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The Failure of Conservative Economics–Part II. Ronald Reagan

January 27th, 2013 · No Comments · Economics, Politics, Populism

In the period from the 1950s until the late 1970s, the Conservatives were largely considered Right Wing radicals and economic zealots. Republicans of those days were mostly moderate, even some liberal, as with the Nelson Rockefeller wing of the party. The Republican Right Wing presented a political problem as it had a series of rather absurd notions. Among these acknowledged perverse political ideas were McCarthyism and the John Birch Society. So most Republicans pulled as hard as they could to the political center, where the definitive votes tended to reside.

But Republican politics changed dramatically with the election of Ronald Reagan in 1980. Reagan, the B-movie actor, who had always been interested in politics, the one time union leader–the head of the Screen Actors Guild–had become a Conservative. He had entered formal politics with a bang, as Governor of California, defeating popular Democratic incumbent Governor Pat Brown in 1966.

Reagan was a great communicator and a charismatic personality. Further, he sold himself as a “reformed” Democrat. He had not left the Democratic Party, he said, but it had left him. And so he had become his own kind of Republican, advocating for smaller government and more responsible use of taxpayers funds. He excoriated unions at a time when some unions–to be fair–had earned a reputation for excessive behavior, even to the point of involvement with mobsters.

Ronald Reagan had been a Democrat and a strong supporter of Franklin Roosevelt. He voted for Roosevelt every time and for Harry Truman. But, still nominally a Democrat, he voted for Dwight Eisenhower twice and for Nixon over Kennedy. How could that happen?

To understand it, you need to know the story of the “co-opting” of Ronald Reagan. It is virtually certain that he was influenced in the later 1950s and 1960s by his wife, the daughter of one of the nation’s leading Conservatives and his eight-year association with General Electric, where he became the spokesman for “General Electric Theater” on television.

Reagan’s career in motion pictures had waned simultaneously with the decline of the Hollywood movie studio system. By 1952, his career had declined to the point that he was forced to perform as a singing and dancing act in Las Vegas, despite the fact that he was neither singer nor dancer.

But he had one thing going for him. In 1952, he married Nancy Davis, an actress and the stepdaughter of one of the most bigoted and reactionary Right Wingers in the country, who, nevertheless, was one of America’s most brilliant neurosurgeons.

Nancy Davis had grown up as the daughter of a silent movie and stage actress by the name of Edith Luckett. Edith had divorced her husband not long after Ann Frances (Nancy) was born. The only father Nancy knew (and adored) was her stepfather, Dr. Loyal Davis, an arch-conservative. By the time she met Ronald Reagan, Nancy had been educated at the best schools in Washington D.C. and at Smith College. She was very grateful to her stepfather and she was a dedicated, if somewhat pragmatic, Conservative.

Nancy Reagan seems to be less an ideological Conservative than the other kind, the kind more prevalent today than when Reagan was elected President. Nancy Reagan used Conservative connections, friends of her family to get to a certain position. Then, after converting her husband to Conservative politics in the 1950s, she used her own skills to connect and ingratiate herself and her husband into the upper levels of Right Wing Republican politics.

Nothing wrong with that, even if you disagree with her completely on her politics…it is, after all, a free country. She can work as hard as she wants for her causes just as you work hard for yours. So, in 1952, when Ronald Reagan’s career in movies was fading, Nancy and Ronnie were able to make contact with General Electric, at the time the most conservative corporation in America. In 1952, Ronald Reagan, staunch supporter of the New Deal, anti-Communist, labor leader (Hollywood style) had voted for Eisenhower…but still registered as a Democrat. (He would do so again in 1956.)

Reagan was changing. His friends were less and less Hollywood pals in general and now were more often Conservative Hollywood pals. Nancy’s dinner parties often included only Conservatives. When General Electric came along in 1954 with an offer for Ronnie to host “General Electric Theater” they jumped at it. It was $125,000 a year, later $150,000. In addition to hosting the television series, Reagan was expected to make something like 14 speeches a year to General Electric employees.

His mentor at General Electric was a man by the name of Lemuel Boulware, head of public and consumer and employee relations. In an era that saw hundreds of strikes per year, Boulware’s divisions had none. General Electric had rewarded him for this and it was for this that Boulware was to indoctrinate Ronald Reagan into his method.

For years before Reagan was hired by General Electric, Boulware had been traveling the country, to all of GE’s 135 plants delivering his version of what would come to be called, as Reagan developed it, “The Speech.” Boulware taught Reagan the GE philosophy which was basically that business is good. It is good for workers, for stockholders, for stakeholders, such as local communities, and for the country.

When Ronald Reagan began to make speeches for General Electric, he was simply rehearsing for what was to be his next career…politician. In eight years with General Electric, he refined what were to become the basic themes of his conservative view of politics. Socialism was bad and government, insofar as it tended towards social services for all Americans, was Socialist. Communism was the be-all and end-all, the eventual end-result of growing Socialism and should be fought against both politically and militarily. Private industry is good, it has many benefits for society and should have as little regulation standing between it and its accomplishments as possible.

In 1961, he stepped out of his role at GE to make a record for his father-in-law and the American Medical Association in an attempt to paint Medicare as both Socialized medicine and a disaster for the country. These were the basic tenets of Reagan’s emerging philosophy which he fine-tuned over 8 years with General Electric. By 1962, when General Electric abruptly canceled his contract, he had turned the speech into his own personal political statement.

In 1964, Ronald Reagan stepped onto the national stage in a televised speech for Barry Goldwater, then considered by many to be a dangerously militant and nearly fanatical Right Wing Republican for President. Of course the speech for Goldwater, who had almost no chance to win against Lyndon Johnson, was better for Reagan than it was for Goldwater. Reagan sounded like a sensible, rational man with a different point of view. His years of stump speaking to GE employees, union workers, told him what he could say and how he could say it to make it appealing.

Goldwater lost but Reagan went on to be governor of California in 1966 and after failed attempts at the Republican nomination, President in 1980.

Since 1954, Reagan had been working on one speech, a modification of Boulware’s speech, that he gave at every one of the GE factories and locations that he visited throughout the country. The “Speech” was always the same, but filled with different anecdotes and stories. The basic theme was that Communism is bad and America is heading in that direction; the government should be much smaller, (even though the population is growing); farm subsidies and welfare payments make us lazy and weak and things like urban renewal are merely reasons for the government to intrude in the private lives of citizens.

By 1961, the speech had been tested well enough for Reagan to use it to help his father-in-law and the Republican Party and the American Medical Association in their attempt to stop Medicare. It gives us a good example of the way Reagan used generalities, intentional misunderstandings and outright lies to persuade people that smaller is better, and government is the enemy.

He started by saying that Medicare was a first slippery step towards certain Socialism. He said it was easy to disguise Medicare as a humane project. But, he said, everywhere Socialized medicine was part of society the people eventually rejected it. Both, of course, were lies and he knew it.

Despite the fact that many serious proposals had been made as early as 1935 to handle the increasing problems of finding health care for the aged, through both the Roosevelt and Truman administrations, including proposals from the American Medical Association, Reagan characterized subsidies for the care of the aged as radical.

That actually was not true. President Truman had proposed a national health care plan as early as 1947. The Forand Bill of 1957, the Kerr-Mills Act of 1960 and after Reagan’s speech, the King-Anderson bill of 1962 all attempted to deal with this continuing and worsening situation of increasing health care costs for the aged. Reagan’s “radical” identification for Medicare was simply false. It was in fact a popular trend.

Reagan went so far as to describe his version (or General Electric’s and the AMA’s conservative version) of the future distribution of doctors. Physicians, he said, might be forced to move to other cities because there would be too many in one town. He even got a shot in at Social Security, stating that it had never been intended as a retirement program, but only a supplement to private savings. People knew this already but saying it made the point that we should not have any further expansion in the distribution of government funds to citizens. It was typical of “the Speech” to take something that everyone agreed with and twist it into a silent piece of propaganda.

Such was the change in the Ronald Reagan who had supported FDR and Truman and even went so far as to maintain that he was a “Democrat for Eisenhower” still in 1956. General Electric had a great deal to do with that change. But the real influence of Nancy Davis cannot be ignored. She was involved in every decision he made almost from the day of their marriage or perhaps even before.

Nancy Davis was the daughter of what was probably an opportunistic, moderately successful actress. Her mother’s second marriage was to a very prominent and successful surgeon, Dr. Loyal Davis, who, while brilliant, was also a racist and a strong Right Wing Conservative. This was in the days when those political attitudes were held mostly among a very small group of reactionary men, often also racist and out of the then Republican mainstream.

At the time Ronald Reagan married Dr. Davis’s adopted daughter, he found a wife who was certainly both influential and resourceful. With her father’s connections she would become very instrumental in leading Ronald Reagan into very profitable business and political relationships. She was also very attractive and intelligent. A graduate of Smith College, she had made her way from the family’s luxurious apartment along Chicago’s Lake Shore Drive to bleak prospects as an actress in the ultra-competitive world of the movies.

Although some of her biographers seemed to have tended somewhat to make her out as a fatherless waif, it should be pointed out that her mother married Dr. Davis in 1929, when Ann (Nancy) was only six, and as a result she attended a very good private school in Washington, D.C., the Sidwell Day school which has counted among its graduates the children of Teddy Roosevelt, Richard Nixon, Bill Clinton, Al Gore and currently has enrolled the two daughters of the current occupants of the White House, Michele and Barack Obama.

Nancy Davis Reagan’s adult life was not unlike that of her mother. Young, beautiful actress, meets and marries wealthy prominent man–except that she would, or so it seems, have much more influence on her husband than did Edith Luckett Davis.

“Lucky” Davis seems to have been an enthusiastic, active participant in any medical charity should could find. She was involved with the Cerebral Palsy Foundation, the American Cancer Society, and later in life given a an eponymous lifetime achievement award by the Arizona association for her work on mental retardation. She was the chair of the women’s division of the Chicago Community Fund for 35 years.

Nancy Davis has long said that her politics were influenced by her admiration for her step-father. It may only be coincidental, but from the time she met Ronald Reagan, he began to change from Liberal to Conservative.

Since 1981, when Ronal Reagan took office, the economic condition of the United States, at least for the majority of Americans, has declined steadily and, in some years, dramatically and, in some cases, catastrophically. In the last 30 years the only period of true growth and prosperity for all, were the 8 years of the Clinton Administration when almost every aspect of Conservative politics was overthrown, resulting in the longest period of peacetime prosperity the United States has ever seen.

Reagan made wholesale changes in the system. He fired and shut down unions. He literally had mentally ill patients tossed out onto the streets…and tried not to apologize but to justify it. He cut taxes twice, even after knowing that his first tax cuts created huge annual deficits. He tripled the national debt and created an economy that had annual deficits of as much as $500 billion a year by the time George Bush the First took office.

We have a perfect model of what will happen with today’s society. In the Reagan view of the world, owners, who provide the risk capital, have the dominant right to control business. And, in a society where business should be unregulated, they also dominate the economy.

As a result, owners have driven wages down while driving profits up. When the markets failed in 2001 and 2008, the wealthiest did not go broke. They were poorer but still quite wealthy. On the other hand, millions of workers lost their jobs and many are dependent today, even today, four years later–on government unemployment and welfare, including foods stamps, to survive.

Contrast this with 1979, when, at the peak of our inflation problems, after oil prices, running through all aspects of the economy–with oil going from $20 a barrel to $80 a barrel–shook the economy. Even in those desperate days, under Jimmy Carter the unemployment problem was 7.7%. Under Reagan it reached 10.8% and AVERAGED 7.5% for the entire Reagan Administration. The difference? We tripled our national debt, and as with George W. Bush, left a government in total disarray, set up for deficits as far as the eye could see.

What is the most used commodity in the United States after food and utilities? Gasoline for transportation. And not only for cars, trucks, airplanes, trains and ships, but also for plastics, fertilizers, oils of all kinds, so many products in the after market that petroleum is one of the largest components in chemical processes.

The resulting effect on the economy when oil prices quadrupled under Carter was gigantic inflation. In other words, although inflation went up from 7.7% to 11%, which is very high, the price of oil was making its way through our economy at four times its normal cost. Carter, not Reagan, installed Paul Volcker at the Federal Reserve and he, eventually, in the early Reagan years was able to end inflation. Reagan was elected and we did have a recession which, while temporarily devastating, did eventually and thankfully cause both interest rates and inflation to drop.

The answer was restricting monetary policy. Not unknown to economists, but a measure that politicians, until Carter, faced with huge price increases, had failed to address. Reagan did stick with Volcker under great pressure but not before many businesses closed. Even in those very difficult times, just before Reagan, government revenues were still strong and with many workers in unions making a good living, the national debt stayed relatively low.

Fiscal conservatives are supposed to be characterized by an advocacy of surplus budgets, not deficit spending. But every single year of the Reagan administration, the first Bush and the second Bush administrations were all characterized by huge deficits well over $200 billion each year…resulting in a situation where about $12 trillion of our current $16 trillion deficit came from Reagan, Bush and Bush.

When Carter left office, the national debt…despite all the problems we mentioned, and wars and the Great Depression—cumulative debt from 1789 to 1980, was approximately $800 billion dollars. The Carter administration’s contribution to it was minimal, even with all the problems of inflation and stagflation. The reason was that taxes were high, domestic manufacturing still existed and paid well and we were not fighting foreign wars.

From 1981 to 1988, Ronald Reagan nearly tripled the national debt to well over $2 trillion. The average unemployment under Reagan—average—was 7.5%, within a fraction of a point from where it is right now, in 2013, in the middle of the worst Depression since the 1930s. So we had a huge expansion of the debt and high unemployment. That was Reagan conservative politics…if you just look at the data before starting to make excuses. Ronnie may have been a “great guy” but he was a big spender and moreover…a huge deficit spender.

The conservative politics, the economic theory from the giant corporation’s point of view that Reagan learned at General Electric was not the end of the story. Ronald Reagan went on to learn other things. He became a student of the real conservative economists, the theorists who still reign over the Right Wing economic theory despite the fact that it sinks us lower every single day.

Next time…the “Chicago School” Economists and the loss of all honor, truth and dignity.

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