Reagan's renewed economy won the Cold War

Human Events, Mar 20, 1998 by Roberts, Paul Craig

PBS never lost an opportunity to denigrate Ronald Reagan during his presidency. In retrospect, President Reagan's sincerity and idealism make him stand tall compared to the power motives of the current occupant of the White House. The contrast is enough to cause PBS to eat crow, at least in part. In a lengthy two-part Reagan documentary that aired the week of February 23, PBS gives Reagan credit for winning the Cold War.

At the time, Reagan's plan was fiercely opposed by the foreign policy establishment. Soviet experts thought it madness to get into a arms race with the Soviet superpower. America would lose for sure. For a decade, the line had been that the United States needed to obtain the best arms-control deal it could before the American people gave up the struggle and we lost in a big way.

The belief that the Soviets had higher armsrace capability than the United States was rooted in another crackpot belief-that the Soviet planned economy could control the rate of economic growth and devote as high a percentage of the economy to the arms race as necessary to win. Only a few people could see that the Soviet economy was on its last legs and could stand no stress whatsoever. These few were dismissed as dangerous antiCommunists who would get us blown away.

Where the PBS Reagan documentary fails is in its portrayal of the Reagan economy. Economics, of course, has never been a strong point of journalists or movie-makers, but the PBS documentary sets a new low. In an assertion that is contradicted by every known economic theory-Keynesian, monetarist and supply-side-the documentary blames the 1982 recession on the Reagan tax cuts. As every economist knows, the recession was caused by the extremely tight monetary policy imposed by the Federal Reserve.

Supply-Siders Were Right

At the time, Reagan's opponents claimed that his tax cuts would further inflate an already inflated economy. This claim was based in a Keynesian interpretation of Reagan's policy. It would raise demand and inflation, critics said, instead of output, as supply-siders said.

In retrospect, the supply-siders were right. Output rose year after year, while inflation and interest rates fell. When I addressed the Soviet Academy of Sciences in Moscow near the end of the Gorbachev era, many came up after my speech and told me that it was the American economic renewal under Reagan that convinced the Soviet government to quit the arms race and to abandon communism.

Until Reagan, the Soviet government was convinced that the U.S. economy was mired in "stagflation." The attempt to achieve more than minimal growth would set off raging inflation. This convinced the Soviets that the United States could not mount an arms race. The Russians knew that their own economy was shaky but did not expect it to be put to a test by the inflation-prone American economy.

The Soviet scientists told me that it was Reagan's success in giving capitalism a new lease on life and his confidence in the American people that,-convinced the Soviet government's leaders that their system was doomed. They acknowledged the inevitable to themselves before the U.S. foreign policy establishment could see it, and once they did, Soviet communism quickly unraveled to the utter amazement of our experts.

Reagan's success is based on supply-side economics. A tiny handful of people understood that the malaise of the U.S. economy was the result of a self-defeating economic policy that pumped up demand with easy money while suppressing output with high marginal tax rates. Supply-siders said the key to success was to reverse the policy, and they were right.

Moderate and steady money growth combined with substantially lower marginal tax rates rescued the American economy from malaise. The economy has been able to maintain high employment and low inflation over a 15-year period (broken temporarily by President Bush's folly). When supply-side economists predicted this outcome, they were met with disbelief and derisive laughter from other economists. Now that the economic record is in, there is no excuse for PBS' dishonest portrayal of the Reagan economy. Without the renewed vigor of the economy, there would have been no Cold War victory.

Mr. Roberts, a nationally syndicated columnist, is a senior research fellow at the Hoover Institution.