Reagan's Legacy of Debt

Loren Steffy, in the Houston Chronicle (June 9, 2004):

DON'T be surprised if Ronald Reagan's death inspires members of Congress to try once again to put his face on the dime, replacing Franklin Roosevelt.

Hard currency, though, isn't the best place for Reagan's likeness.

A credit card would be a more fitting homage.

Reagan reshaped our popular view of economics, and with it, our view of debt. He transformed us from the world's largest creditor to its largest debtor.

His vision is still with us. It lives on in the $ 1.7 trillion in tax cuts enacted by the current administration, in the record deficits that have surpassed Reagan's own and in the feel-good projections that the country's finances will sort themselves out in about 10 years and everything will be OK.

Reagan's policies sparked an unprecedented economic expansion, but it came at a price. We got so enamored with the prosperity, we forgot the meter was running.

Reagan didn't invent the buy now, pay later approach to public policy, of course. In the 1960s, Lyndon Johnson ladled on social programs like Medicare and food stamps while at the same time paying to wage war in Vietnam, all without raising taxes. That ignited inflation in the 1970s and left the economy vulnerable to spikes in oil prices.

And it was precisely that economic malaise that Americans elected Reagan to combat. He told us we could have it all: lower taxes, a stronger defense and less government to get in the way of the free market.

Even better, he said it would all pay for itself and we'd all be better off. It was like a diet that promised we could eat ourselves thin.

The architect of Reagan's economic policy, David Stockman, later said in his memoirs that Reagan's early budgets got past Congress because they included optimistic revenue forecasts that Reagan aides knew wouldn't come true and proposed spending cuts they knew would never happen.

The combination of tax cuts and bloated military spending overwhelmed the savings in gutted domestic programs that were supposed to soak up the difference.

The deficit ballooned to $ 290.4 billion in 1992 from $ 74 billion in 1980, and during Reagan's eight years in office, interest payments on the pile of debt he amassed soared to $ 169 billion from $ 69 billion, further sapping government revenue.

To be sure, Reagan had economic victories. He pushed through some of the most sweeping tax reforms in U.S. history in 1986. During his tenure, inflation was brought under control. He took free-market capitalism to the world, which has transformed governments and economies on a global scale.

Many historians credit his military buildup as the crescendo of the Cold War. The Soviet Union, an economically inferior adversary, simply couldn't keep pace and essentially went bankrupt. He found an economic alternative to full scale nuclear war.

His most enduring legacy, though, was the deficit, which he hated yet allowed to triple during his administration.

"Reaganomics" offered a new way to look at the economy: Deficits don't matter. Tax cuts for the wealthy will stimulate the economy, and the rebound, when it gets here, will pay for everything.

It didn't work quite that way.

Reagan gave us the economic equivalent of the dine and dash.

He ordered us all a big meal, we ate heartily, and then he walked the check and left his vice president and the American people to pay it.

The question is, did we learn anything?

Last year, the deficit surged to $ 375 billion, more than double the previous year and a sharp reversal from the $ 127 billion surplus in 2001. The $ 1.7 trillion tax cuts, combined with the recession and the Sept. 11, 2001, terrorist attacts have sparked the biggest reduction in government revenue in a half century.