|Cato Policy Analysis No. 172||June 1, 1992|
by Richard B. McKenzie
Richard B. McKenzie is Walter B. Gerken Professor of Enterprise and Society in the Graduate School of Management at the University of California, Irvine. This paper is drawn from a book, Reality Is Tricky: The Exorbitant Claims That Misguided Public Policy Debates, on which the author is working.
The 1980s gave birth to the second longest peacetime economic recovery in the United States since World War II. Yet, in the minds of many Americans, the 1980s were the antithesis of economic renewal. Like the 1920s, the decade of the 1980s was one of decadence. Like the 1930s, it was a period of pervasive economic retreat, of widespread retrogression for the country and the vast majority of its citizens--or so we have been told repeatedly.
Many policy commentators have claimed that in the 1980s the competitive position of American firms and their workers was beaten back both at home and abroad. The decade gave birth to a new form of "robber barons"--Wall Street financiers, dubbed "paper entrepreneurs"--whose new-found wealth detracted from national production and impoverished the poor and, more important to the rhetoric of politicians, practically all of the middle class.
At the end of the 1980s many of the same policy commentators could be heard breathing a sigh of relief in the fond hope that the 1990s would be radically different. Their hopes appeared to be greatly buoyed by the fact that Ronald Reagan, whom they blamed for almost everything that went wrong in the 1980s, would no longer be in command. With anyone else in the White House, the country might become a "kinder, gentler America," as well as a more productive and aggressive competitor.
But pessimism about the future persisted. After surveying the wanton destruction of property values and the other social and economic problems in late 1991, one national columnist and ardent opponent of the Reagan and Bush administrations observed, "The supply-side turkey has finally come home to roost."(1) A Washington Post columnist added in early 1992, "American citizens have been battered by almost daily evidence that good jobs are disappearing in manufacturing industries--jobs that are likely to be lost forever as companies that once were the pace-setters in their fields hunker down for an indefinite period."(2)
The vision many people harbor of the 1980s was carefully crafted by a continuous flow of pronouncements to the effect that the sorry state of the U.S. economy would, regrettably, only get worse--unless America's domestic policy course were redirected, if not reversed. Such an overhaul, its advocates maintained, would require greater government spending on social programs and more aid and protection for American industries and their workers as they sought to cope with changing world circumstances. The policy cry became "tit for tat"; the industrial policies of "Japan, Inc.," and "Germany, Inc.," were countered by a similarly aggressive agenda of reforms in this country under the banner of "USA, Inc."
In spite of the foreboding prophecies, the recommended policy agenda was, for the most part, spurned by Democrats and Republicans alike. Nevertheless, the policy chant continues in the 1990s with ever more threatening assessments of the country's economic state and its probable dismal future. Before the recommended reform agenda, articulated under the rubric of a "new industrial policy," is seriously considered--again--as a remedy for the presumed "American disease," the rhetoric of economic destruction, decadence, and decline must be evaluated.
Such an evaluation reveals that the realities of the American economy during the 1980s stand in sharp contrast with the rhetoric. Although the decade failed to match most Americans' fondest dreams of and hopes for economic gains, it was still the most prosperous decade in recorded American history. It was hardly a time of wanton destruction, decadence, and decline.
On the contrary, sober consideration of the details of what actually happened shows that the decade was "none of the above." More accurately, the decade of the 1980s was one of renewed industrial competitiveness and modest growth that brought equally modest economic gains for most Americans. Many rich and many poor people made substantial eco nomic gains and faced significant economic hardships, as has generally been the case through the millenniums. U.S. production did not decline relative to that of the rest of the world; it held its own. Rather than becoming self-indulgent and obsessed with the social theology of "meism," Americans increased their charitable giving at an unprecedented rate. In short, the country did not fare too badly during the 1980s.
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