by Norman Stone
Reagan was of course helped, as ever, because his opponents underrated him. Carter was even quite pleased at the nomination of a washed-up actor with eccentric political views. But it was Reagan who won the exchanges. Carter mocked him, saying the economy was in depression; what he meant was ‘recession’ but did not know the difference. Reagan was quick off the mark: ‘A recession is when your neighbour loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his.’ Of course the establishment — what Vladimir Bukovsky calls the new American elite — did not like this but, in the event, the election gave Reagan a comfortable victory. Carter then went off to obscurity, subsequently returning in the 1990s to inform the world that North Korea would agree not to develop nuclear weapons or that Haiti would turn into a proper democracy, announcements very rapidly falsified by events. With this hapless figure, the sixties came to an end.
In January 1981, as he took over, Reagan announced that there should be tax cuts and a reduction in domestic spending; he promised prosperity. However, as with Margaret Thatcher though for different reasons, he ran into problems. There were severe enough limitations on his power but in any case the ‘conservatives’ were implicitly divided and this showed, after initial reverses. Reagan had pledged to cut public spending, and blamed it for many ills, including inflation; at the same time he had promised to cut taxes. There was a difficult context, because interest rates (at almost 20 per cent) were so high. Private enterprise could no doubt take up slack that came from a reduction of public spending, but not if credit were so expensive: any small business would need it to keep going. Besides, Reagan was not the only wielder of power: there was a Democrat-majority Congress, there were separate states with spending rights, and there was a legal system of fabulous interferingness. Public opinion was a constant concern, and the media thereby seemed to have enormous importance — the maker and breaker of presidencies. Besides, any President would inevitably find himself dealing with foreign affairs — one complication after another, with vociferous lobbies attached. Not an easy set of cards to play.
Divisions emerged rapidly enough. Jack Kemp especially had been arguing that tax cuts would more than pay for themselves. This was a popular enough cause. The average family income in 1970 was under $10,000, and as that figure, on paper, rose, the tax rate went up by 20 per cent, though the average income in 1980 was buying about 20 per cent less than in 1970. In, say, Germany, the high taxes at least bought decent public services. Not, for the most part, in the USA. However, there was a vast constituency for social security, especially Medicare and Medicaid, the costs of which went up and up (while also leaving millions of people without health insurance). There were also endless lobbies for this or that subsidy, especially the farmers: a cow cost $2 per day, before it had even started to chew the cud or be milked. A very tortuous campaign went ahead, through a Democrat-dominated Congress (with a slight and unreliable Republican majority in the Senate). Reagan turned out to be a very astute manager. His style was less than hectic: he refused to do early-morning meetings. The team that he had chosen spoke with different voices: a James Baker, more or less in conventional mould, could, as Chief of Staff, talk lobbyists’ language, whereas a David Stockman, managing the budget, addressed fears as to deficits. Reagan could also use television as a professional, and outflank Congress in that way, with an appeal to public opinion. Above all, he did not preach or offend, and his relations with the Democrat Speaker, Thomas ‘Tip’ O’Neill, were friendly. In 1981 legislation brought a tax cut of 25 per cent, in slices — 5 per cent at once and 10 per cent for the next two years. The top rate of tax fell from 70 to 50 per cent and by 1985 tax was supposed to be indexed against inflation. By 1988 the top rate had fallen to 28.5 per cent. There were concessions elsewhere, for retirement savings and the like. So far, so good. Reagan was also shown to be right as to the effects: the better-off did not avoid tax, and income from them went up, not down. In 1986 a new tax law brought the marginal rate down from 50 to 28 per cent but cut out some loopholes, and there were only three tax brackets. However, business and other taxes did in effect rise.
David Stockman, at the Office of Management and Budget, was a man of fiscal rectitude, and he could see an immediate problem: a deficit. It stood at $50bn in 1980, and under Reagan, by 1986, reached $200bn. When he left office, the overall debt had increased by $1,500,000,000,000 (1.5 ‘trillion’, though the word is not correct). Stockman was a free-market convert (originally from the radical Left) and set himself to attack ‘forty years… of promises, entitlements and safety nets’, i.e. the welfare state as it had grown up since Roosevelt’s time. The problem here was not just the poor, for whom the welfare state had been designed. There were many middle-class ‘entitlements’ as well, and the health schemes were notoriously prodigal. There were also arrangements to subsidize the buying of houses on mortgage — great federal institutions, quite strictly regulated. Meanwhile, Reagan himself had encouraged the Defense Department to put up its budget, and according to Stockman, its Secretary, Caspar Weinberger (one of Reagan’s Californians) in effect dictated government finances. Stockman talked to congressmen with a view to having taxes put up, not down, because of the deficit and ‘leaked’ news that he had sabotaged the tax cuts, but Reagan did not dismiss him until 1986, when Stockman went on to Wall Street. His memoirs are a long statement of contempt: both for the endless political subsidization (‘pork barrel’) that went on, sometimes by small-print subterfuge, and for Reagan’s own management, which he thought very weak and even reckless. Military spending took priority, and from 1981 to 1987 went up from under $200bn to nearly $300bn. But it was not just defence: Stockman catalogues case after case of special pleading, as each congressman expected a favour or two in return for his vote. His was a curiously unstable career — Harvard theology, the anti-Vietnam Left, free-marketeering, money on Wall Street and, in 2007, an indictment for fraud.
At any rate, he could not convince the powers that be, and became a fifth wheel. The Reagan administration went along with social spending. There were ‘cuts’ — in 1981 $35bn, as food stamps and student loans were cut back. A redundant employment agency was closed down and fuel prices were freed. These ‘cuts’ were overall rather trivial, but, as ever in this period, there were dramatic howls. Even Daniel Moynihan talked of ‘devastating cuts’ and a well-known liberal economist, Robert Reich, said that it was ‘the return of Social Darwinism’ — the same hysteria as appeared in Britain. But Reagan could not cut back significantly: he went on spending, and could afford to do so because the GNP rose by a third — equivalent to the entire German economy. David Frum (Dead Right) is scathing. He notes that Reagan’s old Californian associate Edwin Meese, though supposedly overseeing the entire administration from the ‘conservative’ angle, and subsequently Attorney-General, wasted time, ran an office of legendary confusion, and protected spending programmes from Stockman’s axe — orange-growers, for instance, who were very firmly regulated as to how much each could produce. In February 1981 he trumped Stockman by announcing that all the chief programmes (Medicare, etc.) would be safe. In the same way, the despised Department of Education was not closed down, as had been, to wide enthusiasm, promised. Carter had rewarded his teacher allies with it, and the Reagan allies regarded it as pernicious. But on it went, to a budget of over $20bn in 1989: it was a useful field for patronage, particularly its Civil Rights side. William Bennett, an interesting thinker, was put in charge, and went around making speeches that electrified audiences, but his department blithely went on as before, with bussing schemes and federal instructions as to how schools should teach. The budget went up from 1981 to 1989 and the rise accounted for three quarters of the 50 per cent increase in federal education spending. Yet America’s educational performance went down, at any rate as far as schools were concerned. Literacy was barely above the level of poor countries, although spending was considerable. Perhaps the worst case occurred with farmers. They had borrowed to buy land in t
he 1970s and then faced high interest rates, with declining prices for land and crops. The government offered credit to a maximum of $2.5m per farm, and even forgiveness, and the extra $20bn farmers received in 1986 was three times the federal contribution to families with dependent children. Overall, spending rose from $808bn to $1,114bn. Reagan’s own record looked somewhat better, in terms of government share in GDP, only because some big bills — the savings and loan debacle — came in after he had gone. He had said that he would try to undo, not the New Deal, but the Johnson Great Society. However, an essential part of that had been Medicare, which paid most of the health costs of the elderly, over sixty-five, even when they were not at all poor. This had cost $64m when it began in 1966, and reached $32bn in 1980 and over $200bn by 1997. The usual explanation for this was that medical technology and drugs had a higher inflation rate than anything else, although quite why was not easy to see: usually, technology depressed costs. Reagan had begun by denouncing socialized medicine as likely to end up with problems of this sort, but, once in office, he of course could not attack such a large and powerful constituency, and, as happened with variations anywhere else, was reduced to tinkering with cost caps. By 1993 Medicare alone took 11 per cent of all federal revenue, having grown at 12 per cent per annum. Besides, the huge inflow of Medicare money made every other form of health care more expensive, and employers were paying more into the system instead of raising wages and giving people money to spend directly, which might have caused them to question costs. Here was a monster out of control.
The Left captured culture (broadly defined) and education, much as happened in England. Its denunciations of Reagan-and-Thatcher were loud, frequent and generally absurd. ‘The eighties’ passed into history as a decade of ‘greed’. There was an element of truth in this. The outstanding feature was that the better-off got better off, and the Economist was able to speculate, plausibly, that there was a return to the hereditary bourgeoisie, of substantial upper-middle-class families keeping their fortunes intact and passing them on to children and grandchildren, which had been a considerable feature of the English past. One aspect of this was certainly the reduction of top tax rates in the USA. For whatever reason, it did indeed have the effect of increasing government income from the top taxpayers, as the ‘supply-siders’ had claimed (to ridicule) would happen: 50 per cent. The top 1 per cent had paid 18 per cent of all revenues in 1981 and 28 per cent in 1988.
Still, there were ‘Seven Fat Years’, and this needs explanation. Median family income rose in 1990 dollars from $33,500 to $38,500. Five million new businesses emerged, and 18 million jobs were created. The stock market doubled in value, and inflation fell to a negligible figure: especially, oil prices declined, such that America returned to a cheap-energy world. It seems fair to say that the critics of the ‘supply-siders’ simply failed to foresee this, and, when they could not deny it, reckoned that it confirmed their own orthodoxies. Reagan characteristically remarked that a sure sign that it had worked was that it was no longer called ‘Reaganomics’. There was extraordinary criticism, still, and particularly of ‘the deficit’, which critics in other circumstances would have shrugged off. It was substantial, at 6.3 per cent of GDP in 1983, but with economic growth fell to 3 per cent in 1987, where it had been in 1981. Other countries had larger deficits; the American one mattered, because it brought in imports and thus carried other countries out of depression. It was also very easily covered by capital imports, since the world invested in America. The real objections to Reagan were of a different order altogether: they had to do with the displacement of ‘hegemony’. The Californian business cronies with whom Reagan filled his Cabinet could not have cared less for the opinions of J. K. Galbraith, despised the seventies, regarded universities as pollution. Reagan himself, criticized for not having economists around, remarked, why should he: his Cabinet consisted of millionaires.
Was it true that ‘the middle’ was stagnant and ‘the poor’ were poorer, while there was ‘obscene’ wealth? Such was a theme of critics in all areas. There was no doubt as to the money made out of money: Wall Street entered legend, as did the London City. In 1980 there were almost no billionaires, and in 1989 there were over fifty. There had been under 5,000 millionaires; then there were 35,000. There had been 500,000 people with assets worth one million; then there were 1.5 million. In England there was a joke that a millionaire was just someone without a second mortgage in Fulham, so far had house prices risen. Then again, the ‘middle’ was not ‘stagnant’ at all, given that the percentage of families earning $50,000 (1989) rose from 31 to 36 per cent, thus rated (no doubt misleadingly, but the losing 1984 Democratic presidential candidate, Walter ‘Fritz’ Mondale, regarded an income of $60,000 as defining ‘rich’) as ‘affluent’. There was also a huge increase in charitable giving — more than $100bn in 1990, an increase of over half in the decade.
Besides, poverty, as ever, defied generalizations. A student was poor, and so was a pensioner, even if living in a large house. People moved jobs, and got divorced, before rebounding. Then again, there was the ‘underclass’ — a problem that hardly existed in countries such as Sweden, where people who refused to work faced severe punishment, unthinkable in the USA. It was of course true that economic change greatly affected whole classes of people such as blue-collar workers and (some) farmers, but that was not a problem peculiar to the eighties: it had been a strong feature of the seventies, when the expression ‘rust belt’ came to describe Sheffields or Baltimores or Pittsburghs that had previously been steel towns, now facing competition from much cheaper producers abroad. In the 1980s, on the wreckage of these older industries, new ones shot up, generally referred to as ‘service’, but in themselves requiring sophisticated machinery. The computer was sometimes held to be as revolutionary as the railway had been for the nineteenth century. But the proper comparison is with the automobile, which had brought about the 1930s recovery in the industrial West. The recession released capital and labour in a great wave, and after the initial troubles the country boomed. But so did important places beyond the USA.
23. Brumaire: Two Coups
But it was not just the internal blockage that gave Reagan his financial troubles. He had also decided on a course of rearmament, known as the ‘Second Cold War’, and it proved expensive, only really justified by a belief that matters could not be left to drift. The background, as in most matters, lay in Carter’s failures. The experience of détente had not been positive, and part of the Reaganites’ strategy was a challenge to the USSR. This included defiance over weaponry. It also meant a new spirit in the CIA, rather cowed since Vietnam days: why not challenge the Soviet Union directly? Its civilian economy worked, everyone knew, badly. Why was it now building a very large navy, exploiting any advantage on the edges of the Middle East — Ethiopia, then Afghanistan — and probing mineral-rich southern Africa? The spirit in the United States became antagonistic. European misgivings were swept aside; a ‘working breakfast’ between Alexander Haig, the Secretary of State, and Helmut Schmidt, early in 1982, was marked by enraged shouting, over Poland. At the time Caspar Weinberger was preparing a document as to how the offensive should be undertaken. The general idea was to identify which technologies really mattered to the USSR, and to invest ‘in weapon systems that render the accumulative Soviet equipment obsolescent’. William Clark for the National Security Council said that ‘trade and finance should emerge as new priorities in our broader effort to contain and roll back Soviet operations worldwide’. But it was not just trade and finance or even brilliant new weaponry, such as ‘smart bombs’ and laser-beam anti-missile technology. The Americans had looked hard, since the Vietnam disaster, and considered what had gone wrong; and they now had two concrete cases from which to build up arguments.
The twentieth century was to end with a grotesque joker from the seventies crisis pack. In 1999 a very frail 84-year-old Chilean general, long in retirement, was arrested in London, in the watches of the night, in his hospital be
d. The general, Augusto Pinochet, had his drip-feed detached, and he was taken off to prison, there to face charges that related to events that had occurred a quarter-century before, half a world away from London. The legal details were also bizarre. A Spanish judge, who had himself served a dictatorship quite faithfully as chief prosecutor, had issued a warrant for the general’s arrest, on human rights charges; it was to Spain, not Chile, that the old man was supposed to be extradited. But, in Spain, even had he been convicted, he could not have been imprisoned: people over seventy-five were let off. The Pinochet case was, in other words, absurd.
But it was very deeply felt, by the general’s enemies. The ‘Pinochet coup’ on 11 September 1973 had acquired worldwide significance, and was viciously remembered by the generation of 1968. The Chilean armed forces had struck, and deposed one of its heroes, Salvador Allende, the Marxist president of Chile. He died when his presidential palace was stormed, and became a martyr. Pinochet was said to have overthrown Chilean democracy and, with sinister American advisers, to have initiated a reign of terror: there were voluble exiles, with tales of ‘disappearances’, of mass executions in football stadiums, of torture in dank basements or freezing, sub-Antarctic camps. When the people of 1968 came to office in Washington, with President Carter in the later 1970s, they wanted to distance themselves from Pinochet. The Americans had been involved in the coup, which was even said to have originated with the CIA, and Carter accused Nixon of destroying ‘elected governments, like in Chile’. In 1977 the US representative at the United Nations Human Rights Commission in Geneva stated his ‘profoundest regrets’ for the ‘despicable… acts of subversion of the democratic institutions of Chile, taken by certain US officials, agencies and private groups’. It was characteristic of the hatred displayed that the New York Times ran sixty-six articles on the Chilean affair and the opposition to it, but only three on Cuba and four on Cambodia.
