Monumental Debt Is No Monument : Reagan Will Not Be Judged Well for Stewardship of Economy
With only two years left in office, President Reagan is presumably beginning to worry about how future historians and future generations of Americans will judge the legacy of his eight years in the White House. Like other Presidents before him, he will undoubtedly do what he can--through memoirs and interviews with scholars--to embellish his successes and explain away his failures.
It will be especially fascinating to see what ex-President Reagan has to say about his stewardship of the U.S. economy.
We got something of a preview shortly before this year’s congressional elections when the White House issued a campaign brief boasting that the country had enjoyed 46 consecutive months of economic expansion, that employment was at an all-time high, inflation was at the lowest rate in 21 years and interest rates were the lowest in nine years.
These happy statistics are more or less accurate. But they mask the unpleasant realities of what has happened to the U.S. economy under Reagan’s leadership--realities that will affect our pocketbooks long after he has returned to private life.
For example, the national debt has doubled to more than $2.1 trillion since Reagan took office. Put another way, the cumulative budget deficits since 1981 are greater than all the red ink generated by the politicians and bureaucrats since the birth of the Republic almost 200 years ago.
For years conservative politicians put us to sleep with dire warnings about the consequences of unbalanced budgets. But accommodating economists assured us that the seemingly enormous national debt was only money that we owed to ourselves. And, indeed, the country went further and further into debt without quite going to hell in a hand basket.
As a consequence, when prudent folks hoist the warning flag today about the real-life consequences of the explosion of debt under Reagan, it doesn’t register because we have heard it all before.
But today’s national debt is a different and far more dangerous animal. Also, the accumulated deficits in the federal budget are only part of the problem. If you throw in the debts owed by local and state governments, corporations and individual Americans, the stack of national IOUs reaches an astronomical $8.2 trillion--twice the 1979 level.
To a growing extent, furthermore, the debt burden is is not just money that we owe to ourselves. In 1982 the United States was still the banker to the world. Foreigners owed us $140 billion more than we owed them. Now America owes foreign investors upwards of $250 billion more than they owe us; the total is expected to reach $500 billion to $700 billion by 1990.
Just the interest payments on a foreign debt of this magnitude will be a serious drag on U.S. living standards for years. To quote economist Lester C. Thurow, “It takes the work of about 1 million people to produce $40 billion worth of goods and services . . . . If the United States builds up debts that require the payment of $40 billion worth of interest a year, then the annual output of 1 million people has to be diverted to paying that interest bill.”
All this wouldn’t be so bad if there was reason to believe that the American economy has underlying strengths that will reverse the process of economic deterioration that has occurred in the Reagan years. But that isn’t the case.
The U.S. trade deficit--the difference between what we buy from overseas producers and what we manage to sell in global markets--is running at massive, unprecedented levels. The trade imbalance with Japan gets most of the attention, but we are also running big trade deficits with Western Europe and the Third World.
Until recently it was fashionable to believe that large trade deficits in the so-called rust-belt industries--steel, autos and the like--were tolerable because exports of farm products, high technology and services would more than compensate. But things haven’t turned out that way.
For the first time in modern history we are buying more food from abroad than we are selling. And a high-tech trade surplus of $27 billion in 1980, the last year before Reagan took office, has turned into a $2 billion deficit this year.
At the research-and-development level, America is still a formidable competitor. But under Reagan’s blissfully complacent attitude toward letting market forces prevail, there is no national policy to discourage sophisticated manufacturers from moving overseas. To quote Prof. August Witt of Massachusetts Institute of Technology, if you “open up an IBM computer, there’s almost nothing in it that’s made in the United States except the chassis.”
Hundreds of thousands of manufacturing jobs have simply disappeared. Employment in the service sector has enjoyed an offsetting boom--that’s why the unemployment rate hasn’t grown--but the service sector, too, is increasingly losing out to foreign competition.
Japanese executive Akio Morita, chairman of Sony, looks on all this in wonderment. “Right now service industries are booming,” he says, “but if America goes to services and forgets production industries, you must not complain about imbalance of trade, because you are not producing.”
Reagan is not directly responsible for the stupidities of corporate managers. But under our system the President sets the tone, and the example, for the country.
The Reagan example has been to lambaste the Democrats as big spenders, an indictment that is not entirely undeserved, but to reject either a tax increase or genuine restraint in military spending. None of his supposedly spendthrift Democratic predecessors ever came close to matching the unbalanced budgets that have accumulated during his watch.
As for tone, his attitude toward the economy has been that untrammeled market forces will produce the best results--no matter that as a consequence the future prosperity of your children and grandchildren is in jeopardy. You will wait in vain for any lectures from Ronald Reagan suggesting that too much scarce capital is going into corporate raiding, or that multinational U.S. companies have an obligation to their country that goes beyond balance-sheet considerations.
The chickens may not come home to roost while Reagan is in office. But the economic deterioration of the United States is too obvious for the President to assume that history will let him off the hook.