Reaganomics, 25 years later
01-21-2006 09:56 AM
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Reaganomics, 25 years later
I stumbled accross this article and thoght some might enjoy it:
Still Morning in America
Reaganomics, 25 years later.
Friday, January 20, 2006 12:01 a.m. EST
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. On that same day, the American hostages in Iran were freed after 444 days of captivity. 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. Double-digit inflation is a distant memory unlikely to recur anytime soon.
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. Even Bill Clinton only dared to raise the top marginal income tax rate back to 39.5%, not 50% or 70%.
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. When the economy went into a deep recession in 1981-82, Reagan's adversaries (and some of his own advisers) declared his tax cuts a failure. Reagan said stay the course, and 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. After the 1987 stock market crash, liberal John Kenneth Galbraith wrote that "this debacle marks the last chapter of Reaganomics . . . and the irresponsible tax cuts." Again, Reagan refused to buckle, and two months later the stock market recovered and the expansion roared on--an expansion that didn't end until George H.W. Bush reversed course and raised taxes in 1990.
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 (rising by some 230 basis points from October 1993 to November 1994).
On that day, voters repudiated the Clinton tax hikes and the specter of HillaryCare and 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. As in 1981, opponents insisted those tax cuts would harm the economy by increasing the deficit and driving up interest rates. But 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. But most still adhere to his tax-cutting lessons, with a few prominent exceptions (notably Senator John McCain). 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."
01-22-2006 08:22 PM
I'm glad people are finding jobs but its not as rosy as the article you posted claims:
1. Profits are up, but the wages and the incomes of average Americans are down.
- Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001. Yet, productivity—the growth of the economic pie—is up by 13.5%.
- Wage growth has been shortchanged because 35% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 22% in previous periods.
- Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.
2. More and more people are deeper and deeper in debt.
- The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years.
- The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30 years ago.
- The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.6%.
- The personal savings rate is negative for the first time since WWII.
3. Job creation has not kept up with population growth, and the employment rate has fallen sharply.
- The United States has only 1.3% more jobs today (excluding the effects of Hurricane Katrina) than in March 2001 (the start of the recession). Private sector jobs are up only 0.8%. At this stage of previous business cycles, jobs had grown by an average of 8.8% and never less than 6.0%.
- The unemployment rate is relatively low at 5%, but still higher than the 4% in 2000. Plus, the percent of the population that has a job has never recovered since the recession and is still 1.3% lower than in March 2001. If the employment rate had returned to pre-recession levels, 3 million more people would be employed.
- More than 3 million manufacturing jobs have been lost since January 2000.
4. Poverty is on the rise.
- The poverty rate rose from 11.3% in 2000 to 12.7% in 2004.
- The number of people living in poverty has increased by 5.4 million since 2000.
- More children are living in poverty: the child poverty rate increased from 16.2% in 2000 to 17.8% in 2004.
5. Rising health care costs are eroding families' already declining income.
- Households are spending more on health care. Family health costs rose 43-45% for married couples with children, single mothers, and young singles from 2000 to 2003.
- Employers are cutting back on health insurance. Last year, the percent of people with employer-provided health insurance fell for the fourth year in a row. Nearly 3.7 million fewer people had employer-provided insurance in 2004 than in 2000. Taking population growth into account, 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level.
01-23-2006 12:08 AM
Originally Posted by bpmartyr
If Reagan was for sound money my ass is a banjo. Sound money doesn't not mean stable value. In fact sound money, that is a money that is commodity based and market transparent would have an inherent instability as with all commodities. In stabilizing the value of money economists have completely misconceived the problems that they were dealing with and invented a load of arbitrary indicators that have likely helped head off a lot of economic growth. There is no way for such indicators to recognize a relative deflation over an absolute one for example. The supply side inflationary nonse this article supports is a very big problem today.
Tax rates have been progressively increasing since the 19th century. If a 39.5% tax load is low, once more my ass is a banjo. What this article is rosily doing is comparing post soviet tax rates with pre. The fact that economies have gone from socialism to socialism lite isn't that great a stride, and does absolutely nothing to prove a move in the right direction of permanently lowering taxes.
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.
Now if Republicans would just learn that interventions they agree with are still interventions they might get a clue.
"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."
01-23-2006 07:05 AM
Running with the Big Boys
Reagan gave us supply side economics. A theory that any first year macroeconomic student can see is designed to morgage the future and end in certain disaster. Alan Greenspan has been the architech for a 600%+ increase in the national debt during his reign of terror. Every possible value has been taken from the US economic infrastructure. The value of the dollar is a fraction of its pre-reagan worth. Now that the over inflated realestate market has began to tumble, there is nothing left but to sell off the land. Good luck class of 2025. Thanks Bonzo!
Originally Posted by The Experiment
Wait that seems like a negative future maybe there is a way out?
Well, I guess we could invade another country and exploit their people and resources. Then colonize them into good supply siders. Lets not count out other planets, they need IPODS too, Hey you never know. Now off to work so I can be taxed out of my future to prolong the crumbling infrastructure, Gee, I hope something like a big sporting event or a distant tragedy or a Hollywood romance will come along and distracts me from this harsh reality. Come on media I am counting on you!..I wonder what Jen thinks about Brad and Angie?..U..S..A..u..s..a..?
01-23-2006 08:45 AM
I like the lively political debates, because I believe it is healthy.
I respect everyone's right to opinion even when I totally disagree with them.
As far Reagan goes, I believe he was true to his values, and commited to his vision. He was also more effective as a leader and less of a "politician" than so many others, including Ford, Carter, CLinton, and either Bush. Agree or disagree with his policies, his mark in History is strong.
01-23-2006 09:54 AM
Reagan was the last President that I had any confidence in at all... Nobody is perfect, but I've been very unhappy with all our presidential choices since Reagan... With him, I doubt we'd have the troubles we're having with our borders...
01-23-2006 10:10 AM
I don't begrudge someone their opinion, but for me bad policy makes bad leadership. There are many figures throughout history who could qualify as great leaders if you ignore the actuality of what they did. And please understand, the "my ass is a banjo" comments were directed at the article and its author, not at anyone here.
Originally Posted by milwood
01-23-2006 11:25 AM
not to worry, CDB. Your opinion is always valued IMO!
01-23-2006 02:14 PM
Reagan did make a great foam muppet. Remember that Genesis video? Classic.
01-23-2006 03:12 PM
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LOL, forgot about that video. Funny stuff. Sorry to post the article and not be part of the discussion. Not really edjumacated inuff in the subject to add anything usefull. Figured it would spark up some banter so, heh, why not.
01-23-2006 09:47 PM
Running with the Big Boys
Reagan was the best speaking president. He gave great speeches. The only president that I ever saw that could actually rally the audience. It was real emotion, not like todays fake cued responces. The polar oppisite of Reagan is George Bush II. He lacks any sincerity or ethos. Reagan came across as very likable no one ever slammed him only his politics. I don't think he had that much to do with 'Reaganomics"
Originally Posted by milwood
01-24-2006 02:09 AM
Kyra Gracie= my future wife
Slightly off topic but I plan on getting a tattoo of Reagan on my back right next to tupac and john paul II.
01-24-2006 01:24 PM
a more reagan/bush style economy cut and dry.. works very well. It is the promotion of the small private buisness that will be the saving grace of those americans that do not and cannot find jobs within large companies which will find workers in India and the Villeian Island of Toga that will work for 50 cents an hour. This economic theory promotes the smaller buisness to be free of most taxes that would not allow to hire more people.. thusly.. the wealth trickles down...
We have the strongest economy the US has ever had post WW2 and it is still growing.. this unemployment numbers will jump due to the ford lay offs however..and soon GMC will do the same.. however.. Auto groups from japan, korea etc are jumping at the bit to take this areas over, thus re employing said workers...
01-24-2006 04:23 PM
While the easing of taxes on those businesses is a good idea, it doesn't address the problem that in general they will be less efficient in their use of resources as opposed to foreign competitors. Jobs aren't lost to foreign competitors either, because they're not goods or physical objects. They're just opportunities to use time and resources productively. So long as there's a morass of regulations putting a strangle hold on opportunities here by raising costs, we won't really be competitive with foreign countries.
Originally Posted by MaynardMeek
01-24-2006 05:20 PM
I don`t think any of our Pres. really have that much to do with the policy decisions. Could be wrong but just my thought.
However Ronnie fit the mold of a leader.
01-24-2006 05:22 PM
I wonder how they would get along?
Originally Posted by mywetnightmares
01-24-2006 05:38 PM
thats the thing CDB.. the world is moving away from compitition.... we are on our way to a one world government, with a one world economy to which each nation will be specialized in one or two different areas... it seems to be that we are in a transition period to that said one world time
01-24-2006 07:03 PM
A one world government would likely collapse in decades if not sooner. It's not a worthwhile thing to fear.
Originally Posted by MaynardMeek
01-24-2006 07:27 PM
Bro this where we usually tend to differ. You say decades, I hear thats an F`n long time. I like our way of life.
Freedom... besides I am concerned for my children and thiers and yours and everyones. There is no need to scrap the whole system. Just remove the diseased parts. We need leaders that will look out for us not just themselves. Know any?
01-24-2006 11:13 PM
Running with the Big Boys
You really should consider that Reagan brand supply side economics has caused a 25 year devaluation of American buying power. The 1980s were brought in with a recession of jobs and cash flow and an inflation of product value. A person making $25,000 who lived in a $75,000 house and drove a $5,000 car was living large. Now that same person is making $50,000 but the house is worth $400,000 and the car $30,000. The rate of pay did not increase proportionally with the price of goods. How do you sustain buying power with out equal wealth? Simply borrow the money against time and value(interest). Logically consumer credit is based on the ability to pay it back. So the more you pay back the more you can borrow. You pay back inflated dollars vs the devaluation of your goods and the interest rate. This cycle normally creates the economy. It can be manipulated by regulating the interest rates.( as controlled by the central bankers )however no one can control devaluation. That is the inability to pay a given price regardless of its actual value. It is what prevents inflation from draining the economy of value. Mainly by stagnating it. The buisness man would have to restructure( layoffs, profit cuts) and become more efficient, in order to maintain a profitable position. The failure to adapt to the market change would result in the failure of the buisness. This is Adam Smith's free market, survival of the fittest. A mans world.
Originally Posted by MaynardMeek
But, nobody liked that way of life. It was too hard, remember JImmy Carter anyone?
So, Reagan to the resuce with Alan Greenspan as his quarterback Reaganomics took the burden of the economy off the shoulders of the buisness man and put it squarely on the consumer. How?
The birth of supply side economics. You simply let the banks lend more money to higher risks. When the risky loans default you bail them out with tax surplus dollars. Where do these dollars come from? Your pocket! Put there by your new salary paid by your boss who is also taking out buisness loans to expand his company. Now when inflation raises prices the seller does not have to lower his price because you the buyer now have more money to pay the inflated price, though the value is still the same!( a happy meal feeds you only once, whether it was $10 or $20) It is no fun to be a millionare if milk cost $10,000 a gallon. Well this was going to be a mess a soon as the fit hit the shan. What to do?
IPOs to the rescue! The third option ..the seller could sell his product for less with the help of some clever accounting and some not so clever investors. The giant "Pyramid" scheme(or stock market) Pump and dump. Covering buisness losses with the new investor dollars purchasing of overpriced stocks (worldcom,enron,adelphi...ect)
Okay that's done what left....How about when you go to sell your house we give you twice as much as its worth as long as you invest it all back into another overvalued property. This is today's economy. There is nothing left to mortgage. The market can only correct itself by re valuation. That will suck, especially because it has to adjust to the price that everyone can afford. When you don't have a job, because your company has failed, you can't afford anything. This is called a depression and it sucks. I thank Reaganomics for putting off the inevitable. I just hope it will hold out another 30 years, so maybe I will be too senile to notice. Good luck with that!..... Oh and at least somebody got rich . If you said bankers, you are correct sir!..well, all that value had to go somewhere!
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