The New American Economy: The Failure of Reaganomics and a New Way Forward

Abstract

The New American Economy: The Failure of Reaganomics and a New Way Forward Bruce Bartlett Palgrave Macmillan, 2009 There ought to be a special place in the pantheon of heroes for people who think for themselves and who, though they have convictions, allow themselves to be beholden to no fixed interest group or faction. Bruce Bartlett, an economic historian and widely published author, has long been associated with the Reagan legacy in the United States, but that association has been of the sort one would expect for an independent thinker. In the 1970s, he served on the staffs of Congressmen Jack Kemp and Ron Paul; and in the following years was a domestic policy adviser to President Reagan and then a treasury official in the administration of George H. W. Bush. It tells a lot about him, though, that in 2006 he authored what to many of his erstwhile associates would seem an heretical book, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy, and accordingly was fired by a Republican-aligned think tank. Now he challenges a long-held cornerstone of free market, limited government thinking by arguing that John Maynard Keynes was actually a conservative who sought a realistic way to combat the Great Depression and thereby to save the capitalistic system. Further, Bartlett supports a Value Added Tax (VAT) for the United States, a position that he says political leaders privately tell him is sound but that has been too politically risky for them to embrace. It is both a weakness and a strength that in this book he focuses almost entirely on monetary/fiscal policy to the exclusion of all else. The strength is that he has much valuable to say about those policies, but it would seem that today's economic conundrum goes far beyond them, so that the "real economy" and manifold predicaments of the society need to be considered as part of the economic condition. If the fiscal deficit is a problem, this suggests that the immense cost of foreign wars, of military undertakings throughout the world, and of overall global meliorism as supported by both neoconservatism and neoliberalism simply have to be taken into account. Further, Bartlett continues the vogue among most economic commentators of disregarding the hollowing-out of the American manufacturing system and of employment through offshoring, out-sourcing, vast imports, and immigration (both legal and illegal). Nor does he discuss the historic shift of the American economy into financialization, an emphasis on finance that brought with it the many structural pathologies that were so instrumental in producing the crisis of 2007 and beyond. All of this, and more, is part of the economic fix the United States is in today, so that a preoccupation with monetary and fiscal policy hardly covers the ground. It is incongruous that Bartlett doesn't reach out to include these things, because not doing so runs directly contrary to his basic methodology. Throughout the book, he argues effectively that economic doctrines and policies are, and ought to be, responses to particular situations. "Economic theory has always evolved to deal with the particular crisis of the times." Keynes, faced with the situation in the 1930s, saw that wages were "sticky" and wouldn't fall precipitously to create the renewed demand for labor that would produce full employment, as orthodox economic thinking in the 1930s thought they should; and Keynes saw that monetary policy could not produce its intended effect in a deflationary situation in which firms were unwilling to borrow. Keynes, Bartlett points out, was responding to untoward realities. When in the 1970s "stagflation" saw a puzzling combination of high unemployment and high inflation (puzzling because it contradicted the inverse relationship predicted by the Phillips Curve), "supply-side economics" offered the solution: a lowering of marginal tax rates (to provide incentives for new ventures and thus to address the unemployment problem), while a "tight" monetary policy put the kibosh on the inflation. …