The legislation enacting Reaganomics may now be mostly gone, but the economic legacy of Ronald Reagan remains. Perhaps more important, the political attitudes that made many Americans so receptive to the Reagan program in the first place remain as well. One of the most significant lessons to be drawn from the exhausting 1990 battle over federal tax and spending policies is simply that so many Americans are no more willing today to make the sacrifices needed to rectify the nation’s fiscal imbalance—either to cut back middle-class entitlements or to eliminate jobs in defense industries, and certainly not to pay higher taxes—than they were when Ronald Reagan first assured them there was no need to do so.
The compromise five-year budget package finally approved by the Congress and signed by President Bush does mark a major change, both economically and politically. If they remain in place, the tax and spending measures that the new agreement includes will significantly shift the government’s fiscal trajectory. The political era in which tax rates were flexible only downward has now ended, and greater tax revenues will be a part of that difference. The commitment to a virtually unlimited military budget had actually ended during President Reagan’s second term (no thanks to Mr. Reagan himself), and the new five-year package holds defense spending in check even though outright reductions beyond the trivial remain elusive. The new plan also cuts Medicare subsidies, farm supports, the Post Office budget, and other elements of domestic spending. Even after allowing for the usual pathetically obvious unrealism of the economic assumptions used to translate specific policy actions into projections of overall revenue and expenditure totals, the combination of these three changes will staunch if not reverse the persistently widening imbalance that marked what was the Reagan fiscal policy and was becoming the Bush policy as well.
Even so, the Reagan legacy—the consequence of having sustained that imbalance for so long—is still very much with us. By now the objective realities created by an entire decade of over-borrowing and under-investing, including especially the shrinking supply of “good” jobs and the parallel failure of the average worker’s wage to keep up with inflation, are familiar enough. So too are the signs, increasingly frequent and ever harder to ignore, of the loss of American influence in international economic relations following a decade of borrowing from abroad and selling off national assets. This summer’s Persian Gulf invasion marked the first international crisis in decades in which the dollar fell instead of rallying. Since then Americans have watched the spectacle of our public officials, from Secretary of State Baker on down, going about the world, begging bowl in hand, soliciting contributions to finance what we can no longer afford on our own. Because no change in fiscal policy can suddenly wish into being the factories and machines that the nation failed to build during the last ten years, or magically erase the debts that it incurred, these …
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