It's not just Ronald Reagan's "voodoo economics" that has caught up with George Bush, but the extension of economic illogic that Bush brought with him to Washington. Remember the "flexible freeze"?
When Reagan arrived in Washington in 1981, he promised to cut spending, reduce inflation, lower unemployment, promote economic growth -- yet balance the budget by 1983 (later changed to 1984). George Bush -- as a potential Republican candidate in 1980 -- had correctly labeled all of this "voodoo economics."
Instead of the Reagan promises, what the nation got was a series of budget deficits that more than doubled the national debt accumulated over the prior 200 years. The actor- turned-president and his key aides (including Bush, then vice president) were allowed to indulge their passion for deregulation -- "get the government off our backs" -- that played decisive roles in subsequent crises in the savings and loan industry.
The flexible freeze version of voodoo economics was devised during the 1988 campaign by adviser Michael J. Boskin, now Economic Council chairman. Candidate Bush matched Reagan's impossible commitment, pledging a balanced budget by fiscal 1993 with a partial freeze on spending, helped along by projecting a convenient five years worth of solid economic growth (averaging 2.5 percent to 3 percent a year) and a decline in interest rates (by as much as 2 full percentage points).
What was to be "flexible" about the "freeze," which was to cut spending by about $70 billion, or half of the projected deficit, by 1993? No one ever said precisely, but Boskin indicated by way of example that it would not touch Social Security, yet would allow for some increases Bush deemed necessary, such as in drug enforcement and education programs. The other half of the deficit would be covered by economic growth and lower interest payments on the debt.
Obviously, the flexible freeze was not a serious assault on the deficit problem, but a glib campaign gimmick. To defeat "liberal" Democratic candidate Michael Dukakis, labeled a big spender and tax-booster, Bush was willing to sell the irresponsible notion that the budget could be balanced exclusively on the spending side, allowing the nation to "grow its way out" of the budget deficit.
That dubious premise was laid out explicitly by Treasury Secretary Nicholas F. Brady in his confirmation hearing. He stunned some members of the Senate Finance Committee with the unexpected assertion that the significance of the budget deficit had diminished as the economy had grown. America "has the ability to withstand" the pile-up of debt necessary to finance the deficit, Brady said.
That should have been the tip-off that the Bush administration had no real plan -- not even a clue -- as to how to go about cutting the deficit. Better to say, Brady implied, that the deficit wasn't all that important. So it is little wonder that when Bush appealed to the public 10 days ago for support of a deficit-curbing package -- the one that was defeated in the House -- his new-found conviction that deficit reduction is of overwhelming importance left the nation confused. Deficit reduction is indeed important, but Bush's credentials for making the case are suspect.
Shortly after taking office, Bush, trapped by his "read-my-lips" commitment against raising taxes, torpedoed the congressionally sponsored, bipartisan National Economic Commission that had been at work for several months to find ways of bringing some degree of soundness back into government finances.
Given the crushing economic legacy of the Reagan years, there never was a chance to bring the deficit down -- let alone wipe it out completely -- without a sizable tax increase.
But Bush not only stuck to his no new taxes pledge until June 26, 1990, by which time the extent of the S&L crisis had more than doubled the prospective deficits for the next couple of years, he also stubbornly insisted on resurrecting a capital-gains tax differential, which wisely had been scuttled by the Tax Reform Act of 1986.
More than anything else, Bush's irrational effort to further distort the tax system for the benefit of upper-income Americans is responsible for the political logjam in Washington. It is true that the Democrats in Congress, fearful as well about the political costs of advocating tax increases, share the blame. But it is incumbent on the president of the United States to take the lead. In that responsibility, George Bush has failed miserably.
The terrible governmental stalemate has seriously shaken financial markets and eroded confidence among America's main economic partners that this country will remain a safe haven for investments.
As the public surveys the current economic mess, many ask how it was possible for things to have deteriorated so quickly. In point of fact, the U.S. economy has been running downhill for a long time, but the famous supply-side tax cuts generated by Reagan (and a willing Democratic Congress) created an illusion of well-being.
Under Reagan, America lost power and status in the global economy. Under Bush, the S&L crisis may extend to the banking system and to cleanups of the federal housing agencies. The combined legacy of Reaganomics and Bushonomics is that America has less control of its destiny than ever before.