05/31/2008 05:12 am ET Updated May 25, 2011

The Politics of Bad Ideas: The Curse of Reaganism

The Curse of Reaganism hangs over America. Far too many people still believe in Reaganism which proclaims that the federal government's heavy-handedness blocks economic progress. The solution is deep tax cuts targeted on the rich and draconian deregulation that will free American business to produce strong economic growth

Yet Reagan's tax cuts and deregulatory policies failed to produce the claimed results. As we show in our recent book, The Politics of Bad Ideas, Reaganism did much greater damage in the presidency of George W. Bush, because he pursued those goals without limit. The latter's failed policies yielded weak overall economic growth, rapidly rising national debt, falling housing prices and increasing foreclosures, and the widest distribution of income since the 1920s.

What America must come to realize is that Reaganism is the philosophical underpinning of our woes. They are certainly due to George W. Bush's mismanagement, but more fundamentally they are caused by the nation's slavish worship of a fundamentally flawed political philosophy.

America in 2008 is staggering toward second class economic status because of Reaganism. Yet Republicans hold strongly to the same economic tenets that George W. Bush employed in his failed economic policies.

The Curse of Reaganism arises from the disconnect between the downfall of Bush from following the principles of Reaganism and the continued deification of Reagan who made the same principles central to Republicans. An historical perspective is useful in asking how the disconnect arose.

Our history starts with the OPEC oil price increases in 1973 and 1979 that slowed the economy and produced double-digit inflation by 1979. Federal Reserve chair Paul Volcker attacked and crushed the inflation by the early years of Ronald Reagan's presidency, but brought the worst postwar recession. America went into a deep funk.

That changed with the ever optimistic, charismatic Reagan. He told the American people that the economy would recover quickly, despite the dire predictions of professional economists, because his record tax cut and massive deregulation had freed the mighty business sector. Lo and behold, economic growth returned quickly. Reagan appeared to have found the secret to economic growth. Republicans began the deification of Reagan and the claim that Reaganism was the answer in restoring high economic growth.

This was not the case. The huge 1981 tax cut brought large yearly budget deficits that generally stayed high until 1995. The national debt as a percent of the gross domestic product had been declining sharply before the Reagan presidency, but it up until 1995. Reagan's economic growth looked suspiciously like it had come from good old deficit spending, not from an economic miracle.

Moreover, the economic growth rate of 3.4% in the Reagan years equaled that of Jimmy Carter. Bill Clinton had a growth rate over eight years of 3.6% after raising tax rates on the rich. The yearly budget deficits became surpluses and the debt ratio fell. Reagan and tax cuts do poorly compared to Clinton and tax increases.

George W. Bush used the same tools of Reaganism and did even worse. After he slashed tax rates in 2001 and 2003, the Bush administration experienced both a lower rate of overall economic growth and a lower growth rate in capital investment, employment, and wages than in the 1990s.

The middle class really suffered during the Bush presidency. Limited income growth, a below zero savings rate, an increase in credit card and mortgage debt, the end of the housing boom, and big price increases led by gasoline and food, have pushed the middle class to the wall. Not in the postwar years has the middle-class living standard been in such jeopardy--not even close.

We need to be clear that other factors, not the flawed policies dictated by Reaganism, were more important in the economic outcomes. In the case of Bush, however, the tax cuts that fueled the debt increase and shifted benefits from the middle class to the wealthy and the misguided deregulation that led to the subprime mortgage meltdown had a major impact.

How can Reaganism, and particularly the assertion that tax cuts are the best cure for economic woes, survive when both overwhelming statistical evidence and the misery of the middle class make its failure so clear? We need to look at both the sellers of Reaganism and the buyers.

A critical aspect of selling Reaganism came from the successful effort to deify Reagan after he left office. The syndicated columnist Richard Reeves wrote: "More than nine hundred books have been written about Ronald Reagan since he left the White House....Many are subsidized, principally by the Hoover Institution at Stanford University and the Heritage Foundation in Washington. Both institutions could be described as devoted to promoting the idea of Reagan as one of the great Presidents."

Some of the sellers are what social scientists call true believers. Once these people come to believe in the idea, neither reasoned argument or contradictory evidence can shake them from complete commitment to it. In the early thinking about the power of tax cuts, true believers had a big role and some of them are probably still around. However, it appears that the sellers during the Bush years have primarily been those who sought to gain either political or monetary benefits from the claims.

Even though the Bush administration has been strikingly inept in developing and managing policies, it established the most powerful propaganda operation since the end of the Second World War. That latter effort began immediately in selling the 2001 tax cut with secrecy and deception including misinformation as the critical means. Republican politicians in Congress employed similar tactics.

Republican propaganda never slowed down with the Republican politicians, including President Bush and some of the Budget Committee chairs in both Houses, continuing to claim that tax cuts paid for themselves by generating sufficient new tax revenues to offset the initial tax cut. If that were not enough, the Bush administration claimed that any tax increase would bring a deep recession. That fear rose as the middle class living standard came under increasing threat.

The final reason the public has bought into the tax cuts is the lack of knowledge about the economy generally and federal taxation specifically. Most people are struggling to make a living and hardly have time to acquire the needed knowledge. Even so, such ignorance strengthens the hand of the propagandists seeking to mislead and frighten the public.

Cornell University economist Robert H. Frank wrote in December 2007: "Given the effectiveness of the anti-tax rhetoric, presidential candidates are understandably reluctant to tell voters what must be done to put the fiscal house in order." That has been the case so far. Alas, time is running out on saving the United States from declining into a second class economic power and keeping the middle class from a precipitous fall in their standard of living.

These grim outcomes seem almost certain unless a presidential candidate takes on the risky task of informing the American people of what must be done, wins the 2008 election, and can lead the nation in addressing the real economic problems. A critical task for the presidential candidate in leading the nation is to find the silver bullet that ends the Curse of Reaganism.

Walter Williams is Distinguished Fellow, Center for American Politics and Public Policy and Professor Emeritus. Bryan D. Jones is Donald R. Matthews Distinguished Professor of American Politics and Director, Center for American Politics and Public Policy. Both are at the University of Washington, Seattle. They are coauthors of The Politics of Bad Ideas (Pearson Longman, 2008).