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By Root 533 0

proof of a bold diagnosis is whether it leads to a useful prescription. Reagan’s diagnosis that the federal government needed to be reined in led to sharp cuts in marginal tax rates, widespread deregulation and privatization of government services, and essentially a ceiling on tax revenues at around 18 percent of GDP. On all relevant indicators, the period from 1981 to 2010 proved to be no better, and was generally much worse, than the period from, say, 1955 to 1970, before the onset of the terrible decade of the 1970s. (The same conclusion applies if we limit the third interval to 2008, on the eve of the Obama administration.) As we see in Table 4.1, economic conditions deteriorated in the 1970s on many fronts: the unemployment rate, growth of earnings, budget deficit, and inflation.

Table 4.1: Economic Performance, 1955–2010

Source: Tax Policy Center; Office of Management and Budget Historical Tables; U.S. Census Bureau; Saez and Piketty Data Set on Income Inequality; U.S. Bureau of Economic Analysis.19

The Reagan prescription aimed to reverse the trends of the 1970s. In this, it mostly failed. The period from 1981 to 2010 had much lower top marginal tax rates, but that prescription had little overall benefit for the economy. Economic growth declined, as did employment growth. The unemployment rate averaged more than 6 percent. Inequality soared, with the share of household income accruing to the top 1 percent rising from 10 percent in 1980 to 21 percent in 2009.20 Earnings stagnated. The deficit widened. Only inflation showed a marked improvement compared with the 1970s. The conclusion is really unmistakable: the Reagan Revolution failed to put America back on its previous path of growth, high employment, and shared prosperity.

CHAPTER 5.

The Divided Nation

The retreat of government after 1980 partly reflected Reagan’s incorrect diagnosis that “big government” had caused the economic crises of the 1970s. Another cause was globalization, as I will explain in the next chapter. A third factor was the rise of social tensions in America that made it more difficult to acknowledge, and act upon, shared principles and values. From the 1980s till now, America has seen itself as a tensely divided society, and we’ve dissipated tremendous national energies on our social divisions rather than focusing on the important values that unite most Americans and that can and should be the basis of economic policies.

Our era’s social cleavages are well known to any American: red states versus blue states; suburbs versus urban centers; rural versus urban; whites versus minorities; fundamentalist versus mainline religious denominations; conservatives versus liberals; and Sunbelt versus Snowbelt.1 These divisions are real. Americans have very diverse views about many important matters, from their religious preferences to cultural standards to attitudes about social justice. And as with most things in life, “Where you stand depends on where you sit” (or reside, to be more accurate). Being a white suburban southerner creates a different reality from that of an urban African American northerner, with a different set of cultural attitudes, social norms, and political views.

For a time, these divisions were muted by the circumstances facing America. During the 1930s and 1940s, Americans were “in it together,” first in the Great Depression and then in World War II. These epochal events were a great crucible of consensus building. The Cold War period created a sense of shared risks and responsibilities as well, meaning that Harry Truman, Dwight D. Eisenhower, Kennedy, and Johnson all could feel, at least until 1965 or so, that they were presiding over a society that shared certain touchstones. This feeling of consensus began to unravel in the early 1960s and by the 1980s was lost.

There were innumerable reasons for this, far too many to trace in detail. Here are some. The ebbing of Cold War tensions, ironically, created an environment in which smoldering social tensions could be acknowledged rather than suppressed under a veneer