Ronald Reagan on Budget & Economy
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
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.
Source: Reagan’s America, by Garry Wills, p. 364-5
Jul 2, 1987
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.
Source: Reagan’s America, by Garry Wills, p. 365
Jul 2, 1987
Stockman’s plan: cut taxes & encourage defense growth
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.”
Source: Reagan’s America, by Garry Wills, p. 366
Jul 2, 1987