So in the early Reagan years, their taxes were sharply reduced, and there was even voiced an imaginative doctrine that held from such tax reduction would come an increase in aggregate tax revenues--more initiative, more production, more private income and thus more taxable revenue from the lower rates on the income so enhanced. Meanwhile, a reduction in various welfare payments to the poor would lead to their greater effort and also greater production and income; as the affluent needed the spur of more income, the poor, it was said, needed the spur of their poverty.
There was a final feature of these years, the one flaw in the general mood of contentment--the fear on the part of the favored that lurking in the world is the force that might spread out one day and assail and destroy their comfort and well-being. That was communism.
From this fear, in turn, came a succession of military interventions and adventures to contain communism. But of far greater consequence was the support this fear gave to the one major exception to the reduced role of government. That was the great arms buildup of this era, including the most determined support for new, always expansive, often exotic and sometimes admittedly rather insane weapons and weapons systems. Among the latter the Strategic Defense Initiative, or "Star Wars," is the leading example. Belief that an impenetrable defensive umbrella over the American Republic was a practical idea seems to have been confined nearly exclusively to President Reagan.
It has been said by cynics that no good deed ever goes unpunished. More probably, this is true of any major public aberration if continued over a long enough time. But in the United States, the price of past error has reached truly formidable proportions and with, alas, consequences going far beyond our frontiers.
There has been much discussion in these last years of the increasing interdependence of nations--the global economy. One consequence is that all must suffer for the actions and errors of any one government and people, and especially if they are those of a country as large and important on the world scene as the United States. First as to the effects at home.
The long series of budget deficits with inflation constrained by high interest rates has left the United States the world's largest debtor and with industries where new and needed investment has been sharply curtailed by the cost. For a time, some of the adverse effect was disguised by the way the high interest rates attracted money from abroad. But much of the latter went not into new and productive investment but into the purchase of existing securities or real property, Rockefeller Center in New York being a spectacular case. By buying and thus bidding up dollars to an artificially high level, it also made U.S. exports more expensive, U.S. imports cheaper and it added to the trade deficit and to the foreign debt that must now be serviced. With these consequences--some have called it the Mexicanization of the U.S. economy--we now live.
Meantime, the defense budget also imposed its price. It drew capital and trained manpower--by some calculations, as many as one-third of our scientists and engineers--into the defense industries. Some of our intellectually based industries were sacrificed to the sterile defense production.
The foregoing consequences of the years of the Reagan escape from reality are now upon us. Bush in these last months has abandoned a promise that the comfortable heard with great clarity and has moved to raise taxes a trifle and close the budget deficit somewhat.
This has had an appalling effect on his approval rating and could also stand in history as one of the more ill-timed economic actions of the modern age. It was the central idea of the late John Maynard Keynes that governments should balance the budget in good times and accept deficits in the public accounts when declining production and rising unemployment threatened. Bush and his economists and advisers have put Keynesian doctrine wonderfully in reverse.
The 1980s were also a time of unparalleled speculative excess. In the manner of all speculative episodes since the Tulipmania in Holland in 1636-1637, that of the Reagan-Bush years has now come sharply and painfully to an end. The stock market had its first great correction, as it was called, in October, 1987. The mergers and acquisitions, financed invariably by borrowed funds, including the beautifully denoted "junk bonds," continued for another couple of years. But these, too, have now ceased.