Romanticizing Reagan: Part II – Regulations And Free Trade

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Continued from Part I – Taxation and Spending
During Ronald Reagan’s presidential campaign, the third of his four pillars of Reaganomics was regulatory reform. Namely, he was on a mission to reduce federal regulations (an applaudable goal). This is, in fact, one of the chief reasons why democrats criticize his presidency; he supposedly spent his tenure recklessly deregulating.

In a speech given by Art Laffer, Reagan’s economic advisor, Dr. Laffer mentions a story of Reagan dropping the Code of Federal Regulations on a table to demonstrate its massive size. “Do you remember that?” Laffer asked the audience, “Do you remember when he dropped it, the thump that went on the table? I mean, it was a phenomenally impressive thing, not only for him to have lifted it, but also for him to have reduced it” (emphasis mine).

The problem here is that Reagan didn’t reduce the code. It is true that Reagan oversaw a few years of very minor deregulation (in the first half of his first term, the Code of Federal Regulations decreased by about 1% of its total length). One of his first acts in office was to sign Executive Order 12291which required an additional degree of bureaucratic oversight before a federal department could pass a regulation. This did allow for the delay and revision of certain regulations (if a regulation was rejected – and many were – the department was able to modify and resubmit it for approval).  But the decade of the 1980s saw a roughly 20% increase (this brought the Code of Federal Regulations from a total of just over 100,000 to just over 120,000 pages, if we focus on only the regulatory pages).

In fairness, some level of deregulation did occur under the Reagan administration. But in fact, the same could be said of Jimmy Carter. As William A. Niskanen (who served on the Council of Economic Advisors to Reagan) writes: “The reduction in economic regulation that started in the Carter administration continues, but at a slower rate.” Both Presidents contributed to some degree of deregulation. But as a counter to these positive policies, he also contributed a “substantial increase in import barriers.” Niskanen concludes that “deregulation was clearly the lowest priority among the major elements of the Reagan economic program.”

Like his tax policies, Reagan’s approach to regulation was a mixed bag. There is some good in there, and I believe in giving credit where it’s due, but it is important to keep in mind that Reagan’s deregulatory policies are grossly overstated by both parties and even if we are to applaud his positive contributions here, intellectual and philosophical consistency would demand that we offer similar deference to Jimmy Carter’s regulatory record. Nonetheless, what deregulation did occur arguably accounts for some of Reagan’s most positive policies (such as the elimination of certain price controls and anti-trust law reduction).

It is still difficult to refer to Reagan as a “pro-capitalism” president, though. His rhetoric, of course, makes Reagan sound like the most capitalistic President since Calvin Coolidge (this, actually, could still be true, but only because all of the interim presidents demonstrate such a poor performance in this category as well). But Reagan was a protectionist, and a hypocritical one.

In his 1988 State of the Union Address, Ronald Reagan said, “We should always remember: Protectionism is destructionism. America’s jobs, America’s growth, America’s future depend on trade–trade that is free, open, and fair.” The hypocrisy is apparent when Reagan’s policies on trade in the preceding years are examined.

Not only did Reagan expand the New Deal-style agricultural subsidies that have persisted for nearly a century now, but he reinstated import quotas on certain crops (sugar was already cited in Part I of this piece). The purpose of import quotas, of course, are to artificially limit the supply of goods to protect domestic producers. Naturally, this comes at the expense not only of foreign producers but also of domestic manufacturers who have to now purchase more expensive supplies.

Additionally, Reagan strong-armed various other countries to accept reductions in American imports of the commodities they produce, such as steel. Such tactics were used to pressure countries to restrict their own production and export of goods imported by the United States, including textiles, lumber, machine tools, and computer chips while simultaneously requiring Japanese automobile manufacturers to order more American-made parts. This doesn’t touch on the tariffs imposed on other goods as well as strengthening the unquestionably cronyist Export-Import Bank.

Even Milton Friedman, who often spoke very highly of Ronald Reagan, took to writing a condemnation of Reagan’s protectionist policies entitled “Outdoing Smoot-Hawley” (a reference to a massive tariff bill signed into law under the Hoover administration that is generally considered to have contributed to the Great Depression). In it, he takes the Reagan administration to task for the so-called “voluntary” restraints imposed on other countries and calls Reagan out for not using his veto power to prevent these bills (which, again, removes the “Democrat controlled Congress” excuse that Republicans love to fall back on when defending Reagan’s shortcomings). Friedman accuses William Brock and Clayton Yeutter, Reagan’s trade negotiators, of “making Smoot- Hawley look positively benign.”

In an effort not to misrepresent Dr. Friedman’s position, he calls Reagan “a strong supporter of the principle of free trade” (though he cites his “admirable rhetoric” as being a part of this perspective), but condemns his protectionism as “offsetting some of the good effects of President Reagan’s domestic policies.”

It is, of course, common for many conservatives to praise protectionist economic policies. In this, it is plausible that between Reagan’s exaggerated albeit mixed performance on regulations and his anti-free trade protectionism, these are categories that may only reinforce the Republican love of Reagan.

But one thing remains clear: Reagan was not the free enterprise supporting capitalist he claimed to be.

Next: Part III – Civil Liberties and Foreign Affairs