It was 30-some years from FDR’s death to Reagan’s election. It has now been about 30-some years since Reagan was first elected and something similar has happened both times.
FDR led the country out of the Great Depression with a series of government programs. He proved that government programs could get the economy going and provide retirement and electricity. In the decades of and after his administration, government programs helped to rebuild a Europe devastated by war, eradicated polio, developed an atomic bomb, accelerated the development of computers, radar, and aircraft, and made universities affordable for the middle class. The careful intervention of government experts even took the sting out of recessions.
Generations followed his lead. It’s worth remembering that Nixon – a Republican – authorized the EPA, put in place price controls, and quipped, “We’re all Keynesians now.”
Smart people rarely asked about the wisdom of government programs but instead asked what kind of programs would work best. Government was the default answer to everything from crime to education to the economy. And to be fair, this approach largely worked. The period from about 1935 to 1980 was a time of incredible progress. Incomes went up. A lot. Unemployment went down. A lot. We had an array of new products and possibilities we’d never had before. Being born poor no longer meant a life sentence of poverty. Government welfare could provide you food and healthcare during childhood and government education could help prepare you for a good career.
But then a conservative backlash built up. “What if government programs are no substitute for strong families or markets,” people asked. “What if just leaving people to work out solutions through markets was better than pretending that you could centrally control things through Congress and reams of regulations?”
Reagan was not the first voice in this movement but he put a handsome, genial face on it. And the country was ready for it. “Government is not the answer,” Reagan said, personal responsibility is. And we believed him. He was, after all, the head of the government.
Cut taxes. Cut government programs. De-regulate. Stop trying to save everyone. Get tough on crime. Make people accountable and stop pretending that bad circumstances are excuses for bad outcomes.
And like FDR before him, Reagan changed the direction of government. His political success emboldened a generation of leaders and policy makers. Even the Democrat Clinton announced, “The era of big government is over.”
And the results were impressive. Capital markets created a tsunami of new ventures, new technologies, and new billionaires. By the end of the 1990s, even ordinary people were making millions in the stock market.
After FDR, few questioned the efficacy of government programs. After Reagan, few questioned the efficacy of markets. The country looked to the market for solutions and accepted its answers the way past generations accepted answers from the church. Through the market, truth was revealed.
As it turns out, Reagan’s approach retained some measure of efficacy about as long as did FDR’s. For our love of great figures in history, our best bet is to trust in our own judgment. We love leaders because they don’t imitate and then we honor leaders by imitating them. Like FDR before him, Reagan’s powerful influence has made his party mindless rather than mindful.
After the 2008-2009 financial crash, Americans no longer mindlessly trust markets. The GOP still does. Most Americans want a balanced budget approach to deficit reduction. The GOP does not. It's tough to win elections when you go against majorities.
In 2000, Clinton left the country with a budget surplus - and taxes as a percentage of GDP were 20.6%. Bush cut taxes - as did Obama. By 2009, taxes were at 15.1% of GDP. GDP would have had to grow to $20 trillion instead of $15 trillion by 2009 in order for the lower tax rates to generate the same revenue as it had at 20.6%. As a percentage of GDP, tax rates had never been below 16.1% and had averaged 18.1% in the 48 years (Obama's lifetime) up to 2008. Even in the face of these facts, the GOP insists that budget negotiations not include discussion of tax hikes. Such an intractable position shows less connection to current reality than an idealization of Reagan's legacy.
We now face a fiscal cliff that can be avoided only by negotiations between Republicans and Democrats and what the Republican Party needs now is a Clinton-figure. Clinton was not just hated by the Republicans: he unsettled many Democrats with his acceptance of Reagan's distrust of big government and welfare programs. Clinton accepted a correction on FDR’s model and made himself a new kind of Democrat. As yet, no Republican has stepped up to show a similar realization that the Reagan prescription has expired. The Republican who does will be distrusted from all sides but could become as popular as Clinton. And she could save her party from irrelevance.
There is one way that the GOP can imitate FDR or Reagan: they have to stop relying on past policies and develop new ones, policies more grounded in current reality than in past triumphs.