A cynical strategy (later acknowledged by David Stockman, President Reagan’s budget director) to achieve this objective was to deliberately create a huge budget deficit—through a simultaneous increase in military spending and a drastic tax cut for the wealthy—so that cuts in social spending would then be forced on the recalcitrant members of the Congress in an effort to fill the budget gaps that were thus created.
The strategy worked: the sweeping supply-side tax cuts for the wealthy along with drastic increases in military spending created huge budget deficits that were then paid for through relentless cuts in social spending throughout the 1980s. The regressive supply-side tax overhauls since the early 1980s have led to an unprecedented redistribution of resources from the bottom up.
The neoliberal restructuring schemes that started with the arrival of Ronald Reagan in the White House also included an aggressive deregulation of business. The deregulation campaign has since drastically reduced the capacity of agencies like the Environmental Protection Agency (EPA), the Occupational Safety and Health Agency (OSHA), and the Civil Rights Commission to monitor the standards for business conduct. Deregulation has also led to significant restructuring and increased concentration of riches and resources in fewer and fewer hands.
The supply-side restructuring agenda has also included a relentless anti-labor collaboration between the business and government leaders that has led (among other baleful consequences) to an easier dismissal of union workers and an equally easier hiring of the so-called contingency ones; enhanced mobility of U.S. capital throughout the world; increased privatization and/or outsourcing policies and practices; and, consequently, a cut in real wages and benefits of about 15-25 percent since the early 1980s.
By the same token that the neo-liberal, supply-side restructuring policies have been detrimental to the poor and working classes, to the environment and social safety net programs, to public health and education, and to the public or national infrastructure, they have been a boon to the wealthy and the big business.
Not surprisingly, as a result of aggressive neoliberal economic restructuring, which began as soon as President Reagan was inaugurated, most U.S. corporations regained “healthy” profit rates by mid-1983. The combined business-government efforts to revive corporate profitability through supply-side economic policies thus achieved their desired effects: labor costs in real terms fell, and the long declines of the 1970s in productivity, profitability, and investment all turned into long expansions by the mid-1980s—thereby ushering in a new long wave of expansion that, with few short-term declines (one in 1987-88, the other in 1991-92), continued until 2000.
3. Implications for the Current Recession and Obamanomics
Two major conclusions can be drawn from this brief comparison/contrast between the restructuring policies prompted by the Great Depression of the 1930s and those prompted by the economic difficulties of the 1970s, that is, between the New Deal Economics and Reaganomics.
The first conclusion is that, contrary to the widespread myth of the self-correcting powers of market mechanism, long cycles of economic decline cannot automatically change course from contraction to expansion; rescue policy interventions are needed to turn them around, and save capitalism from its own destructive dynamics.
The second conclusion is that rescue plans of such troubled economies, or endangered capitalism, are often shaped not so much by abstract presidential visions as they are by market or capitalist imperatives, on the one hand, and the balance of political power of the conflicting socioeconomic interests, on the other. It follows that, depending on the outcome of the underlying class struggle, policy components of such rescue packages can be vastly different.
If the pressure from below is strong enough to threaten the established order, the interests of the grassroots will be taken into account as part of the needed rescue plans—as it happened during the Great Depression of the 1930s and the resulting New Deal reforms.
Otherwise, business and government leaders will craft rescue plans as they deem it most beneficial to the interests vested in big capital, without much regard to labor and other grassroots strata—as it happened during the economic difficulties of the 1970 and the resulting trickle-down economic policies.
What are the implications of these conclusions for the economic policies of President-elect Barack Obama (also called Obamanomics)?
Details of Obamanomics remain to be seen when Obama arrives in the White House. There are strong indications, however, that, so far, his economic policy messages and projections fall way short of audacious or pioneering. Indeed, they seem to be designed to project policy continuity and stability, as desired by the Wall Street.
This is clearly reflected in the composition of his team of economic advisors who, having come from the current and previous administrations, championed most of the policies of deregulation, privatization and outsourcing that gradually led to the current market meltdown [5].
Obama’s preference for economic policy continuity is also reflected in his wholehearted support for the fraudulent bailout schemes of the Wall Street financial giants spearheaded by the Department of the Treasury and the Federal Reserve Bank.
