A Just and Generous Nation

by Harold Holzer

  Abraham Lincoln was taken away before he had achieved unity within the nation, and the people failed him. This divided us as a nation for many years. . . . Perhaps, in His wisdom, the Almighty is trying to show us that a leader may chart the way, may point out the road to lasting peace, but that many leaders and many peoples must do the building. It cannot be the work of one man, nor can the responsibility be laid upon his shoulders, and so, when the time comes for people to assume the burden more fully, he is given rest. God grant that we may have the wisdom and courage to build a peaceful world with justice and opportunity for all peoples the world over.

  Abraham Lincoln claimed he knew “little” about art, but the president who presided over the 1959 Lincoln sesquicentennial, Republican Dwight D. Eisenhower, was not only a Lincoln admirer but a skilled amateur artist. This is Eisenhower’s undated oil portrait of his White House predecessor.

  EISENHOWER PRESIDENTIAL LIBRARY & MUSEUM, ABILENE, KS

  Lincoln’s “new birth of freedom” reached worldwide maturity through the work of Franklin and Eleanor Roosevelt. In the United States, the commitment to the four freedoms provides an added pillar to the continuing general public support of the domestic economic policies of the New Deal. The dedication of Eleanor Roosevelt established the vitality of the four freedoms as a continuing beacon of light not only to the United States but also to the rest of the world.

  Harry Truman stoutly supported Roosevelt’s economic policies and, as president, diligently worked to implement and expand them. Truman successfully resisted all Republican efforts to dismantle or reduce New Deal policies and succeeded in securing modest improvements and extensions in some of them. He was a strong advocate of continuing to build on the New Deal with his own Fair Deal initiatives. While most of his proposals were rejected by an increasingly conservative Congress, he was successful in making some progress to improve the treatment of African Americans who had served in the army. He insisted on equality of treatment for African American soldiers during and after their service with an executive order eliminating racial discrimination in the armed services or in government civil service positions.

  President Eisenhower greets Robert Todd Lincoln Beckwith, the last direct descendant of Lincoln, at a White House visit that most likely took place on the sixteenth president’s 150th birthday, February 12, 1959.

  FROM THE LINCOLN FOUNDATION COLLECTION, COURTESY OF THE ALLEN COUNTY PUBLIC LIBRARY AND INDIANA STATE MUSEUM AND HISTORIC SITES

  Eisenhower, the first Republican elected president after Roosevelt, was reluctantly supportive of Roosevelt’s version of Lincoln’s dream, in part because it was the only politically viable option. As he remarked to his press secretary in 1954, “This party of ours . . . will not appeal to the American people unless the American people believe we have a liberal program.” In a letter to his brother, Eisenhower explained, “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history.”

  Lyndon Johnson saw himself as an enthusiastic New Dealer. He did more than any president after Roosevelt to ensure that the government would be active in creating a “great society.” Committed to Lincoln and Roosevelt’s concept of active government working “for the people,” Johnson, most notably, added federally funded health insurance to the roster of government supported programs with the enactment of Medicare and Medicaid. The shadow of Roosevelt was so long that it influenced even Republican president Richard M. Nixon and the most notable conservative American economist, Milton Friedman. Working together, they added the earned-income tax credit to the lexicon of generally accepted progressive economic programs. Lincoln’s commitment to government action “for the people” had finally, if briefly, united both parties in the task of expanding the American middle-class society.

  Roosevelt’s economic program had its first substantial post–World War II setback during the administration of Democratic president Jimmy Carter. When Carter assumed office in 1977, he failed to address the weakening economy in an effective way. Instead of introducing direct programs to increase employment and consumer demand, the Carter administration pursued an expansionary monetary policy. Carter relentlessly prodded the US Federal Reserve Bank to expand the money supply, first under Chairman Arthur F. Burns and then under Carter appointee G. William Miller. From 1977 to 1979, the money supply grew at a faster rate than any time in postwar history. The impact on unemployment was minimal, but inflation went through the roof. In 1979 it crested at 13.3 percent. University of Chicago economist Robert Barro devised what he called the “misery index” to measure the combined effect of inflation and unemployment (the index simply added the two percentage figures together). In 1979 the misery index rose to an unbearable 19. The following year it rose to nearly 20. The public was fed up.

  “For the public today,” wrote astute social observer Daniel Yankelovich in 1979, “inflation has the kind of dominance that no other issue has had since World War II. The closest contenders are the Cold War fears of the early 1950’s and perhaps the last years of the Vietnam War. But inflation exceeds those issues in the breadth of concerns it has aroused among Americans. It would be necessary to go back to the 1930’s and the Great Depression to find a peacetime issue that has had the country so concerned and so distraught.”

  Perhaps most important, inflation robbed the economy of much of the stability the New Deal framework had originally introduced: the sense that economic realities were relatively predictable, that there was a cushion against wildly high unemployment, that recessions would end fairly rapidly, and that government had a measure of control over economic life. Maintaining a middle-class standard of life in a highly inflationary economy—providing for one’s family and planning for the future—became a much more stressful proposition. Missing was the essential confidence that prosperity would grow steadily year after year—or that the government could do anything to help guarantee it.

  The rise of inflation under Carter’s Democratic administration had reduced consumer purchasing power with substantial negative effects on economic growth. But its more enduring result was that it paved the way for the return of Gospel of Wealth thinking, focused on tax reductions, support for business enterprise, and a laissez-faire approach to regulation of business.

  When Ronald Reagan replaced Jimmy Carter in the White House in 1981, it was clear that he confronted a real economic crisis consisting of economic stagnation and high inflation. The stagflation episode marked the worst economic dislocation since the Great Depression and provided the context for Reagan’s economic program. Clearly, inflation had to be gotten under control. There was also strong Republican-inspired public sentiment in favor of tax cuts. Inflation-driven “tax-bracket creep” had in effect meant a steady series of “hidden” tax increases for middle-class as well as upper-class Americans. But the struggle over taxes now took on a powerful new ideological dimension. Echoing the sentiment of earlier eras, business owners, Republican politicians, and conservative economists and intellectuals argued that the American government, under Democratic stewardship, had become downright business unfriendly. As Reagan famously claimed, “Government is the problem.”

  In response, Reagan brought a new approach to economic policy, developed and supported by a small cadre of conservative intellectuals, publicists, and economists. Reagan’s new strategy was outlined in a “Memo to the President-elect from his Coordination Committee on Economic Policy,” dated November 16, 1980, three months before his inauguration. The memo was crafted by a group that included future secretary of state George P. Shultz, future Federal Reserve Board chairman Alan Greenspan, and the leading academic proponent of business-oriented supply-side economics, Milton Friedman.

  Sharp change in present economic policy is an absolute necessity. The problems . . . can be redressed by a change in policy. . . . The essence of good policy is good strategy. . . . The need for a long-term point of
view is essential. . . . The current regulatory overburden must be removed from the economy. . . . Many of our economic problems today stem from the large and increasing proportion of economic decisions being made through the political process rather than the market process. . . . We urge you to issue a message on regulatory reform. . . . The success of your economic policy will be a direct reflection of your ability to maintain a steady course over your full first term. Rough times will come and crises of one kind or another, some small, some of great moment, will arise. Sustained effort through these testing times means that public understanding and support are essential.

  Shultz, Greenspan, and Friedman were calling for a long-term continuing program to persuade American voters to support a new conservative program of low taxes and limited government.

  In 1980 the seven-year-old conservative Heritage Foundation produced a 1,093-page public policy blueprint, Mandate for Leadership: Policy Management in a Conservative Administration. This became the policy bible of the newly elected Reagan administration on everything from taxes and regulation to crime and national defense. Reagan gave a copy to each member of his cabinet at their first meeting. The Heritage Foundation claims that nearly two-thirds of the two thousand recommendations in the document were adopted by the Reagan administration.

  Reagan and his advisers sought nothing less than to overturn the reigning economic consensus at its foundations—and this meant going after the heart of Roosevelt’s legacy. In effect, the conservative Heritage “think tank” orchestrated a revival of the nineteenth-century “political economy”—the laissez-faire doctrine of old—but with a new “explosive growth” twist. The great innovation of the Roosevelt economic revolution was to discover the centrality of consumer demand to the business cycle. Reagan’s advisers rejected this approach and returned to antiregulation laissez-faire and antitax doctrines with renewed emphasis on production or “supply.” Inflation, they argued, was too much money chasing after not enough goods. The problem, they contended, was not simply that government was artificially inflating demand through deficit spending. The problem was that government policy—and especially tax policy—was inhibiting producers, causing inflation by inhibiting supply. High taxes were inhibiting work, savings, and especially investment. High taxes were discouraging business­people from engaging in business. Thus was born “supply-side economics,” the modern rebirth of the economic philosophy of the Gilded Age.

  The supply-side doctrine was about one-tenth economics and nine-tenths politics. The political problem was how to craft a credible, politically salable Republican alternative to the Democrats’ “demand-side” economic policies—policies that had originated with Roosevelt and were supported by the theoretical work of noted economist John Maynard Keynes and that seemed to have worked just fine for three decades.

  Before 1980 Republicans’ time-honored prescriptions for curing inflation were tight money and fiscal austerity, described by their opponents as “castor-oil economics.” Indeed, when in 1976 Reagan challenged President Ford for the Republican presidential nomination, he proposed the typical Republican prescription. Balanced budgets. Fiscal responsibility. Belt tightening. None of it was politically salable, at least not yet. Reagan lost to Ford and Ford lost to Carter.

  Reagan and his advisers learned their lesson. They came up with a new idea for the 1980 election—supply-side economics—the idea that tax cuts for everybody, especially for the wealthy, would work to increase production and stave off the inflation that had skyrocketed during Carter’s administration. After all, wealthy Americans were the nation’s most productive citizens, its job creators. Business owners, he argued, would automatically use their increased income from tax cuts to hire additional workers to increase their supply of products. Reagan rejected the New Deal conviction that an increase in consumer demand was a necessary precondition for business owners to increase production.

  Reagan’s greatest talent as a politician was an ability to communicate symbolically, to paint his policies in bold strokes that the public could understand. In pursuit of this goal, Reagan presented a new Republican version of the Gospel of Wealth. In order to do so, he turned his back on Lincoln’s belief in government action to help “clear the path” for the “prudent, penniless beginner” to rise to the middle class. In its place, Reagan promoted a new vision, proposing to curb the size and influence of the federal government and to sharply reduce government regulation of businessmen and corporations engaged in the pursuit of “wealth.” Reagan paid lip service to Lincoln when he said in his First Inaugural Address that “whoever would understand in his heart the meaning of America will find it in the life of Abraham Lincoln.” But Reagan immediately proceeded to dismantle the underpinnings of the middle-class economy and society that were the heart and soul of Lincoln’s “unfinished work.”

  As much as Reagan worked to change the political beliefs of the country, he put his real effort into changing the country’s mind about economics. Reagan sought to repeal the post–New Deal middle-class economic mind-set. He sought to instill the idea that government should not attempt to manage the economy, that effective government policy should defer to business interests. He sought to replace the idea of government as economic steward and manager with the notion of the free market as king. Low taxes, less government regulation, fewer government programs, economic freedom, and business incentives would rule the day. Economic success, under this model, was based entirely on self-reliance and self-interest. Above all, Reagan encouraged a return to the Gilded Age belief that successful businessmen deserved recognition as the major contributors to American society.

  Such ideas had found little resonance among the majority of Americans from 1932 to 1980. Reagan revived them and, over time, persuaded much of the public that they were sound ideas. More than reshaping fiscal policy, Reagan changed the terms of the economic debate. The social contract advocated by Lincoln and revised by Roosevelt—in which government played a constructive role in building a middle-class economy and society—was transformed into the belief that the government had no such responsibility to ordinary Americans.

  Reagan set forth this philosophical framework in straightforward language in his First Inaugural Address:

  It is my intention to curb the size and influence of the Federal establishment. . . . It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government. . . . There are entrepreneurs with faith in themselves and faith in an idea who create new jobs, new wealth and opportunity. They are individuals and families whose taxes support the Government and whose voluntary gifts support church, charity, culture, art, and education. Their patriotism is quiet but deep. Their values sustain our national life.

  Reagan shifted the attention from the ordinary worker to the exceptional entrepreneur, what conservative supply-side economists liked to call, in language almost reminiscent of social Darwinist days, our “most productive citizens,” who were later described as the only real “job creators.” The key to a healthy economy was making sure these “most productive citizens” were free to be productive; it was they who “created wealth” for the rest. Government simply needed to get out of the way.

  Perhaps the clearest indication of Reagan’s success in changing the nation’s perspective on economic matters was the gradual refocusing of attention from employment to overall business profitability and economic growth (growth in GDP) as the primary barometers of economic health and presidential performance. As long as there were business profits, Reagan claimed, wealth would eventually also trickle down into the hands of the “less productive.” This new business-oriented economic philosophy, reprising the view of Herbert Hoover’s treasury secretary Andrew Mellon, has dominated the political process for more than four decades during the Reagan and post-Reagan years.

  Side by side with Reagan’s supply-side economic rhetoric was a renewed effort to shift much of the
power to regulate the economy from the federal government to the individual states, which would be more responsive to local business interests and less likely to regulate energetically. This effort was originated in 1947 by a coalition of Republicans supported by southern Democrats in Congress who believed that unions would defeat their efforts to maintain the prevailing segregated society in the South. It succeeded with the passage in Congress of the Taft-Hartley Act in 1947. The Taft-Hartley Act authorized individual states to pass “right-to-work” laws to provide private employers with tools to sharply reduce the influence of unions in the private economy. President Truman had denounced the Taft-Hartley bill as a “slave-labor bill,” but it became law when Congress overrode his veto. Within a decade ten former Confederate states passed right-to-work laws. Now with the Reagan philosophy in command of public policy and public opinion, the remaining southern states passed right-to-work laws, and a significant number of northern and western states began to join them.

  Business leaders used the right-to-work laws as a convenient vehicle for an increasingly successful effort to combat the union movement in the private economy. Today, the once powerful union movement has little power or presence in the private American economy.

  Reagan’s rhetoric laid the groundwork for a continuing Republican Party effort to convert Lincoln’s emphasis on a middle-class society based on government “for the people” into an argument for the individualistic belief that every person was on his own in the ongoing competitive battle for economic success—a battle that they claimed benefited society by producing ever-increasing economic growth. Lincoln had said that the American government had an active role in helping all Americans to secure a middle-class life. Reagan took the opposite position that the government should not interfere with the operations of the economy.