Stating the obvious: Politicians know politics; that’s their business. Business is not their business, and any discussion about American presidents and economics has to begin with this discouraging word: American politicians, with a very small number of exceptions, don’t know anything about economics.

In Washington, during the deficit debates for the past few weeks, politicians are guessing — as I think most economists and pundits are — and they seize on almost any deficit idea that sounds good at the time. It has been ever thus: A mainstream American conservative, Richard Nixon, blurts out that we are all Keynesians now, and a mainstream American liberal, Bill Clinton, declares that the era of big government is over. And a more fundamental conservative, Ronald Reagan, grabs onto the thinking of an unknown economist able to write everything he knows on a napkin.

When President Reagan, who loved to brag that he was an economics major in college, picked up Arthur Laffer’s “supply side” napkin — a sort of fortune cookie that said the lower marginal tax rates are, the higher government revenues will be — both Reaganomics and our current econochaos were born. Instinctively, Reagan, one damned good politician, realized that there was something on the table that looked very much like a free lunch.

Once upon a time it had been called “trickle-down economics” — if the rich got richer, everyone else would play in the crumbs under the table.

That was really no different from John F. Kennedy’s idea that a rising tide lifts all boats. His single change to a budget proposal by Walter Heller, his house economist, was to make the cover of the printed program a darker blue. Usually, hopeful words and rosy budget scenarios satisfy the public, at least until after the election.

This time, not so much. The rich folk of this generation have relearned Gilded Age lessons about how Washington and tax codes work and gamed the system to split the gap between rich and poor like the Red Sea.

After four months in office, Reagan told the Congress: “High taxes and excess spending created our present economic mess. More of the same will not cure the hardship, anxiety and discouragement it has imposed on the American people.” So, a man who made his political reputation by attacking “tax-and-spend” Democrats became president and invented “borrow-and-spend” Republicanism.

This was called Reaganomics. Unfortunately, it did not work. When Reagan became president — and began to cut taxes — the federal deficit was 2.5 percent of the national economy. When he left, eight years later, the deficit was 5 percent of the economy. Interest payments on the debt jumped from $69 billion in 1981 to $169 billion in 1988. At the time, those were astonishing numbers, and they have exploded since.

That’s where we are now. The leaders of Reagan’s party — he would be a left-wing Republican now — seem to truly believe that they, and they alone, know the secret other politicians have sought: Reduce the deficit, balance the budget and save the republic.

That’s quite a reversal from only a few years ago when Vice President Richard Cheney said that, politically, Reagan had proved that deficits don’t matter. After all, Reagan ran up more debt than any of his predecessors and easily won re-election. This time they matter mightily, at least until 2012.

In the middle of Reagan’s 1984 campaign against Walter Mondale, James Baker, Reagan’s chief of staff, passed him a memo saying:

“The goal is to win re-election. … That’s the big picture. Everything else is small picture. … Taxes are a big-picture issue. If we want to win — and win big — the exigencies of the election force us to solemnly swear that Mondale is the tax-increase candidate and Ronald Reagan is the no-tax-increase candidate.” Then he ended the note by saying that after the election, Reagan could do whatever he wanted to do about abstractions like the deficit.

What Reagan did after the election was make Baker his secretary of the Treasury.

© 2011 Universal Uclick

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