The Fraser Institute
Canadian Student Review 5/2 1996
The "Greedy '80s" and Other Myths
By Craig Yirush, Johns Hopkins University,
Graduate Studies, History
They say that old myths die hard. One of the oldest and most resilient must be the perennial belief that, in a free market, "the rich get richer and the poor get poorer." A recent manifestation of this myth is the nearly universal belief that, in the "greedy '80s," a rapacious few profited at the expense of the many; that Wall Street tycoons ran riot, wrecking entire companies and destroying the economy's manufacturing base in the process; that irresponsible tax cuts caused unsustainable government deficits to be racked up; and, finally, that the wealth that was created failed to "trickle down" to those on the bottom rung of the economic ladder. In short, those that got rich did so at the expense of the majority of the population.
This view of the '80s is so pervasive as to even reach the number 257: my daily bus to work in downtown Vancouver. One morning, I was intrigued by a heated debate taking place between two fellow commuters about the legacy of the 1980s. The discussants were employing a particularly pungent barnyard metaphor to describe the decade in question. I'll spare you the details, gentle readers, but the gist of it was that whatever "trickled down" to the poor in the free market '80s, it certainly was not money! This rather evocative description of recent economic policy not only woke me up, but led me to ask, conventional wisdom aside, just what did happen in the 1980s?
For those seeking a counterpoint to the standard doom and gloom view of the '80s, there is one very good guide: Robert Bartley's provocative 1992 book Seven Fat Years: And How to Do It Again published by The Free Press of New York.
Bartley, editor of the Wall Street Journal, and ardent supply-sider, tries to set the factual record straight about the Reagan years. In the process, he offers us a powerful insight into the concrete benefits of free market policies.
Bartley begins by outlining the intellectual context necessary for understanding the 1980s. He argues that the economic reforms of the 1980s must be seen against the background of the 1970s: an era of big government, high taxes, record inflation rates, and soaring unemployment.
The response to this "stagflationary" malaise was a growing realization, among a small group of economic and political thinkers, that what matters for economic growth is not government demand management; but a focus on the "supply side" of the economy. The central fact is that wealth is created by the productive efforts of millions of workers and entrepreneurs, and not by an interventionist government, spending, taxing, and regulating all activity to death. Bartley points out that this "supply side" approach was simply a revival of the common-sensical, pre-Keynesian idea that if a nation frees its citizens to produce, the result will be, not surprisingly, greater wealth.
As Bartley makes abundantly clear, the free market policies enacted in the U.S. between mid-1982 and 1990 worked. With lower taxes and stable money, companies like Microsoft and MCI flourished, creating jobs, wealth, and a host of new and innovative products and services. Innovative financiers like Michael Milken revolutionized capital markets, providing funds for many fledgling enterprises that more conventional financiers would not touch.
Under the influence of this renewed appreciation for markets, America experienced a seven-year period of sustained prosperity. Bartley offers some impressive statistics to illustrate the decade's success.
* During these "seven fat years," America's GNP grew by 31 percent in real, inflation-adjusted terms. This meant that the resurgent American economy grew the equivalent of another Germany during the 1980s.
* Living standards showed an equally impressive rise. Over the seven years, real disposable income per capita grew by one-fifth.
* Labour productivity also grew, by 10.6 percent. The statistics on industrial productivity offer an equally rosy scenario. Manufacturing production grew by 48 percent between mid-1982 and 1990.
* Gross private investment also grew by 32 percent.
* In addition, despite a demographic surge, 18.4 million new jobs were created, an increase of 19.5 percent.
* Despite the "greedy" label, charitable giving during the 1980s increased at a rate of 5.1 percent per year.
* The record on tax revenues also confounds those who argue that the "supply side" tax policies were fiscally irresponsible. Despite Reagan tax cuts, federal government receipts grew by 99 percent between 1980 and 1990. The problem, of course, was that a Democratic Congress managed to outspend even this large increase in revenue.
This more accurate reading of the recent historical record contains an important public policy insight for all those interested in a free and prosperous society: that the recipe for sustained economic growth is minimal government and maximum individual freedom. To the extent that Canada, Britain, and other countries followed suit, they too experienced an economic renaissance. As a result of the economic policies that the U.S. enacted in the 1980s, we are all wealthier than we were two decades ago.
Ultimately, the lesson of the '80s is a hopeful one: that prosperity is the result of free people, cooperating in their own self-interest. The "greedy '80s" experience explodes the myth that the market is a zero sum game. It is not. The 1980s made many millionaires, and also made many millions of people better off. If we have economic freedom, a rising tide will indeed raise all boats. A society that fails to grasp this point, and instead falls victim to the myth of the "greedy '80s," is in danger of emulating the slow growth and stagnation of the 1970s.
Are you listening fellow commuters?
If so, could you please pass the message along to Messrs. Chrétien and Clinton?
Beware of Historical Myths
by Eli Schuster,
University of Toronto, Political Science and History
It would not be much of an exaggeration to suggest that the teaching of history can be a powerful and, at times, dangerous tool in the moulding of future opinions. I remember a high school history exam which printed three blank spaces after the question: "Who shot J.F.K.?" The "correct" way to fill in the blanks was: "mafia," "military-industrial complex," and "C.I.A."; "Lee Harvey Oswald" was incorrect.
Contemporary historians have often been successful in poisoning our impressions of certain time periods. Millions of Americans happily voted for the more-or-less free market ideas of Reagan and Bush, yet the 1980s are often denounced as a "Decade of Greed" in which everyone but the rich suffered.
Still, the myths surrounding that decade pale in comparison to the ones told about an earlier period: the Great Depression of the 1930s. The conventional wisdom about the Depression states that 1920s laissez-faire economics culminated in a catastrophic recession. When Herbert Hoover refused to inflate the U.S. economy, Franklin Roosevelt's Keynesian New Deal was "needed" to bring back prosperity. The Great Depression is always trotted out by the anti-free marketeers as proof of the instability of capitalism unguided by government intervention.
Like most historical myths, this one is mostly untrue. In his exceptional work Modern Times, historian Paul Johnson does much to finally dispel this fantasy. He argues that few differences existed between the policies of Hoover and Roosevelt. Both were interventionists and both enacted Keynesian policies; the only real difference was Hoover's greater reluctance to provide direct relief to people.
The American prosperity of the 1920s was based in large part on the unsound policies of protective tariffs and soft money; the economy declined when credit inflation diminished in 1928 and Hoover had the option of raising interest rates and allowing wages to fall to a natural level. Had he done this, the Depression would be about as memorable today as any of the brief business downturns of the nineteenth century. Instead, Hoover chose to maintain cheap credit and high wages (a move praised by Keynes himself) by adopting all sorts of anti-free market policies: government spending went up (its share of GNP rose from 16.4 percent in 1930 to 21.5 percent in 1931), bankruptcy laws were weakened, banks were forced to lend new federal credits, taxes were increased sharply (the 1932 Revenue Act was the biggest peacetime tax grab in U.S. history), and the 1930 Smoot-Hawley tariff did much to spread the Depression to the rest of the world.
How anyone could describe Herbert Hoover as a defender of free markets and capitalism is a mystery; equally mysterious is the claim by many historians that Roosevelt's New Deal was effective in fighting the Depression. Writes Johnson: "If interventionism worked, it took nine years and a world war to demonstrate the fact."
The historiography around the Great Depression can provide students of history with a valuable lesson: don't believe in myths, and always base your opinions upon the truth.
Editor's Corner
Although the articles in this issue of the Canadian Student Review explore a variety of topics, they share a common theme: awareness of the degree to which anti-free market dogma circulates unchallenged in today's world.
* How many people know that capitalism didn't cause the Great Depression?
* How many people know that property rights don't cause pollution?
* How many people know that unionization doesn't cause higher wages for everyone?
Misinformation of this sort is not the result of a conspiracy; nothing is being withheld from us. All of the information we need, all of the truths we want, are available to us. All that is required of us is a scrupulous commitment to education and observation with respect to our society and what has made it possible.
Knowledge of historical and economic truths and understanding why and how our society functions will enable us to continue building on what we have. In order to build, however, we must first clear away the barriers that exist. These barriers are all of the myths that are accepted uncritically and repeated unthinkingly.
When you hear people speak of the limitations of free markets or the capitalist system, ask questions. Verify the information they give you. Think about it. Study your history. Look at the world around you. If, after all that, you come up with a better answer than the information given to you, argue the point.
This issue's authors were offered, for inspiration, a quotation by Henry Hazlitt on the importance of fighting myth and misinformation. The quotation reads:
“It is capitalism that has made possible the enormous advances not only in providing the necessities and amenities of life, but in science, technology, and knowledge of all kinds upon which civilization rests. All those who understand this have the duty to explain and defend the system. And to do so, if necessary, over and over again. . . . The opportunity is as great as the challenge.”
The response I received, as this issue amply demonstrates, was magnificent. I hope the articles also encourage you to seize every opportunity to promote free minds and free markets.
Tracey Nicholls, Editor Douglas College Philosophy
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Appreciation to the Fraser Institute for permission to reproduce these articles. Permission to reprint does not imply any endorsement by the Fraser Institute of the views of the Asia Pacific Democrat Youth, nor does it necessarily imply an obverse endorsement.