The Reagan Revolution has been reversed. Since the turn of the millennium, America’s standing as one of the most free and prosperous economies has eroded, dropping from 2nd to 16th in the world.
This reversal is the major political and economic shift of our times, with far-reaching implications for our future well-being. An unprecedented two-decade boom of prosperity and progress driven by the bipartisan support for free markets of the Reagan-Clinton era has been replaced by an era of stagnation driven by bipartisan support for big government under the Bush and Obama administrations.
The election of 1980 ushered in new rhetoric about economic policy based on Ronald Reagan’s vision of individual initiative, limited government and opportunity — essentially, economic freedom. This rhetoric was soon followed by policy revisions and changes in public attitudes toward the role of government and the private sector. Reagan promised to get “the government off the people’s back,” and the people responded with newfound optimism about their ability to be productive and prosperous in this new era.
In fact, average U.S. income rose by more than 50 percent from 1980 to 2000 — growing from $25,000 to more than $39,000 (adjusted for inflation). Unemployment dropped from 6 percent to a historic low of 3.9 percent over the same period.
The policy reforms that led to the surge in economic freedom were accomplished with bipartisan support under the Democrat-controlled Congresses. Tax reform, including lower tax rates, more restrained monetary policy and deregulation transformed American economic policy and economic performance.
The Clinton administration continued this transformation by substantially opening channels for global trade. Congress passed the North American Free Trade Act with the support of then-President Clinton, and the measure won public approval in no small part thanks to the thumping Vice President Al Gore gave the protectionist Ross Perot in a critical debate on “Larry King Live.”
The Clinton-Gingrich welfare reform and Mr. Clinton’s self-styled “new Democrat” persona moved his party away from its liberal image of the past and further solidified the era culturally, rhetorically and politically as one of individual responsibility and less reliance on government. The sentiment of the age was famously captured by Mr. Clinton’s 1996 declaration that “the era of big government is over.”
The record of the Reagan-Clinton era could not be more clear. Under these policies, the United States boasted the highest economic freedom rating of any major country in the world (only behind the free-market city-states of Hong Kong and Singapore) and enjoyed two decades of unparalleled economic growth and innovation. The environment laid the foundation for a technological boom — computer software, the Internet, biotechnology and telecommunications — to name a few innovations. Needless to say, this progress and prosperity greatly improved the welfare of American families.
The rhetoric of the George W. Bush campaign in 2000 suggested this era of freedom and prosperity would continue. Yet, the reality proved far different. The tragedy of Sept. 11, 2001, marked a cultural watershed when the people looked to government leadership in a time of crisis, and Washington politicians from both parties wasted no time taking advantage of that sentiment to undo, one by one, the policies and progress of the Reagan-Clinton era.
The size of government exploded as spending soared, not just for military and anti-terror programs, but across the board on domestic programs. Trade protectionism made a comeback, riding a wave of public anxiety. Massive, new entitlement programs were instituted. Monetary policy shifted away from a stable, long-run focus toward fine-tuning. The regulatory state mushroomed under Sarbanes-Oxley and almost 14,000 new pages of regulation added to the Federal Register. All the while, nothing was done to limit the newly rampant culture of corporate cronyism.
Barack Obama’s 2008 campaign took advantage of this disconnect between free-market rhetoric and big-government reality and hung the nation’s economic woes around the neck of economic freedom, rejecting the ideas and policies of the Reagan-Clinton era and formally welcoming back the era of big government. Runaway government spending has accelerated, the regulatory state has expanded, and corporate handouts and cronyism have become the norm.
After 12 years, the Bush-Obama era has resulted in our economic freedom plummeting. With the freest large economy in the world in 2000, the United States now ranks 16th behind Australia, Estonia and the United Arab Emirates. It is projected to fall even farther, according to Canada’s Fraser Institute.
While rhetoric affects the fortunes of politicians, reality affects the fortunes of the common man and nations. The new reality for the United States will be a bleak one if the era of big government doesn’t end again — soon.
Matthew Brown is CEO of the Academy on Capitalism and Limited Government Foundation.