The Republican Economic Game Plan

With just a year to go until Election Day ’04, George W. Bush can finally brag about the economy. Things are looking up. New jobs are being created. All indicators are for growing consumer confidence, which means consumer spending, which means a continuing recovery and even more new jobs. And just as the election year begins. What a convenient coincidence

Or is it? The same thing happened twenty years ago, when Ronald Reagan became president. A foreign policy based on dire predictions of massive threat to our national security. A nation so frightened it was willing to increase the military budget by huge amounts. A big tax cut, most of it going to the very wealthy. An immense budget deficit, which helped throw the economy into a tailspin. A serious recession during the first three years of the first term. A recovery during the fourth year, which was instrumental in giving Reagan a smashing re-election victory.

Of course, there are differences. Bush can’t be re-elected, since he was never elected in the first place. And he has the specter of a disaster in Iraq, which might bring angry demonstrators back into the street before Election Day. Still, the parallels are striking enough that it is worth considering what happened to the economy during Reagan’s first term.

The little economics that I know I learned mostly from the fine journalist, William Greider. In his book, The Secrets of the Temple, Greider explained in great detail how and why the Reagan administration threw the nation into recession in 1981.

The basic idea is fairly simple. Big investors fear inflation more than anything else. Suppose you invest a million dollars at, say, 10% return per year. A year later, you can sell your investment and get about $1.1 million back. But suppose inflation is running at 12%. Then your $1.1 million can actually buy less than your million could the day you made the investment. Inflation makes investment a bad idea. Even the fear of inflation can scare away investors. That means investors can’t get rich, and the nation’s economy can’t grow (since in a capitalist economy, private investment is the chief engine of growth).

So nothing is more important for the rich, and for the nation’s leaders, than keeping down both inflation and fears of inflation. The best way to do that is to throw people out of work. When fewer people work, fewer people want to buy things. With less money competing for the available goods and services, sellers have to bring their prices down. The inflation rate comes down.

When Reagan took office, inflation had been quite high for several years. He threw the federal budget into a huge deficit. That eroded business confidence. Expansion plans and new orders were cancelled. The economy began to contract. People began to be fired. With less money in circulation, there was even more contraction and more people were fired. The inflation rate came tumbling down.

Greider’s book shows that it was much more complicated than that. (The manipulation of Federal Reserve monetary policy played a crucial role.) But the combination of spiraling military budgets and big tax cuts for the rich was central to the strategy. It was all based on the educated guess that a recession would last two and a half or three years, and the economy would be back on the upswing by the time the next election season rolled around. It worked out that way for Reagan.

Is the George W. administration pursuing the same strategy? It may be too soon to know for sure. The evidence may not yet be available. Or perhaps those who follow economic news more closely than I do already have the answer, and the evidence to prove it.

But I wonder why you have to do intensive research to find out about the links between Bush’s policies and the onset of the recession. I wonder we don’t read about this on the front pages of the mainstream media. Every reporter who covers the economy knows about Greider’s theory (which isn’t really his theory; he just made it available to the general public). They all understand how the system works.

Yet if you read the mainstream news, it seems the only question worth asking is whether Bush’s tax cuts can bring us out of recession. A casual news junkie like me gets the impression that the origin of a recession has nothing to do with government policies. They just sort of happen, like the weather. At least that’s what the mainstream media seem to want us to believe.

I’m not smart enough to figure out, by myself, exactly how Bush’s policies may or may not have triggered the recession. But I’m smart enough to know that we deserve better journalism than what we now get. I’m smart enough to know that it’s not so terribly complicated, when a good journalist like William Greider explains it to you. We deserve to have writing like Greider’s on every front page, at least.