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Earlier this week I came across Ezra Klein and Matthew Yglesias commenting on a nice post from Brendan Nyhan about what effect, if any, Ronald Reagan had on the size of the federal government and on American perceptions of the size of the federal government. Which is interesting to me because I’m trying to become a bit of a Reagan wonk but also because this topic came up in a discussion on my facebook page last week.  There was a discussion between a friend and me regarding Jonathan Chait’s post about how conservatives are reading Arthur Brooks’ The Battle: How the Fight between Free Enterprise and Big Government Will Shape America’s Future. Based on the write-up, it’s a ridiculous book, but what is interesting about this episode is that it’s yet another example of how conservatives (at least pretend to) live in a netherworld where actual facts about the US economy do not obviate theoretical frameworks for how they would like to view the US economy.

I quoted James K. Galbraith’s The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, from page 112:

Taking everything together, we find that the US is not a ‘free-market’ economy with an underdeveloped or withered state sector. It is, rather, an advanced postindustrial developed country like any other, with a government sector responsible for well over half of economic activity…And it is particularly good at disguising this fact and at cutting parapublic institutions in on the action.

This is basically the thesis of Galbraith’s book. I went on to quote page 114:

Overall, the New Deal survived Reagan quite intact, and the economy recovered–partly led by housing, partly by technology, partly by military spending. This was not because the conservatives around Reagan succeeded but because they had failed. Those who describe themselves as political conservatives but who are mainly interested in power rather than in ideas drew the lesson. They adapted. Rather than defeat the system, they decided to join it. And to turn it to their own purposes. Without saying a word.

But more to the point of the current discussion:

The history of the past three decades has often been written as a struggle between the spirit of Milton Friedman and the ghosts of Keynes and FDR–between the market and the state.  The Reagan revolution was successful primarily in forcing changes in the way people thought and spoke:  it resurrected Adam Smith and Friedrich von Hayek and established a new church of the free market, giving the right wing of the economics profession unprecedented exposure for its most extreme ideas.

Regardless of fluctuations in public opinion, Reagan’s tenure solidified a certain type of rhetoric that you still hear today, that you didn’t hear much of before 1980.  There were harbingers, such as the “tax revolts” in California and other states, but it was a new development that outlived Reagan to have large swaths of conservatives expressing “skepticism toward government solutions to every problem.”

It’s also worth noting that Reagan, in addition to NOT actually shrinking the size of the federal government, was no free trade advocate, either. According to Benjamin Friedman in his Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After,

President Reagan’s consistent rhetorical devolution to free trade notwithstanding, America during the 1980’s has taken more steps away from genuine free trade than in any comparable period since World War II. Outright duties, like the 100 percent tariff imposed on some electronic and semi-conductor products in 1987, have been infrequent. But protectionism built on back-door devices like “voluntary” export restraints, which exclude foreign-made goods while maintaining the fictionof free trade, is protectionism nonetheless. The share of America’s nonoil imports subject to such nontariff restriction has already grown from 17 percent in 1981 to 25 percent in 1986. And now businessmen abroad are concluding that the decline in the dollar since early 1985 is a modern equivalent to the Smoot-Hawley tariff we imposed in 1930.


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