Since the first presidential election of the new decade coincided with the longest recession since World War II, both parties wrestled with the problem of interpreting the 1980s. For the Democrats the issue was clear: the recession was reaped the wages of sin sowed by the "decade of greed," greed stimulated by Reaganomic deregulation, tax cuts, and massive deficits, culminating in the unconscionable amounts of money made by arch-villain Michael Milken.

For Bush Republicans, the President was only unlucky: the current recession is worldwide (the same line unconvincingly offered by Herbert Hoover during his term in office), and has no causal relation to the Reagan boom. For the growing number of anti-Bush Republicans, the Reagan boom was wonderful and was only turned around by the Bush tax increases and massive new regulation upon American business.

Unpacking all the fallacies and half-truths in these positions is a daunting task. In the first place, Americans were no more nor less "greedy" in the 1980s than they were before or since. Secondly, Michael Milken was no villain; his large monetary earnings reflected, as free-market analysis shows, his tremendous productivity in helping stockholders get out from under the Williams Act of 1967, which crippled takeover bids and thereby fastened the rule of inefficient, old-line corporate managers and financial interests upon the backs of the stockholders.

To stop effective competition from brash newcomers from Texas and California, the Bush Administration carried out the bidding of the Rockefeller-allied Old Guard from the Rust Belt to destroy Milken and stop this competitive threat to their control.

Third, Ronald Reagan did not, despite the propaganda, "cut taxes"; instead, the 1981 cuts in upper-income taxes were more than offset, for the average American, by rises in the Social Security tax. The "boll weevil" conservative Democrats had insisted on indexing tax rates for inflation, but unfortunately, personal exemption totals were never indexed, and continue to wither away in real terms. Every year after 1981, the Reagan administration agreed to continuing tax increases, apparently to punish us all for the non-existent tax cut. The topper was the bipartisan Jacobinical Tax Reform Act of 1986, which lowered upper income rates some more, but again clobbered the middle class by wiping out a large number of tax deductions, in the name of "closing the loopholes."

One of those "loopholes" was the real estate market, which lost most of its tax deductions for mortgages and tax shelters, and which helped put real estate a few years later into perhaps its deepest depression since the 1930s.

Indeed, from 1980, before Reagan's advent, until 1991, federal government revenues increased by 103.1%. Whatever that is, that is not a "tax cut." It is a massive tax increase. But why then did deficits become far more massive? Because federal expenditures went up even faster, during this period, by 117.1%. In short, the problem is that both taxes and expenditures have been increasing at a frenetic pace, with expenditures going up faster: hence the deficit problem.

And while it is certainly true that George Bush greatly aggravated the recession by dramatically increasing taxes, deficits, and regulations on business, the Reagan administration cannot be let off the hook. In fact, the greatest if.not the only strength of the Democrat analysis is that they, at least, recognize that the boom of the 1980s did lead ineluctably to the deep and long recession of the early 1990s. The weakest point of the anti-Bush Republicans is the view that the 1980s were a wonderful, unalloyed boom that stored up no economic ills for the future.

But those ills were not due to greed, tax cuts, or any of the rest. The problem of the '80s was the monetary and banking system  and the blame comes down squarely on the Federal Reserve masters of that system. In fact, as the German economist and former banker Kurt Richebacher has pointed out, the U.S. boom of the 1980s was uncannily similar to the boom of the 1920s. In both decades, inflationary bank credit generated by the Federal Reserve went mainly into real estate and, a bit later in the '80s into the stock market--in short, the boom came in titles to capital and in speculation, while price inflation was much lower in the "real economy," in particular in consumer goods.

Indeed, wholesale and consumer price levels remained flat in the 1920s, misleading pre-monetarist economists such as Irving Fisher into proclaiming that inflation did not exist and that there was nothing to worry about. And while price inflation was not exactly flat during the 1980s, it was low enough for the Establishment to proclaim that the inflation problem (and the business cycle) had been licked forevermore. In the 1980s, price inflation was moderated by various external factors--such as hyperinflating Third World countries using cash dollars as their informal money, and foreigners financing American deficits and permitting the U.S. to buy cheap goods from abroad.

The real estate hysteria during the 1980s fully matched that of the 1920s, and everyone adopted the unquestioned credo that housing prices are destined to rise forever. While real estate has finally gotten its comeuppance, and a more realistic attitude prevails at last, the stock market continues to levitate in a dream world, again confusing observers, and allowing them to ignore the grim reality in the "real world" down below.

The culprit then, is and was, not taxes or greed, but above all inflationary credit expansion generated by the Fed. And now that Greenspan is frantically trying to inflate to save Bush's bacon, we are storing up the seeds of another recession in a few years' time. The bank collapse, the S&L scandal, the real estate debacle, all can be laid at the door of the chairman of the Federal Reserve, who is invariably treated in the media as an all-wise monarch when he should really be sent to the showers and his throne sold for scrap. The arch-villains of the 1980s (and the'90s) are Paul Volcker and Alan Greenspan, but they will never be treated as such so long as they remain two of the most beloved figures in American public life. 

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