Reaping the Rewards of Reaganomics

'On the day I took office," President Clinton boasted last week, "the deficit was $290 billion. I am pleased to tell you today that the budget deficit this past year was $22.6 billion. The Democratic Party gave that to America."

That same day, the Dow Jones average plummeted more than 500 points, and Republican presidential hopeful Steve Forbes issued a press release saying that "Bill Clinton is to blame" for the sharp decline.

How's that for two non sequiturs in a single day? As it turns out, Mr. Clinton is not culpable for the drop in the Dow, nor is he responsible for the amazing shrinkage of the deficit.

Both Clinton and the Republican Congress claim historic significance for their recent budget deal which promises to balance the budget for the first time in decades. But hold the applause: Without the budget compromise the federal budget would balance itself even faster.

Two factors are responsible for reducing the deficit. The first is America's huge defense savings, which have come as a consequence of winning the cold war. Today the US spends more than $100 billion less on defense than before the Berlin Wall fell. The second factor is a 15-year economic boom that began in 1983 and has continued unabated, except for a mild Bush recession in 1990-91. This explosion of economic growth has proved to be a bonanza for the US Treasury.

Indeed when we examine the ingredients of today's robust economy - the taming of inflation, the revival of economic growth, the restructuring of the economy, the reduction of the deficit, the opening up of world markets, the peaceful climate generated by the end of the cold war - we see that in virtually every case, the turning point came in the 1980s.

Secret of our success

Yes, it's true. Ronald Reagan is the man most responsible for America's economic restoration. He is the secret of our success.

Ironically the man who was blamed for the huge deficits of the 1980s is the same one who is responsible for the balanced budgets of today. Yet even many of Reagan's ideological allies and former aides are reluctant to credit him with the astonishing turnaround that occurred during his tenure, and with the economic good news of the 1990s that is also part of his legacy. The reason for their hesitation is that Reagan doesn't fit the conventional notion of what it takes to be an effective leader.

He wasn't an intellectual; he was, in the words of diplomat Clark Clifford, an "amiable dunce." He seemed detached from the daily operations of government. He put in a 9-to-6 day and allegedly even took naps. Reagan himself once joked, "They say that hard work never killed anyone, but why take the chance?"

The mystery of Reagan was conveyed in a remark that former national security adviser Robert McFarlane once made about him to former Secretary of State George Shultz: "He knows so little, and accomplishes so much."

Moral imagination

Despite his unorthodox style, Reagan was successful because he had the qualities that are most important in a leader. He was a visionary who had the moral imagination to see the world differently from the way it was. He was a man of action who, instead of consulting pollsters and focus groups to determine what to do, presumed that he embodied the shared values of the American people, and moved resolutely to achieve his policy goals. Then he made the case for his actions to the American people, confident that he would win their support, at least by the next election.

The best example of Reagan's vision is his view of Soviet communism. Although many scoffed when Reagan described the Soviet Union as an "Evil Empire," Reagan showed that he understood communism with the same moral clarity that Lincoln understood slavery. Even more remarkable, at a time when virtually everyone in the West saw the Soviet threat as permanent, Reagan perceived the vulnerability of Soviet communism, and predicted as early as 1982 that freedom and democracy would leave it "on the ash heap of history."

From the outset of his presidency Reagan's priorities were clear: He sought a massive military buildup to counter the Soviet threat, and he proposed sharp across-the-board tax cuts to stimulate economic growth.

Reagan also supported the restrictive monetary policies of Federal Reserve chairman Paul Volcker as a necessary strategy to curb the double-digit inflation of the Carter era. Tight money policy extracted a heavy price. It ended double-digit inflation, but plunged the economy into a deep recession in 1982. The poverty rate climbed from 12 to 15 percent. Unemployment rose from 7 percent to 11 percent. Critics dubbed the president's policies "Reaganomics."

Reagan met criticism with his usual aplomb. Reporter Sam Donaldson asked him about the recession: "You have blamed the mistakes of the past and you've blamed the Congress. Does any of the blame belong to you?"

Without missing a beat, Reagan replied, "Yes. Because for many years I was a Democrat."

Critics demanded public works projects to put Americans back to work and import restrictions to save domestic jobs. Invoking the success of the Japanese, many economists advocated "industrial policy," to invest tax dollars in "sunrise" industries of the future and to protect jobs in uncompetitive "sunset" industries.

Reagan refused to support these short-term solutions. Confident things would get better, he allowed the economy to go through a painful period of downsizing and restructuring.

By 1983, the economy turned around. What columnist James Glassman terms the "Reagan boom" has now lasted from 1983 to 1997. Despite the stock market scare of last week, it shows no sign of abating. Nearly 20 million new jobs were created between 1983 and 1989, and 10 million more since then. With typical panache, Reagan remarked in the mid-'80s that "the best sign that our economic program is working is that they don't call it Reaganomics anymore."

Cold war victory

Reagan's major failure was his inability to arrest government spending. This, with his tax cuts and defense increases, produced the $1.5 trillion deficit of the 1980s. Critics, including his own budget director David Stockman, warned that his expensive spending spree would bankrupt future generations.

But the deficits of the Reagan years corresponded almost exactly with the amounts he invested in fighting the cold war. America won that war. So if future generations must assume the financial burden of the 1980s deficits, they also inherit a world in which the threat of nuclear war is vastly reduced.

America's victory in the cold war also led to the global triumph of the capitalist idea over its socialist counterpart.

Many countries previously inhospitable to American investment have now opened up their markets to US companies. Microsoft and Coca-Cola are now harvesting tremendous profits abroad, contributing to an unprecedented surge in the Dow Jones industrial average from around 800 in 1982 to around 7500 today. The prospects for peace and prosperity continuing into the next century now seem very bright.

History has vindicated Reagan's leadership. Future generations will remember Reagan as the man who led America to victory in the cold war and revived the US economy and spirit after years of indefinable malaise. But it's only right that we who have benefited enormously from his legacy should do him the honor of acknowledging his achievement during his lifetime.

* Dinesh D'Souza, a research scholar at the American Enterprise Institute, is author of "Ronald Reagan: How an Ordinary Man Became an Extraordinary Leader," just published by the Free Press. His ideas can be found at:

www.dineshdsouza.com