Influence of 'Reaganomics' philosophy still felt

WASHINGTON — WASHINGTON - President Ronald Reagan inherited a bad economy in the 1980s and made it better. That legacy endeared him to many Americans, but what he did and how he did it remain highly controversial two decades later.

In slashing tax rates, building up the Pentagon budget and pushing deregulation, Reagan put his country and his party on a new economic path. And now, in a new century, the same battles over his economic philosophy are being fought again.


The Republican Party has embraced the Reagan tax-cutting message as party dogma, emphasizing a lighter tax burden over reducing deficits. President Bush's economic plan is cut from the Reagan pattern - tax reduction with large deficits.

Like Reagan, Bush has projected that economic growth sparked by lower tax rates will narrow deficits over the next decade. But Democratic critics say that in emulating Reagan by running up a big deficit, Bush has put the nation's economy in a perilous position.


Reagan introduced the country to "supply-side economics," the theory that lower tax rates would power the economy, produce more revenue and more than pay for themselves without creating higher deficits.

Today, this theory is still fiercely debated. A majority of economists say the theory has some marginal validity, but they generally add that cutting taxes contributes to more red ink in the budget. Supply-side economists, however, insist that their theory is right.

On the international front, Reagan pursued a free-trade policy and a strong dollar in his presidency. This put pressure on American manufacturers and destroyed thousands of factory jobs during his two terms. But in the process, more jobs in the service sector were created - and America became more of an information economy.

In the Reagan administration, Congress approved a compromise plan in 1983 to reform Social Security, cutting future benefits and gradually raising the retirement age. In 1986, he signed a tax reform bill that did away with many tax loopholes and cut tax rates. But these reforms have gradually been eroded over the years.

Long gasoline lines that appeared late in President Jimmy Carter's administration disappeared soon after Reagan took office. He ended regulations to control gasoline prices and changed the way gasoline was to be distributed throughout the country. To well-respected projections that the world was running out of oil, Reagan said they were simply wrong.

He moved to lighten government regulation in many other ways, some of them controversial, especially in regard to the environment. He preached largely unfettered capitalism around the globe and encouraged entrepreneurship through "the magic of the marketplace." He resisted increases in the minimum wage.

Reagan left office in 1989, but his economic policies live on. They influenced not only two presidents named Bush, but also a Democratic president, Bill Clinton, who for the most part did not try to roll back Reagan's tax cuts and who once declared, in Reagan-esque fashion, "The era of big government is over." But dealing with the deficit proved troublesome through most of the 1990s.

When he ran for the presidency in 1980, his opponents derisively criticized his proposed 30 percent, three-year tax cut and accompanying military buildup as a recipe for disaster. Yet as much as it was lampooned, it was popular with many Americans weary of high inflation and high oil prices.


'Voodoo economics'

"Voodoo economics," said his primary opponent, George Bush, later his vice president and still later the 41st president. Democrats warned of deficits that would trigger even more inflation, unemployment or both. But Reagan, ever sunny in demeanor, pushed ahead and won passage by Congress in his first year in office.

Budget deficits larger than Americans had seen in the post-World War II period soon materialized, but slowly and steadily the economy began to improve in his first term, responding not only to Reagan's tax cuts but also to the Federal Reserve's conquering of inflation.

Reagan summoned his advisers into the Oval Office one day, telling them he knew his economic program was working because his critics had changed their tune. "They no longer called it Reaganomics," he said, according to his domestic adviser, Martin Anderson.

The economic climate was scary at the time, and many people wondered whether another depression was on the horizon. A steep recession, induced by Federal Reserve policy, caused the unemployment rate to rise above 10 percent. It peaked at 11.3 percent in February 1983. But by the time Reagan left office, the jobless rate was under 6 percent.

$4 trillion deficit


His immediate legacy was the deficit. His budget director, David Stockman, said the deficit threatened an "economic Dunkirk," losing his job for such candor. One of his chiefs of staff, Donald Regan, said there would have to be a "shovel brigade" to clean up the deficits after Reagan left office.

Reagan appeared to take a blase attitude toward the deficit. "I'm not worried about the deficit," he jokingly said at the midpoint of his presidency. "The deficit is big enough to take care of itself."

From the time he took office in 1981 to the end of the decade, the national debt quadrupled, rising to $4 trillion.

But Reagan took the deficit more seriously than was widely believed. He supported three bills that took back some of his tax cuts - a controversial move that some of his supporters criticized. According to Anderson, the president never bought into the supply-side theory wholeheartedly. He said the president believed in a balanced plan of spending and tax cuts that he was not able to pull off.

The Chicago Tribune is a Tribune Publishing newspaper.