Emotion-driven assessments have little to do with fact. Paul Krugman`s New York Times (June 11) screed against Reagan`s economic policy [An Economic Legend] is a perfect example of bile overpowering truth.
According to Krugman, President Reagan`s supply-side policy had no effect on anything and amounted to nothing more than Reagan talking a good talk. The long expansion, Krugman claims, was the result of the deep recession caused by Fed chairman Paul Volcker when he decided to inflict sufficient pain to cure inflation. Krugman says, "it all played out just as `left-wing Keynesian economics` predicted."
Krugman`s claim is totally incorrect. Keynesians said two things: (1) there was no solution to worsening tradeoffs of inflation and employment except wage and price controls, and (2) Reagan`s tax cuts would cause inflation to explode.
Reagan`s supply-side claim was very specific—I know because I wrote it. The claim was that a reversal of the Keynesian policy mix would cure stagflation.
Keynesians used easy monetary policy to stimulate employment and high tax rates to restrain inflation. Reagan said easy money drove up prices while high tax rates restrained output. Reagan`s policy was to control inflation with monetary policy and spur real output with lower marginal tax rates.
Reagan`s policy did exactly what he said: the economy expanded for 7 years—a record at the time—while inflation fell.
Supply-side economists did not control economic policy during the Bush and Clinton administrations. However, under both presidents tax rates remained substantially below the pre-Reagan rates, and monetary policy was used to control inflation. No one has seen a "Phillips curve" tradeoff of inflation and employment since the Carter administration. This is why it is correct for supply-side economics to claim credit for the long era of disinflationary economic growth.
Krugman claims there was no Reagan "miracle." However, when Reagan announced that his policy would permit the economy to grow while inflation fell, Keynesians said it would take a miracle for such a thing to happen.
Because Reagan is popular among conservatives, President Bush`s neoconservatives are claiming Reagan as one of their own. During Reagan`s presidency, however, neocons opposed Reagan`s approach to the Soviet Union.
Neoconservatives wanted to win the cold war with a military buildup. Reagan went along with a buildup, but sought rapprochement with Gorbachev and ended the cold war by winning Gorbachev`s confidence. As Professor John Patrick Diggins wrote in the New York Times (June 11), "The cold war ended in an act of faith and trust, not fear and trembling." [How Reagan Beat the Neocons ]
The real competition was economic, not military. Reagan ended the malaise of the American economy, but Gorbachev could not repair the failed Soviet economy.
The most disappointing assessments of Reagan have come from libertarians, who seem even more bitter than Krugman. They blame Reagan for speaking their language while allowing government to grow bigger, making us less free. I find this bitterness inexplicable in light of Reagan`s ending the Cold War, curing stagflation that threatened the economy with wage and price controls, and making Americans the majority shareholders in their own incomes.
Perhaps the best response to libertarians is Peter Brimelow`s reply to immigration critics, who blame Reagan for leaving open the floodgates at our border: "Reagan concentrated on two or three issues that were vital in his day and ignored much else in the sprawling, hydra-headed federal government. . . . A new generation of issues has come to the fore. It is entirely natural that a new generation of political leaders will be required to deal with them. And when they do, they will have to pick their battles, as Reagan did."
Reagan picked the two biggest battles of his day and won both.
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Paul Craig Roberts was Associate Editor of the WSJ editorial page, 1978-80, and columnist for "Political Economy." During 1981-82 he was Assistant Secretary of the Treasury for Economic Policy. He is the author of Supply-Side Revolution: An Insider`s Account of Policymaking in Washington.