John Kenneth Galbraith and the Economics of the Reagan Revolution

• In Event: Historical Development of Political Economies

Abstract

”Americans live in a Reaganized America”, historian Gil Troy has argued. One issue, which Ronald Reagan raised on the top of American political discourse, was tax cuts. In December 1974 Jude Wanniski argued in the pages of Wall Street Journal that large corporate and income tax cuts would boost economic growth. Tax cuts would also reduce unemployment, increase investment and cut inflation. In the U.S. Congress Jack Kemp and William Roth proposed a massive tax cut bill and few years later in the Republican presidential primaries of 1980 Ronald Reagan was the only candidate who endorsed Kemp-Roth (partly because his advisers showed him polls, which showed that tax cuts were popular around the country). Reagan’s support of Kemp-Roth was a major reason why he won the Republican primaries and it also gave him a boost in the general election campaign.
Congress approved Reagan’s tax plan in 1981 and it became the main tenet of “Reagan Revolution”, which soon spread to other Western countries. Reagan’s tax cuts changed the political programs of Western moderate conservative parties and contributed to the anti-government message of populist parties decades later. Early on Reagan openly admitted that massive tax cuts would force the government to cut spending. In other words, tax cuts would pave the way for welfare retrenchment, which from the Reagan administration’s point of view was a good thing, because welfare benefits, according to Reagan corrupted people morally.
Many economists and especially liberal economists were appealed by Reagan tax cuts. Nobel laureate and leading Keynesian economist James Tobin estimated that the tax cuts would radically redistribute power and wealth in the United States to high-income people. Perhaps the most vocal public critic of Reagan tax cut was Harvard Economist John Kenneth Galbraith. Although Galbraith was the most influential American economist in the sixties, he had kept low profile in the late seventies, but opposition to Reagan’s economic agenda activated Galbraith during Reagan’s first term. Tax cuts and spending cuts, which would accompany them, would increase the size of national income going towards the wealthy Galbraith like Tobin argued. Couldn't we just honestly admit that the high-income people wanted more money in their pockets? Galbraith also asked. Why come up with implausible theories that giving more money to the wealthy benefited the poor?
In my paper “John Kenneth Galbraith and the economics of Reagan Revolution” I will focus on Galbraith’s criticism of Reagan administration’s economic agenda and especially its “crown jewel”, the 1981 tax cuts. I will especially focus on Galbraith’s views on the long term effects of Reagan tax cuts. How would they affect the fabric of American society and democracy? How would the tax cuts influence the capabilities of federal government and the relationship between American voters and the state? The material I will use to answer these questions consist of Galbraith’s writings, interviews and speeches made during the 1980s.

Author

• MARKUS KANTOLA