The Choices That Became Normal

Was it Reagan? Was it Thatcher? Did we take a wrong turn somewhere around the beginning of the 1980s and spend the following decades calling the direction inevitable?

These are reasonable questions. They become less useful when the answer is decided before the history is examined. An affordability crisis does not come with a birth certificate naming two politicians as its parents. Yet neither should complexity become a fog in which consequential choices disappear.

Governments changed tax systems. They altered the terms on which labor and capital met. They changed the ownership of assets and the meaning of public responsibility. Those were political acts, carried out through institutions. They deserve scrutiny, especially when people are told today that changing the rules would be an improper interference with the economy.

The economy has never lacked rules. The argument is over whose interests the rules serve, what they make possible, and who bears the cost when they fail.

The tax rate was a decision

An IRS account of U.S. individual taxation records a substantial change in the top marginal rate during the Reagan years. The highest statutory rate was 70 percent through 1981. The Economic Recovery Tax Act reduced it to 50 percent for 1982. The Tax Reform Act of 1986 subsequently lowered the top statutory bracket rate to 28 percent when fully phased in for 1988, while broadening the tax base.¹

That last phrase matters. A tax system consists of more than a headline rate. The base determines what is taxed. Deductions, exemptions, the treatment of different forms of income, and the structure of the brackets affect what people actually pay. A marginal rate applies to a particular slice of taxable income, not necessarily to the whole income. The 1988 system also contained a phaseout range with a higher marginal rate, which is why a bare claim that nobody faced more than 28 percent would be wrong.²

The British changes were also explicit. In his March 1988 Budget speech, Chancellor Nigel Lawson recalled the reduction of the top income-tax rate from 83 percent to 60 percent in 1979 and announced a single higher rate of 40 percent. The parliamentary record lets us see both the policy and the argument offered for it.³

We do not have to treat those earlier rates as sacred to recognize the size of the change. Nor does a lower top rate by itself tell us the full effect on public revenue, investment, inequality, or a particular family’s costs. Those are empirical questions. But the rates were plainly not laws of nature. They reflected judgments about incentives, fairness, the state, and the proper claims of people at the top.

There is an odd asymmetry in political imagination when a large tax reduction is treated as an adjustment and a large investment in ordinary people is treated as a fantasy. Both require resources. Both change incentives. Both distribute gains and obligations. We should ask each proposal to explain itself in the same daylight.

What did the promised gains do?

One way to investigate the tax argument is to compare major changes across countries. David Hope and Julian Limberg’s published study examines large tax cuts for the rich in 18 OECD countries between 1965 and 2015. Using a comparative design, they estimate higher top-income shares after those reforms and find no statistically significant short- or medium-term effect on economic growth or unemployment.⁴

The design is observational; countries were not randomly assigned tax systems. Its interpretation depends on identifying assumptions and the comparability of reform and nonreform cases. The result concerns the reforms and outcomes studied. It does not prove that every conceivable tax reduction has no benefit, or that any tax increase will finance itself without economic effects.

It does place a substantial burden on the easy promise that favoring those already at the top will automatically improve life for everyone else.

That is the promise I want challenged. If a policy is justified as a route to shared prosperity, shared prosperity must be among the outcomes we examine. We should not accept a change in the wealth of the intended recipients as sufficient evidence that everybody benefited.

The same discipline applies to my preferred policies. A public investment should be judged by what it delivers, including costs, distribution, and unintended effects. Moral intention does not install a water pipe or staff a classroom. But the requirement to demonstrate a mechanism should apply equally to a tax cut, a privatization, a subsidy, and a social program.

Too often the wealthy are asked what they would like in order to become productive, while everybody else is asked how much insecurity they need in order to try harder. I want to reverse the presumption that only one group responds to support.

Imagine what could become possible if we were as interested in the incentives facing a nursing student as in those facing an investor. The student also weighs risk, expected return, time, and the chance that an unforeseen event will destroy the plan. Making that attempt feasible is an economic policy too.

The bargain over work

The confrontation with U.S. air traffic controllers in 1981 is another important episode. On August 3, Reagan announced that striking controllers who did not return within 48 hours would lose their jobs. His administration treated the strike as unlawful for federal employees; controllers who did not return were dismissed.⁵

The event belongs in an account of the era’s approach to organized labor. It should not be turned into a single-event explanation of every subsequent change in union membership or wages. Nor should a reader mistake the legal position of federal employees for the rules governing all workers. The historical lesson is narrower and still consequential: the state can take an active role in a dispute about the terms of work, and its choices can be forceful.

Public discussion often imagines government action only when it helps workers. Yet government is also present when it enforces property rights, defines lawful collective action, adjudicates a contract, or decides which remedies are available after an employer violates a rule. The background is an arrangement, not an absence.

At the household level, bargaining power means something quite concrete. How long can you wait? What alternatives do you have? How costly is replacement for the other side? Can you coordinate with people who face the same problem? Are there enforceable limits on what may be demanded?

An employee who needs this week’s income to obtain next week’s necessities negotiates under pressure. An employer can be under pressure too, especially a small business with thin reserves. A serious labor policy should understand both positions and still recognize that the parties need not arrive with equal options.

The aim should be a productive bargain that leaves people capable of living. That may involve collective bargaining, enforceable minimum standards, more competition among employers, predictable schedules, or portable protections. The appropriate combination requires evidence and practical design. Calling every such measure a distortion simply assumes that the existing distribution of negotiating power is the correct one.

Why should we grant that assumption?

If the original bargain produces an exhausted worker who cannot afford care, a later public intervention is not the first political choice in the story. It is another choice, made after the earlier rules have already done their work.

Who owns the public asset after the reform?

The British Right to Buy policy offers a different sort of lesson. The Housing Act 1980 established a statutory right for qualifying council tenants to purchase their homes at a discount. That made a route into ownership available to people who had been renting public housing.⁶

The appeal is easy to understand. Your home becomes yours in a different sense. You gain an asset and greater control over it, subject to the conditions of ownership. A critique that cannot see why an ordinary tenant might welcome that opportunity is too distant from ordinary hopes.

But there are two households in the policy story. One is the tenant who can buy now. The other is the future household that needs an affordable place. The relevant questions include what happens to the stock of housing available to that second household, how sale receipts are used, and whether replacement homes arrive where and when they are needed.

Selling an asset can provide an immediate receipt or a private benefit while changing a public institution’s future capacity. Whether that exchange is worthwhile depends on the terms and the alternative. A one-time gain should not be counted as if it were a permanent new source of resources.

I am deliberately not making this chapter the whole history of British housing. The mechanism is what we need here. A reform can expand one person’s freedom while weakening the arrangements on which another person’s freedom will depend. We should evaluate both, rather than choose the most attractive recipient and stop looking.

That principle travels beyond housing. It applies whenever public assets, services, or obligations are transferred. Who receives a right? Who loses an option? What ongoing duty remains? What happens if the private provider fails? A good reform answers these questions before the ribbon is cut.

A trend is a clue rather than a verdict

The long-run U.S. income figures give us reason to examine distribution. The Census Bureau’s current published historical series gives a household money-income Gini of 0.397 in 1967 and 0.490 in 2025. The broad pattern is toward greater measured inequality, with fluctuations and important changes in survey and processing methods along the way.⁷

It would be careless to draw a line between those endpoints and label the slope Reagan. The period contains many governments, economic shocks, technological changes, household changes, and shifts in international trade and production. A measure of pretax household money income also answers a different question from a measure that includes taxes and noncash benefits.

There is useful context even before Reagan took office. The Federal Reserve’s account of the early-1980s recession traces the anti-inflation policy turn to 1979 under Paul Volcker. That chronology complicates any story in which all the relevant economic forces began with the 1981 inauguration.⁸

A person can accept that complexity without concluding that policy is irrelevant. The next task is to identify channels, compare plausible alternatives, and examine what happened after particular changes. Tax treatment can alter after-tax rewards and reporting. Labor rules can affect bargaining. Housing policy can affect supply and access. Education and care can change what people are able to attempt. These mechanisms deserve separate investigation.

A century cannot be reduced to a villain. It can, however, be studied as a series of decisions.

That difference should make us more hopeful. If the current arrangement were the automatic result of an irresistible natural law, politics would have little to do. If it arose partly from choices, then new choices remain possible.

A saving for whom?

There is one habit from every era that we should leave behind: declaring a cost eliminated when it has merely changed address.

Suppose a public service reduces its opening hours. Its budget may show a saving. A working person now needs an extra half-day to use it, and an employer must cover the absence or the worker loses pay. The original cost has not necessarily disappeared. Part of it has moved into somebody else’s calendar.

Or imagine a maintenance program postponed until the next financial year. The accounts look better today. A later repair may be larger, or it may not; that depends on the asset and the delay. Either way, a responsible assessment includes the condition of the asset left behind. The current budget is only one page of the account.

This is an argument for looking at whole costs, including private costs imposed by public economies and public costs imposed by private decisions. It does not prove that every proposed expenditure pays for itself. Some spending is wasteful. Some activities should stop. But we cannot know the saving until we have followed the burden.

The household offers a practical test. After the reform, whose money, time, or risk has changed? An elegant theory may need to survive the experience of the person now standing in the longer queue. They are part of the economy as surely as the balance sheet is.

The market we want to have

I am not interested in abolishing the desire to build something, earn a return, or exchange with another person. Those desires can create valuable work. A person who opens a shop, develops a useful tool, or organizes a difficult service may deserve to prosper from it.

My objection is to an extreme version of capitalism that treats the ability to pay as the final answer to every question about human access. In that view, an unmet need becomes economically important only when it arrives with sufficient purchasing power. A profitable obstacle can begin to look as respectable as a useful service. The private return is clear; the human cost is somebody else’s problem.

We can choose a more demanding standard.

Markets should help people obtain things worth having. Where competition improves that result, defend competition. Where essential access fails, examine why. Where a provider depends on public research, infrastructure, legal protection, or a publicly educated workforce, recognize those contributions when discussing obligations. Where public delivery is poor, repair it rather than asking the people harmed by its failure to be patient indefinitely.

A libertarian reader may worry that this gives government too much power. The worry deserves an answer, especially from anyone who has experienced arbitrary officials or intrusive conditions. Public power should be limited by rights, transparent procedures, appeal, and democratic accountability. The same reader should then inspect private power with equal seriousness. A life can be constrained by an official, an employer, a creditor, or an essential supplier. Freedom loses substance when its defenders examine only one of those relationships.

The choice is not between a world with power and a world without it. We have to decide how power is distributed, what it may do, and where a person can turn when it is abused.

That is the unfinished work left by the choices that became normal. We do not need to replay the 1980s backward. We need institutions suited to the productive possibilities and human demands of our own time. A country can reward enterprise and still refuse to make ordinary security a prize for the already advantaged.

It can look at a struggling household and see more than an inadequate consumer.

It can see a person whose abilities are being wasted, and decide that this is an expensive way to run a society.