January 21, 2006

Celebrating Reaganomics, 25 years later

Yesterday, the Wall Street Journal carried an editorial entitled Still Morning in America: Reaganomics, 25 years later:

Twenty-five years ago today, Ronald Reagan was inaugurated as the 40th President of the United States promising less intrusive government, lower tax rates and victory over communism…If the story of history is one long and arduous march toward freedom, this was a momentous day well worth commemorating.

All the more so because over this 25-year period prosperity has been the rule, not the exception, for America--in stark contrast to the stagflationary 1970s. Perhaps the greatest tribute to the success of Reaganomics is that, over the course of the past 276 months, the U.S. economy has been in recession for only 15. That is to say, 94% of the time the U.S. economy has been creating jobs (43 million in all) and wealth ($30 trillion). More wealth has been created in the U.S. in the last quarter-century than in the previous 200 years. The policy lessons of this supply-side prosperity need to be constantly relearned, lest we return to the errors that produced the 1970s.

The heart and soul of Reagan's economic agenda were sound money (making the dollar "as good as gold," as Reagan used to put it) and lower tax rates. On monetary policy, Reagan has won a resounding victory. Today, nearly all economists agree with Reagan's then-controversial belief that the sole purpose of monetary policy should be to keep prices stable…

On tax policy, Reaganomics has also carried the day, if somewhat less completely. Tax rates in the U.S. are on average half as high now as they were in the 1970s, and almost every nation has followed the Reagan model of lower tax rates…

Nonetheless, tax cuts still stand in disrepute among most of the media, academics and Democrats in Congress, albeit for shifting reasons. When Reagan proposed his 30% across-the-board tax-rate cut, his critics howled that this would cause demand to rise and lead to hyper-inflation. In fact, supply rose faster than demand, and inflation fell to 4% from 13% and has fallen even lower since…the moment the final leg of the tax cut took effect, in January of 1983, the economy roared to life with an expansion that lasted more than seven years.

When the budget deficit rose in the mid-1980s, the liberals warned that if Reagan would not raise taxes interest rates would skyrocket. He didn't and rates didn't…

The Gipper's critics have written an economic history of the 1990s that they portray as a repudiation of Reaganomics. In this telling--known as Rubinomics--the Clinton tax hikes of 1993 ended the budget deficit, which caused interest rates to fall, which produced the boom of the mid- to late-1990s. In fact, the budget deficit hardly fell at all in the immediate aftermath of the tax hike, and while long-term interest rates fell in 1993, they shot back up again in 1994 almost precisely through Election Day…

On that day, voters…gave Republicans control of Capitol Hill to govern on the Reaganite agenda of lowering taxes and shrinking runaway government. Both the stock and bond markets turned upward precisely on Election Day in 1994, beginning a whirlwind six-year rally. By 1998, growth and fiscal restraint delivered a budget surplus for the first time in nearly 30 years. In 1997 President Clinton signed a further reduction in the capital gains tax, which propelled investment and the stock market to even greater heights.

The latest chapter of this story is the 2003 income and investment tax cuts enacted by the current President Bush…in the two and a half years since those tax cuts passed, the economy and tax revenues have both surged.

Where Republicans have most strayed from the Reagan vision has been on controlling federal spending…They should all recall the Gipper's words in his inauguration speech 25 years ago: "It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government."

For more economic/taxation history, check out the posting entitled Economics 101: Never Underestimate the Incentive Power of Marginal Tax Cuts.

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This is why laffey will roll through RI in the primary and the general. Chafee wants to raise everyone's taxes....everyone's. How do you win a rep. primary on that message? This is the singular issue that rep. primary voters VOTE on. Laffey wants to keep the taxes low, simplify the tax code and Chafee wants them higher. Chafee would do away with all the tax cuts.... including the middle class tax cuts. I guess if there is a vote on keeping the "classics" in or out of Brown University's curriculum, we would want Chafee.

But otherwise Laffey is the man.
This is the singular reason Chafee can not, will not ever debate Laffey.

Laffey will and is marching through RI like he took Cranston. He is probably standing on a street corner somewhere waving at voters. He will win and win big on this isue alone.

Posted by: Atlanta sherman at January 21, 2006 11:34 AM

Its really too bad that Reagan choose Bush in 1980 as his running mate. Remember Bush'd famous line when he ran eight years later, "Read my lips, no new taxes."?

Bush's cave in on that one issue was the beginning of the end of his presidency and the real time end of the revolution that RR had worked so hard to achieve. GW obviously learned a valuable lesson from his father's mistake. Even today he's giving Laffey's stump speech on the radio

The fundamental strength of Laffey is that he not only believes in keeping taxes low but he has a plan to get the job done.

Get this guy down to DC and we will put RI on the national map for the next 25 years.

J Mahn

Posted by: Joe Mahn at January 21, 2006 11:51 AM

Republicans are about first and foremost protecting the taxpayers. This is what Reagan taught us. I just can't understand how Chafee could have opposed the President's tax cuts. These tax cuts also benefited middle class families. Republicans can disagree about many issues like abortion. But we should all agree that government spends too much, not that it taxes too little. Laffey is Republican in my book. He supports the Bush tax cuts, and supports cutting spending. Chafee is no better than Jack Reed on tax and spend issues.

Posted by: Virginia Lee at January 21, 2006 3:57 PM

I know one Republican in the Senate who does not share Reagan's vision of low taxes and controlled spending, Lincoln Chafee.

This is one of the many reasons that we need to elect Steve Laffey to the US Senate.

Today I received a solicitation from the RI GOP, in which Patricia Morgan called Chafee "committed to lower taxes". I guess you can do anything you want in a solicitation piece, including LIE!! Chafee has a long record of opposing all tax cuts, including those for low and middle income families, he's got his, what does he care if you're trying to get yours?

Mayor Laffey has called for making the Bush tax cuts permanent and has led the charge to reduce wasteful government spending. Mayor Laffey is also the ONLY candidate who has outlined a plan (imagine that Linc. lovers) to reduce the federal deficit.

This is why we must send Linc. back the the farm, and Patricia back to whatever hole she climbed out of.

Posted by: Leonard Marshall at January 21, 2006 4:01 PM

I got the State GOP letter too. What a joke. The fact that the State Chairman and the RNC support Democrat Chafee is "Twilight Zone" material.

Laffey's message is full of optimism, like Reagan's. He spells out his plans for cutting pork, reducing the size of government and lowering taxes. He speaks of the American dream because he is living proof it still exists.

If we keep sending to Washington, a guy who's had it all handed to him, and who thinks being Senator is "interesting", who thinks the extra cash I have in my middle income paycheck (thanks to the Bush tax cuts) is BAD for me, the American Dream is doomed in Rhode Island. We have four tax-and-spend liberals in the RI Congressional Delegation. Its time we start sending real Republicans to DC.

Laffey's got all the right stuff.

Posted by: Fighting Joe Hooker at January 21, 2006 5:12 PM