With firmness and style, President Reagan has commandeered the rhetorical high ground by his “program for economic recovery.” The phrases and concepts of Reaganomics–get government off our backs, tax cuts boost revenues and productivity, Federal spending and overregulation are destroying our economy–are about as catchy as anything since Franklin D. Roosevelt took off after the “economic royalists.”
But will his program work? And where is the evidence? These questions are crucial, for the President is apparently placing all the hopes of his Administration in this single economic package. A dicey move, as Alexander Haig would say. So far all we have is repetition and assertion. The more one vainly looks for statistical and analytic support, the more Jack Kemp and Ronald Reagan seem to be economic Lysenkos, rather than our new Keynes and F.D.R.–the purveyors of a specious philosophy masking the real interests of corporatist ideology.
Let us take a closer look at the ten myths of the new Cowboy Capitalism:
§ Government Spending Is Too High. Federal, state and local governments spend 34 percent of our gross national product. Only in Australia and Japan among industrial nations is there less spending as a percentage of G.N.P. In France it is 40 percent; West Germany 42 percent; Britain 44 percent; the Netherlands 51 percent.
§ Federal Deficits Cause Inflation. The cumulative Federal, state and local budget is balanced right now. Federal debt as a percentage of G.N.P. fell from 103.5 percent in 1946 to only 27.1 percent in 1979. Of seven leading industrial countries, the United States had the lowest ratio of government deficits as a percentage of G.N.P.–1 percent in 1977-79, compared with 3 percent in West Germany and 6 percent in Japan, whose economies are far outperforming our own. The Congressional Budget Office has estimated that every $10 billion cut in Federal spending would reduce inflation by one-tenth of 1 percent.
§ America Has a Capital Shortage. Conservative economist Pierre Rinfret testified in 1977 that the capital markets were glutted. The next year Business Week said of the oil industry, “The prospect of big pools of incoming cash presents industry strategists with a compelling need to find outlets for that cash.” Indeed, according to free-market theory, which in other circumstances is devoutly followed by this Administration, there can’t be a capital shortage: if there’s a need and a market, the capital will be there; otherwise, not.
§ Investment Is Dangerously Low. Director David Stockman of the Office of Management and Budget said the United States is “on the dangerous path of consuming its own capital and living off its own savings.” Yet total investment (apart from housing) has risen from 9.5 percent of G.N.P. in 1950 to 9.6 percent in 1960, 10.5 percent in 1970 and 11.3 percent in 1980.
§ Individual Taxes Are Too High. America ranks eleventh of twelve major industrial nations in the share of personal income taken by the tax collector. In this country it is 29 percent; in France, 39 percent; in West Germany and Britain, 37 percent, and in the Netherlands, 46 percent. In his book The Zero-Sum Society, Lester Thurow argues that “All our empirical studies show that our current taxes are far below the levels that create disincentives to work…highly progressive tax systems (much more progressive than the tax system now in place) do not seem to reduce work effort.”