Ronald Reagan was a giant of an economic statesman, in comparison with his immediate predecessor and his immediate successor, just as a man of average height is a giant in comparison with midgets. Economic growth in the 1980s was about the same as the postwar average achieved by Presidents Truman through Carter. Inflation was much better than it was under Ford/Carter, much worse than it was under Eisenhower/Kennedy. One reason for this mediocre record was that Reagan's speeches and deeds went together like a pair of mismatched socks.

In fiscal policy, Reagan spoke loudly and carried a small stick. His 1981 tax cuts were a bold departure from Republican orthodoxy of the past half-century, but were significantly watered down by tax increases in 1982, 1984 and 1986. One remembers his soaring rhetoric in 1980 about the need to liberate the entrepreneurial spirit of America, yet one also cannot forget the sobering reality of his 40 percent increase in capital gains tax in 1986. For decades the federal tax burden as a fraction of gross national product has averaged between 19 percent and 20 percent. In 1980 it was a little over 19 percent; in 1990 it was a little over 19 percent. The decade of the eighties may have been many things, but when it comes to tax policy it was certainly not a revolution.

What of federal spending under Reagan? Again, rhetoric and reality went their separate ways. When Reagan took office, federal spending was over 22 percent of gross national product. His first OMB report projected that spending would decline to 19.3 percent of GNP by 1984! That was the rhetoric. The reality was that spending as a proportion of the GNP when Reagan left office stood at 22.3 percent of GNP—just about where it was on the day he entered the Oval Office. The fiscal debaters in Washington during the 1980s were like a bunch of little boys playing marbles on the playground: the noise they made and the passions they felt were far out of proportion to the actual stakes of the game.

It is not a persuasive defense of Reagan to say that he did the best he could given a spendthrift Congress. In the first place, there was not a huge difference between what he requested and what he got, especially in an economy the size of ours. For example, in 1985 Reagan's budget requested federal outlays of $940 billion and the actual outlays were $946 billion. The difference is chicken feed. Second, Reagan never used his veto power to any great extent. Finally, he never used the power of Gramm-Rudman, which was the practical equivalent of the balanced budget amendment to the Constitution.

Reagan's monetary policy was an even greater disappointment. For most of his presidency it bore no resemblance whatsoever to the policy he campaigned on and made a pillar of his 1981 economic program. Reagan, an economics major at Eureka College, was something of a student of monetary policy, a classical liberal, a follower of Ludwig Von Mises and Milton Friedman. As such, he had a long and deeply held belief in the following propositions. First, when it comes to inflation and recession, government is the problem; specifically, government's monetary policy is the problem. Second, politicians cause inflation when they "print" money to lower interest rates and stimulate the economy artificially. This shortsighted policy is successful at first, but after a while, inflation and interest rates start to rise. In order to avoid runaway inflation, the political authorities are compelled to reduce the printing of money, which raises interest rates and slows the economy. In a nutshell, the benefits of excessive monetary growth are transient and ephemeral; in the longer run, we are left with the twin evils of inflation and the business cycle, i.e., periodic recessions. Third, the proper monetary policy would entail the slow, steady, growth of money that is characterized by a gold standard or a fiat money policy that mimics the gold standard ("monetarism"). Money growth needs to be slow to eliminate or minimize inflation; it needs to be steady to eliminate or moderate recessions. Since inflation and recessions cause distortions in the allocation of resources, slow, steady growth of the money supply is the sine qua non for sustained growth at peak efficiency.

In accordance with these propositions, Reagan's 1981 economic recovery program called for a gradual but persistent reduction of money growth over several years to wring inflation out of the economy without wringing the economy's neck. Unfortunately, the exact opposite happened. A few months into Reagan's first term, the Federal Reserve slammed on the monetary brakes and the economy went through the windshield. The 1981-1982 recession was the most devastating downturn since the thirties. So much for gradualism!

A year later, the Fed took its foot off the brake and jammed the accelerator pedal to the floor. The economy took off on "the longest peacetime expansion in American history." So much for steadiness!

Year after year, new money gushed out of the Federal Reserve's printing presses without a murmur of protest from Milton Friedman's student, Ronald Reagan. Indeed, the president reappointed Paul Volcker as chairman of the Fed, thereby stamping his imprimatur on Jimmy Carter's choice for the job. Each year from 1983 through 1986, growth of M-2 surpassed the M-2 growth in the years 1977-1980.

ANNUAL PERCENT GROWTH OF M-2
Carter		Reagan
1977  10.6		1983  12.0
1978  7.9		1984  8.6
1979  7.8		1985  8.2
1980  8.9		1986  9.4

It was as though Ronald Reagan, having criticized Carter for adding a swing shift to the Fed's printing presses, himself added a graveyard shift so that the Fed could print money non-stop, 24 hours a day. So much for slow money growth! The sad fact is that Ronald Reagan's monetary policy was not gradual; it was not slow; it was not steady. In a word, it was not Reaganomics.

The steep economic nosedive in 1982 had one positive result. It brought inflation down from double digits to just under four per cent. This, however, was not the same as "breaking the back" of inflation. Four per cent, after all, was the level of inflation that had frightened Richard Nixon just a decade before into imposing wage and price controls, with the enthusiastic approval of the country. (In the century following the American Civil War, inflation had averaged about one per cent per annum.) In any event, as the recovery went on, four per cent gave way to five per cent and then six per cent inflation in response to the relentless money growth under Reagan.

This was not a brilliant record, but there is another side to the story that reflects more credit on Ronald Reagan and that may have profound implications for the future of American politics.

Among American presidents, Ronald Reagan is the most impressive economic leader certainly of the past generations and perhaps the past two generations. This is not because in the kingdom of the blind the one-eyed man is king, for actually he was remarkably clear-sighted. What he lacked at times was the hardness or ruthlessness required for a thoroughgoing implementation of Reaganomics— a ruthlessness that would have exposed him to greater political risk and at worst may have been no more successful than what he did achieve, given the unholy alliance in Congress between insatiable special interests on the one hand and invincible ignorance on the other.

It is true that after Reagan's initial tax cut, the federal tax burden rose throughout his second term. In fairness, however, it must be pointed out that it never reached the peak (20 percent of GNP) that it did under President Carter. Spending, meanwhile, having peaked after (and because of) the 1982 recession at 24 percent of GNP, declined sharply in Reagan's second term, largely because Reagan was having some success in containing domestic spending. A dramatic proof of this is to compare domestic spending for 1985 in constant (1991) dollars with domestic spending for 1989 in constant (1991) dollars: $684.3 billion vs. $689.3 billion. In other words, real domestic spending was virtually flat during Reagan's second term.

When Reagan's presidency is measured, not by his rhetoric, but simply on the basis of what he inherited from Jimmy Carter and what he bequeathed to George Bush, it must be judged a success. From this point of view, Bush's presidency can only be regarded— to draw upon the sports metaphors of which he was so fond— as a blown save. Apart from monetary policy, where he kept faith with Mr. Reagan by reappointing Alan Greenspan (about which more later), Bush's economic program seemed to be designed as a massive rebuke to voodoo economics. Even if one excuses his signature on far reaching regulatory legislation such as the Clean Air Act and the Americans With Disabilities Act, as the shrewd counsel of political expediency— after all, how many Republicans in Congress voted against them? What can one possibly say about his fiscal policies? With respect to the tax increase, even Bush now realizes that he should have read his own lips instead of Richard Darman's.

Domestic spending under Bush burst the bonds in which Reagan had confined it. Hell, it burst the bonds in which Carter had confined it. Under Carter, domestic spending increased 12 percent over four years; under Bush a whopping 24 percent. Obviously, much of this is attributable to the recession, but even Bush's post-recession budget projections did not show that the spending levels achieved by Reagan would be restored.

Despite Ronal Reagan's inability to achieve his fiscal goals, and despite George Bush's reversal of even the modest gains of the Reagan Evolution, there is one aspect of the 1981 economic recovery program that is now firmly in place and will be for some time to come. That is Reagan's original monetary policy, which was so badly violated during the first six and a half years of his presidency. In the summer of 1987, President Reagan appointed Alan Greenspan to replace Paul Volcker as chairman of the Federal Reserve. Greenspan then proceeded methodically to manage the money supply with astonishing fidelity to Reagan's original prescription, gradually reducing money growth down to almost zero.

The following table shows the annual rate of growth of M-2 since 1987:

1988  5.5%

1989  5.1%

1990  3.5%

1991  3.0%

1992  1.5%

1993  0.5%

The result of this policy is that the United States is truly on its way to breaking the back of inflation (the consumer price index has fallen from its perch above 6 percent three years ago to 2.8 percent currently). In addition, as the inflation premium has been squeezed out of interest rates, they have fallen to their lowest level in decades.

Of course, slowing money growth also caused the 1990 recession, an unavoidable way station on the road to a noninflationary environment. The recession was wrongly blamed on the Bush tax hike, and this error in turn gave conservatives false hope when President Clinton, following the trail blazed by Bush, raised taxes after winning the presidency on a promise to cut them. Many Republicans leaped to the doomed conclusion that Clinton would suffer the same fate that Bush suffered, namely, a recession and political defeat. They were wrong on both counts. Bush's unwise tax hike did not cause a recession, nor will Clinton's. The economy had started to slow in 1989 and actually fell into recession in the third quarter of 1990 (July-September). The tax bill was not signed until October. It had barely gone into effect when the economy started pulling out of the recession in the second quarter of 1991. Since then, despite the tax hike, the economy has experienced ten consecutive quarters of economic growth.

Conservatives need to understand this point, otherwise they will fail to appreciate the importance, both economic and political, of monetary policy. It is true that excessive taxes discourage investment and enterprise. They are an economic depressant. They reduce the efficiency of the economy. But they are not the cause of the business cycle, as such, which is a monetary phenomenon. High taxes lower the peaks and deepen the troughs of the business cycle; they are not its primary determinant.

A classic case in point was the 1932 tax increase. Conservatives properly criticize Herbert Hoover's mistake in raising taxes during a depression, but they need to remember that the tax increase came at the cyclical double bottom of the Great Depression, which was followed immediately by a cyclical recovery that lasted 50 months and produced annualized growth of 12 percent, the fastest since the Civil War.

Bill Clinton's $50 billion per year tax increase, though unwise and a breach of faith with the American people, is peanuts in a $5 trillion economy. It will surely make us a little worse off, but, like the Hoover and Bush tax bills, it will not stop the recovery in its tracks. If marginal tax rates approaching 40 percent on the mega-rich are incompatible with economic expansion, how was it that John F. Kennedy's boom in the sixties—so celebrated by contemporary conservatives—could occur, given that the top marginal rate never once fell below 70 percent?

When President Clinton had trouble finding his sea legs in the early months of his presidency, many Republicans gleefully wrote off his chances for re-election. This was the shallowest kind of wishful thinking. President Kennedy's first few months in office were a catalogue of incompetence, from the Bay of Pigs to the Vienna Summit, and yet JFK subsequently attained some of the highest approval ratings ever recorded by a president. My own view of Clinton so far is that he is a risk taker, a fighter, and a realist who makes tactical retreats but never strategic ones. His narrow victories on NAFTA and the budget would seem to confirm that view.

But the most interesting aspect of Clinton's economic policy in his first year has nothing to do with the sound and fury of the policy debates but with the silence of the dogs that did not bark. Neither the president nor his top economic advisers have engaged in any Fed bashing, and indeed, the president sent Hillary Rodham Clinton to court Alan Greenspan at the very outset of the administration. From a narrowly partisan point of view, this should be a chilling warning to those Republicans who believe that Clinton, like Carter before him, will turn out to be an Inspector Clouseau in economic matters, a hapless, incompetent bungler.

On the contrary, Clinton seems to have grasped that he can avoid being "Carterized" by skyrocketing inflation and interest rates so long as Alan ("Whip Inflation Now") Greenspan stays the course he has been on for the past six years.8 If this is, in fact, President Clinton's thinking, it is unlikely that there will be any Fed bashing so long as the economy continues to grow, as it has for the past 31 months and as it appears likely to do indefinitely.

In this connection, there was a remarkably optimistic assessment of this recovery's longevity in the Wall Street Journal for November 8, 1993, under the title, "Expansion May Prove Long Distance Runner." The author, Alfred Malabre Jr., is a most knowlegable student of the business cycle, and he points out that the current upswing already compares favorably with a majority of the economic recoveries of the past century and a half:

The business expansion, for all the recent shakiness in the stock and bond markets, may well prove remarkably durable. After 31 months, it already has outlasted 17 of the 31 earlier business-cycle upswings that economists have traced since the middle of the last century. If the expansion endures only a few more months, its length will exceed the average for all its predecessors.

This seems likely. The economy may, in fact, still be in the relatively early stages of an unusually long growth period.

The reason for this, as Malabre points out, is that the pace of the expansion is modest or indeed even sluggish by comparison with past expansions. This slow pace in turn, is consistent with Greenspan's determination to let recovery unfold on a timetable set by the economy's natural restorative powers rather than to goose or to gun the economy with artificial monetary stimulus.

The prospect of good economic news coming out of the Clinton administration has provoked Robert J. Barro, professor of economics at Harvard, to make an extraordinary suggestion. He thinks that Alan Greenspan deserves the lion's share of the credit for the good news, and should therefore resign!

Professor Barro notes that the "misery index" (which candidate Reagan used with devastating effectiveness against President Carter in the 1980 debates) is improving under President Clinton. In fact, it is now down almost to where it was when Ronald Reagan left office.

…the misery index score is not bad, and Mr. Clinton owes this result to a monetary policy that has kept down inflation and interest rates. Over the past several years, the maintenance of low inflation and the declining expectations of future inflation derive from the commitment of the Federal Reserve and its chairman, Alan Greenspan, to a policy of reasonable price stability. Moreover, Mr. Clinton has been very clever to support Mr. Greenspan and to avoid attacks on the Fed's independence and, hence, its credibility. (Mr. Clinton perhaps learned from the experience of Jimmy Carter, for whom a disastrous monetary policy was the main source of trouble in the domestic area.)

For Professor Barro, however, Greenspan's sterling performance in the service of his country has at last become problematic. The silver cloud has a dark lining.

Although the nation benefits from monetary stability, this same stability—and the consequent good performance of the financial markets—makes it easier for the administration to enact an array of undesirable interventions into the economy. If the stock and bond markets were less buoyant, then the government would be more reluctant to raise taxes or minimum wage rates or to implement a remarkably expensive health care plan.

Mr. Greenspan has to ask whether, as a good libertarian, he can remain as part of an administration team that is basically promoting socialism. The longer he stays in office, the more he resembles Col. Nicholson (played by Alec Guinness) in "The Bridge on the River Kwai," who forgot his underlying mission and built a marvelous bridge for his Japanese jailers. The colonel finally woke up and said "What have I done?" just before falling on the detonator and blowing up the bridge. It would be better if Mr. Greespan left the government a little further in advance of the explosion.

Without expressing an opinion as to whether Chairman Greenspan should resign,10 I believe that Barro is making an absolutely correct point here, namely, that Greenspan's brilliant conduct of monetary policy, in the teeth of excessive spending, regulation, and taxation, is the primary cause of whatever health the economy enjoys. He is also absolutely correct that a healthy economy widens the range of policy options open to visionary planners like Ira Magaziner and Hillary Rodham Clinton. It would be no small irony if the belated implementation of Ronald Reagan's monetary policy fulfilled a necessary condition for the implementation of Bill Clinton's social program.

Which brings us back to the 1890s. In that decade, the money question—the silver debate—which had been a dominant theme of American politics for a quarter of a century, was laid to rest, for a couple of decades at least. What came to the fore then was a far broader and deeper debate, an intellectual eruption, that produced the three great progressive tsunamis of the twentieth century, separated by briefer periods of conservative consolidation. The first wave was the opening two decades of the century, the era of Theodore Roosevelt and Woodrow Wilson, followed by a decade of Harding, Coolidge, and Hoover; the second was the thirties and forties, the New Deal of Franklin Roosevelt and Harry Truman, followed by a decade of Dwight Eisenhower; the third was the sixties and seventies, beginning with John F. Kennedy and Lyndon Johnson, ending with Jimmy Carter, and followed by the decade of Ronald Reagan.

Have we now witnessed the arrival, right on schedule, of the fourth great wave created by the intellectual explosion of a century ago? Are we about to see yet another quantum leap forward toward the kind of social and economic equality that is the goal of the activist state? Are Hillary Rodham and Bill Clinton the Eleanor and Franklin of the 90s?

The answer to these questions, I fear, is "yes." In keeping with the original Progessive dream of putting expertise in the service of equality, today's liberals are on the threshold of attempting a radical extension of the notion of entitlements, beginning with universal health care under the benevolent eye of federal planners. This new thrust by the bureaucratic/progressive state may occur under optimal conditions, because the 1990s may be the best decade of the twentieth century, in the sense that they may be free of the wars (WWI, WWII, Vietnam) and the economic troubles that severely restricted reformers in the past. Imagine, for a moment, Lyndon Johnson operating within a healthy monetary framework and without the constraints imposed by the "guns versus butter" debates of the sixties, and you will get an idea of what is possible.

As we drift gently into a time of peace and prosperity, we may not sense or feel anything oppressive about the next web of regulations that are woven around us. We may find ourselves, not in an Orwellian nightmare but a painless Tocquevillean trance. In Bill and Hillary Rodham Clinton we see the mating of political cunning with bureaucratic courage, a union that may give birth to a new age in which, as was foretold in the progressive books of old, the government of men will be replaced by the administration of things.