TCS Daily


Happy Anniversary, Reaganites!

By James Pinkerton - November 4, 2005 12:00 AM

Can you imagine the Dow Jones Industrial Average at, say, 3000? Can you visualize inflation and interests in double digits? And per capita income maybe two-thirds of what it is now? It's not so difficult to see those things in your mind's eye -- provided you can also visualize the American people re-electing the 39th president, Jimmy Carter.

Instead, 25 years ago today, on November 4, 1980, the voters in 44 states chose Ronald Reagan. So this day, like any happy anniversary, is worth celebrating. But in addition, we should remember that while Reagan demonstrated the importance of optimism, another conservative immortal, Barry Goldwater, offered us a sterner injunction: There are no final victories. And so on this day, and on all days henceforth, we must recommit ourselves to the maintenance, and the furtherance, of the Reaganaut agenda -- because if we don't, we could lose it all.

I was lucky enough to work for Reagan in that '80 presidential campaign -- I even got to shake his hand a couple of times. I can remember cheering his speeches, as he said, "America is not a setting sun, but is a rising sun, whose best days are ahead of it." But although I was an enthusiastic Reaganite, I will admit to having a few quiet doubts about the Gipper being so chipper. After all, for most of the American elite, the "stagflation" of the 70s was viewed not as a decade-long dip in the economy, but instead as the new and permanently lower plateau of economic performance.

Emblematic of that era was the economist Lester Thurow; in 1980 he published a book that seemed to sum up the conventional wisdom: The Zero-Sum Society: Distribution and the Possibilities for Economic Change. Thurow's big idea was that if the pie was no longer growing, then what mattered most was slicing up the pieces more "fairly" -- which, translated, meant that Thurowians would make all the big redistributionist slicing-decisions. That was my problem, and that was the country's problem: we all spent too much time credulously absorbing the pessimism put out by the Main Stream Media, although back then it was just "The Media."

But Reagan knew better. He spent less time reading the liberal pundits and more time reflecting upon the genius of America -- which was, is, and always will be, the power of freedom. And of course, if Reagan had been less sure of himself, he might have believed what was written about him, routinely: that he was a crazy cowboy who would push the economy from mere recession into a full-blown depression. And then, of course, World War Three. No presidential candidate in the modern era except, perhaps for Goldwater in '64, was subjected to as much abuse as Reagan.

Yet Reagan persevered in 1980, aided by powerful new ideas, one of which was the Kemp-Roth "supply side" tax-rate reduction, which introduced the Laffer Curve to the world. The Laffer Curve, which held that under certain circumstances, tax-rate reductions would generate so much additional growth that they would pay for themselves, was a brilliant capsulization of free-market economic principles going back to the "Marginalist Revolution" of the late 19th century. The Laffer Curve was so simple that it was first set forth on a cocktail napkin in 1974. And yet it was so profound that it became the centerpiece of a victorious presidential campaign just six years later.

I followed Reagan into the White House in 1981 -- and, lucky peon that I was, I got to shake his hand a few more times. For a while in that first year, it seemed as if the critics might be right: "Reaganomics" seemed to be responsible for a worsening economy. But then, the supply-side tax cuts kicked in, combined with other Reaganite reforms, including spending cuts, the deregulation of the oil industry, and tight money. The economy came roaring back; the 40th president was vindicated. America's best days were, in fact, in the future, not the past.

Soon, as Reagan good-naturedly joked, "They don't call it Reaganomics" anymore. That is, when the economy was bad, Dan Rather & Co. were perfectly happy to link the bad times to Reagan. But when happy days were here again, well, that was the result of "cycles" or "exogenous factors."

In fact, the gross domestic product of the country, adjusted for inflation, grew by more than 30 percent in Reagan's eight years in office. Yet at the same time, in contravention of gloom-and-dooming Phillips-Curving Keynesians, unemployment fell by a quarter during the Reagan 80s, and inflation fell by more than two-thirds. And of course, the economy has been booming ever since.

OK, enough Gipper-gratulation. He fought the good fight, and he won the good fight -- not only against stagflation, but also, by the way, against communism.

So what lessons might we apply today? What would the Gipper be telling us if he were still with us?

Having shaken his hand a half-dozen times, I feel empowered to make three points, just on the tax issue.

First, Reagan Redux would say that taxes are still too high. Although the Laffer Curve is a bit too radical -- radical in its simplicity and profundity -- for most economists to subscribe to, at least when their colleagues are looking, no credible economist today would want to return to the bad old ideas of pre-Lafferite tax policy, when tax rates went as high as 94 percent. Interestingly, one of the first Americans to argue that such high tax rates were not only socially punitive, but also economically counter-productive, was a young actor who asked himself, "Why bother making another movie if I take home just six cents on the dollar?" And when Ronald Reagan applied that insight beyond his own situation, to the economy as a whole, his long romance with the Laffer Curve began.

Today, the top rate is 35 percent. And while the new tax reform commission has its heart in the right place, its recommendations are a jumble of poorly articulate "alternatives," none of which seem destined to capture the national imagination -- or a place on the political agenda.

But such neo-Reaganites as Steve Forbes, former House Majority Leader Dick Armey, and former George W. Bush economic adviser Larry Lindsey all say that the top rate should be half that. If we could accomplish such a feat, then maybe America's economic growth wouldn't merely exceed that of Western Europe and Japan; it might rival that of China and the other Asian tigers.

Second, the Gipper would remind us that tax rates aside, the overall burden of taxation -- federal, state, and local -- is too high. The data on Tax Freedom Day show a lot more sideways sidling than forward progress. And Tuesday's rollback of the Taxpayer's Bill of Rights in Colorado is hardly an encouraging sign. And while there's plenty of fight left in fans of limited governments, the Colorado vote underscores Goldwater's wisdom: No Final Victories.

Third, as if to underscore Goldwater's wisdom, one of the worst ideas of the 70s is today making a comeback: a "windfall profits tax" on the oil industry. Yes, it's maddening to see liberal Democrats decrying shortages of oil -- shortages that they helped create through restrictions on drilling and refining -- and thus proposing to "solve" those shortages through demagogic polices. But it's even more maddening to see Republicans joining in. As the Gipper reminded us, "f you tax something, you get less of it." Thus the question to the oil-taxers of today: Is this the time for less oil production?

So while the news of late has been mixed, Reagan Redux would never give in to counsels of despair. As he would say, amidst all this manure, there's gotta be a pony in here somewhere!

And so that's our challenge today, 25 years after Reagan changed American history -- and all of our lives. We should pick up the mantle of his optimistic can-do spirit and wear it around our shoulders. That can be our armor, our protecting shield. And then we should seize upon new ideas, and new thinking, just as the Gipper did in the late 70s, when he turned the Laffer Curve into a mighty sword. Such ideas can be our sword, too, because the best weapon is a theory that's proven itself as policy. If we come up with even better ideas, fine. But if we merely re-interpret the Reagan tax agenda for the 21st century, then the next 25 years will be even better than the last 25 years.

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