Still, historians believe it was this tight-fisted approach to monetary policy, more than any other step Reagan took, that paved the way to recovery. "Reagan did break the back of the recession," says Lou Cannon, author of the biography President Reagan: The Role of a Lifetime. "But he did it by sticking with Volcker." As the 1984 election approached, the inflation rate had fallen to just over 4 percent, Volcker had begun to loosen the money supply, and the unemployment rate was dropping.
Timing is everything in politics, and Reagan's timing was good. "Suddenly, what had seemed like an insoluble problem was essentially solved," says John Sloan, a retired professor of political science at the University of Houston and the author of The Reagan Effect: Economics and Presidential Leadership. "By 1984, you had peace and prosperity, and Reagan looked terrific." Campaigning with the slogan "It's morning again in America," Reagan won re-election in a landslide.
Reagan's economic legacy didn't end there, though. Economists generally agree that the sky-high tax rates of the 1970s needed to come down, and that Reagan's policies helped lay the foundation for the economic boom that followed, including the 18 million jobs created during his presidency. But because Reagan never made any real effort to cut spending in his second term and kept his tax cuts in place, his policies also had some decidedly negative consequences. "Reagan's fiscal policy was certainly a stimulus to the economy, and if that stimulus had been removed after the economy got back to full employment, then I would have found very little to criticize," says Benjamin Friedman, an economist at Harvard who was an outspoken critic of Reagan in the 1980s. "When the economy is at less than full employment, government deficits are a good idea. That's why they're a good idea now. What's a bad idea is keeping the government in significant deficit when the economy has recovered."
Deep red. But keeping the government in deficit is exactly what Reagan did. Despite his years of lip service to balancing the budget, total discretionary spending had climbed almost 16 percent by the time he left office, dwarfing the Carter budgets he had once criticized. Revenues, limited by Reagan's tax cuts, were never able to keep pace. The result was a spiraling national debt that nearly tripled during his two terms, hitting $2.7 trillion.
Some of Reagan's aides, including William Niskanen, the former chairman of Reagan's council of economic advisers, believe there is a simple explanation for these growing deficits: Reagan's tax cuts simply did not do what supply-side economists said they would do. Because the cuts didn't substantively increase tax revenues, they didn't allow Reagan to shrink the deficit. They also didn't decrease the size of government by choking off spending. "The 'starving the beast' hypothesis is understandably popular among politicians—that you can have tax cuts without a deficit increase—but it's just empirically wrong," says Niskanen, now chairman emeritus of the Cato Institute. "That idea has destroyed for several decades the traditional Republican commitment to fiscal responsibility."
This, many historians believe, may be Reagan's real legacy. "The combination of military spending, tax cuts, and ultimately a failure to control most domestic spending led to a fiscal straitjacket by the end of the decade," says Zelizer. In 1991, Reagan's successor, George H. W. Bush, was forced to increase taxes to close huge gaps in the budget, but government debt still climbed past $4 trillion on his watch. When George W. Bush adopted a Reaganesque economic policy, with Dick Cheney, early in his first term, famously saying that "Reagan proved deficits don't matter," more tax cuts and more spending led to even more debt. By the time Obama took office, the federal government was more than $11 trillion in the red.
The lesson of Reaganomics, in other words, may be a simple one. In times of economic crisis, all roads seem to lead to the same place: deficits. The real test of a president and his economic policy, historians say, is what happens to those deficits when the economy recovers. For all of his many successes—and for all the support his ideas still enjoy on Capitol Hill—that is a test Reagan seems to have failed.