American Empire

by Joshua Freeman

  Reaganism

  Reagan used his inauguration not only to celebrate his victory but also to set a new national tone. The contrast with the austere, populist Carter inauguration could not have been greater. In 1977, most events had been open to the public and free or inexpensive. Reagan’s four-day celebration was an invitation-only extravaganza, an unashamed display of wealth and opulence. Rich contributors, lobbyists, and Republican activists flooded Washington, attending the nine inaugural balls in white ties and tails and sequined designer dresses. Reagan and many key backers were self-made millionaires, for whom wealth measured worth. Money meant virtue, to be displayed without apology. While Carter wore a business suit to his swearing in, Reagan decked himself out in a charcoal gray club coat, striped trousers, and dove gray vest and tie. His wife, Nancy, carried a handbag that reportedly cost more than $1,600 (nearly $4,000 in 2011 dollars).

  Although during the campaign Reagan had sharply criticized Carter for a weak economy, the economic program he pushed through during his first months in office contained many of the same elements that Carter had tried, but writ larger. Reagan supported the effort by Federal Reserve Board chairman Paul Volcker to drive down inflation through monetary policy, even if it brought higher unemployment. He embraced and expanded the push toward deregulation that had begun under Carter. Carter had done little to protect unionized workers from economic changes and hardening business anti-unionism, while Reagan actively worked to weaken organized labor. Reagan accelerated the military buildup that Carter had begun. While Carter projected many of these measures as grim necessities, Reagan presented them as steps toward a bright, unlimited future of bounty and national revitalization.

  Reagan’s top economic priority, tax-cutting (a break with Carter), embodied his belief that reducing the burden of government would unleash the wealth-creating capacity of the public. Reagan’s tax cut ended up being even larger than he or his supporters anticipated. He insisted that Congress pass the Kemp-Roth income tax cuts, which most benefited wealthy individuals, with only modest modifications. Business leaders had a different priority; the year before Reagan took office, their lobbying groups agreed on pushing accelerated depreciation allowances rather than sharp cuts in individual taxes. Reagan dealt with this potential conflict by including both in his tax bill. Specific industries then lobbied Congress for additional tax breaks and loopholes. In many cases, they proved successful, as Democrats competed with Republicans to woo business backing (and, they hoped, campaign contributions), shedding their populist clothing from the past decade. The so-called Boll Weevils, House Democrats from conservative districts who feared that if they opposed Reagan they might be ousted in the next election, cut a deal with the White House that in return for their support for the president’s tax and spending cuts he would not campaign against them. The result of all this jockeying was a massive tax reduction law, which included a 25 percent reduction in income tax rates, including an immediate reduction in the top rate from 70 percent to 50 percent; accelerated depreciation for business; indexing of tax brackets (to prevent “bracket creep” when inflation pushed up nominal income); tax-free savings plans for the middle class; and a Christmas tree of special-interest business tax breaks. The effective federal corporate tax rate fell from 33.3 percent to just 4.7 percent. Altogether, it was the largest tax cut in U.S. history.

  The Reaganites’ faith in themselves, their dogma, and the infinite greatness of the country allowed bold steps and even bolder claims. Some Reagan administration insiders, most notably David Stockman, who had been appointed director of the budget, understood that the massive size of the tax reduction along with the president’s commitment to increased military spending meant there was no way that even sharp cuts in the rest of the budget could come anywhere near to balancing it, which Reagan had promised to do within three years. But the president and many of his advisers seemed unperturbed by the budgetary implications of the orgy of tax-cutting, either believing Laffer’s claims that tax cuts would not reduce revenue, or not worrying about the prospect of a deficit, or simply trusting that everything would work out fine. Reagan’s sunny optimism, ignorance of the inner workings of government, and lack of diligence enabled him to pursue big goals, like tax-cutting, without feeling a need to think through their implications. But the realities of the federal budget made it impossible to square the circle.

  Upon taking office, Reagan began the largest peacetime military buildup in U.S. history, with annual defense spending (in constant dollars) going from $171 billion at the end of the Carter administration to $242 billion in the middle of Reagan’s second term. Believing that under Carter the country had become weaker and vulnerable to its enemies, Reagan wanted to reassert American global influence through military strength and have the wherewithal not to shy away from confrontations with the Soviet Union. Also, his core political base, in California and the rest of the Sun Belt, depended heavily on military spending.

  Reagan did not ask for public sacrifice to finance his program of militarization. Earlier in the Cold War, armaments had been paid for by reducing private spending through taxation, a route Reagan spurned. As a result, the 1980s became the only period of the Cold War when both military spending and private consumption rose as shares of the GNP. Reagan frequently praised the military and extolled military values as part of an intense public patriotism he promoted, but supporting the military, as he saw it, did not require either actual service (he never called for reinstitution of national service) or financial sacrifice, only emotional solidarity, public rituals, and—as it turned out—a huge public debt.

  The political arithmetic of the budget made it impossible for the Reagan administration to reduce nonmilitary spending sufficiently to meet its goal of ending deficits. It could do nothing about debt payments, and Reagan ruled out substantial cuts in the popular Medicare, veterans’, school lunch, Head Start, and summer youth programs. Social Security made up a major component of the budget, but Reagan’s one effort to reduce its cost backfired, when his proposal to further reduce benefits for people who chose to retire early led to a congressional uproar, forcing him to retreat. (A bipartisan commission he appointed eventually led to modest cost-cutting changes in Social Security, including a gradual increase in the retirement age from sixty-five to sixty-seven.) What remained were discretionary domestic programs that made up only 17 percent of federal spending, which the Reagan administration tried to slash.

  True supply-side believers, like Stockman, wanted to eliminate or drastically cut federal subsidies and spending programs that benefited the well-off as well as the poor. They soon ran into the realities of political power. Reagan originally planned to reduce by two-thirds agricultural subsidies, which mainly enriched large growers of a handful of crops, but fierce bipartisan resistance from farm-state members of Congress ultimately led to an increase in payments rather than a reduction. Stockman hoped to eliminate Import-Export Bank subsidies for giant corporations like Boeing and synthetic fuels subsidies that mostly went to oil companies, but the political clout of the corporate recipients quickly scotched those plans. And on it went, as plans to cut tobacco subsidies, the NASA budget, subsidies for nuclear fuel plants, and spending on local bridges and roads largely were defeated as affected groups and local political interests mobilized resistance.

  The administration had greater success with cuts that disproportionately impacted the poor and the urban working class, groups with little clout in the White House or the new Congress. Reagan sharply reduced or eliminated child nutrition programs, CETA, food stamps, and mass transit subsidies. Between 1981 and 1987, the budget of the Department of Housing and Urban Development (HUD) fell by 57 percent. Social spending, which had risen under each of the previous five presidents, fell at an average annual rate of 1.5 percent under Reagan.

  The disproportionate impact of the cuts he instituted on the poor did not bother Reagan, as he generally seemed oblivious to their plight or co
ntemptuous of them, especially nonwhites. Counter to its liberatory rhetoric, Reagan’s supply-side conservatism had a mean-spirited edge. When a billion-dollar cut in federal subsidies for school lunch programs at a time when the White House was spending over $200,000 for new china led the Department of Agriculture to propose reclassifying ketchup as a vegetable to allow schools to meet its nutritional standards, Reagan had to defend himself from the charge that his administration’s style was “millionaires on parade.”

  Economic deregulation complemented Reagan’s tax and spending cuts. For Reagan, deregulation constituted an end in itself, part of his long-standing commitment to diminishing the role of government. But it had an instrumental function, too, to promote economic growth by freeing business of costly regulations and government-imposed fetters and inefficiencies.

  Reagan administration deregulation built on the growing support for reducing economic regulation that had developed under Ford and Carter, but it deviated from the earlier efforts in significant ways. During the 1970s, deregulation had been largely legislative, aimed at ending government bars to business entry and price competition. Reagan deregulation largely entailed administrative actions and enforcement policies, which reduced oversight of a wide range of business activities and loosened restraints on company practices in such areas as consumer safety, environmental practices, financial activities, and labor relations. Upon taking office, Reagan ordered agencies to reexamine existing rules; delayed or repealed environmental and safety regulations issued by the Carter administration; required cost-benefit analysis of any new federal rules and the adoption of the least costly alternative; and ended the remaining price controls on oil. The administration also began cutting funding for regulatory bodies, which meant less staff and enforcement activity. The workforce at the Office of Surface Mining, part of the Department of the Interior, fell from 1,000 in 1981 to 628 the following year. Rather than seeing their role as policing business, Reagan regulators tended to conceive of their function as making business more profitable.

  To head the Environmental Protection Agency, Reagan appointed Anne Gorsuch (later Burford), a conservative legislator from Colorado who opposed many federal environmental regulations. Gorsuch worked hard to not enforce regulations she disagreed with. She repeatedly reorganized her agency and reduced the number of administrative enforcement orders, civil penalties imposed on regulation violators, and referrals to criminal prosecutors. She also loosened restrictions on pesticide use and tried to ease restrictions on toxic waste disposal. To head the Department of the Interior, Reagan appointed another Colorado conservative, James Watt. Like Gorsuch, a protégé of conservative beer maker Joseph Coors, Watt had started a legal foundation “to fight in the courts those bureaucrats and no-growth advocates who create a challenge to individual liberty and economic freedoms.” Under his leadership, the Interior Department threw open federal land for greater private use, leasing offshore sites for gas and oil development, allowing more coal mining, and lowering fees for grazing cattle. Even when money was available, he declined to buy new parkland.

  Other Reagan appointees reversed regulatory policy too. The Occupational Safety and Health Administration moved toward employer self-policing, reducing the number of inspectors and inspections. The Federal Communications Commission dropped the long-standing “Fairness Doctrine” that required broadcasters to give balanced presentations on controversial issues; ended requirements for minimum hours of broadcast time devoted to news and public service (among other things leading to a sharp drop in children’s programming); increased the number of commercials allowed per television hour; and more than doubled the number of television stations a single company could own. The Securities and Exchange Commission allowed the proliferation of new kinds of ever more exotic and risky securities and financial instruments, including index futures, various kinds of options and derivatives, and mortgage-backed securities (pools of home loans repackaged into tradable securities). Its enforcement focus shifted from corporate practices to individual wrongdoing, and it did not increase its staff even as the number of stockbrokers it supervised doubled. The federal government also became much less active in pursuing antitrust matters. The Reagan administration dropped a prolonged antitrust case against IBM and cut the staff of the Federal Trade Commission by more than half.

  In both regulatory and administrative action, the Reagan administration targeted organized labor. Once Reagan appointees achieved a solid majority at the National Labor Relations Board, they issued a long series of pro-business rulings dealing with worker efforts to unionize and management rights. Equally important, they allowed a huge backlog of complaints of labor law violations to accumulate, resulting in such long delays in adjudicating cases that the board stopped being an effective agency to protect the right of workers to join unions of their choice without reprisal.

  Reagan showed how strikes could be used to devastate unions in his handling of a 1981 walkout by the nation’s air traffic controllers. The controllers, employed by the Federal Aviation Authority, had long complained about overwork, job stress, poor labor relations, and management harassment. By the time of the 1980 election, they had grown so disgusted with the Carter administration that their union, the Professional Air Traffic Controllers Organization (PATCO), broke with most of organized labor to back Reagan. Seven months after he took office, 11,300 PATCO members walked off their jobs. When a decade earlier postal workers had broken the prohibition on federal workers striking, Richard Nixon—though he made a show of calling out the National Guard—allowed negotiations that gave the strikers much of what they sought. Reagan took a very different stand, telling the strikers that unless they returned to work within forty-eight hours they would all be fired. He stuck to his pledge, using military and managerial personnel to patch together the air traffic control system until a new generation of workers could be trained.

  Reagan’s bold action inspired private-sector managers, showing that what had been virtually unthinkable—maintaining operations during a large, multisite strike through the wholesale replacement of the workforce—could be done. In a series of large, dramatic strikes starting in 1983, in which workers displayed remarkable solidarity in resisting demands for givebacks, major corporations, including Greyhound, the Phelps Dodge copper company, Eastern and Continental airlines, International Paper, the George A. Hormel meatpacking firm, and the Chicago Tribune, dealt organized labor stunning defeats. High unemployment facilitated the recruitment of strike replacements, as did a decay of working-class traditions that had once made scabbing all but unthinkable in much of the country. (The sanitized phrase “replacement workers” itself reflected changed attitudes, lacking the moral condemnation associated with the older term “scabs.”) Judges and governors proved willing to use the power of the state, in the form of injunctions, state police, and National Guard units, to keep strikers from using force and intimidation to block their replacements from going to work.

  Failed strikes hastened the decline in union militancy. The number of workdays lost to strikes (as a percentage of all days worked) declined through the late 1980s, when it settled at a historically low figure and remained there. The large, disruptive strike, after more than a century of playing a prominent role in the political economy, all but disappeared as a feature of American life.

  The Limits of Reaganism

  Reagan’s tax cuts, spending limits, and deregulation were meant to reduce the size and influence of the government while stimulating growth. But during his first years in office, the economy, rather than growing, crashed, in part as a result of the final piece of his economic program, unwavering support for the tight money policy of the Federal Reserve. Federal Reserve chairman Paul Volcker stayed true to his determination to end inflation at any cost, winning strong support from the new president. Volcker drove the inflation rate down from 9 percent in 1981 to 3.5 percent at the start of 1985. But he did so by helping trigger the deepest recession sinc
e World War II, as his monetary policy pushed interest rates up toward an extraordinary 20 percent. With mortgage costs through the roof, the housing industry ground to a halt, falling to the lowest level of production since 1946. Automobile sales hit a twenty-year low. Though relatively brief, the economic downturn in 1981–82 resulted in one of ten workers being out of work—the highest unemployment rate since the Great Depression. Small businesses, farmers, and workers all suffered from the government-induced credit squeeze, as business and personal bankruptcies soared. Still, Reagan kept backing Volcker’s policies, reappointing the Democrat to a second term heading the Federal Reserve in 1983.

  The economic downturn cost Reagan considerable political support, particularly among working-class voters hit hard by the devastation of blue-collar industries. Reagan’s approval ratings dropped sharply, as many working-class voters who had supported him drifted back to the Democratic Party. Conservative Democratic House members lost much of their fear of what they had seen as a Reagan juggernaut, weakening the president’s ability to get legislation through. In the 1982 elections, the Republicans held on to their Senate majority but lost twenty-six seats in the House.

  Missteps and misbehavior by some of the most fervent administration conservatives created additional pressure for a moderated political course. The effort to radically change environmental policy ran against public support of environmental protection. Key Reagan environmental officials acted as if their constituency consisted of particular business interests, with whom they often had cozy relationships, rather than the broad public, and lacked probity and basic administrative competence. Environmental groups tied up proposed regulatory shifts in court, while Congress intervened or threatened to intervene to undo administration giveaways to business and regulatory rollbacks. Scandals soon engulfed the EPA, where twenty top officials including the director were forced to resign (one went to jail). Interior Secretary Watt alienated broad swaths of the public with his pro-development policies and seeming contempt for conservation until forced to resign after making a disparaging comment about African Americans, Jews, and the disabled. Reagan appointed much more moderate replacements, while elsewhere in the administration deregulatory efforts slowed. In the wake of the backlash against its initial environmental policies, the Reagan administration declined even to try to revise environmental laws that conservatives and business leaders had hoped to weaken.