The Seven Fat Years: And How to Do It Again

LIBERAL economists, who were bypassed by policy developments at home and abroad during the Reagan years, are fond of saying that the supply-side revolution was a fluke and the era is over. Robert L. Bartley, whose editorial perch at the Wall Street Journal provides a commanding perspective, disagrees. In The Seven Fat Years: And How to Do It Again, he destroys the critics of the Decade of Greed and stakes his claim to membership in the small band that remade economic policy in the 1980s.

As a device, Bartley uses the figure of a "Man from Mars" who compares the self-serving liberal tracts mocking Reaganomics to the facts. By the end of the 1970s, Keynesian demand management had crashed in flames. WorsepAng Phillips-curve tradeoffs between employment growth and inflation had mired the economy in stagflation and malaise. When Ronald Reagan took office, inflation and interest rates were at all-time highs, and no one other than Reagan and the supply-siders had any confidence in America's economic future. Reagan set in motion a 92-month entrepreneurial boom that added new output equal to the size of the West German economy, created 18 million new jobs, and raised real disposable income per capita by 18 per cent. Moreover, this record expansion was not paid for with higher inflation.

In correcting the factual record of the 1980s, Bartley adds his voice to the already sizable chorus that has exposed the disinformation used to paint the Eighties black. Bartley realizes that the Eighties' reputation is in trouble not because of the facts, but because an open, entrepreneurial society is anathema to our self-appointed elites, who don't want their "white shoe" toes scuffed by brash upstarts whose success rearranges the distribution of perks and power.

We have seen it before, Bartley reminds us. In the 1920s, when the economy took off instead of collapsing as the Communists had predicted, halfbaked intellectuals wrote books vilifying the leading figures of the day. One banker's son, Matthew Josephson, who spent the Twenties in Paris with the surrealists, returned to publish The Robber Barons, a false portrayal of the titans of American industry. Josephson supported the Communist presidential candidato in the 1932 election campaign though he never joined the Party himself, explaining, "I know I'm not virtuous enough."

In the 1980s the villains were junkbond king Michael Milken and the Wall Street firm of Drexel Burnham. Josephson's role was played by Bartley's Wall Street Journal colleague James Stewart, whose Den of Thieves is based on prosecutorial leaks of disinformation designed to destroy Milken publicly and force him into a plea-bargain. Any prosecutor with a real 98-count indictment never would have stooped to such dirty tactics, as any real journalist should have known. For demonizing Milken as Josephson demonized the "robber barons," Bartley gives Stewart the back of his hand. Bartley observes ironically that "in his epilogue, in particular, Stewart's reportorial honesty waxes full." After vilifying both Milken and junk bonds, Stewart chooses his book's last few pages to admit that the prosecutions "call into question the wholesale criminalization of the securities laws," and that junk bonds are a legitimate financial instrument.

That puts Stewart in the same league as David A. Stockman, whose 1986 book, The Triumph of Politics, blamed the budget deficits on Reagan's tax cuts. After asserting that supply-siders had brought on disaster by making a "Laffer curve" forecast, Stockman tacks on an appendix, "The Fiscal Facts," which shows that the deficits resulted from the unanticipated collapse in inflation, which wiped $2.145 trillion off the 1982-86 GNP forecast.

In more clear-minded times than our own, authors could not get away with writing one thing in the text and another in an epilogue or appendix. But as Bartley shows, our elites are horrified by the prospect of too much change, and so, undeterred by the facts, have joined forces to close down the economy. As Bartley told Insight magazine last June, 'Ever since the Sixties, my basic attitude has been that the people are okay, but the elites are sick."

When vengeful elites get their hands on policy, as they have in the post-Reagan era, there is hell to pay. Bartley's last chapters are humdingers: "The S&L Debacle," "Greed and Envy," "Victorian Finance," and "Turning Back?" Bartley is certainly no coward, and he skewers those who have wrecked our economy.

He shows how corrupt Democrats kept Reagan's S&L regulator, Ed Gray, from regulating--"yet the myth persists that the S&L debacle was solely and purely the fault of Ronald Reagan's deregulatory excesses." He uses the three Americans who jointly won the 1990 Nobel Prize in economics to devastate the "Victorian finance" and anti-leverage hysteria that locked entrepreneurs out of the economy. He quotes economist Lawrence J. White, who described that disastrous piece of thrift legislation--the Financial Institutions Reform, Recovery, and Enforcement Act of 1989--as "an act of anger" designed to punish S&Ls for embarrassing Congress with depositinsurance failure. The White House architect of this ill-considered legislation, Richard Breeden, was rewarded with the chairmanship of the Securities and Exchange Commission.