President of the U.S., 1981-1989; Republican Governor (CA)
Don't reslice the pie; help America produce a bigger pie
Reagan made famous what he called the "economy pie." The economic pie represented the entire American economy. Reagan criticized government for taxing productive Americans to pay for every slice of pie that the government took and then used in ever more
inefficient ways. All of this slicing left less of the economic pie for ordinary, taxpaying Americans who were earning their piece of the pie the old-fashioned way--with hard work.
Instead of following that failed mode, Reagan believed that we grew the
economy--and increased the size of the pie--by helping the unproductive become productive.
He said: "The weakness in this country for too many years has been our insistence of carving an ever-increasing number of slices from a shrinking economic pie.
Our policies have concentrated on rationing scarcity rather than creating plenty."
Instead of fighting over who gets the last piece of shrinking economic pie, let's help America produce a bigger pie so that everyone will have a chance to be better off.
Doubled the national debt from $1 trillion to $2 trillion
One can imagine what Reagan would think of the spend-happy and micromanagerial "elite" in Washington today. When Reagan was elected in 1980, most Americans could look to a future in which their children would live better than their parents, and the
national debt was less than a trillion dollars.
Reagan might have been criticized often for doubling the national debt (due in large part to a Democrat-controlled Congress) from less than a trillion dollars to
$2 trillion--but his successors have now taken it to over $15 trillion, with many in Washington now saying it would be "irresponsible" not to keep borrowing. Unlike the Reagan era, most
Americans do not see a future in which their children will do better than they have. But too many American aren't dreaming about the future--they're fearing it.
Here's the really fascinating part--the part liberals remain clueless about: if the federal government really wants to "stick it" to rich folks and confiscate more of their hard-earned money to fund their insane spending sprees on counterproductive
social programs then they should lower, not raise, taxes. Before President Reagan instituted the Reagan tax cuts, the richest 1 percent of Americans paid 18 percent of all federal income taxes. The top marginal rates then went from a suffocating
70 percent down to 28 percent. And what was the result? Their portion of the national tax bill actually doubled--they paid 36 percent of federal income taxes and produced 23
percent of the nation's income. As President Reagan explained, "A few economists call this principle supply-side economics. I just call it common sense."
Enduring economy comes from fiscal integrity & sound money
America should return to President Ronald Reagan's four proven policies for an enduring economic recovery: real and sustained tax relief, fiscal integrity, smart regulatory reform, sound monetary policy. Reagan trusted in Americans' entrepreneurial
spirit, innovative talents, and industriousness, and he agreed with Adam Smith's insight that freedom and prosperity are inextricably entwined and mutually reinforcing. The flexibility of our markets is endangered by excessive regulation, onerous
litigation, and government redistribution of wealth. Special interests promote complex tax loopholes that impede the free flow of capital and divert it for less productive purposes, while the government is not adequately addressing the
anxieties many citizens feel during globalization's era of rapid innovation and change. We must address the public's insecurities to prevent a backlash against the very free-enterprise system that is the foundation of our prosperity.
In 1981, newly elected President Reagan abandoned long-fashionable Keynesian economic policies--the interventionist, big-government, "stimulus" approach that had produced these dismal results. Instead, he explicitly campaigned on, and then implemented,
four specific economic policy components that became known as Reaganomics:
Tax cuts to restore incentives for economic growth. The top income tax rate of 70 percent was cut leaving just two rates--28 percent and 15 percent.
Spending reductions, including a $31 billion cut in 1981. This was close to 5 percent of the federal budget then, or the equivalent of about $180 billion of spending cuts in year nowadays.
Anti-inflation monetary policy emphasizing the value of
the dollar and restraining money supply growth, which led to much lower interest rates once inflation was tamed.
Deregulation, cutting red tape, and reducing bureaucracy saved consumers an estimated $100 billion per year in lower prices.
OpEd: Initiated bankers' free-for-all, at bankers' request
The new era of deregulation resulted in a boom time for the rich getting richer. Reagan opened wide the door for companies to gamble with taxpayers' money. In 1999, the Glass-Steagall Act was repealed, and a real free-for-all began. It was passed in
1993 to keep separate the low-risk commercial banks where we put our deposits, and the brokerage banks that engage in high-risk speculative investments. This worked just fine for more than 50 years. During the Reagan years, the lobbyists for the finance,
insurance, and real estate outfits started pushing to dump the law; then the rules of the game changed totally. Mergers and commercial/investment partnerships skyrocketed. Now banks could start taking multiple home mortgage loans and turning them
into securities to trade on Wall Street. They could all gamble like crazy, and with very little regulation.
How insane was it to destroy one of the main protection devices created out of the pain of the Great Depression.
Inherited tired & cynical country; left it encouraged
Reagan is seen by most Americans as a positive leader who managed to get Americans to believe in themselves. He understood the promise of the American Dream and this was a key platform on which he was elected. He inherited a tired and cynical
United States that readily took to his optimism, so when he declared that: "everyone can rise as high and as far as his ability will take him", people were more than encouraged. When they saw that he could deliver, they were delighted.
Under Reagan's administration more Americans were working than ever before, many new businesses were started up and Wall Street boomed. At the end of Reagan's administration, not all social ills had been solved or even tackled. However, by persuading
Congress to cut taxes and by eliminating unnecessary regulations, he did introduce a period of unprecedented economic growth in the United States.
No great nation abandoned gold standard and remained great
With President Reagan the subject of the gold standard came up. "Ron," the President told me, "no great nation that abandoned the gold standard has remained a great nation."
He indeed was sympathetic, as he was to many libertarian constitutional ideas, but he was also swayed by staff pressure to be pragmatic on most issues.
Source: End the Fed, by Rep. Ron Paul, p. 74
, Sep 16, 2009
Government is not the means to our prosperity
Political leaders since Reagan have disconnected national policy from our core values by telling Americans we can have it all without making the difficult choices. Even Reagan failed to make some of the tough choices of leadership. In order to get his
priorities through a Democrat Congress, he sacrificed his promise "to reverse the growth of government" and to reduce our dependence on foreign oil. He left the nation with large deficits and more dependent for our energy.
While conservatives should no
naively romanticize Reagan as the perfect leader, we can claim an important distinction between Reagan and other presidents of this generation: he made it clear the government was not the answer to our problems. The you-can-have-it-all-and-the-government
will-guarantee-it political leaders since Reagan have fundamentally changed the American mind-set. Any interruption in our "having it all" elicits a knee-jerk response from federal politicians who promise to "bail us out" with more spending and debts.
Deficits don't matter as long as they're used for tax cuts
President Reagan, as well as Bush I and II, insisted that deficits didn't matter as long as the proceeds were used for tax cuts that were supposed to stimulate savings and investment. The policy failed utterly. Savings and investment rates fell, despite
the lower tax rates. America became increasingly reliant for its investment capital on borrowing from abroad. But this deficits-don't-matter theology liberated Republicans from their previous stance as the fiscally responsible party.
Source: Obama`s Challenge, by Robert Kuttner, p.114
, Aug 25, 2008
Increased national debt from $1T in 1980 to $3T in 1988
The problem with applying the traditional analysis to current conditions was that under Reagan and Bush, we had built a large structural deficit that persisted in good times and bad. When President Reagan took office, the national debt was $1 trillion.
It tripled during his eight years, thanks to the big tax cuts in 1981 and increases in spending. Under President Bush, the debt continued to increase again, by one-third, in just four years. Now it totaled $4 trillion. Annual interest payments on the deb
were the third-largest item in the federal budget after defense and Social Security.
The deficit was the inevitable result of so-called supply-side economics, the theory that the more you cut taxes, the more the economy will grow, with the growth
producing more tax revenue at lower tax rates than previously had been collected at higher ones. Of course it didn't work, and the deficits exploded throughout the recovery of the 1980s.
Reaganomics: generate growth by stimulating the supply side
Reagan’s first term was dominated by efforts to carry out his economic program-dubbed “Reaganomics” by the media-which consisted in part of large budget reductions in domestic programs and substantial tax cuts for individuals and businesses. The theory
of supply-side economics-generating growth by stimulating a greater supply of goods and services, thereby increasing jobs-was a mainstay of the Reagan approach. Central to the administration’s efforts to combat inflation was rigorous control over
government spending deficits. Early budget cuts of $39 billion were followed by the passage of a 25% tax cut for individual taxpayers and faster tax write-offs for business.
The economic policies had mixed results. Unemployment rose to a level
of 10.6% by the end of 1982 but declined to around 5.5% late in 1988. Inflation, which had peaked at 13.5% in the 1970s, gradually fell to about 4%-6%. Massive federal deficits piled up, however-a reflection of tax cutting & greater defense spending.
Source: Grolier Encyclopedia on-line, “The Presidency”
, Dec 25, 2000
U.S. economy does not need master planners, just freedom
Carter had run for the presidency on a platform calling for what the Democrats called “national economic planning.” I’m sure they meant well - liberals usually do - but our economy was one of the great wonders of the world. It didn’t need master
planners. It worked because it operated on principles of freedom, millions of free decisions how they wanted to work and live, how they wanted to spend their money, while reaping the rewards of their individual labor.
, Dec 25, 2000
Pundits declared us "radical" but we were right
Some pundits said our programs would result in catastrophe. Our plans for the economy would cause inflation to soar and bring about economic collapse. I even remember one highly respected economist saying, back in 1982, that "The engines of economic
growth have shut down here, and they're likely to stay that way for years to come." Well, he and the other opinion leaders were wrong. The fact is, what they called "radical" was really "right." What they called "dangerous" was just "desperately needed."
Common sense told us that when you put a big tax on something, the people will produce less of it. So, we cut the people's tax rates, and the people produced more than ever before.
The lesson of all of this was, of course, that because we're a
great nation, our challenges seem complex. And something else we learned: Once you begin a great movement, there's no telling where it will end. We meant to change a nation, and instead, we changed a world.
We worked with Senator Phil Gramm of Texas on legislation that would mandate a balanced budget through systematic reduction of the deficit.
This law, passed as the Gramm-Rudman-Hollings Act and signed by the President on December 12, 1995, established a schedule of deficit reductions beginning in 1986.
In years when the budget fails to meet the goal established by the act, the President is required to propose the necessary cuts. Social Security and many social programs are exempt
from reductions, but the intent--and so far, the effect--has been to impose a welcome measure of publicity, if not discipline on the budget process.
1985: $68B in spending cuts; but SDI funding doubled
The President had had an excellent year on Capitol Hill in 1985. Under the impetus provided by Gramm-Rudman, the Budget Resolution adopted by Congress and signed by the President contained $68 billion in negotiated spending cuts, far less than the
$105 billion in the original Administration-Senate compromise, but more than in the previous three years combined. The Budget Resolution contained no tax increase and no tampering with Social Security. On several key issues,
Reagan had won against the odds and against most predictions: Aid was restored to the Contras, though not at the level the President had sought. The defense budget had been tied to real growth in the economy, and levels of spending were sufficient to
maintain the strength and readiness of the armed forces. Funding for SDI, the key to any agreement with the Soviets, was almost doubled. The MX missile remained in production.
The stock market crashes today, but Reagan strides in beaming like a boy. His bubbling joie de vivre affects gloom in room. His only comment on Wall Street’s nervousness, “Maybe they should change their symbol from a bear to a chicken noodle.”
Chairman of the CEA (Council of Economic Advisors) tries to make him understand the seriousness of the situation. “Mr. President, this is not just a little wiggle in the market we can ignore.
This is a very serious condition.“ Reagan tries to look solemn, but this is difficult to do when one’s mouth is full of jelly beans.
He takes refuge in genial reminiscence, ”Didn’t we do better before there was a Federal Reserve?“
Are you better off now than you were four years ago?
Inflation elected Ronald Reagan in 1980. The hostages in Iran were a temporary distraction. In August of 1979, Reagan’s advisers opened “Policy Memo No. 1” of the campaign with these words: “By a wide margin, the most important issues in the minds of
voters today is inflation.” And by campaign’s end, the candidate who had risen by ideology, the true believer, was asking people to vote their pocketbooks. Over and over Reagan asked, “Are you better off now than you were four years ago?”
Source: Reagan’s America, by Garry Wills, p. 362-3
, Jul 2, 1987
Laffer curve appealed to Reagan’s beliefs, not his economics
Several editorial writers at The Wall Street Journal had become enthusiasts for the ideas of Arthur Laffer. The Laffer theorem was centuries old and beyond challenge in itself-the claim that tax revenues can be so high as to dry up their source.
[The theory was explained] by drawing an igloo shape on a napkin to explain the trajectory of tax returns. The mystique of supply-side economics grew, built around this doodle.
Reagan himself was a cautious convert. Supply-side was inconsistent with
much of what Reagan had said over the years about economic theory; but it fit everything he believed about the American saga, about “what made us great” before there was any government to cripple the lone pioneer on the frontier.
The monetarist and
fiscal-restraint people found aspects of supply-side theory compatible, and dismissed the rest as campaign rhetoric. The supply-side view was a “free lunch” that would restore the economy without pain, reduce inflation without recession.
Supply-side economics gets govt out of the way of growth
Reagan himself was a cautious convert [to supply-side economics]. He had years of programmed response to overcome-all those years of denouncing deficits, paying homage to the balanced budget, ridiculing the Democrats’ idea that there is any such thing
as a free lunch. But a free lunch [it was]: tax cuts would pay for themselves, since taxes had reached a point where they drained the economy rather than strengthened it. The tax monies released into private circulation would promote savings (to form new
capital) and investment (to use that capital) and growth (the product of that investment). Hastened depreciation and eased regulation would create a wave of new plants capable of cheaper production.
Since government was the problem, not the solution,
just getting government out of the way would be a solution to every economic ill. The Gulliver of American capitalism, tied down with a thousand strings by Lilliputian bureaucrats, would spring up into boisterous activity.
David Stockman, Reagan’s director of the Office of Management and Budget, wrote with Senator Jack Kemp a document called “An Economic Dunkirk.” It said that Reagan would need to seize the post-election euphoria, temper and challenge it with predictions
of disaster (“Dunkirk”), declare a state of emergency, and ram through simultaneous measures that would entirely change public expectations. The nerve to cut government revenue while encouraging growth (especially in defense) would falter, on Wall
Street and in the Congress, unless confidence were secured by early victories. The budget had to be cut immediately, along with taxes, to ease congressional apprehension about deficits and business anxiety about interest rates. The government had to
become less competitive for credit while making the private sector more competitive, or the result would be “Thatcherization,” cuts and stagnation. Everything depended on a “hair-trigger market psychology.”
Require the Federal Government to live within its means
Members of Congress, passage of Gramm-Rudman-Hollings gives us an historic opportunity to achieve what has eluded our national leadership for decades: forcing the Federal Government to live within its means.
How often we read of a husband and wife both
working, struggling from paycheck to paycheck to raise a family, meet a mortgage, pay their taxes and bills. And yet some in Congress say taxes must be raised. Well, I'm sorry; they're asking the wrong people to tighten their belts.
It's time we reduce the Federal budget and left the family budget alone. We do not face large deficits because American families are undertaxed; we face those deficits because the Federal Government overspends.
The detailed budget that we will submit
will meet the Gramm-Rudman-Hollings target for deficit reductions, meet our commitment to ensure a strong national defense, meet our commitment to protect Social Security and the truly less fortunate, and, yes, meet our commitment to not raise taxes.
Hold taxes & spending down to maintain economic growth
Reagan’s familiar litany was a story of authority usurped by the federal government, of taxes and regulation slowing the national machine. By controlling such abuses, his administration had seen inflation drop dramatically and employment figures rise in
proportion: “We are creating a nation once again vibrant, robust and alive.”
Ahead lay four more years of opportunity to restate America’s traditional values of “faith, family, work and neighborhood,” to continue rebuilding its defenses and to
redirect history “away from totalitarian darkness.”
Twenty-five straight months of economic growth, the President went on, proved his tenet “that freedom and incentives unleash the drive and entrepreneurial genius that are at the core
of human progress.” But deficit spending (for which he took no blame) might cramp that drive even as it gathered force. To combat it, he would ask Congress to hold program spending at current levels for another full year.
This recovery will bring with it a revival of economic confidence and spending for consumer items and capital goods--the stimulus we need to restart our stalled economic engines. The American people have already stepped up their rate of saving,
assuring that the funds needed to modernize our factories and improve our technology will once again flow to business and industry.
The inflationary expectations that led to a 21% interest prime rate and soaring mortgage rates 2 years ago are now reduced by almost half.
Lenders have started to realize that double-digit inflation is no longer a way of life. Interest rates have tumbled, paving the way for recovery in vital industries like housing and autos.
Federal spending freeze: limited to rate of inflation
Let me outline a four-part plan to increase economic growth and reduce deficits:
I will recommend a Federal spending freeze. I know this is strong medicine, but so far, we have only cut the rate of increase in Federal spending. Taken as a whole,
the budget I'm proposing for the fiscal year will increase no more than the rate of inflation.
I will ask the Congress to control the growth of the so-called uncontrollable spending programs. These are the automatic spending programs, such as food
stamps, that cannot be simply frozen and that have grown by over 400% since 1970.
I will adjust our program to restore America's defenses by proposing $55 billion in defense savings over the next 5 years.
Because we must ensure reduction and
eventual elimination of deficits, I will propose a standby tax, limited to no more than 1% of the GNP. It would last no more than 3 years, and it would start only if the Congress has first approved our spending freeze and budget control program.
The last decade has seen a series of recessions. There was a recession in 1970, in 1974, and again in the spring of 1980. Each time, unemployment increased and inflation soon turned up again. We coined the word, "stagflation", to describe this.
Government's response to these recessions was to pump up the money supply and increase spending--while in the last 6 months of 1980, interest rates reached a staggering 21.5%. There were 8 million unemployed.
Late in 1981 we sank into the present
recession, largely because continued high interest rates hurt the auto industry and construction. And there was a drop in productivity, and the already high unemployment increased.
This time, however, things are different. We have an economic
program in place, completely different from the artificial quick fixes of the past. It calls for a reduction of the rate of increase in government spending, and a 3-year tax rate reduction designed to stimulate the economy and create jobs.
Reduce deficit by growth, lower interest, & spending control
As it now stands, our forecast, which we're required by law to make, will show major deficits starting at less than $100 billion and declining, but still too high. More important, we're making progress with the three keys to reducing deficits: economic
growth, lower interest rates, and spending control. The policies we have in place will reduce the deficit steadily, surely, and in time, completely.
Higher taxes would not mean lower deficits. Raising taxes won't balance the budget; it will encourage more government spending and less private investment.
We must cut out more nonessential government spending and rout out more waste, and we will
continue our efforts to reduce the number of employees in the Federal work force by 75,000.
The budget plan I submit will realize major savings by dismantling the Departments of Energy & Education and by eliminating ineffective subsidies for business.
Inflation doesn't come upon us like plague; it's government
Q: In 1976, inflation stood at 4.8%. It now stands at more than 12%. Can inflation be controlled?
CARTER: It's important to put the situation into perspective. In 1974 we had a so-called oil shock. We had an even worse oil shock in 1979. In 1974 we had
the deepest and most penetrating recession since WWII. The recession that resulted this time was the briefest we've had since WWII. In addition, we've brought down inflation. Earlier this year, it averaged about 18%.
REAGAN: This idea that has been
spawned, that inflation somehow came upon us like a plague and therefore it's uncontrollable, is entirely spurious, and it's dangerous to say this to the people. Mr. Carter has blamed inflation on OPEC, he's blamed the Federal Reserve System, he has
blamed the lack of productivity of the American people, he has then accused the people of living too well. We don't have inflation because the people are living too well. We have inflation because the Government is living too well.