Our View: . . . But then there’s tried and true
By most every standard imaginable, a more severe economic crisis confronted Ronald Reagan when he took office in January 1981 than faced Barack Obama 28 years later.
Key economic cripplers all registered in double digits — inflation (the consumer price index checked in at 11.3 percent in 1979 and 13.5 percent in 1980), unemployment (10.8 percent), and interest rates (the prime rate peaking at 21.5 percent in 1980). The prediction: economic calamity — particularly, so the prevailing Washington wisdom had it, if Mr. Reagan actually planned to govern according to the prescriptions of his campaign.
But that he did. His program for economic renewal boasted four major prongs.
Restoration of incentives for growth through significant tax reform. That meant cutting taxes — slashing the top marginal income tax rate from 70 percent to 50 percent, and then pushing through a 25 percent reduction in rates across the board.
Spending reductions, starting with a $31 billion cut in 1981 (equivalent to 5 percent of the federal budget, or $175 billion today). Even with the defense buildup responsible for winning the Cold War, federal spending under Mr. Reagan fell from a high of 23.5 percent relative to GDP in 1983 to 21.2 percent in 1989.
Anti-inflation monetary policy that yielded a stronger, more stable dollar.
Deregulation to the tune of $100 billion annually for consumers, as witnessed in lower prices.
This assault on “stagflation” not only righted the economy but produced the longest peacetime expansion of the economy ever, 92 months. Only the wayward tax policies of Mr. Reagan’s misguided Republican successor, George H.W. Bush, put an end to this extended recovery.
Over those seven-plus years, the U.S. economy, notes Peter Ferrara in an article for Forbes, grew by nearly a third. Imagine, Mr. Ferrara says, adding the entire economy of West Germany — the world’s third largest at the time — to the U.S. economy. That’s what transpired in the ’80s.
Other figures of note: In 1984 — the entire year, that is — the economy grew at a 6.8 percent clip, or the highest since the Roaring Twenties. Nearly 20 million jobs were created on Mr. Reagan’s watch, as the unemployment rate fell to a minuscule 5.3 percent. By 1983, the rise in inflation had been thoroughly reversed, falling to 3.2 percent. And, finally, from 1982 to 1989, real per-capita disposable income increased 18 percent.
A case can be made — and was, admirably, by Arthur Laffer and Stephen Moore in their book “The End of Prosperity” — that Reaganomics spurred not just that seven-year economic boom but a 25-year expansion interrupted only by short recessionary periods in 1990 and 2001.
A case can also be made that Obamanomics is an utter, and unfathomable, repudiation of these successful policies. We’d like to think that’s subject to change, but that would require a trip down Damascus Road. We’re not holding our breath.