Joe Biden's Ronald Reagan problem
Opinion by Jeffrey D. Sachs | CNN.com
Updated 7:30 AM ET, Tue January 19, 2021
Editor's Note: Jeffrey D. Sachs is a professor and director of the Center for Sustainable Development at Columbia University. The opinions expressed in this commentary are those of the author; view more opinion on CNN.
The Path to Recovery, a new CNN Opinion series by Jeffrey Sachs, aims to help readers understand the nation's economic crisis that has been building for decades and the role that the federal government should play in solving it.
(CNN) President-elect Joe Biden is inheriting a national crisis that has built up over 40 years. On January 20, 1981, former President Ronald Reagan took the US on a radical course when he declared in his inaugural address, "In the present crisis, government is not the solution to our problem; government is the problem." He set out to weaken the federal government by slashing taxes on the rich, dismantling regulations, cutting back on public programs and turning many of the nation's problems back to the states.
President Donald Trump continued this approach -- passing massive tax cuts in 2017, and then when calamity hit with Covid-19 in 2020, placing the burden of response on the states. It is Biden's historic task to reverse Reagan's -- and Trump's -- reckless radicalism.
Reagan won the presidency in 1980, in part, because of two actions by Democratic presidents that had brought an end to the national consensus in favor of activist government that began with Franklin D. Roosevelt's New Deal of the 1930s and lasted through the 1960s.
The first action that ended the consensus was profoundly moral. Presidents John F. Kennedy and Lyndon B. Johnson both backed the Civil Rights Movement's call to dismantle America's racist policies, including the segregation of housing, schools and places of public accommodation, and the systemic denial of voting rights to African Americans, which had prevailed since the end of Reconstruction. They did so in the face of intense opposition by segregationist Southern Democrats -- and knowing that their actions could split their own party.
The result was a furious backlash of White working-class voters that swept Richard Nixon into office in 1968 with the help of the "Southern Strategy," a new Republican strategy to court disgruntled Southern White voters. These White voters thereafter strongly supported politicians like Nixon and Reagan who promised to cutback the enforcement powers of the federal government and stop federal programs on jobs, housing and community development that would undermine continued segregation at the local level.
The second action was profoundly immoral. Johnson escalated the Vietnam War even though he knew the war was conducted on the basis of lies and deception. Johnson's decision was also politically disastrous because the war spending ramped up inflation and bitterly divided the nation. During his first term, Nixon further escalated the war and the inflation and unleashed years of monetary instability that lasted through the presidency of Jimmy Carter. When inflation reach 13.5% in 1980, Carter was defeated by Reagan in November that year.
Reagan claimed that he wanted to stop deficit spending, but his 1981 tax cuts increased the deficits (from 2.5% of GDP in 1981 to 5.9% of GDP in 1983), as did the 2001 tax cut under former President George W. Bush and the 2017 tax cut under Trump. Over time, the various tax cuts were not matched by offsetting spending cuts, since broad areas of federal spending were -- and continue to be -- very strongly backed by the public. In fact, according to the Pew Research Center, in 2019, there were strong majorities supporting increased government spending on many domestic priorities, including education, infrastructure and the environment.
The result has been a massive buildup of federal government debt, which was also stoked by the 2008 financial crisis and the 2020 Covid-19 pandemic. The federal debt owed to the public was 25% of GDP when Reagan took office. It was around 98% of GDP at the end of 2020, and will likely soar further because of further urgent spending related to Covid-19.
The bottom line is that the US has very low taxation as a share of GDP (in fact, the lowest among all high-income countries in the OECD except Ireland), insufficient public services, decrepit infrastructure, and massive debts and deficits -- all at the same time!
The states are not able to step in by providing more local services and infrastructure neglected by the federal government. States compete with each other by slashing taxes to attract investments away from other states. Only the federal government has the power to raise adequate tax revenues to meet the public's needs for healthcare, education, job training, research and development, infrastructure and other needs.
As the federal debt has grown -- and many states have struggled -- one part of American society has laughed all the way to the bank. The wealthy funders of both parties -- Wall Street financiers, big oilmen, Silicon Valley gurus, real estate developers, private-prison owners, etc. -- couldn't believe their good fortunes in receiving repeated tax breaks and even the deregulation of their polluting activities. The rich got richer year after year, while working class Whites and African Americans, social conservatives and social liberals, evangelicals and atheists, waged the pitched battle for the nation's soul.
Reagan's failed radicalism has now run its course, and the United States, while culturally as divided as ever, is at an economic and environmental precipice. Real hourly wages for the median male worker (at the 50th percentile of the earnings distribution) fell 3% between 1979 and 2019. Student debts are $1.68 trillion, owed by an astounding 44.7 million borrowers. And climate change has plunged the nation into crises of mega-forest fires, coastal flooding, extreme storms, droughts and heatwaves. The year 2020 tied for the world's warmest on record, an astounding 1.25° Celsius above the pre-industrial temperature -- with worse to come.
Even during the Covid-19 pandemic, the rich have gotten much richer. Over 150 of the richest Americans, who number among the world's richest 500 people, now have a combined wealth of $3 trillion, which is up by over $600 billion from the start of 2020. With Covid-19, the very richest Americans hit the jackpot, with their wealth soaring as the result of Federal Reserve liquidity, huge budget outlays and their ownership of the digital platform monopolies on which much of the economy now operates.
The Biden administration must now find a recovery path out of the wreckage of four decades of Reagan radicalism and the politics it created. Reagan got us stuck on the ideas that "government is the problem," cuts in federal tax cuts are necessary, environmental regulations are problematic and major national problems can be left to the states and cities. These ideas, alas, are wrong, even though they are widely believed and were politically convenient for those who disliked the federal government's policies to end racial segregation.
Americans have learned, the painful way, that we need an effective federal government. Just as states and cities could not contain Covid-19 when the federal government shirked its duties, we will also continue to fail to create enough decent jobs, educate our children, ensure safe water for our farms and cities, protect the health of Americans, face the climate emergency and modernize our infrastructure, until we mobilize the federal government to act on behalf of all Americans and all parts of our nation.
Next in the series: What Biden's economic rescue plan needs to do