Ronald Regan faced much worse economic problems than President - TopicsExpress



          

Ronald Regan faced much worse economic problems than President Obama faced in 2009. Unemployment was soaring at 10.8% and at the same time America was suffering double digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The establishment in Washington at the time argued that this inflation was now endemic to the American economy, and couldnt be stopped, at least not without an economic collapse. All of this was accompanied by double digit interest rates with the prime rate peaking at 21.5%. The poverty rate increased, climbing by an astounding 33%, from 11.4% to 15.2%. A fall in median family income that started in 1978 went to a decline of almost 10% by 82. The Dow Jones industrial average lost 70% of its value, showing an overall collapse of stocks. Regan came in with a four point economic program to reverse this collapse of the American economy. 1. Cut tax rates to restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across the board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%. 2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Also, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%. 3. Anti inflation monetary policy restraining money supply growth compared to demand, to maintain a stronger, more stable dollar value. 4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%. These economic policies amounted to the most successful economic experiment in world history. The Regan Recovery started in 1982 and lasted 92 months without a recession until 1990, when the tax increases of the 1990 budget deal killed it. During this seven year recovery, the economy grew by almost one third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989. What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase outs. The capital gains tax rate will soar by nearly 60%, counting the new Obamacare taxes going into effect that year. The total tax rate on corporate dividends would increase by nearly three times. The Medicare payroll tax would increase by 62% for the nation’s job creators and investors. The death tax rate would go back up to 55%. In his 2012 budget and his recent national budget speech, President Obama proposes still more tax increases. Instead of coming into office with spending cuts, President Obama’s first act was a nearly $1 trillion stimulus bill. In his first two years in office he has already increased federal spending by 28%, and his 2012 budget proposes to increase federal spending by another 57% by 2021. His monetary policy is just the opposite as well. Instead of restraining the money supply to match money demand for a stable dollar, slaying an historic inflation, we have QE1 and QE2 and a steadily collapsing dollar, arguably creating a historic reflation. And instead of deregulation we have across-the-board re-regulation, from health care to finance to energy, and elsewhere. While Reagan used to say that his energy policy was to “unleash the private sector,” Obama’s energy policy can be described as precisely to leash the private sector in service to Obama’s central planning “green energy” dictates. As a result, while the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed. Previously the average recession since World War II lasted 10 months, with the longest at 16 months. Yet today, 40 months after the last recession started, unemployment is still 8.8%, with America suffering the longest period of unemployment that high since the Great Depression. Based on the historic precedents America should be enjoying the second year of a roaring economic recovery by now, especially since, historically, the worse the downturn, the stronger the recovery. Yet while in the Reagan recovery the economy soared past the previous GDP peak after six months, in the Obama recovery that didn’t happen for three years. Last year the Census Bureau reported that the total number of Americans in poverty was the highest in the 51 years that Census has been recording the data. Moreover, the Reagan recovery was achieved while taming a historic inflation, for a period that continued for more than 25 years. By contrast, the less than half hearted Obama recovery seems to be recreating inflation, with the latest Producer Price Index data showing double digit inflation again, and the latest CPI growing already half as much. For the last couple of years, President Obama keeps claiming that the recession was the worst economy since the Great Depression. But this isnt true. This is the worst “recovery” since the Great Depression. However, the Reagan Recovery took off once the tax rate cuts were fully phased in. Similarly, the full results of Obamanomics won’t be in until his historic, comprehensive tax rate increases of 2013 become effective. While the Reagan Recovery kicked off a historic 25 year economic boom, will the opposite policies of Obamanomics, once fully phased in, kick off 25 years of economic stagnation, unless reversed?
Posted on: Sun, 13 Apr 2014 23:47:19 +0000

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