Remembering the Gipper

February 6 was Ronald Reagan’s birthday; he would have been 100. The older I get, the more I admire Reagan. His legacy is much greater than can be posted in a single blog, but I’d like to present three things we can learn from his presidency:

1. The private sector works. Reagan exhibited confidence in the American people. He knew that they—if left alone—could bring about their own economic prosperity. As Reagan put it, government was the problem, not the solution. The same is true today. http://www.hark.com/clips/jrnppndgms-government-is-the-problem

2. Cutting taxes can increase revenues. Reagan cut taxes during his tenure, while federal revenue from income taxes rose from $364 billion in 1980 to $673 billion in 1989.

3. Government spending was and still is the problem. Although he garnered enough support from the Democrat Congress for his tax cuts, Reagan was unable to reduce the growth in spending. Had federal government outlays grown only at the rate of inflation during that time, we would have experienced budget surpluses spurred by economic growth in his second term.

These lessons probably ring true with most of my readers. Nonetheless, liberals like to paint Reagan as a “great communicator” who was able to hoodwink the American people with his simplistic and unworkable conservative ideology. His inability to tame the budget deficit is cited as evidence that “Reaganomics” failed. But this assessment is simply not true. As Reagan might say today, “…the trouble with our liberal friends is not that they’re ignorant; it’s just that they know so much that isn’t so.” http://www.hark.com/clips/dlvxhnstwz-the-trouble-with-our-liberal-friends

To be fair, Reagan deserves partial blame for the increase in government spending during his tenure. Perhaps he should have negotiated with Congress like he did with the Soviets. Likewise, it is true that tax cuts do not always increase government revenues. This depends on the marginal rates, prevailing economic conditions, and other factors, as the Laffer curve tells us. However, Reagan understood that the American people were overtaxed at the time and the numbers proved him right. The same case could be made again today.

Interestingly, I haven’t heard much talk about the “Reagan deficits” as of late. Budget deficits were in the $150 billion range when Reagan left office. Perhaps Obama’s 2010 deficit of well over $1 trillion has put things into perspective.

Going forward, the economic lessons from the Reagan era can be summarized quite easily: The economy can grow and the budget deficit can be eliminated (eventually) if we (1) cut taxes, (2) eliminate unnecessary regulations, and (3) reduce government spending. Putting this into practice means making difficult decisions about spending priorities—just saying no. Unfortunately, Reagan lacked a Republican Congress and only accomplished 2 of the 3. President Obama moved in the opposite direction in all 3 areas during the first two years of his term, and the ongoing economic crisis is the result.

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