Resurgence of ConservatismChapter 22

1980-1992

The Election of the Great Communicator

Democrats began the campaign by underestimating California Gov. Ronald Reagan’s strengths. His age was offset by robust health and relaxed self-assurance. His views on domestic policy appeared to be further to the right than the majority opinion but they weren’t, and his foreign-policy views carried overtones of ideological crusades and “Great Power” confrontation (that led to the demise of the Soviet Union and communism)—vulnerabilities that President Jimmy Carter expected to exploit. Most of this opinion was fabricated by a socialist media in order to shape public opinion against Reagan. But Reagan, the master of television, phrased his conservative views with an air of reasonableness and geniality, promising prosperity by “getting government off our backs.” Burdened by his failure to free the Americans held hostage by Iran, the weakening of the American image around the world, and by a deteriorating economy that was the worst in 25 years, President Carter saw his thinly based support erode as the voters concluded that Reagan was a safe choice to replace an ineffective regime. Reagan’s margin of victory was sizable, the Californian carrying 44 states against Carter’s 6, the popular vote 43 million to 36 million (with 5.7 million for independent John B. Anderson).

The New Conservatism

In this respect, Ronald Reagan, elected to his first two terms in 1980 was different. As he memorably observed, “Government is not the solution to our problems. Government is the problem.” Reagan’s popularity, coupled with his support for privatization, his confidence in the American entrepreneurial spirit, and his belief in the moral superiority of the free market went a long way toward making these positions, ridiculed and despised by socialists and communists during the 1960’s and 1970’s intellectually respectable again.

Critics called it the “decade of greed” because of the immense rebounding of the economy after the depths of the Carter economy. That’s hardly a surprise; as Jon Sobran once said, “Today, wanting someone else’s money is called ‘need,’ wanting to keep your own money is called ‘greed,’ and ‘compassion’ is when politicians arrange the transfer of wealth.

The fact is, the 1980’s were no such thing. The most direct refutation of this phony claim is that charitable giving—which, after all, represents pretty much the opposite of greed—increased substantially during the 1980’s, and at a much faster rate that it had been increasing in previous decades. In real terms, charitable giving increased from $77.5 billion in 1980 to $121 billion in 1989.

Reaganomics

A fix to the unemployment and inflation of the time.

ELECTING RONALD REAGAN…TWICE

Ronald Reagan for Reagan/Bush '84

http://www.youtube.com/watch?v=SDMksN-ZTR4&feature=related

Ronald Reagan TV Ad: "Reaganomics"

http://www.youtube.com/watch`?v=GhgiOSgBEYY

Reagan won 525 electoral votes and 49/50 states leaving Mondale with his only state of Minnesota and 3800 votes.

Reagan received 58.8% of the popular vote to Mondale’s 40.6%. (This was Reagan’s Second Term)

(Wikipedia)(Youtube)

Stagflation

- Economic predicament before Reagan’s Administration- The economy was not expanding but stagnate- Prices were out of control (inflation) because of

government interference and regulation

- Political pressure results in expansion of money supply.

- Nixon's wage and price controls abandoned

- Under Ford the problems continued but policy was more prudent.

- Federal oil reserves created to ease future short term shocks (only has proven to be a short term fix- 2 weeks at most)

- Carter started phasing out price controls on petroleum

Stagflation

-Much of the credit for resolution of the stagflation is given to…

…a three year contraction of the money supply by the Federal Reserve under Paul Volcker to long term easing of supply and pricing in oil during the 1980s oil glut

This Cartoon Shows the differences between Reaganomics and FDR’s economic policies like the New Deal.

The Four Pillars

Reagan+Economics=Reaganomics

1. reduce govt. spending

2. reduce marginal tax rates on income from labor and capital

3. reduce government regulation of the economy

4. control the money supply to reduce inflation (don’t print money above the monetary base)

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The Roots

-Reaganomics roots in two of Reagan's campaign promises:

1) lower taxes

2) a smaller government

-reduced income tax rates

with the largest rate reductions on the high incomes

-in a time of battling inflation Reagan raised deficit spending to its highest level since World War II.

The Beginnings

- lifted remaining domestic petroleum price and allocation controls on January 28, 1981

- lowered Oil Windfall profits tax in August 1981, helping end the 1979 energy crisis

- ended Oil Windfall profits tax in 1988 during 1980s oil glut

- Tax Reform Act of 1986, Reagan and Congress sought to broaden the tax base and reduce perceived tax favoritism

The Growing Economy

- Top income tax rates dropped from 70% to 28% in 7 years

- Payroll taxes increased because there were more jobs and more people working which equals more government tax revenue

- Real Gross Domestic Product (GDP) growth recovered strongly after the 1982 recession at annual rate of 3.4% per year slightly lower than post-World War II average of 3.6%--the largest of the 20th century.

- Unemployment peaked over 10.7% percent in 1982 then dropped during rest Reagan's terms

- inflation significantly decreased

- job increase of 16 million occurred

Trickle Down Affect- Reagan’s policies were derided as “Trickle-down economics”

due to the significant cuts in the upper tax brackets

- massive increase in Cold War related defense spending caused large budget deficits because the Democratically-controlled congress refused to scale back on agreed upon domestic spending

- the U.S. trade deficit expansion contributed to the Savings and Loan crisis (which was nothing compared to the 2008-9 banking crisis) Banks got upside-down on their loans.

- covered new federal budget deficits, United States borrowed heavily both domestically and abroad raising national debt $700 billion to $3 trillion (Reagan cut but democrats kept spending)

Reagan described the new debt as the "greatest disappointment" of his presidency

Tax RevenueTax Bill 1 2 3 4 First

2 yr avg

4 yr avg

Econ. Recovery Tax Act of 1981 -1.21

-2.60 -3.58 -4.15 -1.91 -2.89

Tax Equity and Fiscal Responsibility Act of 1982

0.53 1.07 1.08 1.23 0.80 0.98

Highway Revenue Act of 1982 0.05 0.11 0.10 0.09 0.08 0.09

Social Security Amendments of 1983

0.17 0.22 0.22 0.24 0.20 0.21

Interest and Dividend Tax Compliance Act of 1983

-0.07

-0.06 -0.05 -0.04 -0.07 -0.05

Deficit Reduction Act of 1984 0.24 0.37 0.47 0.49 0.30 0.39

Omnibus Budget Reconciliation Act of 1985

0.02 0.06 0.06 0.06 0.04 0.05

Tax Reform Act of 1986 0.41 0.02 -0.23 -0.16 0.22 0.01

Omnibus Budget Reconciliation Act of 1987

0.19 0.28 0.30 0.27 0.24 0.26

Number of Years after Enactment

Laffer Curve

Arthur Laffer’s model predicting excessive tax rates reduce tax revenues by lowering production.

Theoretical taxation model

Vogue among some American Conservatives during 1970’s

if tax rates lowered, tax revenues will lower by the amount of decrease in rate- What Democrats thought

-reverse is true for an increase in tax rates

The Laffer Curve: Past Present and Future

Achievements

American economy did better than any other pre- or post- Reagan years

Median family income grew by $4,000 annually, during Reagan Era and afterwards decreased by $1500

Interest Rates, Inflation, and Unemployment decreased faster than pre- and post- Reagan years

Productivity Rate increased, declined and then stayed the same

Reagan Economics Concept Map

Reaganomics

Definition

Results

Policies and Actions

Ronald Reagan Economic Quiz

1. According to Ronald Reagan, what was the problem with our society?

2. What was the economic problem that Reaganomics was designed to overcome?

3. Name one of the four pillars of Reaganomics.

4. How did President Reagan want to distribute the wealth, what policy?

5. What is the proven policy that increases revenue to the government while decreasing tax rates to the citizens?

The World Begins to Thaw

In May 1981, at Notre Dame University, the recently inaugurated Reagan predicted that the years ahead would be great ones for the cause of freedom and that Communism was “a sad, bizarre chapter in human history whose last pages are even now being written.” At the time few took his words for more than a morale-boosting exhortation, but in fact the Soviet economy and polity were under terrific stress in the last Brezhnev years, though the Soviets did their best to hide the fact. They were running hidden budget deficits of 7 or 8 percent of GNP, suffering from extreme inflation that took the form (because of price controls) of chronic shortages of consumer goods, and falling farther behind the West in computers and other technologies vital to civilian and military performance. The Reagan administration recognized and sought to exploit this Soviet economic vulnerability.

Young, educated, and urban members of the Communist elite came gradually to recognize the need for radical change if the Soviet Union was to survive, much less hold its own with the capitalist world. They waited in frustration as Brezhnev was followed by Andropov, then by Chernenko. The reformers finally rose to the pinnacle of party leadership, however, when Mikhail Gorbachev was named general secretary in 1985. A lawyer by training and a loyal Communist, Gorbachev did not begin his tenure by urging a relaxation of the Cold War. Gorbachev was a phenomenon, charming Western reporters, crowds, and leaders (Prime Minister Margaret Thatcher was especially impressed) with his breezy style, sophistication, and peace advocacy. What convinced most Western observers that

The World Begins to Thaw (cont’d)

genuine change had occurred, however, was not what Gorbachev said but what he allowed others to say under his policy of glasnost, or openness.

Throughout his first four years in power, Gorbachev inspired and presided over an extraordinary outpouring of new ideas and new options. Western skeptics wondered whether he meant to dismantle Communism and the Soviet empire and, if he did, whether he could possibly avoid being overthrown by party hard-liners, the KGB, or the army. In truth, Gorbachev faced a severe dilemma born of three simultaneous crises: diplomatic encirclement abroad, economic and technological stagnation at home, and growing pressure for liberal reform in Poland and Hungary and for autonomy in the non-Russian republics of the USSR.

Perestroika and Glasnost

Perestroika (Russian: restructuring) was the term used by Soviet president Mikhail Gorbachev to describe his program of political and economic reforms, implemented between 1985 to 1991. It was closely linked to his concepts of glasnost (openness) and democratization. The aim of perestroika was to rejuvenate the Soviet system. Instead, the forces of change unleashed by Gorbachev’s reforms led to the breakdown of the system and the dissolution of the USSR. The political reforms included a restructuring of the Soviet central government, a relaxation of censorship, and an end to the Communist party’s monopoly of power. Among the economic changes were a reintroduction of limited private enterprise, a more flexible price structure, and decentralization of economic decision making. In foreign policy, perestroika led to the breakup of the Soviet satellite system in Europe and the end of the cold war with the West. At home the partial dismantling of the system crippled it altogether, causing a series of crises that ended in the failed coup of August 1991 and the subsequent demise of the Soviet Union.

Glasnost (Russian: publicity or openness) was the word used by Soviet leader Mikhail Gorbachev to describe his program of liberalizing the strict censorship policy of the USSR and allowing greater freedom of speech. The glasnost policy, by which he hoped to reform and strengthen the stagnating Soviet system, served instead to hasten its downfall. Having

Perestroika and Glasnost (cont’d)

moved away from the rigid thought control that had formerly been the rule, Gorbachev, starting in 1985, introduced a new tolerance for criticism, a broader range of opinions in the press and in the arts, and more accurate rendering of Soviet history.

End of the Cold WarReagan’s performance at a second summit conference with Soviet leader Mikhail Gorbachev in Iceland during October 1986 (the first meeting had been in Geneve in November 1985) deepened strains between U.S.-Soviet relations. Reagan’s persistent advocacy of his costly Strategic Defense Initiative (SDI; berated by the liberal media as “Star Wars”) appeared to block an agreement to reduce nuclear missiles. In December 1987, however, a buoyant Reagan, having resolved some of the differences with the Soviets, signed an arms-control agreement with Gorbachev in Washington. This agreement eliminated intermediate-range missiles in Europe. Reagan visited Moscow in the spring of 1988.

As Reagan left Washington for retirement in California, his poll ratings were the highest (two-thirds of those polled approved of his performance) of any president since World War II.

Mikhail Gorbachev’s espousal of “new thinking” in foreign policy, with its promise of more friendly relations with the West, won him much popularity abroad. Within the Soviet Union, however, Gorbachev’s reform program encountered political opposition, bureaucratic obstruction, and popular skepticism. At his behest, the Soviet Communist party gave up its Leninist claim to a monopoly of political power, grudgingly accepting a degree of political pluralism and the prospect of genuine parliamentary democracy. This alienated Communist hardliners without satisfying radical reformers, many of whom

End of the Cold War (cont’d)

expressed their discontent by resigning from the party. As centrifugal forces increased, a cabal of hardliners in August 1991 arrested President Gorbachev and mounted an abortive coup. That precipitated the end of Communist rule over the Soviet Union, and the end of the Soviet Union itself. By the end of 1991, the USSR had disintegrated into separate republics, all of which repudiated communism.

Grenada Invasion

On March 13, 1979, while Prime Minister Gairy was out of the country, the New Jewel Movement (NJM) staged a bloodless coup, proclaimed a People's Revolutionary Government (PRG), and named their leader, Maurice Bishop, as prime minister. The new government faced opposition from Western nations because of its socialist principles, but it embarked on a program to rebuild the economy, which had been left in disarray by Gairy. The PRG administration was ended in October 1983 by a military coup, during which Bishop was killed.

Less than a week later, on October 25, a U.S.-led invasion of the island overthrew the coup leaders and returned power to the governor-general, Sir Paul Scoon. In December Scoon appointed Nicholas Braithwaite, a former Commonwealth official, to head a governing council until an election could be held, and constitutional government was restored. A peacekeeping force remained until 1985. The election, held in December 1984, was won by the New National Party headed by Herbert A. Blaize, who had led the government in the 1960s. The new government sought to revive tourism, but Grenada's continuing economic problems throughout the late 1980s contributed to the government's dwindling popularity. Following an election in March 1990, Braithwaite, whose National Democratic Congress fell one seat shy of a parliamentary majority, was appointed prime minister by Scoon.

Iran-Contra Affair

U.S. political scandal in which the National Security Council (NSC) became involved in secret weapons transactions and other activities that either were prohibited by the U.S. Congress or violated the stated public policy of the government. In early 1985 the head of the NSC, Robert C. McFarlane, undertook the sale of antitank and antiaircraft missiles to Iran in the mistaken belief that such a sale would secure the release of a number of American citizens who were being held captive in Lebanon by Shiʿite terrorist groups loyal to Iran. This and several subsequent weapon sales to Iran in 1986 directly contradicted the U.S. government's publicly stated policy of refusing either to bargain with terrorists or to aid Iran in its war with Iraq, a policy based on the belief that Iran was a sponsor of international terrorism. A portion of the $48 million that Iran paid for the arms was diverted by the NSC and given to the Contras, the U.S.-backed rebels fighting to overthrow the Marxist-oriented Sandinista government of Nicaragua. The monetary transfers were undertaken by NSC staff member Lieutenant Colonel Oliver North with the approval of McFarlane's successor as head of the NSC, Rear Admiral John M. Poindexter. North and his associates also raised private funds for the Contras. These activities violated the Boland Amendment, a law passed by Congress in 1984 that banned direct or indirect U.S. military aid to the Contras.

The NSC's illegal activities came to light in November 1986 and aroused an immediate public uproar. Poindexter and North lost their jobs and were prosecuted, President Ronald Reagan's public image was tarnished, and the United States suffered a serious though temporary loss of credibility as an opponent of terrorism.

Reagan Foreign Policy Frayer Model

Crumbling of USSR

Downfall of USSR Iran-Contra Affair

Grenada

Reagan Foreign Policy

Reagan Foreign Policy1. What aspect of the Soviet Union did the Reagan administration

seek to exploit to bring its demise?

2. Who was looked at as a Soviet reformer but in the end brought an end to the Soviet Union?

3. What were the two terms that the Soviet leader used to bring about political and economic reform?

4. What was the defensive program that President Reagan proposed that brought the Soviets to their knees?

5. What famous statement did President Reagan make at the Brandenburg Gate in West Berlin bringing an end to the Cold War?