DRI-161 for week of 11-30-14: The Enemy Within: The Move to Strangle Welfare-State Reform In Its Crib

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The Enemy Within: The Move to Strangle Welfare-State Reform In Its Crib

The resurgence of the Republican Party after the overwhelming victory of Barack Obama and the Democrats in the 2008 elections was led by the Tea Party. This grassroots political movement began as a popular uprising and only gradually acquired formal organizational trappings. As yet, its ideological roots are so thin and shallow that they provide no support for the movement.

This contrasts sharply with the conservative movement, in which the order of development was reversed. Ideology came first, with roots implanted firmly by opposition to the New Deal and a foreign policy led by Sen. Robert Taft. The intellectual foundation laid by William F. Buckley, Jr. in National Review Magazine educated a generation of young Republicans and paved the way for the candidacy of Barry Goldwater in 1964. Goldwater’s landslide defeat nevertheless introduced Ronald Reagan to national politics. By the time Reagan became President in 1980, conservatism had become the dominant political paradigm.

Nowhere is a vacuum more abhorrent than in political ideology. Today’s victorious Republicans may purport to search for a mode of governance, but what they are really doing is belatedly deciding what they stand for. (The hapless domestic and foreign policies of the Obama administration gave them the luxury of winning the elections merely by signaling their lack of congruence with President Obama et al.) They enjoy a surfeit of advice from all quarters.

Nowhere is this advice more pointed than in its economic dimension.

 

Should Republicans “Take ‘Yes’ For an Answer?”

 

Although Buckley died in 2006, National Review still retains some of the intellectual momentum he generated. Its “Roving Correspondent,” Kevin Williamson, devoted a recent essay to an advisory for the Republican Party on post-victory strategy. Williamson sees the solid victory in the 2014 mid-term elections as “a chance to meet voters where they are.” To do that, Republicans need to “take ‘yes’ for an answer.”

Exactly how should we interpret these glib formulations? Williamson insists that Republicans should not treat electoral good fortune as the opportunity to create change. Instead, the Party should reverse the normal order of precedence and cater to popular disposition – “meet the voters where they are” instead of persuading the voters of the desirability or necessity of change. Don’t continue the campaign, Williamson pleads. The votes have already been counted; just “take ‘yes’ for an answer” and get on with the business of crafting a governing compromise that everybody can live with.

So much for the revolutionary stance of the Tea Party; the EPA won’t have to test BostonHarbor for caffeine contamination.

The reader’s instinctive reaction to Williamson’s essay is to flip the magazine over and re-check the cover. Can this really be National Review, legendary incubator of conservative thought, renowned for taking no prisoners in the ideological wars? We have just suffered six years under the lash of a Democrat regime whose marching order was “elections have consequences.” Now the flagship of American conservatism is preaching a gospel of preemptive surrender?

Williamson’s mood is apparently the product of disillusionment. The birth of NR, he reminds his readers, was a reaction to Eisenhower Republicanism. Instead of rolling back the welfare state installed by Roosevelt and Truman, Ike accepted it – thereby setting the tone for Republican policy thereafter. The magazine fulminated, but to no avail. Goldwaterism produced Reagan… “a self-described New Deal Democrat,” pouts Williamson, “who famously proclaimed that he hadn’t left eh Democratic Party but the party had left him.”

Reagan revisionism is part of a new NR realpolitik, it seems. “At the end of the Reagan years, the Soviet Union was dead on its feet, the United States was a resurgent force in the world… and spending and deficits both were up, thanks to the White House’s inability or unwillingness to put a leash on Tip O’Neill and congressional Democrats. The public sector was larger and more arrogant, there were more rather than fewer bureaucrats and bureaucracies, and nobody had made so much as a head fake in the direction of reforming such New Deal legacies as Social Security or even Great Society boondoggles such as Medicaid.”

The author’s psychological defeatism apparently so overwhelmed him that he lost touch with reality. The Soviet Union is “dead on its feet” but the singular responsibility of President Ronald Reagan for this fact is unmentioned. (One cannot help wondering whether this is an oversight or a deliberate omission.) But Reagan is held liable for the actions of the Democrat Speaker of the House and Congressional Democrats! Has anybody blamed Barack Obama for not “putting a leash on House Republicans” to achieve more of his agenda? Has Williamson published his Canine Theory of Congressional Fiscal Restraint in a peer-reviewed journal of political science?

One might have thought that winning the Cold War, taming hyperinflation and reviving moribund economic growth (also left unmentioned by Williamson) constituted sufficient labor unto a Presidential tenure. Various authors, ranging from Paul Craig Roberts to David Stockman, have chronicled the internecine warfare attending the Reagan administration’s efforts to cut the federal budget. Apparently Williamson has forgotten, if he ever knew, that Reagan enjoyed the reputation of a ferocious budget-cutter while in office. This dovetailed with his famous declaration that “government isn’t the solution – it’s the problem.” If, three decades after the fact, Reagan’s efforts seem puny, this may be because we hold him responsible for failing to effect a counterrevolution to match the permanency of FDR’s New Deal. One would think, though, that the only President since FDR to actually reduce the size of the Federal Register deserved better at Williamson’s hands.

Obviously, Williamson paints a false portrait of the Reagan years to justify the counsel of despair he gives today. “We did not undo the New Deal in the 1980s. We are not going to undo the New Deal before 2017 either… the fact remains that the American people are not as conservative as conservatives would like them to be, nor are they always conservative in the way conservatives would like them to be.” It seems that there is a “disconnect between the numbers of Americans who describe themselves as ‘conservative’ or ‘liberal’ and the policy preferences those Americans express.” Americans think of themselves as conservative but favor liberal policies. So, Williamson concludes, the only sensible thing to do is humor them.

“Americans …are, by and large, conservative in the same sense that Ronald Reagan was, not in the sense that Robert Taft was, or… Barry Goldwater was. They intuit that the federal government is overly large and intrusive, they resent the slackers and idlers who exploit that situation, and they worry that our long-term finances are upside down, but they do not wish to repeal the New Deal.”

“Example: A majority of voters believe that something must be done to rectify Social Security’s finances, and a plurality of voters believe that a combination of benefit cuts and tax increases should be adopted to achieve that… [but] strong majorities … of 56 percent… oppose Social Security benefit cuts and Social Security tax increases, according to Gallup. No doubt many of these voters think of themselves as conservatives… it is likely that the great majority of self-described conservatives would support continuing current Social Security policies indefinitely – if they believed it fiscally possible. The current Left-Right divide on Social Security is not a question of what we ought to do, but of what we can do.” Williamson cites Robert Taft’s eventual concession on Social Security as an example of the Right bending its principles to his form of pragmatism. After all, “populist measures are, to the surprise of nobody except scholars of political science, popular, hence the support among a majority of registered Republicans for raising the minimum wage.”

Instead of fighting among themselves on principle, Williamson contends, Republicans should be scanning the polls to find out where their base stands – and adjusting their stance accordingly. They should be meeting the voters where the voters are rather than persuading voters to see the light of sweet reason. They should take “yes” for an answer when they hear it from the networks on election night.

Rebutting Williamson’s “Populism”

 

No full-blooded Tea Party member will swallow Kevin Williamson’s argument, despite the author’s insistence that he is really enunciating their position. They didn’t overcome the twin obstacles of the Democrat Party and the Republican establishment only to be lectured on their extremism in the pages of National Review, for crying out loud. But we must go beyond visceral rejection of Williamson’s moral and psychological defeatism. Straightforward analysis indicts it.

Since the venue is National Review, it is fitting to recall Bill Buckley’s distinction between politics and economics: “The politician says: ‘What do you want? The economist says: What do you want the most?'” For many decades, voters have been offered big government as if it were a consumer product with zero price. That is the context in which to contemplate the poll responses that Williamson treats as commandments graven in stone. In the beginning, there was the word. And conservatives believed the word. But when the world around them changed and God neither smote the unbeliever nor struck down the evil Antichrist, conservatives eventually shrugged and went with the flow. After a while they began singing the same hymns to Baal as the liberals. They couldn’t very well go to jail for non-participation in the Social Security system and they discovered that the government checks always cashed – so why not go along? It was the only way they could get their money out.

In due course, conservatives found out along with the rest of society that they had been lied to and flimflammed by the pay-as-you-go status of Social Security. It was not a system of insurance, after all; the word “social” in the terms “social insurance” and “Social Security” should be taken to mean “not,” just as it does in terms like “social justice,” “social democracy” and “social responsibility.” By then, though, everybody was so thoroughly habituated to the system that it would have required something close to a revolution to change it. Something like what the colonists originally did when they revolted against the British and dumped tea in Boston harbor, for example.

When Williamson implies that conservatives are entirely comfortable with Social Security today, he is being disingenuous. (That either means “lacking in candor” or “naïve;” he is either lying to us or he is plain stupid.) In fact, conservatives (and just about everybody else) below the age of 50 no longer expect even to receive Social Security benefits – they expect the system to go bankrupt long before they collect. They are not comfortable with the system but resigned to it; there is a world of difference between the two. And considering that Williamson himself just published an article on “Generation Vexed” and its growing dissatisfaction with the Obama regime in the previous issue of NR, he cannot claim indifference to their electoral attitudes in this context.

But this attitude of resignation is wildly optimistic compared to the fiscal reality facing America and the rest of Western industrial society today. The welfare state is collapsing around our ears. Central bankers are in extremis; they are reduced to printing money to finance operations. The Eurozone staggers from crisis to crisis. Japan is now working on its third “lost decade.” Demography is a disaster; birth rates will not bail us out. Worse – they are falling like leaden raindrops, reducing the number of workers paying in per welfare-benefit recipient. The crisis is not in the far-off future but today – if the U.S. had to finance upcoming deficits at normal rates of interest rather than the “zero interest rates” of the last five years, the interest charges alone would eat up most of the federal budget. And the entitlement programs that Williamson views as sacred are now eating up most of that budget.

Williamson acts as if Social Security finance were a Starbucks menu. He treats longstanding conservative doctrine on Social Security as if it were excerpted from fundamentalist Scripture out of Inherit the Wind. But he is no Clarence Drummond; Social Security is exactly the Ponzi scheme that conservatives have always fulminated against. In fact, it is worse, because the Day of Judgment is arriving even sooner than prophesied.

True, it isn’t just Social Security – it’s also Medicare and Medicaid and the welfare system. (Welfare reform didn’t come close to reforming the whole system, just one of the six components of it.) The point is that we have passed the elective stage and have now entered the stage of imminent collapse. In that stage, monetary chaos and an uncertain fate for democracy await.

And what is Williamson’s reaction? When Americans protest, “I can be overdrawn; I still have checks,” Williamson nods, “Right you are.” But we’re not just overdrawn – we’re completely bankrupt.

Under these conditions, what are our choices? Suppose we remain in Obamaville. That will result in collapse. Suppose we go Williamson’s route, a route of picking and choosing a few pieces of low-hanging fruitful reform. That will also result in collapse.

We have nothing to lose and everything to gain by telling voters the truth and opting for revolutionary reform. If they reject us, we will be hung for offering a full-bodied sheep – limited government, free markets and freedom – rather than a bleating lamb of meekly pandering populism.

Popunomics

 

Williamson isn’t just selectively bad on economics – he has renounced economic logic entirely in favor of populist emotion. Take the minimum wage – Williamson’s shining example of popular Populism. The minimum wage is one of three or four most heavily researched measures in economics, having attracted empirical studies consistently since the late 1940s. Until the notorious Card-Krueger study in 1993, these found that the minimum wage adversely affected employment of low-skilled labor. These findings jibed with a priori theory, which predicted that a minimum wage would produce a surplus of labor (unemployment), increase the scope for discrimination by buyers of labor against sellers of labor, reduce the quality of labor and/or jobs, encourage businesses to offer fewer benefits and more part-time jobs and encourage businesses to substitute machinery and high-skilled labor for low-skilled labor. All these effects have been observed in conjunction with the minimum wage since its imposition. Card and Krueger offered no rebuttal to the eloquent testimony of the research record and were notably silent on the theory underpinning their own research result, which purported to find an increase in comparative employment in one state after an increase in the minimum wage. Both the validity of their data and the econometric soundness of their results were later challenged.

Having carefully chosen one of the most economically untenable of all Populist positions on which to “meet voters where they are,” Williamson next ups the ante. From the debased coin of the minimum wage, he turns to the fool’s gold of restrictionist anti-immigrationism. The late Richard Nadler painstakingly showed – and in NR to boot, in 2009’s “Great Immigration Shoot-Out” – that restrictionists were big and consistent electoral losers in Republican primaries and general elections. But Williamson is back at the same old stand, hawking “stronger border controls… mandatory use of E-verify… and like measures” because “voters are solidly on the conservatives’ side on this issue.”

Oh really? Just in time – net immigration has been roughly zero for the last few years. Market forces, not government quotas, control international migration; the quotas merely serve to criminalize violators. Immigration benefits America

on net balance, regardless of its legal dimension. Along with free trade and opposition to the minimum wage, place support of free international migration among the issues upon which economists strongly agree.

Wait a minute – Williamson has gone from supporting brain-dead economics because it is generally popular (the minimum wage) to supporting it because it is popular with NR’s constituency. Just as Buckley had to rescue the Right from the anti-Semitism of the American Mercury and the conspiratorial John Birch Society, we are now faced with the task of rehabilitating the right wing from the crank nativism and restrictionism that has asserted squatter’s rights at National Review. Calling Williamson’s version of expedience Populism gives ideology a bad name. The 19th-century Populism of Pitchfork Ben Tillman, et al, featured cheap money and fashionably bad economics but it was more consistent than Williamson’s proposal.

Borrowing the argot of the digital generation, Williamson is expounding not Populism but rather PLR – the “path of least resistance.” Put your finger to the wind and sense what we can get the voters to sign off on. See how many fundamental principles and how much government money we’ll have to sacrifice to win the next election. Williamson purports to be lecturing us on why Republicans fail – because they are too ideologically scrupulous, insisting on free markets, free trade, open borders, flexible prices, deregulation. But the encroachment of big government and the welfare state proceeded mostly unabated throughout the 20th century despite periods of Republican ascendancy. How could this have happened? Because Republicans were really heeding Williamson’s doctrine all along; PLR ruled, not ideological constancy. Goldwater never led the Republican Party, even when he won the nomination. Reagan was detested by the Party establishment and his philosophy was ditched the minute Air Force One lifted off the runway to return him to California. PLR was always the de facto rule of thumb – and forefinger, ring finger and all other digits. How else could a Party ostensibly supporting limited government have countenanced the transition to unlimited government?

Williamson treats the rise of the Tea Party as America’s version of China’s Cultural Revolution. Whew! We must cease all this senseless bloodletting and wild-eyed revolutionary fervor; return to our senses and settle for what we can get rather than striving for Utopia. Back to normalcy, back to pragmatism and compromise and half-a-loaf … well, maybe a quarter-loaf… or even a slice… hell, maybe even a few crumbs, just so its bread.

It is fitting that Keynesian economics has come home to roost in this time of Quantitative Easing and central-banking hegemony and liquidity everywhere with not a loan to drink. “In the long run, we are all dead” was Keynes’ most famous quip. Well, we can’t live in the short run forever. The procession of short runs eventually produces a long run. And the long run is here.

It’s time to pay up. The voters have given Republicans a gift – the chance to tell the truth and turn the ship around before we reach the falls. PLR is no longer sufficient. It’s time – no, it’s long past time to start doing all the things that Williamson says Republicans can’t do and mustn’t do.

The Anti-Economics Party of the Party of Sound Economics?

 

“The American public is in many ways conservative, but in many ways it is not, and its conservatism often is not the conservatism of Milton Friedman or Phil Gramm but that of somebody who fears the national debt and dreads bureaucracy but rather likes his Social Security check.” The Republican Party’s glory days of the post-World War II period came during the Great Moderation ushered in by the Reagan Presidency, beginning in late 1980 and continuing into the present millennium. This success and victory in the Cold War were the only departures from PLR. This period of prosperity was driven by an economic policy whose positive features were disinflation, sound money, low taxes and low inflation. This is a combination that Keynesian economics finds contradictory and now repudiates utterly. Williamson repudiates it, too, hence his explicit rejection of Milton Friedman and Phil Gramm as exponents of conservatism. (Once again, his use of Friedman, a libertarian rather than a conservative, is disingenuous.) He is still living in the past, the days when we could have our conservatism and our Social Security checks, too. Sorry, we have bigger problems now than how to buy votes from our own voter base to win the next election.

For years, Republicans have been able to win occasional elections the easy way, by adopting PLR. Those days are over. From now on, the Republicans will have to earn their money as a party of limited government by actually practicing the principles they profess. That is the bad news. But the good news is that they cannot lose by doing this. The very economics that Kevin Williamson looks down on tells us that.

Economics defines “cost” as the alternative foregone. If telling the truth will cause you to lose the election, you may well decide to lie; the cost of truth-telling will seem too high. But if winning the election and losing the election are reduced to equivalence by the consequences of economic collapse, then telling the truth suddenly becomes costly no longer. Now avoiding collapse becomes the only matter of consequence and the election outcome fades into insignificance.

Ironically, that is not only sound economics; it is also supremely pragmatic.

DRI-325 for week of 5-26-13: Stockman on Reagan: He Should Have Known

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Stockman on Reagan: He Should Have Known

The publishing sensation du jour – at least in the field of politics and economics – is the cautionary memoir of former Reagan administration budget director David Stockman, entitled The Great Deformation. The title derives from the religious Great Reformation of the 16th century, which befits the missionary zeal Stockman brings to his tale. The titular deformation was suffered by American capitalism during the 20th century, but particularly during Stockman’s adult life.

Stockman’s book is part history, part gloomy prophecy and part score-settling with his critics. Each part has value for readers, but it is his historical recollections that deserve primary attention. Stockman assigns significant responsibility for the ongoing demise of free-market capitalism to policies initiated during the Reagan administration he served. One of those policies is widely considered to be President Reagan’s crowning achievement – the demise of the Soviet Union.

Stockman’s Revisionist View of Soviet Decline

The conventional account has the Soviet Union declining rapidly during the 1980s before finally toppling of its own weight between 1989 and 1991. The proximate cause was economic: the Soviet economy was so ponderously inefficient that it eventually lost the capacity to feed and clothe its own citizens, most of whom were forced to either stand in queues for hours daily at government stores or purchase basic goods at elevated prices in the black market. The government devoted most of its resources to producing military goods or subsidizing Communism abroad.  The lack of a functioning price system – current prices for goods and services and interest rates determining the value of capital goods – severed the link between the production of goods and services and the wants of the people, thereby leaving the economy adrift and floundering.

Stockman does not quarrel with this verdict. In fact, he endorses it so forcefully that he claims that the celebrated Reagan-administration defense build-up of the early 1980s was unnecessary and counterproductive. It was unnecessary because the Soviet economy was already collapsing of its own weight and, consequently, the Soviet military was no threat to the U.S. (The emphasis is mine.) It was counterproductive because military expenditures are an inherent drag on the production of goods and services for private consumption. And during the 1980s, we experienced what Stockman called “the greatest stampede of Pentagon log-rolling and budget aggrandizement by the military-industrial complex ever recorded.”

Stockman accuses Reagan defense Secretary Caspar Weinberger of selecting 7% annual increases in a baseline defense-spending figure of $142 billion annually out of a hat, simply because it represented the midpoint between candidate Reagan’s promised 5% annual increase and the 8-9% demanded by a hawkish group of advisors led by Senator John Tower of Texas. Stockman waxes at indignant length about the budgetary waste embedded in this program. He juxtaposes this fiscal profligacy alongside the Administration’s incapable efforts to cut spending on entitlement programs, which resulted in a feeble reduction of 1/3 of 1% in the percentage of GDP deployed by government.

Stockman goes on to record the fiscal depredations of the two Bush administrations that followed, curiously lauding the Clinton administration for its budget “surpluses” despite the fact that these were really accounting artifacts achieved by off-budget borrowing. He then describes, with mounting alarm, the fiscal death spiral executed by the Bush-Obama regimes – more properly linked as a hyphenate than were Reagan-Bush – which combined monetary excess with fiscal profligacy to nose-dive the U.S. economy into the ground.

The 742-page volume contains a wealth of valuable material, much of it insider information delivered by a participant in federal budgetary battles and Wall Street machinations. But the datum of immediate interest is Stockman’s putative debunking of Reagan’s role as Soviet dragon slayer.

History as Hindsight

David Stockman claims that the Soviet Union was in terrible economic shape when Ronald Reagan took office in January, 1981 – so bad that it presented no serious military threat to the U.S. Given the force of his argument, it may seem somewhat surprising that he presents no direct evidence to support this claim. It is not difficult to grasp the nature of his inferential case, though.

The Soviet Union’s political collapse began in 1989 and occurred with shocking suddenness. Even more stunning was its non-violence; hardly a shot was fired despite various confrontations involving tanks and troops. Stockman’s implicit argument presumably runs something like this: “In order for public mobilization against the government to have attained this critical mass by 1989, economic deterioration as of 1981 must have been well under way and quite advanced.” This is a reasonable inference. Moreover, it is supported by the research and release of documents that occurred in the window of time between 1991 and the onset of the Putin regime, when access to Soviet archives was closed to the West and even to Russian researchers.

But that isn’t all. Implicitly, Stockman continues along the following lines: “Because we now know that the Soviet Union was scheduled to fall apart beginning in 1989, it was therefore unnecessary for the Reagan administration to waste all that money on its defense build-up. And since that build-up was a major contributor to the ensuing decline and fall of the U.S. economy and free markets, Reagan himself must bear a big share of responsibility for the fix we are in today.” Obviously, the quoted paraphrase is my interpretation of Stockman’s argument; the reader will have to judge its fairness.

But if it is a fair rendering of Stockman’s case, then that case fails utterly. Each of the three elements comprising it is false. The first of these is the most obvious. Stockman has committed the fallacy of hindsight. Thirty years later, we now know that the Soviet Union was scheduled to fall apart in 1989. But in 1981, Ronald Reagan didn’t know it. In fact, nobody knew it.

Soviet Disintegration: The View From 1981

Based on David Stockman’s harsh judgment of Ronald Reagan’s conduct, one reads The Great Deformation with bated breath, waiting for the meeting with Reagan at which Stockman sternly declaims, “Mr. President, the Soviet Union is falling apart. You know it as well as I do. How dare you waste all this money on military spending? You’re going to spend us into the poorhouse. Thirty years from now, our economy will implode.”

But we wait in vain; no such passage is included in the book. Presumably, no such conversation took place because David Stockman was just as ignorant of the Soviet Union’s true economic status as Reagan was.

Actually, there is every reason to believe that Reagan was better informed than Stockman. At least two books have been written about Reagan’s campaign to win the Cold War, the better one being Reagan’s War, by Peter Schweizer. We learn that Reagan himself expected the Soviet economy to collapse; he was one of the few people outside the ranks of hard-core free marketers who did. What he didn’t know was when this would happen.

This is the economist’s eternal bugbear, after all, and Reagan was the only U.S. President to actually hold a degree in economics. Economists usually know what’s going to happen, but they are notoriously unable to predict the timing of events, which accounts for their lackluster forecasting reputation.

At the point of Reagan’s inauguration, the Soviet Union’s star was ascendant internationally. It had not yet retreated from Afghanistan and its advisors and acolytes were meddling in Third World countries around the world. The U.S. was under worldwide pressure to succumb to détente and negotiate away its nuclear superiority – the very factor that Stockman claims made its defense build-up superfluous.

Since Stockman didn’t know that the Soviet Union was a basket case but is implicitly saying that Reagan should have known it, he must mean that somebody else who did know it told him the truth, or should have told him. Who would this have been? The logical candidate would have been the CIA. But we now know that the CIA didn’t know it; their failure to provide advance warning of the Soviet collapse is proverbial.

Perhaps Stockman thinks that economists should have anticipated the economic collapse of the Soviet Union. At first thought, this doesn’t seem so unreasonable, does it? But the leading academic economist of the day, Paul Samuelson of MIT, is now famous – no, make that infamous – for including a running graph in succeeding editions of his best-selling college textbook that shows the Soviet Union overtaking the U.S. in per-capita economic growth during the 1980s. (Actually, the point of convergence was quietly moved farther back in time in later editions.) Clearly, Samuelson didn’t have a clue about actual economic growth in the Soviet Union or he never would have made a fool of himself in print for posterity.

Maybe some of Reagan’s free-market economist friends knew the truth, or should have known. Certainly F.A. Hayek and Ludwig von Mises knew that the Soviet economy was fated to collapse in the 1930s when they argued that economic calculation under socialism was impossible. But Mises was dead by 1981 and Hayek was in his 80s, only recently rehabilitated within the profession by the award of his Nobel Prize in 1974. In reality, free-market economists were demoralized by their ostracism from the profession and the seeming invulnerability of the Soviet Union to public criticism and the laws of economics. They had long ago predicted its demise, only to be confounded and humiliated when it kept rolling along – aided in no little part by the subsidies it received from Western governments and the praise it gained from Western intellectuals. Few, if any, free-market economists were optimistically predicting the end of Communism in 1981.

Realistically speaking, nobody should now expect Ronald Reagan to have predicted the future then. But suppose, hypothetically, he knew the general state of the Soviet economy. When then? The fact is that even this knowledge would not have made Stockman’s argument valid – just the opposite would seem to be true.

History is Not a Controlled Experiment

If the Soviet Union had been as impregnable as most of the world believed it to be, then there might have been a case for détente or a milder policy of rapprochement. Reagan didn’t know the truth, but he suspected that the Soviet economy was shaky. He told his advisors, “Here’s my strategy of the Cold War: We win, they lose.” He wanted to give the Soviet economy the push that would shove it over the cliff and destabilize the regime. He knew that forcing the Kremlin into an arms race would pose a fatal dilemma: Either the Soviet government would devote more resources to military production or it would refuse the challenge and devote more resources to civilian goods and services. The former choice would expose it to civil revolt and eventual rebellion. The later choice would condemn it to inferiority in conventional arms as well as nuclear capability; it would pose no threat to the U.S. or the rest of the world and could be isolated to die on the vine in good time.

The Soviet Union had killed upwards of 100 million people during the 20th century by means of execution, deliberately contrived famine and exile to gulags. Reagan felt that the Soviet economy would collapse eventually. But when? For all he knew, it might take ten years, twenty years, thirty years – after all, they had last 64 years up to that point and they had most of the world on their side. There seemed to be a window of opportunity to win the Cold War now, but he wouldn’t be President forever. If he failed to do the job on his watch, his successor(s) might give away whatever advantage he had gained. In the event, despite the single-minded dedication of Reagan and his small band of advisors, it took two full terms – nearly 9 years – to get the job done as it was.

World War II was a conventional war against totalitarianism, fought with conventional weapons against Hitler, Tojo and Mussolini. It was won by spending (and wasting) vast quantities of money on soldiers, bombs, ships, planes, tanks and the like. Most of these armaments were actually used for their intended purposes. Millions of people were killed in the process.

The Cold War was an unconventional war against totalitarianism, fought and won by Ronald Reagan by the unconventional means of spending his Soviet opponents into submission when they elected to compete with him militarily. The superior American economy provided the wherewithal to defeat the inferior Soviet economy. In the direct sense, nobody was killed in the process, although the tremendous waste involved did cost many lives. But because the Soviet Union killed millions of people directly and indirectly and would have continued to do so, Reagan’s actions saved many lives.

The futility of Stockman’s case is illustrated by his criticism of Reagan’s build-up of conventional weapons. Reagan had campaigned against the Soviet Union’s nuclear capability, Stockman maintained, yet insisted on spending vast sums on conventional weapons. “What actually kept the Soviets at bay was the retaliatory [capability] of submarine-based Trident missile warheads…along with…land-based minuteman ICBMs…This deterrent force was what actually kept the nation safe and had been fully in place for years.” In contrast, Stockman scoffed, “the $20 billion MX ‘peacekeeper’ missile…was an offensive weapon that undermined deterrence and wasn’t actually deployed until the Cold War was nearly over.” No, the MX contributed as much, if not more, to winning the Cold War than Polaris and the ICBMs because all these weapons were not used to fight a conventional war. They were not even valuable primarily for their deterrent effect, although that was also quite useful. They “fought” the war peacefully by forcing the Soviet Union to use resources to compete with them. Indeed, the greatest weapon of the Cold War was never even produced. Former Premier Mikhail Gorbachev and his advisors specifically cited the Strategic Defense Initiative (derisively termed “Star Wars” by its detractors) as the crucial factor in the Soviet Union’s demise.

At this juncture in the discussion, the point may seem almost too obvious to need stress: Ronald Reagan’s actions themselves contributed to the collapse of the Soviet Union and may well have been its proximate cause; therefore we cannot assume that the Soviet Union would have collapsed anyway if Reagan had not acted as he did.

 

The first element of Stockman’s case is that because we now know the Soviet Union was falling apart, Reagan should have known it and should have guessed that the Soviet Union would therefore collapse in 1989. This is false; it is the hindsight fallacy. The second element is that because the Soviet Union did collapse in 1989, it would have done so even if Ronald Reagan had not actively won the Cold War. This is not merely false; it is an absurdity since Ronald Reagan’s actions themselves contributed decisively to the speed and completeness of the collapse.

The Fiscal Fallout: Eisenhower vs. Bush

At this point, David Stockman’s case against Ronald Reagan as Cold Warrior is on the ropes. But there remains a counter-argument to the points raised in opposition. Even if Reagan did win the Cold War, it must have come at a terrible cost if it led on a direct line to the end of free-market capitalism in America and impending fiscal and monetary collapse, as David Stockman says it did. Who could argue with that?

David Stockman, as a matter of fact. Stockman himself provides the final refutation to his own argument against Reagan’s role in the Cold War. And, incredibly, he shows no realization of it. Stockman lists President Eisenhower among his heroes for the courage he displayed by taking on a job disdained by his predecessor, Harry Truman. Eisenhower and his Treasury Secretary, George Humphreys, recognized that wartime tax rates were far too high to promote prosperity. But they were determined to complement a reduction in tax rates with spending reductions that would bring government’s percentage take of GDP (then called gross national product or GNP) back into line with historic norms. So between them they hammered out over $145 billion in defense-budget reductions over three years that accomplished the de facto demobilization of the military.

Stockman is fortunate that the Reagan-era parallel was not a snake; else he would be in need of anti-venom serum. The Soviet Union’s collapse was not clear-cut until just after Reagan left office. Reagan had no chance to unwind the successful chain of events he had set in motion. Thus, to make Reagan’s triumph complete, his successor George Bush needed to do the same job Eisenhower did – namely, drastically downsize a military budget whose only rationale had been to win the Cold War non-violently. It was the cravenness and stupidity of the Bush Administration, not Ronald Reagan’s failings, which started the budget rot leading to our present problems. At least, that is the end product of David Stockman’s own logic.

The third element of David Stockman’s case – that Reagan’s fiscal program led directly to our present malaise – is refuted by Stockman’s own choice of Eisenhower as hero and Stockman’s explanation of Eisenhower’s defense-budget cuts. Bush, not Reagan, was the malefactor.

 

The Stockman Manifesto

David Stockman’s manifesto is a tour de force that commands our close attention. In particular, his debunking of the so-called “financial crisis” in 2008 should be required reading for every American. Unfortunately, his omnibus explanation of our fiscal and monetary woes explains too much – or not enough, depending on how you choose to express it. Perhaps Stockman’s own involvement in the Reagan Administration colored his analysis of Reagan’s policies. For whatever reason, his history of the Cold War is inexcusably short-sighted and unworthy of somebody whose views are otherwise acute.