Silver Anniversay of Reaganomics

[Lincsong]

Today marks the 25th Anniversary of President Ronald Reagan signing the largest tax cut in U.S. history.:eusa_clap

Even with the attempted undermining of it by :rage: George Bush and Bill Clinton :rage: it ushered in a new era of prosperity and tossed out Keynesian policy.

 

[jamespowers]

Today marks the 25th Anniversary of President Ronald Reagan signed the largest tax cut in U.S. history.:eusa_clap

Even with the attempted undermining of it by :rage: George Bush and Bill Clinton :rage: it ushered in a new era of prosperity and tossed out Keynesian policy.

It has been undermined by both Bush I and II. :eusa_doh: The current one is spending waaaaaayyyyy too much. He may be a Republican but he is definitely not a Conservative. I wish Congress would actually do something and pass the ban on the estate tax now to at least partially get themselves some credit.
Keynesian policy has long been tossed out as an economic philosophy. the theories and figures only worked in a Depression economy, of the specific age, of the 30s. Economics professors were ridiculing it in the 90s when I finished my degree. Think Milton Friedman not Keynes.

Regards,

J

 

[Pilgrim]

I won't willingly set up a pitched political battle here. I will politely say the following:

Let's remember that Presidents generally get more credit then they deserve for things that go right, and less blame than they deserve for things that go wrong.

• In my personal opinion, Reagonomics was a deeply flawed economic policy which achieved little, and has not shown to be effective or desirable other than for those who drink the "all taxes are bad" Kool-Aid. I am not among them. However, Reagan's foreign policies did contribute to the downfall of the Soviet Union, although it was on its own strongly downward trajectory before Reagan.
  
• The Clinton administration managed to do more positive things for the US economy then Reagan, Bush and The Shrub (that's what many of my Texas friends call George Jr.) put together. To some degree, this probably falls under the "more credit than deserved" category.
  
• The two Bush administrations did and have done little for the country economically, and the current administration has done more to create a massive economic problem for the US than any administration since Herbert Hoover.
  
• George Senior (the Bush, not the Shrub) deserves credit for presiding over the breakup of the Soviet Union, but that was not primarily an economic event for the US, and it falls under the "gets more credit than deserved" part of my observations above.

Having said those things to represent the other side of the argument, I would be pleased if the moderators would cap this thread.

 

[scotrace]

They will watch where it goes.

 

[Lincsong]

Point well taken, however;

The Economic Recovery Tax Act of 1981 cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commenorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe. The acheivement of Reaganomics can only be fully understood by recalling the miserable state of affairs a quarter century ago. Newsweek summarized the national mood when it wrote in 1981 that Reagan "inherits the most dangerous economic crises since Franklin Roosevelt took office 48 years ago".
That was no exagerration. The (Carter) economy was enduring a cycle of rising inflation with growing levels of unemployment. Remember 20% mortagage interest rates? Terms like "stagflation" and "misery index" entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.

Wall St. Journal Saturday August 12, 2006 page 8

 

[magneto]

...
Keynesian policy has long been tossed out as an economic philosophy. the theories and figures only worked in a Depression economy, of the specific age, of the 30s. Economics professors were ridiculing it in the 90s when I finished my degree. Think Milton Friedman not Keynes.

Regards,

J

(bit OT) Hi jamespowers, have you ever picked up The American Conservative magazine? Some of the best political writing I've seen published and their editorial bent seems right up your alley.
(am a subscriber but no other affiliation with said magazine)

 

[Pilgrim]

The Economic Recovery Tax Act of 1981 cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commenorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe. The acheivement of Reaganomics can only be fully understood by recalling the miserable state of affairs a quarter century ago. Newsweek summarized the national mood when it wrote in 1981 that Reagan "inherits the most dangerous economic crises since Franklin Roosevelt took office 48 years ago".

Carter did indeed leave the economy in a mess (possibly part of the "more blame than he deserved" factor, too). I didn't support the Reagan tax cuts when they happened. it costs money to live in a country run the way ours is - and the cost is taxes. The question is not whether we will have taxes, just how many and to pay for what. Right now we're mortgaging the economic future of the US to fight a war in Iraq that less than 40% of the population supports.

Reagan's tax cuts coincided with a massive reduction in federal support for higher education - this is just the effect with which I am most familiar. I have never agreed - and do not believe now -that all the tax cuts were positive or helpful. The tuition my daughter pays this fall at Colorado State has increased vastly since Reagan years, and reductions in state and federal support have had a direct impact on making higher education less and less accessible to kids who don't want to exit school with debts of $50,000 to $100,000.

 

[Tony in Tarzana]

I'll give Clinton credit for signing the capital gains tax cut into law in 1997, and in a way I miss Robert Rubin at Treasury.

I voted for Ronald Reagan in my very first presidential election in 1980 when I was 19. No candidate since has given me much reason for enthusiasm.

 

[Dixon Cannon]

Would this be a bad time...

to ask whatever happened to that 'Contract With America' thingy I saw in a picture once?


-dixon cannon

 

[Dietrich]

A tip of the hat from this side of the pond for the pivotal role Reagan, his advisors and many great American economists played in Thatcher's reforms of the British economy. As an Austrian schooler I cannot fully agree with Friedman and the Chicago school (especially when it comes to neoclassical fundamentals) but wholeheartedly applaud their efforts in dismantling the Keynesian nightmare they had inherited.

Those suggesting that Reaganomics achieved little would be well advised to look over trends in GDP, inflation and interest rates over the past few decades. Compare the economic fortunes of states that went in a laissez-faire direction during the seventies versus those that preferred socialism. Unemployment rates in France, Germany and Spain versus Britain should prove illustrative, as should the explosive results of Ireland's economic reforms, in particular the Shannon Free Zone.

 

[Lincsong]

Leading by example works

The reigning Keynesian policy consensus had no answer for this (Carter era) predicament, and so a new group of economic ideas came to the fore. Actually, they were old classical economic ideas that were rediscovered via the likes of Milton Friedman and the Chicago School, Arthur Laffer, Robert Mundell, and such policy activists in Washington as Norman Ture and Jack Kemp, among others.

For every policy goal, you need a policy lever, Mr. Mundell likes to say. Monetary restraint was needed to break inflation, while cuts in marginal tax rates would restore the incentives to save and invest. With Paul Volcker at the Federal Reserve and Reagan at the White House, those two levers became the essence of the "supply side" policy mix.

A look at the Top income rate of various nations
1980 2004
Australia 63% 47%
Canada 60% 39%
France 60% 48%
Germany 65% 46%
Ireland 60% 42%
Italy 72% 47%
Japan 75% 50%
Korea 89% 40%
Spain 66% 35%
Sweden 87% 54%
Switzerland 31% 26%
U.K. 83% 40%
U.S. 70% 35%

Sources Heritage Foundation

 

[Lincsong]

Robert Rubin and Contract with America

I'll give Clinton credit for signing the capital gains tax cut into law in 1997, and in a way I miss Robert Rubin at Treasury.

I voted for Ronald Reagan in my very first presidential election in 1980 when I was 19. No candidate since has given me much reason for enthusiasm.

Obviously, the economic policy path from 1981 to the present day has not been a straight line. The biggest detour occurred from 1990 through 1994, when George H.W. Bush and Bill Clinton (conveniently) forgot the Gipper's lesson and raised marginal income-tax rates; they suffered for it in the elections of 1992 and 1994. The arrival of the Gingrich Republicans in Congress stopped this slow-motion repeal of Reaganomics, however, and even helped to extend it at the margin with a cut in the capital-gains tax rate to 20% in 1997.

Adherents of Rubinomics--after Clinton Treasury Secretary Robert Rubin--are still not converts, arguing that tax increases are vituous if they reduce the deficit.----But even the Rubinites haven't dared to repeal indexing for inflation (which pushed taxpayers via "bracket creep" into ever-higher tax rates), and even the most ardent liberals don't propose to return to the top pre-Reagan income tax rate of 70%. They also now understand that, at some point along the Laffer Curve, high rates begin to yield less tax revenue. The bipartisan consensus in favor of sound money has also held.

 

[Solid Citizen]

Reagan

Silver bells, silver bells its Reagan time in the city (Shinning city on the hill that is)!

SC

PS "set the American people free to do what they do so well" :eusa_clap

 

[Pilgrim]

To me, the equation is very simple:

• The US is grossly outspending its income. (Much of this is wartime spending.)
• Taxes are the income source for government.
• Some degree of social services are a responsibility of the government. They can't be cut much further, so they're not going to balance the budget.
• Therefore, taxes have to go up. There is no option.
• Politicians are willing to do almost anything to avoid raising taxes when it might hurt their ability to get re-elected (of course, benefits to the US don't count).
• Therefore the required tax increases are being pushed onto our children by a do-nothing congress and an administration that can't balance a checkbook.

Whether you agree with my analysis or not, I think the US public increasingly realizes that the current spending situation cannot go on. Because of that, there is a very real possibility that there will be enough changed votes in state and federal elections to swing power to the Democrats in the next couple of years.

Again - to me, Reagan was a very run-of-the-mill President who made a few good calls but mostly gets more credit than he deserved for what happened. I didn't support naming the airport after him.

 

[jamespowers]

Reagan also fell victim to the promises made in TEFRA. He got the promise from a Democrat Congress that for every dollar increase in taxes there would be two dollars cut in spending. Obviously he was had. If Congress had actually made good on their promises we would be in much better shape today and not worrying about the burgeoning deficit.
In contrast, the Republican Congress with a Democrat president managed to keep spending down even with tremedous pressure to increase spending from the White House. Contrary to popular belief though, there still was a deficit then. They just counted the Social Security fund as part of their income to spend. :eusa_doh: That made it look like we were running a surplus but some remedial subtraction for Social Security ended that quickly.
Government has shown through its actions over the last thirty years that they have no fiscal restraint. They spend tons of money subsidizing this that and the other thing and then come running back to us when they run out of pork to spread around. Money does not solve all problems. We are looking at huge structural problems in government that are designed to spend more money every year based on a ridiculous process called base line budgeting. Under this travesty, every department gets an increase base on a formula that is not related to how much they actually need every year. It also presents a problem with rewarding spendthrifts with increases while punishing fiscally prudent departments and agencies with cutbacks. This is 180 degrees out of phase with real world economics. I know because my father worked for the federal government for 35 years. If businesses were run this way then they would be broke as well. Its one of those DUH situations. :eusa_doh:
So increasing taxes is a silly venture when you will just get more of the same in a never ending spiral of tax and spend. Until the structural problems are addressed adequately, there should not be a tax increase in any way, shape, measure or form. You just throw good money after bad at the problem. Lower taxes force them to make do with what they get in the interum.
Idealistically, the government should be small, impoverished and afraid of the citizenry. As it is now they are none of the above.

Regards,

J

 

[Lincsong]

Interesting argument, however;

The results (of Reaganomics) have been better than even some its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800-one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 Trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn't exist a generation ago.:eusa_clap

 

[The Reno Kid]

to me, Reagan was a very run-of-the-mill President who made a few good calls but mostly gets more credit than he deserved for what happened.

I strongly disagree. While I freely admit that Ronald Reagan was not without flaws, I believe it's difficult to overstate the positive impact on the economy of the US and the world. But I think his greatest achievements had more to do with his personal leadership than his (considerable) economic achievements. I remember what it was like to live in America during the Carter years. There was a very real sense of ennui in the country. A lot of people had begun to believe that we had pretty much reached our zenith as a nation and the road ahead was grim. President Reagan changed all that. The theme of his 1984 campaign--Morning in America--was apt. That's what it felt like. And he was re-elected because Americans really believed it.

An example of his leadership and optimism: When President Reagan was shot in 1981, his condition was much more serious than the public knew at the time. As he was being rolled into the operating room (with the outcome very much in doubt), he looked up at the team of doctors preparing to operate on him and said, "I hope you're all Republicans!" In the most dire circumstances, he was cool enough to try to set his surgeons at ease. His optimism was infectuous and it worked.

I would recommend that everyone read the book Reagan in His Own Hand. It's a collection of scripts for the five-minute radio commentaries that he did during the mid- to late-70s. They were written (and edited) in his own hand on yellow legal pads that he took with him virtually everywhere he went. They addressed all the political and economic problems of the day and reveal an insightful, very intelligent, deeply thoughtful mind. Very good reading.

Far from being a run-of-the-mill president who made a few good calls, Ronald Reagan was a great president and a great man who fundamentally changed the world for the better.

 

[Lincsong]

I survived the San Francisco Bay Area

When Reagan was shot in 1981 I was in the 6th grade. I remember reading in the newspaper at the time of high school students clapping in various High Schools in Alameda County, CA when the news was announced in the classrooms. Let's remember that many, many of these kids fathers were working at the then Alameda Naval Air Station, Oakland Army Base, Oak Knoll Naval Hospital, Moffett Field and Mare Island Naval Shipyard. The utter lack of civility to clap when word is announced that the President was shot is just plain assinine. I may not have liked Clinton but I certainly wouldn't want him harmed in that manner. Looking back at that event 25 years later I'm so glad, no thankful, that I was able to fight off the infectious mental disease of San Francisco Bay Area.

 

[Pilgrim]

Lincsong, I agree with you that behavior of that sort is totally out of place and reprehensible. While my opinion of Reagan as a President will never be enthusiastic, every report I've heard is that he was a nice person, a truly decent human being and a person worthy of respect. When such a person is in danger, ones' response should be empathic and appropriate.

 

[Roger]

I voted for Reagan for the first time in 1984. It was truly an honor to cast my first vote as an American citizen for him.:eusa_clap