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REAGAN FLASHBACK: Reagan’s Legacy: Our 25-Year Boom

Posted by Sarah Palin Web Brigade on February 9, 2011

Excellent article about the success of President Reagan’s free-market economic policies,  posted by Investor’s Business Daily at RealClearMarkets.


April 10, 2009

Reagan’s Legacy: Our 25-Year Boom

By Investor’s Business Daily

Golden Age: After 25 years of record-setting economic performance around the world, set off by President Reagan’s free-market policies, the world has fallen into a recession. Is this the inevitable end of an era?

Let’s go back to 1982, in many ways the bleakest year since the Depression. The economy had emerged severely damaged by the stagflation of the 1970s. Americans’ confidence, both in government and in the economy, had reached a low ebb in 1980. Many felt our best years lay behind us.

On the nations’ campuses and even in some of its boardrooms, people were talking about capitalism as a failed system.

Some advocated a “third way” between socialism and capitalism, as in Europe, which would include heavy doses of government intervention in markets to bring them back to life. Still others took up the call in E.F. Schumacher’s best-seller, “Small Is Beautiful,” to downsize expectations. Live frugally, they said. Inhabit small houses. Drive small cars. Don’t use oil. Rein in your ambitions.

One man didn’t agree with this: President Ronald Reagan, elected in 1980 amid a wave of voter disgust at his predecessor’s failures.

It was Reagan who brought America’s capitalist economy roaring back to life, ending energy price controls, slashing income tax rates by 25% and dramatically reducing tax rates on capital gains.

Americans had been told for years — as they’re now being told again — to expect diminished standards of living. Then they watched as the Reagan years set in place one of the most durable and remarkable booms in incomes and wealth in history.

Yet the media and academia rarely credited Reagan for his accomplishments — especially on the economy, where “Reaganomics” became a term of opprobrium among the intelligentsia.

But it’s a fact. As the nonpartisan National Bureau of Economic Research once declared, we lived in the “longest sustained period of prosperity in the 20th century” from 1982 to 1999 — one big boom, the NBER said, set off by Reagan.

Reagan’s magic was simple. He wanted to lower interest rates, slash inflation, cut unemployment and boost economic growth. These things, at the time, seemed impossible. But he did it.

The so-called misery index — that is, unemployment plus inflation — hit 21% as Reagan was elected in 1980. By the time his terms were over, it had plunged to around 9%.

Interest rates likewise plunged — contrary to the predictions of many pundits, who boldly predicted that the budget deficits which emerged in the 1980s would send rates spiraling upward. From a stratospheric 21% in 1980, the prime rate fell to 7% by decade’s end.

During the 1970s, many Americans for the first time saw incomes shrink. But from 1981 to 1989, median real household income rose by $4,000. The poorest Americans, who saw their incomes fall 5% in the 1970s, watched their incomes rise 6% in the 1980s.

After the staunchly free-market Reagan, things got a bit rocky.

President George H.W. Bush’s four years included some mistakes and questionable moves — a record rise in regulations, for one, and the infamous breaking of his “no new taxes” pledge that, after 1991’s mild recession, handed the 1992 election to Bill Clinton.

President Clinton won largely because he promised change. He had also promised a middle-class tax cut, among other things.

But his popularity plunged when, instead of cutting taxes, he raised them by a record amount. That tax hike contributed to one of the slowest economic recoveries from a recession since WWII.

The young Arkansan president looked like a one-termer.

But things changed. Slashing defense spending after the collapse of communism (another Reagan victory), Clinton and the new GOP Congress in 1994 started to shrink the deficit. Clinton sounded Reaganesque declaring: “The era of big government is over.”

Meanwhile, after raising interest rates in 1994, Fed chief Alan Greenspan began cutting them as inflation and the deficit fell. The economy and the stock market soared. Budget surpluses emerged.

The Reagan era’s star companies begat the Internet boom; they helped save Clinton’s presidency. Two stand out: In 1993, Intel unveiled its Pentium chip. In 1995, Microsoft released Windows 95.

By 1996, the economy was rocking and so was the stock market. Employing his famous policy of “triangulation,” Clinton wisely signed welfare reform into law, bringing millions of people off the dole and into the productive work force, many for the first time.

A year later, and with much less fanfare, Clinton signed into law a tax bill produced by the Republican Congress to cut capital gains tax rates. The result was the record boom of 1997 to 2000, the result of which was an unprecedented expansion of wealth.

Indeed, this 25-year Reagan boom was the most profoundly democratic era of capitalism ever. In 1980, just 16% of all workers owned stock. By 2000, that had expanded to 52%. Stock ownership moved from Wall Street to Main Street.

Even so, President George W. Bush inherited a mess in 2000. The Nasdaq was at the tail end of a record plunge — which began in 1999 after the Fed aggressively raised rates to quell inflation and end “irrational exuberance.” As Bush entered office, the economy was already in recession. Job growth was nil. The 9/11 attacks that killed 3,000 cast a pall over the nation’s spirit and the economy.

Still, Bush managed to push through two major tax cuts. The second one, in 2003, helped set off a five-year growth spurt that went all but uncovered by the nation’s media.

What’s more, as a backdrop to the Reagan boom, the world’s economy likewise moved strongly in a free-market direction, adding more output in the last 25 years than in all of history. In 1980, world GDP was just $11 trillion, World Bank data show. By 2007, it had soared to $54 trillion, the greatest economic surge in history.

Hundreds of millions of people were pulled from abject poverty into something resembling a middle-class existence.

Today the question is: Can Reagan’s free-market miracle survive? Or was it just a brief interlude of history?

President Obama has presided over the greatest expansion of government in history. Spending on the various bailouts and stimulus programs now totals $4 trillion — about a third of our total national output. And it looks to grow even bigger.

He has proposed new taxes and new rules that will put the government’s hand into our lives as never before. Expanding government spending from the 50-year average of 20% of GDP or so to as much as 25% will require sweeping new taxes — and not just on the rich.

A shocking new Rasmussen Poll shows that just 53% think capitalism is superior to socialism — despite the fact that socialism, wherever it’s been tried, has brought misery and poverty.

So is Reagan’s dream of free-market capitalism dead? Or is it just sleeping, as in the 1970s, waiting for a new champion to emerge?


 

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2 Responses to “REAGAN FLASHBACK: Reagan’s Legacy: Our 25-Year Boom”

  1. […] REAGAN FLASHBACK: Reagan’s Legacy: Our 25-Year Boom […]

  2. […] This post was mentioned on Twitter by Sarah Palin News , Ligia Cardenas. Ligia Cardenas said: REAGAN FLASHBACK: Reagan's Legacy: Our 25-Year Boom « Sarah Palin …: It was Reagan who brought America's capit… http://bit.ly/gTQ51J […]

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