In the past, Americans have been blessed with unique leadership in the face of economic malaise. The presidency of Jimmy Carter was a good example, characterized by a broad array of failures on the economic front, with the average American citizen plagued by record high interest rates and double digit inflation. Internationally, our military capability was challenged, as our mission to save American hostages in Iran failed miserably.
The mood in America as the 1980 election approached was dour. My 21 percent car loan and 16.75 percent mortgage rate gave me reason to be dour too!
The only optimism for a different path was hope that Ronald Reagan would be elected in 1980 — although the polls suggested otherwise. Just prior to the election in 1980, Carter was ahead by a meaningful margin. Fortunately, Reagan won and the history of the following four years provides sufficient evidence that his remarkable presidency was indeed a blessing for virtually all Americans.
As President Reagan prepared to leave office after eight years, he gave his final speech to the nation on Jan. 11, 1989. For all of you who either didn’t hear it or weren’t alive when he gave it, I recommend that you access his address on the Internet where you can observe the greatest speech of any president during our lifetimes.
There are amazing parallels to be drawn from Reagan’s summary of his eight years and where we stand today. Among all of the comparisons one can make with today the following statement is the most noteworthy: “Once you begin a great movement, there’s no telling where it will end. We meant to change a nation, and instead we changed a world.”
The president was referring to his landmark fiscal reform that reduced marginal tax rates across the board. Supply-side economists will tell you that this tax rate reduction was the basis for a new American renaissance.
While there remains a debate between liberals and conservatives over the relationship between tax rate reductions and the economy, there is no question that Reagan’s eight years in office was accompanied by an economic boom, a decline in interest rates, a collapse in the double-digit inflation of the 1970s and the disintegration of our greatest enemy, the Soviet Union.
Mitt Romney proposed a Reagan-like tax rate-reduction program to stimulate the economy. As could be expected, there has been an equivalent number of naysayers who say these tax-rate cuts won’t work or question how we would pay for them. The history of tax-rate cuts and concomitant growth in individual tax revenue following the Kennedy, Reagan and Bush tax cuts demonstrate that individual tax-rate cuts worked.
Therefore, the claim that we must pay for Romney’s tax cuts is unfounded. Romney’s lack of commitment to his tax rate cuts and the impact such cuts would have on everyone’s standard of living might have contributed to his loss.
Romney’s narrow election defeat introduces a new uncertainty for the global economy. There will be no example to be set by President Barack Obama in the form of broad-based tax cuts similar to the Reagan or Bush tax cuts. On the margin, the electorate has cast their lot with higher tax rates on the rich and reductions in government spending, policies that will not resolve our deficit problems.
More importantly, Reagan’s comment about changing the world could have given the international economic community some hope for the future if it came from a President Romney. Since the United States is the world’s dominant force in economic policy, the world inevitably follows our lead.
The Bernanke safety net has been emulated by the European Central Bank. China and Japan have also lowered interest rates, as their central banks see the importance of avoiding any further global financial crises. Similarly, Reagan’s tax rate cuts were emulated by over 72 countries in the 1980s, and the world experienced a global surge in economic activity and rising standards of living.
The austerity policies being implemented in Europe, i.e., higher tax rates on the rich and reduced government spending, are undermining European growth. The adoption of similar policies in America, as proposed by both parties (spending cuts and tax increases), would not be a good model for either Europe or other industrialized nations that are facing fiscal difficulties.
If left unchanged, austerity can only produce a continuing decline in economic activity, falling standards of living and, ultimately, chaos and social collapse.
Unfortunately, we won’t be listening to another Reagan era speech in 2017.
Tom Nugent is executive vice president and CIO of Victoria Capital Management Inc.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
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