As we continue our journey down the road of greater government intervention in, and influence on, our lives comes a timely book. It is a slim volume but it says quite a deal about the direction we are heading. And if you believe we are heading the wrong way, you’d be right.
“President Ronald Reagan’s Initial Actions Project” is the plan set out by the Reagan administration for the new president’s first 100 days in office. Just as valuable is the introduction by Arthur Laffer. In addition to discussing several economic concepts, he contrasts what Reagan did with what has happened so far under President Obama.
In describing the sea change occurring in thinking in the United States at the time of Reagan’s election, Laffer sets out the basics of supply-side economics. Notice how they apply to today:
- Government spending above a certain level hurts economic growth, as do “progressive” tax rates.
- Excessive printing of money and slow real growth cause inflation, which also hurts growth.
- Devaluation of one’s currency leads to offsetting inflation and thus lower growth
- Excessive regulation, such as taxes, destroys incentives and reduces output.
The only thing we haven’t seen yet is inflation, but that is almost guaranteed with all the money being pumped into the economy through bailouts, stimulus packages and who knows what else this administration and a Congress of the same party will think up. As Laffer notes:
The monetary base has grown from about $860 billion in January 2008 to about $1.57 trillion today. That is a doubling of the monetary base. …Repeating Milton Friedman, “Inflation is everywhere and always a monetary phenomenon.”
So exactly what Reagan saw as needing to change are the conditions we are seeing today, yet the current administration sees not change but more of the same as the answer.
It is undeniable that, following the supply-side policies implemented by the Reagan administration, America began one of its greatest periods of economic expansion. Entering his term, Reagan had to fight high inflation, unemployment and interest rates, coupled with stagnation. By the end of his second term, unemployment, interest rates and inflation were down considerably and the economy was chugging along.
And, by the way, tax receipts were way up, due not to higher taxes but to lower taxes and an economy expanding on a broad front.
Why do we ignore what worked to pursue policies that we know will fail?
