Dismantling Reaganomics

Greed is Not Enough By Robert Lekachman Pantheon Books: $13 50:208 pp

DURING THE LAST WEEK of March, an angry swarm of protesters descended on Capitol Hill, determined to make their government listen to them. The demonstrators weren't scruffy college students upset about El Salvador. They were from the American-as-polyester National Association of Realtors, and their convention had given Ronald Reagan a standing ovation just a day earlier. But with interest rates stuck well above 16 percent, realtors just can't sell any homes, even at prices that in some places have fallen 25 percent from last year. So the realtors had come to town to demand that Congress balance the budget, or make the Federal Reserve ease credit, or something to bring down interest rates.

Fifty miles south of Washington, in rural Calvert County, Maryland, Dorsey's Gray's Ford truck and tractor dealership is on the verge of bankruptcy, "Damn worst I've seen since I've been in business," he matters. And the once-booming Calvert construction business is dormant now: New building permits are down 44 percent from last year, idling most of the county's predominantly black construction workers. Officially, unemployment in Calvert is 18 percent, making the current recession Calvert's most distressing economic situation in recent memory.

But sullen construction workers and indignant real estate brokers are only two legions in the growing army of Americans victimized by the recession of 1982. The list of their comrades-in-suffering is virtually endless. Land-off auto workers, welfare mothers, farmers, savings and loans, and small businessmen are all feeling the pain of economic contraction. And according to the public opinion polls, the sufferers are increasingly blaming the man who in 1980 promised to usher in an unprecedented era of prosperity by cutting taxes spending and regulation President Ronald Reagan.

The failure of Reaganomics has reduced its official proponents to pleading feebly that the supply-side program needs to be given a chance. But in a timely and trenchant new book. Greed Is Not Enough: Reaganomics. CCNY economist Robert Lekachman slows that the Presidents program has already done harm enough to the American economy. With devastating wit and pungency. Lekachman provides a handbook of common sense and technical arguments to bolster the faith of anyone who has sensed all along that Reagan is crazy.

In addition, Lekachman provides some thought provoking suggestions for leftist alternatives to Reaganomics. But more important, Lekachman's book is so well argued that he could well persuade been middle-of-the-road readers who aren't predisposed to agree with him.


LEKACHMAN takes a separate chapter to pick apart each of four key aspects of the Reagan program. The President's tax cut package, he argues, clearly benefits the rich: When recent payroll tax increases are figured in, the Reagan cuts actually produce a net tax increase for families earning $10,000 or less. Moreover, this upward redistribution of wealth comes with no guarantees that the rich will use their windfall to invest in productivity-enhancing ventures. Rather Lekachman shows that new depreciation tax rules create more tax shelters and huge new incentives for speculation in real estate and commodities.

As for the cuts in social spending, Lekachman says that, contrary to Administration work ethic homilies, cutting welfare benefits to the working poor will discourage work in many cases. Of course, the Reagan budget cuts are designed to wean us of our dependence on Washington. But Lekachman makes the more realistic suggestion that the cuts will merely intensify the politically divisive scramble among interest groups to get on board the rapidly departing federal gravy train.

The third pillar of Reaganomics is of regulation, designed to relieve business of "unnecessary" costs. Lekachman, however, reminds his readers of two important facts about government regulation. First, government regulation arose not because of bureaucratic stupidity, but because of public disgust with pollution, unsafe products and hazardous working conditions. Second, the public complained because it was bearing the coats--e.g., in higher doctor bills--for corporate irresponsibility. Deregulation restores to Americans the privilege of paying the costs of the "negative externalities" of modern industry.

Finally, Lekachman challenges the fourth element of Reaganomics: tight money. At best, he argues, such a monetarist approach to inflation is problematic: No one really knows what the money supply in, and it's also impossible to control the enormous supply available in Eurodollar markets. In any case, the Administration's Thatcherian approach to Federal Reserve Policy flies in the face of its expansionary tax cuts. Tight money keeps interest rates high, thwarting the heralded supply-side investment boom and eroding investor confidence. Meanwhile, the jittery rich--hardly the bold innovators of George Gilder's mythology--put their tax cuts into diamonds or Swiss banks.

HAMPERED BY such internal Reaganomics is worse than useless in stimulating investment, its wanted goal. And in the absence of such an investment boom, nothing at all is likely to trickle down to workers in the form of more jobs and in come. But the problem--how to increase productive investment in the U.S. economy--is still with us and is indeed the main economic issue facing America in 1980s. Given the evident failure of Reaganomics, Lekachman argues, the democratic left must address this issue creatively and realistically.

The enlightened right--the right of Wall Street and the Business School--already has its plan. As expounded by Felix Rohatyn, a New York investment banker, and the others of Business Week, remdus- trialization" would relay not only supply-side whimsy, but explicit federal allocation of capital. A renovated Reconstruction Finance Corporation would direct huge subsidies to promising growth industries and bail out a few more important declining industries. In both cases, however, reindustrialization funds depend on workers agreeing to wage restraint. And according to Business Week, "destabilizing" goals such as affirmative action and environmental repair must be deferred, so as not to upset the "social compact."

Lekachman, in the weakest passage of his argument, suggests that such a program is possible only under "friendly fascism"--an authoritarian national security state smilingly led by Reagan. Maybe, But it's worth remembering that Felix Rohatyn was most popular in the Carter White House Reagan's ideology has no place for most government-based reindustrialization plans.

AS AN ALTERNATIVE to pro-corporate reindustrialization. Lekachman argues, the left must mobilize around a plan for democratic control of investment decision. A National Investment Authority (NIA) he suggests, could withold subsidies from defense contractors who refuse to convert to civilian production. An and NIA would subsidize local co-ops, church-sponsored housing, and small farmers rather than lumbering auto makers. Lekachman calls for closing tax loopholes--which channel resources into unproductive uses--and redirecting the proceeds to pay for the NIA and for expanded social welfare services. Inflation should be fought not by wage concessions but by controls on oligopolistic price-setting. But Lekachman is not a naive statist. He argues that controls should not be put on competitive sectors of the economy like retailing, and he favors experimentation in decentralized planning methods, particularly workers' self-management.

As Lekachman argues, the chaos of Reaganomics must inevitably give way to order. The question is whether we will be assumbled under the common yoke of a corporate-dominated reindustrialization plan or whether we will join in a popular movement for an alternative.

Evoking the imagery of the massive Solidarity Day labor demonstration, the economist declares his hope that Americans will stand up for their right to participate in the decisions that affect their livelihood. That is the common aspiration that could yet unite the realtors--who suffer from a Reagan-induces flight at capital from savings and loans to commercial banks--and the unemployed of Calvert Country--whose jobs are being siphoned off to defense-spending-enriched boom towns in the Sun Belt. Reagan's victims are already mad: it remains to be seen if they can get together. If they do, they can turn to Greed Is Not Enough for some ideas to start with