Original_To:  BITNET%"POLITICS@OHSTVMA"
Newsgroups: bit.listserv.politics
Date:         Thu, 19 Nov 1992 01:52:00 EDT
From:         CLARK@EVMSVMS.BITNET
Subject:      America in the 1980s: Part Two

Here continues the story...



[                           America in the Eighties
              (from _The Unfinished Journey_,  by William Chafe -
                         reprinted without permission)

Part Two

     Not all economists, of course, accepted the ideological underpinnings of
Reaganomics.  The president had blamed America's economic decline on social
welfare expenditures, yet each of the three Western countries with the
highest average expenditure on social welfare - the Netherlands, Belgium and
Sweden - outstripped the United States in economic growth during the 1970s.
Reagan also insisted that America's high rate of personal taxation
contributed to our economic decline.  But eight other Western countries had a
higher tax rate than the United States, and these countries, on average, grew
10 percent faster than America each year and enjoyed a 13 percent greater
increase in productivity.  Countries like Germany and Japan boasted
considerably more national planning than the United States and had a far less
sharp dividing line between public and private sectors.  Yet each
consistently outpaced America in growth and productivity.  Indeed, America's
own economic history belied Reagan's assumptions, since our greatest economic
growth had occurred during the early 1940s, when a wartime government
virtually controlled the economy, and during the 1960s, when social welfare
programs expanded rapidly.  As the economist Lester Thurow observed: "The
American problem is not returning to some golden age of economic growth
(there was no such golden age) but recognizing that we have an economic
structure that has never in its entire history performed as well as Japan and
West Germany have performed since World War II.  We are now the ones who must
copy and adapt policies and innovations that have been successful elsewhere.
To retreat into our mythical past is to guarantee that our days of economic
glory are over."

     Even more problematic were the practical contradictions that ran through
the Reagan economic policy.  On the one hand, the president endorsed the
Federal Reserve Board's tight money policy that raised interest rates in
order to lower inflation.  The purpose of that policy was to curtail consumer
spending.  On the other hand, the president pushed tax cuts to accelerate
economic growth and encourage investment.  The result of such policies, one
economist noted, was analogous to having a train with "one engine heading
west to New York, the other east to Boston."  It was simply not possible to
have a government both tighten and loosen the purse strings simultaneously.
Furthermore, one could not massively *expand* the federal military budget,
*cut* taxes sharply, *and still* have a balanced budget.  The futility of
such efforts quickly became apparent as budget deficits soared to over $100
billion in 1982 - more than three times the largest deficit incurred during
the Carter years.

     Even undaunted Reagan optimists became concerned when the first years of
Reaganomics coincided with the worst recession to occur in the United States
since the 1930s.  Although inflation had fallen to less than 6 percent by
1983, unemployment mushroomed, reaching almost 11 percent by the end of 1982.
Real income continued to fall, and the gap between potential and real Gross
National Product reached a Depression level of 9 percent.  Savings and
investments remained either steady or declined, confounding all of Reagan's
predictions.  Wall Street, as well, lost confidence in Reagan's policies.
Moreover, as interest rates remained high, America's European allies screamed
in pain because of the outflow of capital from their own countries to
American banks.  The worst news came with the 1982 congressional elections,
when the Democrats unseated 25 Republican Congressmen in what appeared to be
a clear rejection of supply-side economics.  "The great majority of voters
saw yesterday's Congressional election as a referendum on President Reagan's
economic program," a *New York Times*/CBS poll concluded in 1982.

     By 1983, however, prosperity had returned, and with it the widespread
assumption that Reagan's economic policies had indeed finally worked their
magic.  After three years of deep recession, the economy suddenly galloped
ahead.  Unemployment steadily declined, returning by 1984 to the 7.5 percent
that it had been in 1980, while inflation continued downward.  In the
meantime, the automobile industry recovered its vitality, housing starts
boomed, and consumer spending achieved new heights.  It was the most vibrant
economy since the early 1960s, and despite continued high interest rates and
deficits that threatened to vault into the stratosphere, people felt good.
Continued growth seemed likely, and the nation acquired once again a sense of
confidence and buoyancy.
                                                                           ]


Coming in Part Three: Reagan foreign policy; The 1984 election.


-T.
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