expenditure of 10 per cent per year. Caspar
Weinberger, previously renowned for his cost-
cutting ways, was in charge of defence. A miscal-
culation had the consequence that instead of a
hefty 7 per cent per year real growth of expendi-
ture on defence, it actually came out at 10 per
cent per year from 1980 to 1986, that is rising
from $142 billion in 1980 to a planned $368
billion by 1986. As it turned out, defence spend-
ing was trimmed so that by 1986 it had ‘only’
doubled to $273.4 billion.
How then were the budget figures to add up
to produce a balanced budget by 1984? The com-
puter provided a simple answer. The supply-side
economic stimulus would increase output by
some 5 per cent a year. Instead the economy went
into recession in 1981 and 1982, thus creating a
burgeoning deficit. The recession brought infla-
tion under control, but unemployment increased
to 10 per cent – more than 11 million Americans
were out of work across the country. In some
regions unemployment was far worse than in
others, and black people and other ethnic minori-
ties were especially hard hit. The ability of trade
unions to defend their members was weakened by
Reagan’s policies. The most dramatic showdown
came in 1981 when the air-traffic controllers’
union called a strike. Reagan took the tough deci-
sion to dismiss all the strikers after they had
refused to return to work. Military air-traffic con-
trollers filled the gap until new personnel had
been trained. It was an example that Mrs
Thatcher was to bear in mind during her con-
frontation with the miners in 1984. With defence
spending protected by Reagan on the ground that
it was essential for facing down the Russians, and
with his insistence on persevering with tax cuts,
reductions in the growth of welfare spending took
the brunt of the economies, but they were quite
insufficient to halt the growth of the budget
deficit. Some tax increases, implemented despite
the fashionable economic theories, proved too
small to bring the deficit under control, and the
tax cuts turned out to have benefited the rich
far more than the middle-income families and
the poor. Wealth had failed to trickle down to the
bottom 20 per cent, as the theories had predicted
it would.
Reagan persisted with his unpopular policies.
The economic turnaround began in 1983. There
followed six years of economic growth, despite
temporary blips (as in 1987), and the creation of
17 million jobs, though many of these were in
low-paying service industries. But was this due to
the virtuous effects of supply-side economics?
Federal spending increased instead of declining
on all the major items, including social security
and various welfare payments. As the national
debt increased, so interest on it doubled, adding
$68 billion in just five years. Easy credit and the
deficits put more money in people’s pockets and
they spent more. The supply-side economists’
prediction that investment would increase proved
wrong.
By the end of the 1980s the US also had the
largest trade deficit of any major industrialised
country. Even the proportion of gross national
product collected in taxes did not significantly
decrease from the post-war average. So was
Reaganomics all smoke and mirrors? Was the US
prosperity of the years 1983 to 1990 simply based
on borrowed time, on credits that have to be paid
for in the future? There is no simple answer. The
US is immensely rich in resources. By West
European standards, outlays on welfare were woe-
fully inadequate before 1981 and even increased
federal spending has not brought it proportion-
ally to the same level as in Germany, Britain or
France. That the US deficit was not allowed to
soar out of control for a time owed much to a
reform enacted by the Senate and proposed by
two Republican senators, Phil Gramm and
Warren Rudman. This required the implementa-
tion of phased reductions of the deficit and auto-
matic spending cuts (to fall equally on military
and non-military provision) when deficit targets
were exceeded. Pension and poverty programmes
were excluded from the cuts. Reagan reluctantly
signed the measure in December 1985. It held
back the growth of the deficits until the slow-
down in the economy later in the decade.
The Reagan revolution was not as revolutionary
as it seemed. But the American people, who had
overwhelmingly re-elected him in November
1984, gave the ‘old Gipper’ the benefit of the
doubt. He remained throughout his latter years of