The Abject Failure of Reaganomics

Even as the Republican Right licks its wounds after taking a public-opinion beating over its government shutdown and threatened credit default, the Tea Partiers keep promoting a false narrative on why the U.S. debt has ballooned and why the economy struggles, a storyline that will surely influence the next phase of this American political crisis.

If a large segment of the American public continues to buy into the Tea Party's fake reality, then it is likely that both the political damage and the economic decline will continue apace, with fewer good-paying jobs, a shrinking middle class and more of the bitter alienation that has fed the Tea Party's growth in the first place. In other words, the United States will remain in a vicious circle that is also a downward spiral.

The pattern can only be reversed if American voters come to understand how and why their economic well-being is getting flushed down the drain.

The first point to understand is that the current $16.7 trillion federal debt is about $11 trillion more than it was when George W. Bush took office. Not only did Bush's tax-cut-and-war-spending policies send the debt soaring over the next dozen years but it was those policies that eliminated the federal surpluses of Bill Clinton's final years and reversed a downward trend in the debt that had "threatened" to eliminate the debt entirely over the ensuing decade.

Amazingly, President Clinton left office in January 2001 with the federal budget in the black by $236 billion and with a projected 10-year budget surplus of $5.6 trillion. The budgetary trend lines were such that Federal Reserve Chairman Alan Greenspan began to fret about the challenges the Fed might face in influencing interest rates if the entire U.S. government debt were paid off, thus leaving no debt obligations to sell.

Thus, Greenspan, an Ayn Rand acolyte who was first appointed by Ronald Reagan, threw his considerable prestige behind George W. Bush's plan for massive tax cuts that would primarily benefit the wealthy. In that way, Bush and the Republicans "solved" the "problem" of completely paying off the federal debt.

When Bush left office in January 2009 -- amid a meltdown of an under-regulated Wall Street -- there was no more talk about a debt-free government. Indeed, the debt had soared to $10.6 trillion and was trending rapidly higher as the government scrambled to avert a financial catastrophe that could have brought on another Great Depression.

Reaganomics' Failure

But this debt crisis did not originate with George W. Bush. It can be traced back primarily to President Reagan, who arrived in the White House in 1981 with fanciful notions about restoring America's economic vitality through massive tax cuts for the wealthy, a strategy called "supply-side" by its admirers and "trickle-down" by its critics.

Reagan's tax cuts brought a rapid ballooning of the federal debt, which was $934 billion in January 1981 when Reagan took office. When he departed in January 1989, the debt had jumped to $2.7 trillion, a three-fold increase. And the consequences of Reagan's reckless tax-cutting continued to build under his successor, George H.W. Bush, who left office in January 1993 with a national debt of $4.2 trillion, more than a four-fold increase since the arrival of Republican-dominated governance in 1981.

During 1993, Clinton's first year in office, the new Democratic administration pushed through tax increases, partially reversing the massive tax cuts implemented under Reagan. Finally, the debt problem began to stabilize, with the total debt at $5.7 trillion and heading downward, when Clinton left office in January 2001.

Indeed, at the time of Clinton's departure, the projected 10-year surplus of $5.6 trillion meant that virtually the entire federal debt would be retired. That was what Fed Chairman Greenspan found worrisome enough to support George W. Bush's new round of tax cuts aimed primarily at the wealthy, another dose of Reagan's "supply-side."

The consequences -- especially when combined with Bush's decision to rush into two major wars without paying for them -- proved disastrous. The federal debt resumed its upward climb. By August 2008, just before the Wall Street crash, the debt was over $9.6 trillion, nearly a $4 trillion jump since Bush took office.

And, after the Wall Street collapse in September 2008, the federal government had little choice but to increase its borrowing even more to avert a global economic catastrophe potentially worse than the Great Depression. By January 2009, just five months later, the debt was $10.6 trillion, a $1 trillion increase and counting.

Many of the Republican leaders who stomped their feet during the recent budget showdown, including House Speaker John Boehner, R-Ohio, were among those who favored the Bush tax cuts, the costly invasion of Iraq and bank deregulation. In other words, they were denouncing President Obama for a debt crisis that they helped create.

But the record of reckless Republican budget policies from Reagan through Bush-43 was not only destructive to the fiscal health of the government. The "supply-side,"  "free-trade" and deregulatory strategies -- including some facilitated by the Clinton administration -- proved devastating to the nation's ability to create good-paying jobs and to sustain the Great American Middle Class.