If only we could go back to “failed policies” of Ronald Wilson Reagan — while the real failed policies are still with us today.
All the Republicans are offering, President Obama tells us over and over, are the same old, failed policies that got us into this mess in the first place. At the Democrat convention, Obama told us about the Republican economic plan, “all they have to offer is the same prescription they’ve had for the last thirty years.”
And who was President 30 years ago? That would be Ronald Wilson Reagan. So you see, Obama is attacking not just the Bush but the Reagan tax rate cuts as well, the 25% across the board rate cuts for everyone known at the time as Kemp-Roth.
The American people lived through this most successful economic experiment in world history. But Obama is betting the American people don’t know what they lived through in this recent history. Most of us, in fact, were not adults 30 years ago, so maybe Obama is right, the American people of today have no idea what happened 30 years ago. Obama is telling them today that it has been one long period of decline. And no one, not even the conservatives or the supply-siders, is taking him on directly. As a result, this has been a cutting, effective argument for Obama in this campaign.
Ancient History: Jimmy Carter and the
By 1981, when Reagan entered office, America was suffering its third year of double digit inflation, after a decade of accelerating inflation. Double digit interest rates too, with double digit unemployment on its way the very next year, in the fourth recession since 1969.
How did that happen? Following the exact same policies as Obamanomics, the true failed policies of the past. That involved high marginal tax rates tearing the economy down into recession, the Fed printing up money to get America out of those recessions, and then the Fed having to tighten to stop the resulting booming inflation (wait till next year if Obama wins to see that again).
Reagan explicitly countered that with the exact opposite of Obamanomics — tight money at the Fed, slashed marginal tax rates, deregulation to reduce the cost burden on production, in particular unleashing the private sector to maximize energy production, and budget cuts. (Spare me the disembodied fairy tales about how the tight money was all doing of the Carter appointed Fed chairman Paul Volcker. Volcker would have been run out of town by the Democrats without Reagan’s support and political cover when his policies produced double digit unemployment to go with his double digit interest rates.)
The liberal, Keynesian, economics establishment ridiculed Reaganomics. One Ivy League Nobel prize winner compared it to a train with locomotives at either end pointing in opposite directions, and an engineer expecting the train to arrive at one designated location at the expected time.
But the results were spectacular and historic. The Reagan recovery started in November, 1982, lasting 92 months without a recession until July, 1990. (The tax increases of the 1990 budget deal killed it.) This set a new record for the longest peacetime expansion ever, the previous high being 58 months.
During this 7-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy. In 1984 alone, real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989. The double digit inflation was cut in half by 1982, and in half again by 1983, with inflation not heard from again for a generation.
Real per capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just 7 years. The Carter decline in income for the bottom 20% of income earners was reversed, with average real household income for this group rising by 12.2% from 1983 to 1989. The poverty rate, which had started increasing during the Carter years, declined every year from 1984 to 1989, dropping by one-sixth from its peak.
With the tax rate cuts led by Gingrich in the 1990s, and by George Bush in 2003, this boom continued for 25 years, as recognized even by the establishment National Bureau of Economic Research. Art Laffer and Steve Moore, in their 2009 book, The End of Prosperity, rightly called it “the greatest period of wealth creation in the history of the planet.” Henry R. Nau recounted in the Wall Street Journal on January 26, “the U.S. grew by more than 3% per year [in real terms] from 1980 to 2007, and created more than 50 million new jobs, massively expanding a middle class of working women, African-Americans and legal as well as illegal immigrants. Per capita income increased by 65%, and household income went up substantially in all income categories.”
As Steve Forbes summarized in Forbes magazine in 2008:
Between the early 1980s and 2007 we lived in an economic Golden Age. Never before have so many people advanced so far economically in so short a period of time as they have during the last 25 years. Until the credit crisis, 70 million people a year [worldwide] were joining the middle class. The U.S. kicked off this long boom with the economic reforms of Ronald Reagan, particularly his enormous income tax cuts. We burst from the economic stagnation of the 1970s into a dynamic, innovative, high tech-oriented economy. Even in recent years the much maligned U.S. did well. Between year-end 2002 and year-end 2007 U.S. growth exceeded the entire size of China’s economy.
In other words, the growth in the U.S. economy from 2002 to 2007 was the equivalent of adding the entire economy of China to the U.S. economy.
The brave supply-siders that engineered this historic American turnaround have never been sufficiently beatified for their historic courage in taking on and then whipping the hell out of the economic establishment of the time. Maybe President Romney will hand out some appropriate awards. The liberal, Keynesians at the time never got the good whipping their costly foolishness so richly deserved either. Hence, Paul Krugman today, and so much yet to do.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?