving agencies too short-staffed and ill-funded to actually do what they were authorized to do. During Reagan’s first two years in office, the enforcement part of the Department of Energy had its funding cut by 2/3’s.
Reagan also made the business world beyond-giddy in opposing organized labor, starting in August 1981 when Reagan fired all the striking air traffic controllers. The government union of air traffic controllers had legitimate concerns over wages, hours, work stress, etc. The air traffic controllers union expected support from the government and the public, especially since that union supported Reagan in 1980 when almost every other union was in opposition. The union expected support from Reagan, who led a strike as President of the Screen Actors Guild (SAG) many years prior.
When his imposed deadline to return to work passed, Reagan fired all the striking air traffic controllers, decertified their union, and ordered military air traffic controllers into the towers for the interim. The air traffic control system did not get back to where it was until 1988. The public mostly supported Reagan and his principled stand, blaming the striking union for the flight delays. Meanwhile, the business world realized that they haid their man in the White House, and the heat was really turned up against organized labor. As a side note, the USSR leadership was very impressed at what Reagan did with the striking air traffic controllers.
The air traffic controllers strike left organized labor not-so-organized and at a disadvantage. Most unions had not supported the strike, since it was a federal union, in that air traffic controllers were paid more than unions in the private sector, and were wary of what Reagan might do. The message that Reagan sent was that his administration was pro-business and anti-union, and would attack organized labor as often as possible. An intimidated organized labor movement lost its influence as well as its militancy, and started to moderate their demands. Reagan stacked the National Labor Relations Board (NLRB) with appointees that were sympathetic to business.
From 1980 to 1987, real earnings in the business world skyrocketed, but the real earnings of production line workers fell. Unions fell back in an unorganized retreat, and union membership dropped for the first time since WW II, from 23.4% in 1980 to 19.4% in 1984. After only one year in office, Reagan had already cut taxes and empowered corporations, all with “Stagflation” still surging. Reagan’s anti-government crusade proved to be far more difficult to achieve, with very little wiggle room as far as slashing the federal budget. By 1982, defense spending amounted to 25% of the federal budget, and Reagan was committed to a large peacetime military build-up. Popular universal entitlement programs such as Social Security and Medicare took up roughly 50% of the federal budget.
Reagan’s first budget wanted to increase defense spending from 24% to 32% of the federal budget, with nearly every other program in the budget facing cuts. Reagan promised to keep safety net programs (e.g. Social Security and Medicare) in place and funded. Reagan made sure to keep middle class entitlements (again, such as Social Security) while shredding the safety net for the bottom quintile. Reagan proposed dramatic cuts in food stamps, public service jobs, welfare, school lunches, and urban mass transit.
From 1980 to 1987, real earnings in the business world skyrocketed, but the real earnings of production line workers fell. Unions fell back in an unorganized retreat, and union membership dropped for the first time since WW II, from 23.4% in 1980 to 19.4% in 1984. After only one year in office, Reagan had already cut taxes and empowered corporations, all with “Stagflation” still surging. Reagan’s anti-government crusade proved to be far more difficult to achieve, with very little wiggle room as far as slashing the federal budget. By 1982, defense spending amounted to 25% of the federal budget, and Reagan was committed to a large peacetime military build-up. Popular universal entitlement programs such as Social Security and Medicare took up roughly 50% of the federal budget.
Reagan’s first budget wanted to increase defense spending from 24% to 32% of the federal budget, with nearly every other program in the budget facing cuts. Reagan promised to keep safety net programs (e.g. Social Security and Medicare) in place and funded. Reagan made sure to keep middle class entitlements (again, such as Social Security) while shredding the safety net for the bottom quintile. Reagan proposed dramatic cuts in food stamps, public service jobs, welfare, school lunches, and urban mass transit.
Liberal critics called Reagan’s budget slashing the greatest income redistribution scheme since the Great Depression. Liberals argued that Reagan wasn’t getting the government off the backs of Americans, but using government to to enrich the already rich and well-to-do at the expense of those that were not well-off. Reagan did not hide his disdain for welfare, truly lacking sympathy for the disadvantaged. Reagan (and his conservative base) basically believed in “Social Darwinism”, that the poor deserved their fate. To Reagan, homelessness was a choice, not a predicament. The Reagan administration tightened the share of resources for the neediest, as well as restricting eligibility requirements for poverty programs. Reagan even eliminated some social programs, all ironically while total federal welfare expenditures expanded during his Presidency. That being said, social welfare spending (even including Social Security), was less in 1985 compared to 1981.
Additionally, Reagan made sure that the federal government was less active and involved with welfare, contracting out services to the private sector whenever possible (e.g. nursing homes and child care), as well as shifting welfare burdens to state/local governments. Reagan also shifted the tone on the welfare debate. To Reagan, government was the problem, not the solution, going so far to state that the Great Society actually hurt the poor, since to him it undercut the private sector. Reagan succeeded in shifting the welfare debate from poverty to dependency.
As far as actually downsizing the federal government, Reagan hit a brick wall. Reagan wanted to eliminate both the Departments of Energy and Education, as well as cut federal funding for education to virtually zero. But all that was merely rhetoric, and both departments continued to exist and function. The Education Department became very active, when in April 1983 it published A Nation at Risk, severely criticizing public education. By 1984, Reagan had adopted education reform as a campaign issue for re-election, and federal spending on education reached record levels. Ironically, the Education Department became one of the high-profile Cabinet departments in Reagan’s Presidency.
Additionally, Reagan made sure that the federal government was less active and involved with welfare, contracting out services to the private sector whenever possible (e.g. nursing homes and child care), as well as shifting welfare burdens to state/local governments. Reagan also shifted the tone on the welfare debate. To Reagan, government was the problem, not the solution, going so far to state that the Great Society actually hurt the poor, since to him it undercut the private sector. Reagan succeeded in shifting the welfare debate from poverty to dependency.
As far as actually downsizing the federal government, Reagan hit a brick wall. Reagan wanted to eliminate both the Departments of Energy and Education, as well as cut federal funding for education to virtually zero. But all that was merely rhetoric, and both departments continued to exist and function. The Education Department became very active, when in April 1983 it published A Nation at Risk, severely criticizing public education. By 1984, Reagan had adopted education reform as a campaign issue for re-election, and federal spending on education reached record levels. Ironically, the Education Department became one of the high-profile Cabinet departments in Reagan’s Presidency.
Most significantly, Reagan flat-out ignored his harsh rhetoric against excess federal spending, and in the process he created tremendously huge budget deficits. The Reagan administration quickly realized that rhetoric and reality didn’t match, in that they couldn’t cut taxes, balance the budget, and increase military spending, even with massive cuts in social programs. In reality, Reagan didn’t want to shrink government too much, if at all, since it would offend business interests. Despite his rhetoric, Reagan didn’t hesitate in creating larger and larger budget deficits on his watch. Reagan was unmoved, knowing that at least during his Presidency, the US government deficits weren’t nearly as bad compared to European nations, which to him meant the deficits he was running up were “manageable”. One benefit of the large deficits was that it kept liberals from creating additional/new spending programs, since unpaid bills choked off future increased expenditures for liberal priorities.
The paradox of anti-government ideology combined with massive government spending has endured to this day. On Reagan’s watch, the federal government grew and grew in size, costing more, employing more, and sustaining more agencies, departments, and programs. In effect, Nixon’s vision of the US was that if the US was a dog, it would be a manicured poodle of the Eastern Establishment that no longer barked. Reagan moved the nation to that point without the pessimism and menace of Nixon. Conservatives that backed Reagan to the hilt never saw the contradictions or the hypocrisy; the only thing that mattered to them was that Reagan never backed down and was in their corner.
Reagan’s air of commitment and command was the most enduring feature of his Presidency, which led to seismic shifts in the national mood and political debate, which was the real “Reagan Revolution”. Reagan did not create the tax revolt, but he guided it to victory, with taxation no longer being about equity, but about tyranny or freedom. The economic boom that started in 1984 did not restore the nation’s faith in government institutions in any way, since most Americans distrusted the whole smash. The “Roaring 1980s” was about faith in entrepreneurship and personal advancement and image. Here is another way to phrase the tectonic shift that occurred in the US over a short period of time: in 1970, VC meant the Viet Cong, but by 1984, VC meant Venture Capital.
The paradox of anti-government ideology combined with massive government spending has endured to this day. On Reagan’s watch, the federal government grew and grew in size, costing more, employing more, and sustaining more agencies, departments, and programs. In effect, Nixon’s vision of the US was that if the US was a dog, it would be a manicured poodle of the Eastern Establishment that no longer barked. Reagan moved the nation to that point without the pessimism and menace of Nixon. Conservatives that backed Reagan to the hilt never saw the contradictions or the hypocrisy; the only thing that mattered to them was that Reagan never backed down and was in their corner.
Reagan’s air of commitment and command was the most enduring feature of his Presidency, which led to seismic shifts in the national mood and political debate, which was the real “Reagan Revolution”. Reagan did not create the tax revolt, but he guided it to victory, with taxation no longer being about equity, but about tyranny or freedom. The economic boom that started in 1984 did not restore the nation’s faith in government institutions in any way, since most Americans distrusted the whole smash. The “Roaring 1980s” was about faith in entrepreneurship and personal advancement and image. Here is another way to phrase the tectonic shift that occurred in the US over a short period of time: in 1970, VC meant the Viet Cong, but by 1984, VC meant Venture Capital.