Rand Paul, Democracy, and the Ghost of Ronald Reagan

By  at Mises.Org

Once upon a time, it would have been shocking and stunning for a politician to mention any Austrian economist. Then, Ronald Reagan started mentioning Hayek a lot, and as time progressed, Hayek became a "safe" economist who many self-proclaimed "free market" invoked when wanting to prove their intellectual chops. Mentions of more "hard-core" free market thinkers were rare indeed, but then somewhere along the line, politicians felt the need to cozy up with the followers of the more radical thinkers also, and Michelle Bachmann proclaimed that she read Ludwig von Mises books on the beach. Shortly thereafter, Ted Cruz was sure to make sure people knew that he "spent much of his teen years as part of a group of students in the Free Market Education Foundation, who studied such libertarian-conservative icons as Milton Friedman, Friedrich Hayek, Frederic Bastiat, and Ludwig von Mises."

It's progress when politicians feel the need to mention Mises and Rothbard, and conclude that there might even be something to gain politically from invoking such names in stump speeches and interviews. Indeed, the fact that Mises and Rothbard are now sometimes mentioned as if the general public should be familiar with them is quite a change from the past. It is an indicator that the free market "demographic" or "constituent" group is politically valuable. Unfortunately, however, this is just one constituent group among  many, and the reality of this has been abundantly clear in the past, and will likely become obvious again in the future.

The Mises Institute is non-political, so you won't find any endorsements of politicians in the pages of Mises.org, but as observers of the political scene, those of us who write for the site are always interested in how Austrian economists are used and abused by political candidates for political purposes. Moreover, with politicians especially, one always has to be mindful of the veracity of statements like "I read Mises," since people running for political office are not known for their untrammeled commitment to always telling the truth.

Nods to the Free-Market Constituency 

With Rand Paul announcing his presidential candidacy today, we've been given a new candidate to watch, and in this case, one who has claimed on more than one occasion to be quite familiar with the works of Hayek, Mises, and Rothbard.  Writing in The New Yorker last year, Ryan Lizza wrote:

[Rand Paul] contributed regularly to the school newspaper, the Lariat, drawing on Ayn Rand, Hayek, and Mises’s disciple Murray Rothbard.

In his book, he wrote about several libertarian writers he had turned to since high school: Ayn Rand (“one of the most influential critics of government intervention and champions of individual free will”), Hayek (“ ‘The Road to Serfdom’ is a must-read for any serious conservative”), and the Mises disciple Murray Rothbard (“a great influence on my thinking”).

While Paul has embraced Rothbard, et al. at some times, he has attempted to distance himself from them at others. Nevertheless, in February he invoked Hayek when he suggested that competing private currencies were a good idea, and,he followed this gesture with a nod to the same presumably libertarian demographic by being sure that his campaign accepts Bitcoin donations.

None of this answers the question of whether or not these views of Paul's (whether sincere beliefs or political ploys) would translate into specific public policies, but it does reveal that, at least for one major candidate, staying on good terms with people who like to hear words like "Hayek" and "commodity money" is an important campaign objective.

At the same time, many will no doubt interpret Paul's references to Austrian economists and simple theorists as pandering, and this takes us to the problem of Ronald Reagan. The Reagan campaign, after all, was the last time we heard much about free markets, sound money, and significant cuts to the size and scope of government as a central campaign issue.  All candidates, including Clinton and Obama, promise to make government smaller and lower taxes at least in some areas. But for Reagan, it was at the center of his campaign, complete with references to Austrian economists and that picture of Reagan reading The Freeman.

As this campaign progresses, many supporters of free markets will attack each other over whether or not Rand Paul really means all that stuff about free markets and the strategic advantages and disadvantages of supporting a Paul candidacy. Ultimately, though, what a candidate says during a campaign offers little help in determining how a candidate actually governs, so this leaves plenty of room for arguing.

The Reagan Experience 

If some would-be Paul supporters appear reluctant to support him, however, it's important to keep in mind that the experience of Reagan has made many free-market activists gun shy. Rothbard was one of the killjoys who refused to be a Reagan fanboy, writing in 1980 during the campaign:

Despite his bravado about having stopped the growth of state government, the actual story is that the California budget grew by 122 percent during his eight years as governor, not much of an improvement on the growth rate of 130 percent during the preceding two terms of free-spending liberal Pat Brown. The state bureaucracy increased during Reagan's administration from 158,000 to 192,000, a rise of nearly 22 percent — hardly squaring with Reagan's boast of having "stopped the bureaucracy cold."

Neither is Reagan's record on taxes any comfort. He started off with a bang by increasing state taxes nearly $1 billion in his first year in office — the biggest tax increase in California history. Income, sales, corporate, bank, liquor, and cigarette taxes were all boosted dramatically. Two more tax hikes — in 1971 and 1972 — raised revenues by another $500 million and $700 million respectively.

By the end of Reagan's eight years, state income taxes had nearly tripled, from a bite of $7.68 per $1000 of personal income to $19.48. During his administration, California rose in a ranking of the states from twentieth to thirteenth in personal income tax collection per capita, and it rose from fourth to first in per capita revenue from corporate income taxes. As John Vickerman, chief deputy in the legislative analyst's office in Sacramento, concluded: "Obviously, the tax bite went up under the Reagan regime. It was a significant increase even when you start considering inflationary dollars…. The rate of growth was about the same as his predecessor." Reagan is now trying to take some credit for Proposition 13 and the popular tax-cutting movements in California. But during his own administration things were quite different; Reagan bitterly fought against similar initiatives in 1968 and 1972.

Seven years later, toward the end of the Reagan years, Rothbard then wrote:

In the first place, the famous "tax cut" of 1981 did not cut taxes at all. It's true that tax rates for higher-income brackets were cut; but for the average person, taxes rose, rather than declined. The reason is that, on the whole, the cut in income tax rates was more than offset by two forms of tax increase. One was "bracket creep," a term for inflation quietly but effectively raising one into higher tax brackets, so that you pay more and proportionately higher taxes even though the tax rate schedule has officially remained the same. The second source of higher taxes was Social Security taxation, which kept increasing, and which helped taxes go up overall. Not only that, but soon thereafter; when the Social Security System was generally perceived as on the brink of bankruptcy, President Reagan brought in Alan Greenspan, a leading Reaganomist and now Chairman of the Federal Reserve, to save Social Security as head of a bipartisan commission. The "saving," of course, meant still higher Social Security taxes then and forevermore.

Since the tax cut of 1981 that was not really a cut, furthermore, taxes have gone up every single year since, with the approval of the Reagan administration. But to save the president's rhetorical sensibilities, they weren'tcalled tax increases. Instead, ingenious labels were attached to them; raising of "fees," "plugging loopholes" (and surely everyone wants loopholes plugged), "tightening IRS enforcement," and even revenue enhancements." I am sure that all good Reaganomists slept soundly at night knowing that even though government revenue was being "enhanced," the president had held the line against tax increases.

All of this was in spite of the fact that while running for president, Reagan had declared, as quoted by Jeff Riggenbach:

"It is my intention to curb the size and influence of the Federal establishment," Reagan thundered. "It is time to … get government back within its means, and to lighten our punitive tax burden. And these will be our first priorities, and on these principles, there will be no compromise."

"There will be no compromise" is probably the most eyebrow-raising part of that statement, and certainly, for anyone familiar with politics, its should not be surprising that the reality turned out to be rather different.

There's No Free-Market Majority 

In the end, Reagan did compromise because he had to. That is, he had to if he wanted to get re-elected. He raised taxes, increased government spending, and generally signed off on more government because that's what the voters wanted. The art of getting elected and re-elected is the art of pleasing a wide variety of constituent groups. If Rand Paul makes the point of pleasing some free-market constituent groups, it's important to keep in mind that there are still plenty of other groups that need pleasing. It's essentially impossible to win if seniors think you're going to cut entitlement spending or if conservatives think you might cut defense spending. Sure, references to Ludwig von Mises will, according to Pew, score points with some of the 11 percent of the population that self-identifies as libertarian, but it won't get a candidate very far with the voters who believe the rhetoric that defense spending has been gutted in recent years or that the non-existent Social Security "trust fund" must be left untouched.

I'm sometimes told that the real path to change lies in running more free market political candidates and in political action such as passing new laws and lowering government spending. But, as long as much — or even most — of the voting population sees no real problem with fiat money, engaging in massive deficit spending, policing the entire world, providing health care,  and micro-managing every business decision, all the anti-government rhetoric in the world won't add up to much that's different from the reality of the Reagan terms of the 1980s. If t he voters don't actually want it, politicians will only be punished for attempting to cut government.

Truth be told, the hard-core libertarian constituency is almost certainly larger right now than it's ever been since the 1920s. This is largely thanks to the Ron Paul movement and to the availability of Mises.org as the intellectual hub for uncompromising laissez-faire. So, maybe things are different this time, and maybe the robust growth of this movement will drive real reform instead of the faux reform of the Reagan years. Only time will tell, but a glance at the polls and voter ideologies would suggest that we still have a long way to go.

via Mises Wire | Mises Institute.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.