Something DID change though, around when Reagan was in office, presumably just before he did (changes do not occur overnight). As mentioned above, tax rates, regulation, and statism remained similar to his successors and predecessors. An alternative theory, supported by the graphs whose lines are not as smoothed, show that economic trends changed very steeply starting in the mid-70s, and increasing exponentially with each successive president after Nixon. In fact, domestic government spending exploded after 1971, much of which being the exact safety nets, redistributive programs, and government-as-provider type of changes that typify what liberalism is to most people. Ask a liberal what cutting domestic programs down to levels that they were before 1971 (per capita, of course), and you will receive a shocked “hell no!” It is as if these people believe that the government creates wealth or something…
Here are some examples of how things changed around the time of The Gipper:
The above chart is important for the bit after this little comment on the terminology our author is using. Let’s let our buddy go on:
For European readers, American liberalism is close to (but mostly to the right of) social democracy. (It’s not the so-called Washington Consensus of Reagan and Thatcher, which is called libéralisme in France at least.) It’s capitalism regulated by government, plus a substantial safety net.
Let’s talk about the word “capitalism.” Capitalism was a word coined by Karl Marx to describe those other than “socialists,” specifically a system in which some men own the capital (productive) equipment in a society and rent them out or hire workers to produce consumer (end-user) goods with the capital. Opposing this definition of capitalist society (paired with the labor theory of value, or the idea that the worth of a product is equivalent to the amount of labor put into that product) is the lynchpin of Marx’s exploitation theory. However, this is probably not the definition that our author means, and it is not generally a definition most people who have not studied Marx understand as capitalism. Capitalism in the modern American sense is generally deemed to be free markets, in which exchange is unregulated, free, and among the citizenry. It is with this definition that one should take issue in a column such as this lovely one. We do not have free markets, and have not effectively had free markets since 1913. There are many examples, from regulation to fiscal policy to trade between foreign nations, but I will give only two in the interests of time. The first is the monetary system. You have heard it here before, and you will hear it again – markets are not free if the price of the most fundamental unit of exchange is determined by the state. Control over the currency gives the government a significant influence in every transaction. Imagine if the government controlled the flow of all corn in the U.S. Would we consider the corn market to be free? Now, expand the control to the good that is included in every exchange except barter. Markets will never be free when the government controls the base unit of exchange. The second example of how we do not have free markets is the foundation of nearly all economic regulation, but telling in itself. The whole picture is complicated but somewhat fascinating, so if you have time go read about it. The case is Wickard v. Filburn, in which the SCOTUS decided to interpret to Commerce Clause (permits the United States Congress “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”; originally intended to ensure that no single state gained economic edge over the others in trading with other states or nations) as meaning that any activity that could, in the aggregate, affect commerce can be regulated by the government. In the case, a man was disallowed from growing wheat on his personal farm for personal consumption, because if taken in the aggregate, it could affect the economy. This is the ultimate argument your mom lectured you with when you were little: “What if everyone grew wheat, what would THAT do to the economy?! *screech*” It is nonsensical (the division of labor ensures that you and I are not nearly as efficient at growing wheat, for example, as a farmer in Kansas) and the only proof needed that our markets are so bound by the state that you may not even do something for your personal use that the feds don’t like, lest they knock down your door, handcuff your family, shoot your dog, and issue you a citation. One study estimates a growth of 64,000 new regulations since 1994, with 550 agencies to enforce them. Nope, no capitalism here, knave. The following chart should read “number of federal regulations” as an absolute number, not a growth.
Now, obviously there were Republican presidents in the liberal period‒ Eisenhower, Nixon, and Ford. But they were restrained by a Democratic Congress, and largely governed as liberals anyway. (Nixon created the EPA, expanded affirmative action, and raised social spending from 28% to 40% of the budget‒ raising it for the first time above defense spending .) And there have been Democratic presidents in the Reagan era‒ Clinton and Obama. But with the single exception of health care, they were mostly occupied with cleaning up the mess left by Republican presidents, and they were greatly restrained by Republicans in Congress; they did little to undo the rightward shift in politics. So it’s fair to compare the fifty years starting with Roosevelt to the thirty years starting with Reagan.
Again with the left vs. right shenanigans. “Don’t worry, these guys were lots like liberals!” strikes me as conceding nearly the whole argument that the left/right paradigm is largely illusion, but I will let it be…
Studying broad periods also evens out the business cycle and the small-scale events that dominate the daily newspaper. Particular events can dominate a single presidency (e.g. you can hardly discuss Jimmy Carter without focusing on the fourfold rise in the price of oil), but looking at decades-long periods is a fair test of a political-economic system.
The basic case: Prosperity for all
The case for liberalism can be seen in a nutshell in this diagram, from Lane Kenworthy. (this graph is the same as the one I have above labelled Cumulative percent change since 1948) Productivity (defined as GDP per capita) keeps rising, but it no longer benefits the median family. These are per capita figures, so they already account for increasing population; and they’re adjusted for inflation. (The economic definition of productivity is useful precisely because of its broadness and simplicity. It covers technological progress, capital investment, access to new resources or markets, organizational changes, even social changes like decreased corruption or a movement of women into the workplace. For the purposes of examining social progress, the importance of the number is that if it ain’t rising, we’re doing it wrong. There’s no iron law that makes wages go up over time. The basic mistake made by the USSR is that merely redistributing income at best makes for a stagnant and fairly poor society. Wages will keep rising only if productivity is rising.). Before getting into the big bend in the income line, let me emphasize that productivity has risen at about the same rate over our entire period. I’d love to report that liberalism increases productivity, but I can’t. But more importantly, liberalism doesn’t decrease productivity. That means that various conservative charges‒ that economic progress is stifled by high tax rates, or by unions, or by large government, or by “regulation”, or by health insurance‒ just aren’t true.
Now, let’s look at that dividing line, at 1980. Under liberalism, gains in productivity benefit the whole country, measured here as the income of the median family. Under Reaganism, the median income stagnates, and gains in productivity go to the rich. Who’s winning? The 1%
Go look at the charts if you like, and see the rise in productivity. Right off the bat, I will say what your high school teacher should have pounded over and over in your head. Correlation is NOT causation (statistical significance is not substantive significance)! So what we have thus far, with this data, is this: a very loose definition of “liberalism” with no mathematical or definitional controls, no discussion of the monetary system, household spending, debt per capita, government spending, increases in technological innovation, increases in trade worldwide, production levels in the United States, and on and on, (but perhaps he will get to those, you protest. Alright let me make my point!) but we DO have the thesis that “liberalism” as given in the shoddy definition with arbitrary beginning and end points did not slow our growth. No nod to the fact that there might be other economic factors than the elusive “liberalism,” no thought to the alternative that trends can continue in spite of mitigating factors and not because of them, and not a single word about how the political process is largely determined by the duopoly as a whole, not by one side of the aisle or the other depending on the man in the Oval Office. All in all, it seems the thesis our poor man gave is unfounded completely by any data but a line on a graph and his own biases. He doubles down in his assumptions, claiming that “economic progress is [not] stifled by high tax rates, or by unions, or by large government, or by “regulation”, or by health insurance” with no foundation for the statement except a change in trend during Reagan. A graph alone cannot show this to be true. And from our economic laws, we know that any limitations placed on the supply of a good (regulations, taxes, etc.) will, as an a priori fact, decrease the supply of that good as a natural occasion of opportunity cost. His statements cannot be true.
I would also like to point out the graph’s axis is labeled productivity, but productivity is being measured here by GDP per capita. This is problematic, in the extreme. You see, GDP is gross domestic product, which is measured very simply by taking all of the currency spent in the whole economy and adding it together. GDP is a very poor way to measure the productivity of a country, for several reasons. First, currency changing hands is not always a measure of productivity and an increase in wealth. Think about it. You make a $1,000,000 bet with your neighbor about who will win the Super Bowl. That currency changing hands produces nothing (except maybe financial troubles for you when your neighbor wins), but it adds $1,000,000 to the GDP if it is reported to the government. This gives us an inflated measure of GDP, ceterus paribus. Second, government spending is added into GDP, when it truly should be subtracted. Any spending the government does is currency that has changed hands from one person paying another, and then from the recipient of the funds to the government. The government then spends. Essentially, the government does not produce anything despite its spending, in other words, because anything it does “produce” is, by the nature of taxation, taken from the productive sector to begin with. I could go on and on about the topic, but I have already done so on this blog several times. For more information about GDP as a poor measure of an economy, go here. The moral of the discussion is this: the author’s graph and even the one I gave above, is inaccurate – but it is impossible to say how, since the measurements themselves are manipulated. An educated guess would be that productivity is much lower than the trend suggests, since government spending increased so significantly over the same period (and remember it is a factor of GDP). A critique of the CPI-measured decline (cost of living/wages) of the average family could be added into this analysis as well, but the methods of measuring inflation did not significantly change until Clinton’s tenure, so I will let that one be here.
Part III to come. Stay tuned.