Bruce Bartlett: "Part of it, of course, is the gross failure of Trump, who was Reagan on steroids. He showed that if you do every single thing on the right wing wish list, it really doesn't do very much good. I mean, we cut taxes massively. Did we have a huge spurt in growth? No, we did not. And we saw during his incompetent handling of the COVID virus that we've done too much to slash government. It's like a family deciding how much money can we afford to keep for a rainy day. And year after year, you look at that money sitting there and nothing terrible happens and you think, 'Oh, I guess we're OK, let's take a vacation.
Who knows what. You have to build up these institutions, such as the Centers for Disease Control and the National Institutes of Health and things like this to be constantly on the watch for things that you hope will never happen. And then all of a sudden they do. And I think that this is the way you have to articulate a vision of competent, efficient government that we really need.
Bruce Bartlett: "I think there's something that's important that has changed in terms of the Republican tax philosophy that I don't think very many people know. But I think Glenn Hubbard would agree with me about this, is the idea in the 80s was to try to get the rate of taxation, as the statutory or marginal tax rate, as low as it could get, given the amount of revenue that needed to be collected.
So, in other words, it was as much about the structure of taxation as it was about the amount of taxation. And remember, one of his greatest accomplishments was the Tax Reform Act of , which cleaned up the tax code and lowered the marginal tax rates.
Now, after Reagan, that idea just completely got lost in Republican policymaking circles. What they did is they started creating tax credits, in many cases refundable credits to accomplish the goals that they wanted to accomplish. Because for some reason, in the Republican mind, if I give you a refundable tax credit, that's good. That lowers the size of government. So I think we've had a kind of a disguised growth in government on the tax side under Republican administrations, and that hasn't accomplished as much as it appears to have accomplished.
And I think, you know, somehow we need to get away from that and get back to more straightforward government programs. Lee Drutman: "I think that that era is coming to an end as well. I mean, these things move in broad cycles and there's been 40 years of the idea that less government, limited government, lower taxes is what gets the economy moving.
And we're at a level of inequality that is [un]sustainable. I think that's just inevitable. Carter had reduced regulations at a faster pace. Reagan had campaigned on ending galloping inflation. In the inflation rate was These rates hurt the economy because money loses value too fast.
Business and employee income can't keep up with rising costs and prices. He used contractionary monetary policy , despite the potential for a recession. In , Volcker began raising the fed funds rate. These high rates choked off economic growth. Volcker's policy triggered the recession of Unemployment rose to Had inflation not been tackled in this way, the economy would have fared far worse. Volcker's policies knocked inflation down to 3. Today's conservatives prescribe Reaganomics to make America great again.
President Donald Trump and other Republicans have advocated it as the solution the economy needs. But the theory behind Reaganomics reveals why what worked in the s could harm growth today. The effect that tax cuts have depends on how fast the economy is growing when they are applied.
It also depends on the types of taxes and how high they were before the cut. The Laffer Curve shows that cutting taxes only increases government revenue up to a point. Once taxes get low enough, cutting them will decrease revenue instead. For example, President George W. Bush cut taxes in and to fight the recession. Supply-siders, including the president, said that was because of the tax cuts. Monetarists pointed to lower interest rates as the real stimulator of the economy.
Corporate Finance Institute. The Library of Economics and Liberty. Library of Economics and Liberty. Treasury Direct. Tax Foundation. Social Security Administration. Tax Policy Center. Office of Management and Budget. Digital History. Federal Reserve Bank of New York. Bureau of Labor Statistics. Accessed June 26, Division of labor lifted us out of that.
Specialization created efficiencies that allowed some to make more product for less effort. Beating the hand-to-mouth equation of life creates what we call wealth.
Work a day and get 1. Become more efficient and get 1. More and better efficiency is why there is wealth at all and it was an eons-long process to get us to where we now are.
In the last years, we have increased the world's wealth orders of magnitude over what it was prior to the industrial revolution. The industrial revolution was not powered by the invention of magical products, it was powered by the invention of theretofore inconceivable efficiencies.
Efficiency creates wealth for the producer, but it also may bring down the cost of products to consumers making them effectively more wealthy without any effort on their part. On this simplistic observation, Reagan seems to have based his economic world view of supply side economics and "trickle down.
Probably Reagan himself couldn't have enunciated anything more than that about his own philosophy. Humans, particularly ideological humans, are not terribly self aware of their own thought processes. Economies are simple enough, but not quite as simple as Reagan may have wanted them to be. Modern economies, built on efficiency, are a chicken and egg problem because labor and industry evolved concurrently.
Capital provided the equipment of industry and labor provided the day to day skill to make use of it. Capital provided the wherewithal to produce research and researchers, labor, provided the mind power of research.
Capital, labor and researchers combine to create products that are failures unless there are consumers who can afford to buy them. Economies are an intersection of the vitality of four complementary components, labor, capital, research and consumers. Minus any one of those components, we are all still living in a sub-Saharan Africa economy.
All four economic components must progress together or none will produce growth. Capital alone will not produce growth, it needs labor, research and consumers. Labor alone will not produce growth because it needs capital, research and consumers, etc.
More than anything else, capital needs consumers in order to make money. By cutting the wages of labor and even researchers, capital insures it will not have consumers in the future. Keynes said that government is the consumer of last resort. Business doesn't seem to understand that it's their product that needs that last resort consumer, and the more elective the consumption of it is, the more they need government to support an economy that produces a surplus of median income.
Reagan did not propose that kind of government. The full Reaganomics program was not only tax cuts for the rich and corporations, it included union busting and social spending cuts.
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