Many people, including virtually all Republicans, properly view President Ronald Reagan as a great success. The economy grew rapidly at an average rate of well over 4% for the last seven years of his presidency, with many millions of new high-paying jobs being created. Inflation was cut from double digits to low single digits. Much of the economy was deregulated, and entrepreneurial freedom was restored. The military was rebuilt. No new major wars were started.
When running for president in 1980, Reagan famously declared his foreign policy to end the Cold War was “we win, they lose.” Sure enough, by the end of his second term, the communist countries were sliding into the ash bin of history. Reagan managed to accomplish all of this with a sunny, optimistic disposition and with great humor. He helped Americans feel good about themselves.
The current crop of Republican aspirants for the presidency have all embraced some Reagan policies, such as lower spending, less regulation, some tax rate reduction, and monetary restraint, but none of them seem to appreciate how well integrated and comprehensive the Reagan program was. (True, there is still plenty of time before the election to put together a plan.)
The biggest single economic challenge any new president will face is the growth in government spending, which is causing an unsustainable rise in the ratio of spending to gross domestic product (without a major course correction, interest payments on the debt will eventually eat the entire federal budget). Government spending has three major components: defense, entitlements (primarily Social Security, Medicare and Medicaid). The rest is called discretionary.
No matter who is elected, defense spending is certain to rise — given that the U.S. is paying much of the bill (materiel, not soldiers) for two major wars and will be spending more to offset the Chinese. Despite his desire to cut spending, Reagan greatly increased defense spending to win the Cold War — which turned out to be a good bet.
Entitlement spending is also growing faster than national income — and thus, its growth rate must be cut — even though politicians don’t like to talk about it. So far, only former Govs. Nikki Haley and Chris Christie have been willing to even mention it — while the others, including President Biden and former President Donald Trump, are ignoring the problem (those two are likely to be dead before the money runs out in a projected 2033). When Reagan took office, like today, the Social Security and Medicare trust funds would have been soon depleted, but he had the courage to take on the problem and explain it to the American people. Reagan appointed Alan Greenspan to head a commission to come up with solutions for Social Security. He also appointed Otis Bowen, a physician and former Indiana governor, to head up the commission (of which I was an appointed member) to deal with Medicare and Medicaid. The commissions came up with partial solutions to buy time for several decades — which involved, over time, small reductions in program benefits and small tax increases.
The presidential candidates do not have to come up with immediate total solutions for the entitlements, but they should at least have the courage to recognize the problem and propose Reagan-type commissions to come up with specific recommendations.
Reagan took an ax to discretionary spending by appointing Office of Management and Budget Director Jim Miller, who had a close working relationship with Sen. Phil Gramm of Texas (both free-market economists) to lead the assault on government spending. The next president needs to put together an equally competent team, who should start by junking the Green New Deal, which is a wasteful boondoggle.
Reagan had a degree in economics, and he understood the difference between tax rates and tax revenue. When he took office, the maximum federal income tax rate was 70%, and when he left eight years later, the maximum tax rate was only 28% — and federal tax revenue was higher than when he took office. Reagan understood that in the long run, taxes on capital were revenue losers. The maximum federal income tax rate is now 39%. The current crop of presidential candidates ought to propose bringing the tax rate back down to 28% and explain, as Reagan did, that if properly structured, that would not result in any revenue loss over the long term.
This history and policy explanations are much more fully developed in a new paper by the well-known economist Daniel J. Mitchell that was just published by the Club for Growth Foundation. Mr. Mitchell’s paper concludes: “Economic Liberty is vital for human flourishing. During the 1980s, President Reagan enacted a wide range of premarket reforms that triggered several decades of strong growth. Unfortunately, policy has become more dirigiste in the 21st century, and the economy is now suffering sub-optimal performance. … The solutions to today’s problems, broadly speaking, are the same solutions to the problems Reagan inherited.”
“Bidenomics,” with more spending, regulation, and taxes, is the opposite of Reaganomics, so it should come as no surprise that the results are also the opposite of what Reagan achieved. Republicans in Congress and those running for president would be wise to review the history of Reaganomics and emulate those successful policies, which were part of an integrated, comprehensive plan that restored American greatness.
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.
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