Republican Warfare, Part I: The Trump Problem

I’ve never been a fan of Donald Trump, though my criticism has always focused on his support for bad policies such as wasteful spending, foolish protectionism, and corrupt cronyism.

Today I’m going to change hats and pretend to be a political pundit so I can offer some unsolicited advice to my Republican friends.

If they like to win elections, they need to realize that Donald Trump is bad news.

Yes, he beat a very unpopular Hillary Clinton in 2016, but every subsequent election has produced Republican disappointment.

• The 2018 midterm elections.
• The 2020 presidential election.
• The 2022 midterm elections.

What should most upset the GOP is that Trump has given Democrats control of the Senate twice. First, by depressing Republican turnout in the two Georgia runoff contests with his sore-loser routine about stolen elections in the 2020 cycle. Second, by convincing Republican voters to nominate inferior candidates in the 2022 cycle.

But the fault is not entirely with Trump.

As illustrated by this cartoon, a significant share of Republican voters like Trump and this gives him enormous power over the GOP.

The interesting question to answer is why many rank-and-file Republicans feel so loyal to Trump – even though he often supported bad policies and has helped Democrats gain power in Washington.

I actually answered that question early last year. Here’s some of that column.

One thing that surprised me over the past four yeas is that I found strong support for Trump from grassroots conservative Republicans. Yes, they didn’t like his fiscal profligacy and they mostly didn’t like his protectionism, but they did like the fact that he was a “fighter,” unlike so many (but not all) Republican politicians who get cozy with the DC establishment. They also figured he was worth supporting because he was so reviled by the establishment media (i.e., the enemy of my enemy is my friend).

I think that analysis still applies, but let’s dig deeper. Another problem is that Republican voters think anti-Trump GOP politicians must be bad (closet Democrats, or something like that).

That may be true in some cases, with Mitt Romney being an obvious example.

But that binary analysis – the Trump camp vs the every-other-Republican camp – is woefully inadequate.

I think it’s more accurate (though obviously simplified) to look at the Republican Party as having three camps. And here’s a Venn diagram with my amateur depiction of what unites and divides them.

I’m sure many of you already know my conclusion, which is that the Republican Party should opt for Reaganism.

That’s the approach that reflects good policy and good politics.

I’ve written many times why it is good policy, so I’ll conclude by elaborating on why it is good politics.

Simply stated, Trump voters don’t trust establishment Republicans. They view them as proponents of things they don’t like such as bailouts, globalism, and amnesty.

And establishment Republicans obviously don’t like Trump and Trumpie candidates, even if only for stylistic reasons.

Reaganism, by contrast, can unite all the factions. And when I say Reaganism, I’m not just talking about tax cuts. What we need is the full market-friendly Reagan agenda of spending restraint, deregulation, trade expansion, and sound money.

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Gorbachev, Reagan, and the Much-Deserved End of the Soviet Union

The world is much freer today than when I was born, largely because the “Evil Empire” collapsed.

The Soviet Union was awful. It killed at least 20 million of its own people (some say as many as 60 million). It enslaved and impoverished its own citizens, as well as those who languished behind the “Iron Curtain.”

Ronald Reagan deserves the lion’s share of the credit for the collapse of communism – in part because he restored America’s economic vitality and built up the nation’s military, but also because he directly condemned the immorality of Marxism (often using humor).

But since the last dictator of the Soviet Union just died, let’s examine Mikhail Gorbachev’s role.

An editorial in today’s Wall Street Journal is worth reading because it explains that his biggest achievement was not using bloodshed to preserve communist rule.

Mikhail Gorbachev…rose through the Communist ranks but presided over the end of the regime. His greatest achievement was allowing the Cold War to end without a war or a worse conflagration that the world feared for decades. …He understood that the country he inherited in 1985 when he became general secretary of the Communist Party was losing the Cold War to a revitalized West. Its economy wasn’t the juggernaut of central-planning genius that the CIA had assessed at the time. …Ronald Reagan had reversed the U.S. malaise of the 1970s with a defense buildup and reforms that unleashed America’s private economy. …Gorbachev’s reforms were intended to revive the Soviet regime to be able to compete with Reagan’s America. …The countries of Eastern Europe, long enslaved as members of the Warsaw Pact, saw their moment to break free. Gorbachev refused to send in the tanks as his Soviet predecessors had done in Hungary and Czechoslovakia. …mutual trust between Gorbachev and Reagan…helped to bring the Cold War to an end with freedom as the victor.

George Will is also grateful that Gorbachev allowed Soviet communism to whither away without violence. Here’s some of what he wrote in his Washington Post column.

Failing upward into the world’s gratitude, Mikhail Gorbachev became a hero by precipitating the liquidation of the political system he had tried to preserve… Like Christopher Columbus, who accidentally discovered the New World, Gorbachev stumbled into greatness by misunderstanding where he was going. …Gorbachev’s most noble facet, his “extraordinary reluctance” to use violence to hold the Soviet system together. …President Ronald Reagan…described the Soviet Union as “the focus of evil in the modern world.” …he launched a high-tech challenge to a Soviet Union in which 30 percent of hospitals lacked indoor plumbing. …The Soviet Union’s brittle husk crumbled as Gorbachev struggled to preserve it. His reputation rests on the world’s amnesia about this.

Professor William Taubman of Amherst also opined in today’s Wall Street Journal.

He seems more sympathetic to Gorbachev than George Will, but also lauds him for opting against a bloody crackdown.

Mikhail Gorbachev…deserves to be celebrated… When he entered office in 1985, Gorbachev had almost unlimited power. He could have presided indefinitely over the status quo. Instead, he…acquiesced in the dismemberment of the Soviet empire without the violence that accompanied the collapse of most other empires. …he persuaded communist hard-liners to vote themselves out of office. …Gorbachev was happy to give up domination of Eastern Europe… Gorbachev tried to save the Soviet Union but ended up hastening its destruction. When it became clear in late 1991 that his great project was doomed, he could have lashed out, mobilizing the military to save him and what was left of the U.S.S.R., at the risk of civil war. Instead, he bowed out with dignity.

Matt Welch of Reason also weighs in, emphasizing that Gorbachev was not great, but that he allowed a great thing to happen.

f the late Mikhail Gorbachev had gotten his way, the world would look a lot different than it does now. Socialism would still be the dominant economic system from Leipzig to Yakutsk. The Warsaw Pact would still exist; a unified Germany would not, nor would the independent Baltic states. Above all, the planet would still be blighted by the wheezing and malevolent existence of what Ronald Reagan rightly described as “the evil empire”—the Union of Soviet Socialist Republics. …Yet we should not judge the eighth and final Soviet leader, who died Tuesday at the age of 91, by his base geopolitical desires but rather by the glorious human flourishing that his actions—and especially his inactions—allowed to take place. …November 9, 1989 became the most liberating day of the most liberating month of the most liberating year in human history.

Last but not least, David Satter shared some insights in a column late last year for the Wall Street Journal.

During its 70-year life, the Soviet regime killed at least 20 million of its citizens for political reasons. …however, the Soviet Union wasn’t indomitable. In 1988 the Soviet leader Mikhail Gorbachev allowed a space for free information in Soviet society, creating a contradiction between free speech and a system based on lies. When glasnost wasn’t repressed, it led to the collapse of the system. …President Reagan rejected the idea that the West had no alternative to accommodation. In the words of former Secretary of State Henry Kissinger, he took the offensive “ideologically and geostrategically.” …As for his strategy, Reagan said it was simple: “We win. They lose.” …the U.S. rearmament drive began to bear fruit. …Stunned by these developments, the Soviets eventually decided to take the risk of major reforms.

As you might expect, I like the emphasis on Reagan’s role. Yet another reason why he is the only great president of my lifetime.

The takeaway from today’s column is that Gorbachev mostly deserves praise for what he didn’t do. By opting against a crackdown, he allowed the Soviet Union to wind up on the “ash heap of history.”

And that’s a great result.

P.S. Here’s my collection of columns about the grim 100th anniversary of communism.

P.P.S. And here’s my collection of anti-collectivism humor, including many columns mocking communism.

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Small Government Is Good Policy…and Good Politics

I’m a policy wonk rather than a political pundit.

But since part of my job is educating politicians, I can’t simply rely on arguments about what’s best for the country.

I also have to convince them that they can enact good policy while also keeping their jobs.

And that’s why I developed my Fourth Theorem of Government back in 2017.

The simple message is that ordinary people enjoy more income if and when politicians make wise policy choices.

And that’s a very effective strategy for winning reelection.

The obvious example is Ronald Reagan, who won a landslide in 1984 even though (or, actually, because) he aggressively fought to reduce the burden of federal spending.

But not everybody agrees with me.

In a column for the Washington Post, Henry Olsen argues that the Republican Party needs to ignore libertarian ideas and embrace activist government.

Many conservatives recognize that attracting a new, diverse, working-class voter base also entails a new, non-libertarian approach to economics. …Liberty-minded intellectuals might rail against widespread government involvement in the economy, but voters like free public education, subsidized health care and generous pensions. …voters…prefer the Scylla of tax increases to the Charybdis of entitlement cuts as aging populations put fiscal pressure on health-care and retirement programs. …The Chips package should serve as a symbol of what government will need to do to reinvigorate an economy that builds things.

I’ll make my main points about taxes and entitlements at the end of the column, but I can’t resist some editorializing on two things from the above excerpt.

First, Henry says voters like free public education. Maybe that’s true, but they seem to like the ultra-libertarian idea of school choice even better.

Second, he argues that the recently enacted Chips law is a role model. But if industrial policy was a good idea, why did Japan stagnate? Why has China’s growth slowed?

Let’s now look at more of the column.

Past Republican efforts to limit the growth of entitlement spending after GOP landslides in 1994 and 2010 backfired politically, helping to reelect presidents Bill Clinton and Barack Obama. The fact is that 63 percent of Trump voters care more about keeping Social Security benefits than preventing tax hikes, and 45 percent care more about giving seniors on Medicare what they need than about controlling program costs. …Any serious effort to retain these largely working-class voters — and attract more in the future — must come to grips with these views. …Modern conservatism needs to refine Reagan’s insights and explicitly adopt a theory of when government should act to enhance people’s lives.

My first instinct is to ask for examples of how and when government enhances people’s lives. Or to provide examples of where Reagan thought government did a good job.

That certainly does not seems to fit with Reagan’s message in this video, this video, or the second video from this collection.

Or this video!

But maybe Reagan’s own words were insincere. That seems to be what Olsen thinks since he wrote that “the conservative idol implicitly sanctioned government action if it helped people live dignified lives of their own choosing.”

So let’s forget about words and look at the track record.

What we find is that Reagan was remarkably effective in fighting big government. Indeed, what separates Reagan from every other Republican in recent history is that he successfully fought to constrain the burden of government spending.

But don’t believe me. The data from the Historical Tables of the Budget unambiguously show that Reagan was far better than any other president in the past 50-plus years.

I’ll close by questioning Olsen’s claim that voters prefer tax increases over spending restraint.

I very much suspect that is only the case if they think someone else’s taxes are being increased.

If you don’t believe me, I invite you to look at this polling data from left-wing supporters of Bernie Sanders. And if hard-left voters are not willing to pay more to finance European-sized government, what are the odds that Republican voters are willing to pay more?

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Celebrating the Death of the Evil Empire

There are not many advantages to being old, but I feel lucky to have been alive to see the collapse of the Berlin Wall and the dissolution of the Soviet Union.

We should celebrate this victory over evil every day.

But especially on December 26, which is the 30th anniversary of the Soviet Union’s downfall (the Soviet flag was replaced by the Russian flag on Christmas, but the USSR wasn’t formally dissolved until the following day).

In a column for the American Institute for Economic Research, Doug Bandow writes joyfully about the end of the Soviet Union.

…the Union of Soviet Socialist Republics, which Reagan accurately labeled the Evil Empire…assuredly was evil. …the Evil Empire’s death wasn’t the miracle that occurred three decades ago. The Soviet Union’s peaceful death was. …Reagan was vital. He recognized the USSR as a national Humpty Dumpty, ready for its great fall. Contra the widespread assumption among foreign policy specialists that communism was likely to be with us for years, even decades, Reagan saw weakness, economic, to be sure, but also moral and spiritual. …Gorbachev…kept Red Army troops in their barracks in the breakthrough year of 1989, when the East European “satellites” slipped their orbits. …Poland and Hungary began the cascade. Czechoslovakia and Bulgaria followed more slowly. Most dramatically, the Berlin Wall fell on November 9, 1989, after East Germany’s leadership refused to commit mass murder and mow down protestors. …The Soviet Union staggered along for two more years. The regime increasingly failed to manage the economy. …Three decades ago this month the Evil Empire—created by Vladimir Ilyich Lenin, empowered by Joseph Stalin, dessicated by Leonid Brezhnev, and buried by Mikhail Gorbachev—ended. Disappeared. Collapsed. Vanished. Disintegrated. Failed. And all the misguided intellectuals, venal apparatchiks, and murderous ideologues could not put it back together again. …good people can, and sometimes do, win.

The point about the “moral and economic” weakness of the Soviet Union is probably not sufficiently appreciated.

Reagan pointed out (often using humor) that communism was a moral abomination, not some sort of legitimate competing system (I’d be rich today if I had a dollar for every time some supposed expert asserted that we needed to find a middle ground with communism).

It’s probably not possible to measure the extent to which foundational criticism played a role in the collapse of the Soviet Union, but these excerpts from James Pethokoukis seem very relevant.

December will mark the 30th anniversary of the dissolution of the Soviet Union. …One of the best brief analytical accounts of Soviet Union’s demise is by AEI scholar Leon Aron — a 2011 piece in Foreign Policy, “Everything You Think You Know About the Collapse of the Soviet Union Is Wrong.” …To Aron, the sudden demise of the Soviet Empire is ultimately a story of moral renaissance, an “intellectual and moral quest for self-respect and pride that, beginning with a merciless moral scrutiny of the country’s past and present, within a few short years hollowed out the mighty Soviet state, deprived it of legitimacy, and turned it into a burned-out shell that crumbled… The long-run decline and demise of the Soviet Union is also, of course, a story of the economic failure of socialism and central planning.

While Reagan deserves considerable credit, he wasn’t the only leader to help push the Soviet Union into the dustbin of history.

In an article for Reason, Stephanie Slade discusses the role of Pope John Paul II.

In 1979, less than a year after ascending to the Catholic Church’s highest office, Pope John Paul II returned to his home country, then under communist rule. He disembarked at the airport, knelt, and kissed the Polish ground. That moment was arguably the beginning of the end of the Soviet Union. …While celebrating Mass at Warsaw’s Victory Square, John Paul…said, “that there can be no just Europe without the independence of Poland marked on its map!” It was an astonishing political rebuke to the Soviets, who following World War II had installed communist governments across Eastern Europe that were “independent” in name only. …As the labor organizer and future Polish president Lech Wałęsa put it, John Paul’s pilgrimage “awakened in us, the Poles, the hope for change….I have no doubt that without the pope’s words, without his presence, the birth of Solidarity would not have been possible.” …In 1987, Pope John Paul II made his third pilgrimage to Poland. Independent unions were still outlawed at the time, but that did not stop supporters from hoisting Solidarity banners during a papal Mass attended by some 800,000 people. That same week, Reagan, during a speech at the Brandenburg Gate, intoned: “Mr. Gorbachev, tear down this wall!” Two years later, the Berlin Wall would indeed come down. We often think of that as the first domino to fall in Eastern Europe. But in fact, it occurred a few months after Poland held its first semi-free parliamentary elections. Solidarity claimed 99 percent of the open seats. …The events of the period were a triumph for individual liberty.

I’ve pointed out how a grocery store in Texas also helped bring about the end of the Soviet Union.

A TV show about the same state may have played a role as well. Here are some excerpts from a report in the U.K.-based Sun.

Classic soap Dallas brought down communism in the Soviet Union, Eurythmics star Dave Stewart has claimed. …And the claim comes from an impeccable source — a conversation the songwriter had with former Soviet leader Mikhail Gorbachev in the 1990s. Dave, 68, said: “What ­Gorbachev was saying — it was Dallas, the TV show. …“Somebody managed to get a VHS to work and broadcast it to part of Russia and they thought, ‘Hang on, that’s how people live in America’. “He said that had more effect, that half an hour, than anything else.” …watching such shows was banned behind the Iron Curtain.

For what it’s worth, I don’t think grocery stories and TV shows were quite as important as Reagan and the Pope.

But I think such factors helped to erode the confidence of the communist elite (the bosses who were much more likely to be exposed to the superior economic outcomes in capitalist nations).

Let’s close with a final observation about the failures of the American policy elite.

I’ve previously opined on the glaring inability of some academic economists to understand the inherent flaws of communism. Well, a recent column by George Will contains these amazing observations about a similar blindness by supposed experts inside the U.S. government.

In 1992, Sen. Daniel Patrick Moynihan (D-N.Y.) remembered a warning by CIA Director Allen Dulles (who would become a Washington casualty of the Bay of Pigs) in 1959 that the Soviet Union’s economy was humming so efficiently that by 1970 the gap between the Soviet and U.S. economies would be dangerously narrow. But, then, the 1957 Gaither Commission projected that the Soviet gross domestic product would surpass the U.S. GDP in 1993. (The sclerotic Soviet Union did not live that long.) Moynihan noted that in 1987 the CIA reported that East Germany’s per capita GDP was higher than West Germany’s, an assessment that “any taxi driver in Berlin” could have refuted.

I don’t like majoritarianism, but passages like this are why I’m also not a fan of rule by self-styled experts. But that’s a topic for another day.

The moral of today’s column is that communism was an evil failure.

As epitomized by the Soviet Union, it was an economic failure and a humanitarian failure.

P.S. If you want to learn more about the economic performance of East Germany and West Germany, you can click here.

P.P.S. If you want other examples of how communist economics led to terrible outcomes, you can also compare Czechoslovakia to nations in Western Europe, as well as Cuba vs Chile and North Korea vs South Korea.

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Reagan, Biden, and the Facts on Government Spending

With regards to fiscal policy, part of my mission is to proselytize in favor of lower tax rates and a smaller burden of government spending.

But another goal is simply to make sure people understand basic facts about the budget.

For instance, how many people know that Republican presidents (notwithstanding their rhetoric) generally increase spending at a faster rate than Democrats?

Not many.

And ever fewer people know that Republican presidents even increase domestic spending (discretionary outlays plus entitlements) faster than Democrats.

The only exception to this rule is Ronald Reagan.

Which explains why folks on the left don’t like him, which is a perfectly reasonable reaction from their perspective.

But what’s not reasonable is the way some of them butcher facts in pursuit a big-government agenda.

For instance, Paul Waldman of the Washington Post has a column claiming that Joe Biden is finally, after 40 years, ending the Reagan revolution.

…the old-school plutocrats who have long controlled the party’s policy agenda…are getting very frightened of the reconciliation bill Democrats are negotiating. …The reconciliation bill really does represent an undoing of Reaganism. …The bill would reverse what Ronald Reagan wrought on government spending… Reagan famously said that “government is not the solution to our problem; government is the problem.” His great achievement was to make that the default assumption of public debate, the paradigm under which the country would operate for decades. It held sway even during periods of Democratic rule. Bill Clinton embraced the Reagan paradigm… the Democratic reconciliation bill is most revolutionary. It would reinforce the safety net — largely temporary programs such as unemployment insurance and food stamps, meant to help when you experience a crisis — but it would also create a new system of social infrastructure… All of which would go far beyond what was in place before Reagan. …it really is a threat to the legacy of Reaganism.

Some of what Waldman wrote is correct.

Reagan did point out that “government is the problem.”

And we did get a bit of Reagan-style spending restraint under Bill Clinton (though one can certainly argue that the post-1994 GOP Congress deserves some or all of the credit).

But he is wildly wrong in his main point about a dominant Reagan-inspired paradigm on government spending.

Let’s go to the Historical Tables of the Budget, published by the Office of Management and Budget.

Here’s a chart based on Table 8.2, which shows total domestic spending (column E + column H) in inflation-adjusted dollars. As you can see, outlays have exploded in the post-Reagan years (and I included both 2019 and 2020 data to show that it’s not just the coronavirus-related spending increases from last year).

Now let’s look at Table 8.4, which allows us to show domestic spending (also column E + column H) as a share of economic output.

We see that the burden of such outlays declined significantly under Reagan. Sadly, all that progress evaporated (and then some) by 2019.

The bottom line is that Biden does have a big-government agenda.

But that’s not exactly a new paradigm. Every other president in the post-Reagan era has sided with government over taxpayers.

I miss the Gipper.

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Sloppy or Dishonest Fiscal Analysis from the Washington Post

Good fiscal policy means low tax rates and spending restraint.

And that’s a big reason why I’m a fan of Reaganomics.

Unlike other modern presidents (including other Republicans), Reagan successfully reduced the tax burden while also limiting the burden of government spending.

President Biden wants to take the opposite approach.

A few days ago, Dan Balz of the Washington Post provided some “news analysis” about Biden’s fiscal agenda. Some of what he wrote was accurate, noting that the president wants to increase spending by an additional $6 trillion over the next 10 years.

…the scope and implications of his domestic agenda have come sharply into focus. Together they represent the most dramatic shift in federal economic and social welfare policy since Ronald Reagan was elected 40 years ago. …The politics of redistribution, which are at the heart of what Biden is proposing, could test decades of assumptions that Democrats should be afraid of being tagged as the party of big government. …Together, the already approved coronavirus relief plan, the infrastructure proposal that was unveiled a few weeks ago and the newly proposed plan to invest in social welfare programs would total roughly $6 trillion.

But Mr. Balz then decided to be either sloppy or dishonest, writing that we’ve had decades of Reagan-style policies that have squeezed domestic spending and disproportionately lowered tax burden for rich people.

Reagan’s small-government philosophy resulted in a decades-long squeeze on the federal government, especially domestic spending, and on tax policies that mainly benefited the wealthiest Americans. …Government spending on social safety-net programs has been reduced compared with previous years.

Balz is wrong, wildly wrong.

You don’t have to take my word for it. Here’s a chart, taken from an October 2020 report by the Congressional Budget Office. As you can see, people in the lowest income quintile have been the biggest winners,, with their average tax rate dropping from about 10 percent to about 2 percent..

Here’s a chart showing marginal tax rates from a January 2019 CBO report. As you can see, Reagan lowered marginal tax rates for everyone, but Balz’s assertion that the rich got the lion’s share of the benefits is hard to justify considering that people in the bottom quintile now have negative marginal tax rates.

Balz’s mistakes on tax policy are significant.

But his biggest error (or worst dishonesty) occurred when he wrote about a “decades-long squeeze” on domestic spending and asserted that “spending on social safety-net programs has been reduced.”

A quick visit to the Office of Management and Budget’s Historical Tables is all that’s needed to debunk this nonsense. Here’s a chart, based on Table 8.2, showing the inflation-adjusted growth of entitlements and domestic discretionary programs.

Call me crazy, but I’m seeing a rapid increase in domestic spending after Reagan left office.

P.S. There’s a pattern of lazy/dishonest fiscal reporting at the Washington Post.

P.P.S. I also can’t resist noting that Balz wrote how Biden wants to “invest” in social welfare programs, as if there’s some sort of positive return from creating more dependency. Reminds me of this Chuck Asay cartoon from the Obama years.

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The World’s Most Politically Illiterate Statement

Exactly one month ago, I declared that Congresswoman Ayanna Pressley deserved an award for the “world’s most economically illiterate statement” because of her claim that “poverty is not naturally occurring.”

In reality, poverty has been the norm throughout history. As documented by Professors Deirdre McCloskey and Don Boudreaux, it was only the development of capitalism (starting a few hundred years ago in Europe) that enabled humanity to enjoy amazing and unprecedented increases in living standards.

Moreover, Ms. Pressely was trying to argue that redistribution was the proper way to address poverty, and I concluded my column by noting “that part of her statement also is wrong, according to both U.S. data and global data.”

Today, I want to debunk another preposterous assertion.

David Smith of the U.K.-based Guardian wrote a column yesterday claiming that Biden’s so-called stimulus should be celebrated since it marks an end to forty years of Reaganomics.

…he will…be on a mission to restore faith in government. Confidence in it “has been plummeting since the late 60s to what it is now”, Biden noted in his remarks last week. His legislation, called the American Rescue Plan, can correct that with the biggest expansion of the welfare state in decades. …Biden knows better than anyone what that means. When he was born, in 1942, the president was Franklin Roosevelt, architect of the New Deal… When Biden was a student at the University of Delaware, Lyndon Johnson embarked on his project of the “Great Society”… Then came Ronald Reagan and his famous quip: “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” …He described Johnson’s “Great Society” as a fundamental wrong turn and set about dismantling it. …This orthodoxy held and dominated the political centre ground. …Biden’s could hardly be more of a polar opposite. …All the more reason to enjoy his victory lap and celebrate that four decades of Reaganism and “trickle down” economics are at an end.

Some of that political analysis is reasonable. FDR’s failed New Deal did expand government, as did LBJ’s failed War on Poverty.

And it’s also true that Reagan challenged their big-government orthodoxy and was somewhat successful in reining in the welfare state (“dismantling it” is a huge exaggeration, however).

But the author’s claim that there were “four decades of Reaganism” is breathtaking nonsense.

• George H.W. Bush expanded the burden of government.
• George W. Bush expanded the burden of government.
• Barack Obama expanded the burden of government.
• Donald Trump expanded the burden of government.

That’s 24 years of statist policies after Reagan left office.

If Mr. Smith actually knew the subject matter and wanted to write an honest article, he could have made an argument about 16 years of Reaganism because we also benefited from a net reduction in the burden of government during Clinton’s eight years in office.

But the 21st century has been nothing but bad news for proponents of free markets. If you peruse Economic Freedom of the World, you’ll find that America’s level of economic freedom peaked in 2000 with a score of 8.67 (on a 1-10 scale).

Now the score for the United States has dropped to 8.22.

By the way, that’s not catastrophically bad. There’s no immediate risk of America becoming another Greece. And we’ll presumably never turn into Venezuela, no matter how hard Biden tries (it wouldn’t even happen if Vice President Harris took over).

That being said, what we’ve endured over the past two decades definitely is not Reaganism. The “Washington Consensus” is just a distant memory.

P.S. David Smith’s article is an example of sloppy journalism at a left-wing newspaper, but I’ll always have a bit of fondness for the Guardian because of the unintended compliment it bestowed upon me back in 2009.

P.P.S. For younger readers who did not experience the Reagan years, here’s my assessment of his record and here are some videos of some of his iconic remarks (and here’s a bonus video).

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Krugman’s Failed Attack on Reaganomics

In my humble opinion, Ronald Reagan was the only president in my lifetime who deserves praise for both believing in liberty and delivering good results.

His sound policies help to explain why the economy boomed after his policies were implemented, which is in stark contrast to the economy’s anemic performance during the Obama years.

There’s really no comparison between the two.

But not everyone appreciates Reagan’s accomplishments.

In his recent newsletter, Paul Krugman of the New York Times asserts that the Gipper’s economic record doesn’t merit praise.

…the legend of the Reagan economy…plays an outsized role in conservative economic doctrine to this day. …the core of modern conservative economic doctrine is the assertion that cutting taxes, especially on the wealthy, does wonderful things for the economy. And they hold up Reagan’s economic record as proof of that doctrine’s truth. …The truth is that Reagan doesn’t deserve blame for the 1981-2 recession — but he doesn’t deserve credit for the subsequent recovery, either. Instead, it was all about the Federal Reserve. …tax-cutting conservatives have been falsely claiming credit for that growth ever since.

I give Krugman credit for realizing that it would be preposterous to blame Reagan for the 1981-82 recession (I don’t know if Krugman understands that the downturn was baked into the cake by the Carter-era inflation, but he probably knows that it began before Reagan’s tax cut was even enacted, much less implemented).

But he then makes two mistakes, neither of which is trivial.

First, Krugman overlooks all of Reagan’s other accomplishments. Not only the impact of the tax cuts and tax reform, but also the spending restraint and deregulation.

Second, he wants to give all the credit to the Federal Reserve, yet central banks, while ostensibly independent, don’t operate in a vacuum. One of Reagan’s great accomplishments – as recognized by unbiased establishment types – was to support the temporarily painful shift to a non-inflationary monetary policy.

Krugman raises several additional points in his newsletter.

Since 1990 claims that tax cuts will generate huge booms — and that tax hikes will lead to disaster — have belly-flopped again and again. President Bill Clinton’s tax increases in 1993 didn’t cause the recession just about everyone on the right predicted; President George W. Bush’s tax cuts didn’t produce a “Bush boom.” The Trump tax cut didn’t deliver anything like the promised results. In 2011 Gov. Sam Brownback of Kansas cut taxes sharply, promising that this would lead to a surge in growth. It didn’t. At the same time, California raised taxes; conservatives declared that this would be “economic suicide.” It wasn’t.

I’ll begin by (sort of) agreeing with Krugman that folks on the right can be guilty of acting as if all that matters is tax policy (in other words, the notion that all tax cuts are a guaranteed elixir for growth and that all tax increases lead to economic collapse).

That’s obviously not true. Indeed, fiscal policy only accounts for about 20 percent of a nation’s score in Economic Freedom of the World. And since fiscal policy also includes the burden of government spending, that means tax policy may only explain about 10 percent of economic performance.

And when you understand that, it’s easy to see that Krugman is attacking a straw man.

For instance, nobody should be surprised that the economy didn’t do well under Bush because his one good policy (the 2003 tax cut) was more than offset by all of his bad policies (more spending, more regulation, entitlement expansion, education centralization, TARP, etc).

Likewise, nobody should be surprised that the economy prospered under Clinton because his one bad policy (the 1993 tax hike) was more than offset by all the good policies adopted in the 1990s (spending restraint, welfare reform, deregulation, etc).

The bottom line is that good tax policy is important, but you also have to pay attention to all the other policies that also impact economic performance.

And when you do, Reagan’s performance looks even more impressive.

P.S. Reagan did engage in some protectionism, unfortunately, which is why America’s score on trade declined during the 1980s. In his defense, I’ll point out that Reagan believed in free trade and he was the one who started the negotiations that led to both NAFTA and the WTO. So I would argue that, in the long run, his tenure was a net plus for trade.

P.P.S. When I write about Reagan’s policies, I can’t resist pointing out that his policies resulted in big increases in tax revenue from upper-income taxpayers (in other words, powerful evidence of the Laffer Curve).

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The Economic History of the 20th Century

It’s not often (actually, only once) that I share a video lasting nearly two hours. But this video – revolving around the intellectual rivalry between pro-market Hayek and pro-intervention Keynes – is an excellent summary of 20th-century economic policy.

We learn about the growth of socialism and communism during and after World War I.

This then led economists from the Austrian school – including Hayek – to explain why that approach (genuine socialism, meaning government ownership, central planning, and price controls) was doomed to failure.

But other forms of intervention and redistribution gained new adherents, especially when Keynes argued that the Great Depression was the fault of capitalism (for what it’s worth, I think the video fails to include analysis on how the New Deal actually lengthened and deepened the downturn).

Unfortunately, the Keynesian narrative dominated and the video informs us that the people of the United Kingdom voted for a socialist government when World War II ended. Which then led to the nationalization of the economy’s “commanding heights” and the enactment of the welfare state.

The United States didn’t veer as sharply to the left after the war, but there was no meaningful challenge to the the statist consensus that arose in the 1930s.

On the bright side, Germany rejected socialism by getting rid of price controls and allowing markets to flourish (the video overstated the degree to which a welfare state was imposed). But that was the exception to the rule. The world was gravitating to statism, including the developing world.

My favorite part of the video is that we learn about the creation of the Mont Pelerin Society and the emergence of Milton Friedman and the Chicago School.

That was the start of the laissez-faire counterrevolution. But it didn’t yield immediate results.

The left was in charge of economic policy from the end of the war through the 1970s in the USA and UK, regardless of which political party held power.

But bad policy sooner or later leads to bad results.

And that changed the political environment.

The latter part of the video tells the very happy story on how the sensible ideas of Hayek and Friedman eventually translated into the historic elections of Ronald Reagan and Margaret Thatcher.

If you watch the entire video, you’ll learn about how Reagan and Thatcher successfully overcame major challenges as they shifted their nations toward economic liberty (most notably, Reagan tamed inflation and Thatcher denationalized state-run companies).

And you’ll see that most of the world then followed – including the collapse of the Soviet Empire.

You even get some sympathetic quotes about capitalism from leftists such as Gordon Brown, Larry Summers, and Jeffrey Sachs at the end of the video.

So it seems like a happy ending. And capitalism indeed was the dominant force in economic policy about 20 years ago when the video was released.

Sadly, the track record of the 21st century (Bush II, Obama, and Trump) has not been overly favorable for believers in economic liberty.

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America Still Needs Reaganism

I’m skeptical of “common-good capitalism” in the same way I’m suspicious about “nationalist conservatism” and “reform conservatism” (and it should go without saying that I didn’t like the “kinder-and-gentler conservatism” and “compassionate conservatism” we got from the Bushes).

Here’s what I prefer.

Whether you call it libertarianism or small-government conservatism, this is the approach I wish Republicans would follow (or Democrats, if the spirit of Grover Cleveland still exists in that party).

But there are many self-styled conservatives who disagree. They think Reagan and his successful policies are passé.

Interestingly, the desire to move beyond Reaganism comes from pro-Trump and anti-Trump outlets.

David Brooks, a never-Trumper with a column in the New York Times, thinks Reagan’s anti-government approach is misguided.

If you came of age with conservative values and around Republican politics in the 1980s and 1990s, you lived within a certain Ronald Reagan-Margaret Thatcher paradigm. It was about limiting government, spreading democracy abroad, building dynamic free markets at home and cultivating people with vigorous virtues… For decades conservatives were happy to live in that paradigm. But as years went by many came to see its limits. It was so comprehensively anti-government that it had no way to use government to solve common problems. …Only a return to the robust American nationalism of Alexander Hamilton, Henry Clay and Theodore Roosevelt would do: ambitious national projects, infrastructure, federal programs to increase social mobility. The closest National Greatness Conservatism came to influencing the party was John McCain’s 2000 presidential bid. He was defeated by a man, George W. Bush, who made his own leap, to Compassionate Conservatism. …The Reformicons tried to use government to build strong families and neighborhoods. …Most actual Republican politicians rejected all of this. They stuck, mostly through dumb inertia, to an anti-government zombie Reaganism long after Reagan was dead and even though the nation’s problems were utterly different from what they were when he was alive. …there is a posse of policy wonks and commentators supporting a new Working-Class Republicanism… But if there is one thing I’ve learned over the decades, it is never to underestimate the staying power of the dead Reagan paradigm.

Maybe I’m just an “anti-government zombie,” but my response is to ask why Brooks thinks the federal government should be in charge of state and local infrastructure.

Even more important, it would be nice if he could identify a government program that successfully promotes social mobility. There are several hundred of them, so the fact that he doesn’t offer any examples is quite revealing.

By contrast, the Reagan approach of of free markets and limited government works anywhere and everywhere it is tried. And he was right that big government is bad government.

But at least Brooks’ column reminds me to add “national greatness conservatism” to my list of failed philosophical fads.

Now let’s shift to an article from the Trump-friendly American Conservative. Rod Dreher also argues that Reaganism is no longer relevant.

Reagan nostalgia has long been a bane of contemporary conservatism, because it prevented conservatives from recognizing how much the world has changed since the 1980s and how conservatism needed to change with it to remain relevant. …by the time Trump came down that escalator, Reagan conservatism was about as relevant to the real world as FDR’s New Deal liberalism was in 1980. It is no insult to Reagan to say so. Until Trump arrived on the scene, it was difficult for right-wing dissenters from orthodox Reaganism—critics of free trade, immigration skeptics, antiwar conservatives, and others—to break free of the margins to which establishment conservatives had exiled them. …It is impossible to see the clear outlines of a post-Trump future for the Republicans, but…Reaganism—the ideology of globalized free markets, social and religious conservatism, and American military and diplomatic domination—is never coming back.

Sadly, I don’t think Dreher is correct about “New Deal liberalism” being irrelevant.

How else, after all, would someone categorize Obama’s policies? Or Biden’s platform? It’s “We shall tax and tax, and spend and spend, and elect and elect,” just as FDR advisor Harry Hopkins stated.

And Reagan’s policies are definitely still relevant, at least if the goal is to improve the well-being of the American people.

Yes, Dreher is right that “the world has changed since the 1980s,” but that doesn’t mean that good policy in 1980 is no longer good policy in 2020.

I think the problem may be that people think Reaganomics is nothing more than lower tax rates, perhaps combined with a bit of inflation fighting. And it’s definitely true that Reagan’s tax rate reductions and his restoration of sound money were wonderful achievements.*

But the Reagan economic agenda was also about spending restraint, deregulation, trade liberalization (he got the ball rolling on NAFTA and the WTO), and other pro-market reforms.

To be sure, Reagan’s policy record wasn’t perfect. But the policies he preferred were the right ones to restore American prosperity in the 1980s.

And while there are different problems today (the need for entitlement reform, for instance), the Reaganite approach of smaller government is still the only good answer.

*Let’s also remember to applaud Reagan for the policies that resulted in the unraveling of the Soviet Empire.

P.S. As explained in the Fourth Theorem of Government, pro-growth, Reagan-style policy can be smart politics.

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Which Party Does Better on the Economy?

The best feature of libertarians is that we are very principled and look at everything through the lens of the non-aggression principle.

By contrast, the worst feature of politics, as explained by the Ninth Theorem of Government, is that it encourages people look at everything through the lens of partisanship.

In other words, there’s a desire to always make your team look good and the other team look bad, even if you have to torture data.

Here’s an example.

In a column for the New York Times, Michael Tomasky asserts that Democratic presidents have a much better track record on the economy than their Republican counterparts.

Mr. Biden and his party’s No. 1 job between now and Election Day: Make it clear that Democrats have been better stewards of the economy — for decades, and by far. Many people don’t believe this. …But it’s true. …the country has done better for decades under Democrats, by nearly every major economic measure. From John Kennedy through Barack Obama — 56 years during which, as it happens, we had a Democratic president for 28 years and a Republican president for 28 — we saw more than 50 million jobs created under Democrats and just 24 million jobs created under Republicans. Even the stock market has performed better under Democratic presidents. …just toting up numbers by the months each party had in power is imprecise. But there’s no better way to do it.

Any decent social scientist will quickly identify are all sorts of problems with Tomasky’s methodology.

• What about the impact of which party has full or partial control of Congress?
• Is it right to blame (or credit) presidents for what happens in their first year or two, before they’ve had a chance to enact and implement new policies?
• Should other variables be measured, such as median household income or labor force participation?

But let’s set aside these concerns, as well as others that can be listed, and accept Tomasky’s numbers. Does this mean that the economy does better when Democrats are in the White House?

That’s certainly a possible interpretation, but it’s far more accurate to say that the economy does better when a president – regardless of party – adopts good policy (or, to be more accurate, if good policy is implemented during their presidency).

I’ve previously ranked presidents based on what happened to the burden of government spending during their tenures. And one thing that stands out is that Republicans seem to be even worse than Democrats – even when looking at what happened to domestic spending (with Reagan and Johnson being the only two exceptions).

And I’ve also graded many of the modern presidents (Richard Nixon, Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush, Barack Obama) based on their overall record on economics. If you peruse their performances, you’ll see there’s no obvious connection between good policy and partisan affiliation.

But I’ve never put together a best-to-worst list, so here’s my ranking of every president since Kennedy.

Let me elaborate – and also add some caveats.

For what it’s worth, I don’t think there’s good modern-quality data on JFK (or, to be more accurate, I’ve never searched for it), but I included him since he’s part of Tomasky’s analysis. That being said, he may be ranked too low. Yes, he spent too much money and implemented some bad policies, but he also lowered tax rates and pushed for free trade.

I also think it’s too early to grade Trump, but I included him since I know that will be of interest to readers. As you might imagine, I like what he’s done on taxes and red tape, but his record on other issues is bad – and getting worse. I’m especially concerned about the consequences and impact of the Fed’s easy-money policy, an approach Trump certainly supports.

Johnson and Nixon are unambiguously terrible, while Reagan is the star performer.

Clinton was surprisingly good (feel free to give the credit to Newt Gingrich if you want, but we didn’t need veto overrides to get the good policies of the 1990s).

The rest of the presidents were generally bad. I put them in reverse chronological order since I didn’t see any logical way of differentiating between them.

I can’t resist citing one more segment from Tomasky’s column.

Republican failures are not an unhappy coincidence. They’re a result of conservative governing practice. Republicans no longer fundamentally believe in the workings of government, so they don’t govern well. Their contempt for government is a result of conservative economic theory.

This is nonsense, as should be obvious from what I’ve already written. Republicans do not have a track record of “conservative governing.”

With one exception. We had relatively competent governance from the one GOP president who did have a “contempt for government” (actually, just contempt for big government).

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Donald Trump Is No Ronald Reagan

Way back in January of 2017, I predicted for a French TV audience that Donald Trump would be a big spender like George Bush instead of a small-government conservative like Ronald Reagan.

Sadly, I was right.

I crunched the numbers earlier this year and showed that Trump has been a big spender, no matter how the data is sliced.

Perhaps most shocking, he’s even allowed domestic spending to increase faster than it did under Bill Clinton, Jimmy Carter, and Barack Obama.

That’s a terrible track record, especially compared to Reagan’s impressive performance (by the way, these calculations were made before all the coronavirus-related spending, so updated numbers would make Trump look even worse by comparison).

Anyhow, I’m looking at this issue today because of a recent story in the Washington Post.

The Reagan Foundation just told the Trump people to stop using the Gipper’s likeness in their fundraising appeals.

The Ronald Reagan Presidential Foundation and Institute, which runs the 40th president’s library near Los Angeles, has demanded that President Trump and the Republican National Committee (RNC) quit raising campaign money by using Ronald Reagan’s name and likeness. …What came to the foundation’s attention — and compelled officials there to complain — was a fundraising email that went out July 19… The solicitation offered, for a donation of $45 or more, a “limited edition” commemorative set featuring two gold-colored coins, one with an image of Reagan and one with an image of Trump. …Proceeds from the coin sales went to the Trump Make America Great Again Committee, a joint fundraising operation that benefits both the Trump campaign and the RNC. …In the 1990s, both Reagan and his wife Nancy signed legal documents that granted the foundation sole rights to their names, likenesses and images. …the RNC accepted the foundation’s demand regarding the fundraising emails.

It’s unclear why the Reagan Foundation made the request.

For what it’s worth, I hope officials were motivated at least in part by disappointment with Trump’s anti-conservative record on government spending (and also on trade).

Simply stated, Trump is no Reagan.

While I’m a big fan of the Gipper, I don’t pretend he had a perfect track record. But I think it’s correct to say that his goal was to advance liberty by shrinking government, even if there were occasional detours.

For instance, Holman Jenkins noted in his Wall Street Journal column that Reagan always had the right long-run goals even when he made short-run comprises on trade that were unfortunate.

Reagan slapped import quotas on cars, motorcycles, forklifts, memory chips, color TVs, machine tools, textiles, steel, Canadian lumber and mushrooms. There was no market meltdown. Donald Trump hit foreign steel and aluminum, and the Dow Jones Industrial Average fell more than 600 points… The real difference is that Reagan’s protectionist devices were negotiated. They were acts of cartel creation… This was unattractive but it wasn’t a disaster, and Reagan’s protectionism quickly fell away when a global upswing began. …Mr. Trump wants a spectacle with himself at the center. …His confused and misguided ideas about trade are one of his few long and deeply held policy commitments.

And if you need more evidence, look at what Reagan said about trade here, here, and here.

Can you imagine Trump giving such remarks? Or even understanding the underlying principles?

There are also important differences in the populism of Trump and Reagan, as explained by Jonah Goldberg of the American Enterprise Institute.

…there are different kinds of conservative populism. Until recently, right-wing populism manifested itself in the various forms of the tea party, which emphasized limited government and fiscal restraint. That populism…is very different from Trump’s version. …Reagan’s themes and rhetoric were decidedly un-Trumpian. The conservative populist who delivered “A Time for Choosing” used broadly inclusive language, focusing his ire at a centralized government that reduced a nation of aspiring individuals to “the masses.” …Reagan’s populist rhetoric was informed by a moderate, big-hearted temperament, a faith in American exceptionalism… He warned of concentrated power that corrodes self-government.

I’ll close with the observation that Trump has enacted some good policies, especially with regard to taxes and red tape.

The bottom line is that I’m not trying to convince anyone to vote for Trump or to vote against Trump.

Instead, I simply want people to be consistent and principled advocates of economic liberty instead of blind partisans.

As explained in my Ninth Theorem of Government.

In other words, I don’t care if you’re an enthusiastic supporter of Trump. Just don’t let that support lead you to somehow rationalize that wasteful spending and protectionism are somehow good ideas.

And I don’t care if you’re an enthusiastic never-Trumper. Just don’t let that hostility lead you to somehow decide that tax cuts and deregulation are bad ideas.

P.S. In my speeches over the past few years, I’ve run into many people who tell me that Trump must be good because the media hates him the same way they hated Reagan. It’s certainly true that the establishment press has visceral disdain for both of them. I’ll simply point out that media hostility is a necessary but not sufficient condition for determining whether a Republican believes in smaller government.

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Mirror, Mirror, on the Wall, Which Modern President Is the Biggest Spender of All?

Trump’s new budget was released yesterday and almost every media outlet wrote about supposed multi-trillion dollar spending cuts when, in reality, the President’s budget actually calls for nearly $2 trillion of additional spending over the next 10 years.

The bottom line is that Trump is more akin to a big-government Republican rather than a Reagan-style conservative.

Today, let’s take a look at Table 3.2 of the Historical Tables of the Budget to assess how Trump’s record on spending compares to other modern presidents.

I’ve done this exercise in the past, starting in 2012 and most recently in 2017, but this is the first year we have enough data to include Trump’s performance.

And if we simply look at overall spending numbers (adjusted for inflation, of course), we get the shocking result that Obama increased spending at the slowest rate.

This surprising outcome is due in part to factors such as falling interest rates, a slowdown in military expenditures, and the fiscal impact of the 2010 elections (in other words, gridlock can be beneficial).

Trump, meanwhile, is near the bottom of the list (though not as bad as George W. Bush and LBJ).

What happens, though, if we remove interest payments from the data? After all, those outlays truly are uncontrollable (barring a default) and they mostly reflect spending decisions of prior administrations.

So if we want to judge a president’s fiscal policy, we should look at “primary spending,” which is the term used by budget geeks when looking at non-interest spending.

This measure doesn’t radically alter the results, but some presidents wind up looking better and others fall.

Another way of looking at the numbers is to remove the fiscal impact of bailouts, such as TARP (and also the savings & loan bailouts of the late 1980s).

The reason for this alteration is that the bailouts cause a big spike in spending when they occur, and then cause a drop afterwards because repayments actually are considered “negative spending,” as are the premiums that banks pay each year (I’m not kidding).

So presidents who are in office when the bailouts occur wind up looking worse, even though their policies may not have contributed to the problem. And the presidents who are in office when the repayments occur (remember, those count as negative spending) wind up looking better than they really are.

Here are the adjusted rankings (calculated by subtracting rows 46, 50, and 51 of Table 3.2). As you can see, Obama takes a bit of a tumble and Reagan is now the most fiscally prudent president.

Last but not least, now let’s also remove defense spending so we can see which presidents did the best (and the worst) when it comes to social welfare spending.

This is the most important category for those of us who believe the federal government should get out of the business of income redistribution and social insurance.

Reagan easily tops the list, limiting outlays to 0.5 percent annual growth. The other thing that’s remarkable is that every other Republican was worse than Bill Clinton, Jimmy Carter, and Barack Obama.

For what it’s worth, Trump is the best of the non-Reagan Republicans, though that is damning with very faint praise.

The first President Bush was awful on spending, and Nixon was catastrophically terrible.

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Communism, Reagan, and the 30th Anniversary of the Fall of the Berlin Wall

Back in 2011, I shared eight short videos that captured the greatness of Ronald Reagan.

One of the videos was this excerpt of his famous tear-down-this-wall speech at Brandenburg Gate.

In a column for the Washington Examiner, Quin Hillyer explains why this was a momentous event.

The greatest climactic event of the 20th century occurred 30 years ago Saturday, as thousands of Germans pushed through, climbed over, and began tearing down the Berlin Wall. Human freedom overcame human evil. Human potential was unleashed. Exuberantly but peaceably, the good guys won. The story needs to be told again and again, because those too young to have lived through the Cold War have trouble feeling viscerally the stakes, the danger, and the drama. …the late William F. Buckley said in his last-ever public speech that The Lives of Others, about life in East Germany under communist domination, should be required viewing in every American high school. The film reminds us that not just in gulags where perceived “troublemakers” were sent but in everyday life: The repression was severe; the fear was palpable; the attempted destruction of the human psyche was pervasive. And there stood the Berlin Wall. Both the real presence of brutality and the era’s most chilling symbol of mass enslavement, the wall was the physical, concrete portion of the figurative Iron Curtain. Also featuring extended barriers of metal-mesh fences, trenches, and 259 vicious-dog runs, and guarded by 186 observation towers manned by machine-gun-toting soldiers, the wall was a monstrosity. The joy that greeted the wall’s fall, not just on-site but around the world, remains almost indescribable.

By the way, I echo Quin’s endorsement of The Lives of Others. It really does capture the day-to-day horror of statism, and has a really nice twist at the end.

Returning to the issue of the Wall and communism, Reagan deserves considerable credit for this victory over evil.

Part of Reagan’s genius is that he attacked the moral foundations of communism. Or the lack of any moral foundation, to be more precise.

Here are some observations about his speech at Moscow State University in 1988.

Ronald Reagan, in the last year of his presidency, delivered one of his most magnificent speeches. …It was the last day of his fourth and final summit with Mikhail Gorbachev. …Reagan never regarded his meetings with Mr. Gorbachev as pertaining solely to arms control. Arms control was merely the pretext for a more fundamental challenge. …If the theme is diplomacy, the underlying purpose is liberty. …He did…understand that victory would belong in the end not to one nation over another, but to one political-moral idea over another. Freedom must triumph over totalitarianism. Reagan had always abominated communism. …Reagan’s ultimate aim was to plant the seed of freedom in the newly receptive furrows of a cracking totalitarianism. “Mr. Gorbachev, tear down this wall,” he cried at the Brandenburg Gate in 1987. “Isn’t it strange,” he mused to reporters, “that there’s only one part of the world and one philosophy where they have to build walls to keep their people in.” …Reagan delivered his Moscow speech standing before a gigantic scowling bust of Lenin and a mural of the Russian Revolution. He incorporated them as props in his address. “Standing here before a mural of your revolution,” he said, “I want to talk about a very different revolution,”… “The key,” Reagan said, “is freedom—freedom of thought, freedom of information, freedom of communication.”

Yes, Reagan’s rejuvenation of the American economy helped lead to the collapse of communism (notwithstanding the fact that some western economists were dupes for Soviet central planning).

And, yes, Reagan’s military buildup helped weaken the Soviet Union’s resolve.

I’m convinced, though, that Reagan’s attack on the core evil of communism made a key difference. Aided and abetted by his relentless mockery of communism’s many failures.

Let’s not forget that history also is the result of random events.

David Frum last year wrote about a bureaucratic snafu that helped hasten the downfall of East Germany’s evil regime.

At an evening news conference on November 9, 1989, a spokesman for the East German Communist government made a history-altering mistake. The spokesman had been authorized to say that travel restrictions on East German citizens would be lifted the next day, November 10. Instead, he said that the restrictions were lifted effective immediately. Within minutes, hundreds of thousands of East Berliners rushed to the checkpoints of the Berlin Wall. Since the erection of the wall in 1961, border guards had killed more than 750 people seeking to escape East Germany. That night, the border guards had heard the same news as everyone else. Their license to kill had been withdrawn. They stood aside. The long-imprisoned citizens of East Berlin rushed out into West Berlin that night, in what became the greatest and best street party in the history of the world. Soon, Berliners east and west began to attack the hated wall, smash it, rip it apart.

Here’s a video that describes the same event.

By the way, we can’t write about the Berlin Wall without taking the opportunity to reflect on the failure of socialism.

Writing for the U.K.-based Spectator, Kristian Niemietz points out that big government failed in East Germany, just like it fails everywhere.

Thirty years on from the fall of the Berlin Wall, socialism is back in fashion. The anniversary is a good occasion to reflect on some of the lessons that we have collectively un-learned, or perhaps never learned properly in the first place from the fall of Communism. The division of Germany into a broadly capitalist West, and a broadly socialist East, represented a natural experiment, and did so in two ways. It was, first of all, a gigantic economic experiment about the viability of socialism, and it produced conclusive results. Around the time of Reunification, West Germany’s GDP per capita was about three times that of East Germany’s. There was also around a three-year-gap in average life expectancy.

Amen.

I invite people to compare the numbers on East German vs. West German economic performance.

Last but not least, let’s close by adding an item to our collection of socialism/communism humor.

To be sure, this is dark humor. Hundreds of people were killed trying to escape into West Berlin. That may seem like an asterisk compared to communism’s horrendous death toll, but every needless death is a tragedy.

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National Conservatism vs. Reagan’s Small-Government Libertarianism

Having been inspired by Ronald Reagan’s libertarian-ish message (and track record), I’ve always been suspicious of alternative forms of conservatism for the simple reason that they always seem to mean bigger government.

• There was George H.W. Bush’s “kinder and gentler” conservatism, which translated into more statism.
• There was George W. Bush’s “compassionate conservatism,” which translated into more statism.
• The “national greatness” conservatism associated with John McCain seemed to justify more statism
• The more-recent movement called “reform conservatism” also seems to involve more statism.

To be fair, proponents of all these approaches always paid homage to the role of markets, so we’re not talking about Bernie Sanders-type nuttiness.

But I don’t want to travel in the wrong direction, even if only at 10 miles-per-hour rather than 90 miles-per-hour.

Now there’s a new alternative to Reaganism called “national conservatism.” It’s loosely defined, as you can see by reports from both left-leaning outlets (New York, New Republic) and right-leaning outlets (Townhall, Daily Signal).

There are parts of this new movement that are appealing, at least if I’m reading them correctly. Proponents are appropriately skeptical of global governance, though maybe not for the reasons that arouse my antipathy. But the enemy of my enemy is my friend in this battle.

They also don’t seem very fond of nation building, which also pleases me. And I also am somewhat sympathetic to their arguments about national unity – assuming it’s based on the proper definition of patriotism.

But their economic views, at best, are worrisome. And, as George Will opines, they’re sometimes awful.

…“national conservatives”…advocate unprecedented expansion of government to purge America of excessive respect for market forces and to affirm robust confidence in government as a social engineer allocating wealth and opportunity. …The Manhattan Institute’s Oren Cass advocates “industrial policy” — what other socialists call “economic planning”… He especially means subsidizing manufacturing..he admits that as government, i.e., politics, permeates the economy on manufacturing’s behalf, “regulatory capture,” other forms of corruption and “market distortions will emerge.” Emerge? Using government to create market distortions is national conservatism’s agenda. …Their agenda is much more ambitious than President Richard M. Nixon’s 1971 imposition of wage and price controls, which were temporary fiascos. Their agenda is even more ambitious than the New Deal’s cartelization of industries, which had the temporary (and unachieved) purpose of curing unemployment. What national conservatives propose is government fine-tuning the economy’s composition and making sure resources are “well” distributed, as the government (i.e., the political class) decides, forever. …Although the national conservatives’ anti-capitalism purports to be populist, it would further empower the administrative state’s faux aristocracy of administrators who would decide which communities and economic sectors should receive “well”-allocated resources. Furthermore, national conservatism is paternalistic populism. This might seem oxymoronic, but so did “Elizabeth Warren conservatives” until national conservatives emerged as such.

Since Nixon and FDR were two of America’s worst presidents, Will is drawing a very harsh comparison.

To give the other side, here are excerpts from a New York Times column by Oren Cass.

…a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy. Genuine prosperity depends upon people working as productive contributors to their society, through which they can achieve self-sufficiency, support their families, participate in their communities, and raise children prepared to do the same.

None of this sounds bad.

Heck, it sounds good. I’m in favor of strong families and strong communities.

But what does this rhetoric mean? Here’s where I start to worry.

Crucially, while a labor market left alone will seek an efficient equilibrium, economic theory never promises that the equilibrium will be a socially desirable, inclusive one. A genuine conservatism values markets as powerful mechanisms that foster choice, promote competition and deliver growth, but always in service to the larger end of a cohesive society in which people can thrive. …In some cases, …conservatives will head in new directions or even reverse course. …an insistence that workers throughout the labor market share in productivity growth……longstanding hostility toward organized labor will give way to an emphasis on reform. …new forms of organizing through which workers can support one another, engage with management and contribute to civil society should be a conservative priority.

And my worry turns to unfettered angst when I read some of the specific ideas that Cass mentions.

…a wage subsidy delivered directly into each low-wage paycheck…skepticism of unfettered international trade…legislation that would require the Federal Reserve to close the trade deficit by taxing foreign purchases of American assets.

To put it mildly, more redistribution, more protectionism, and taxes on investment is not a Reaganite agenda.

I’ll close with a political observation. Defenders of national conservatism have told me that the Reagan message is old and stale. It supposedly doesn’t apply to new problems in a new era.

Yet non-conservative Republicans lost twice to Obama while a hypothetical poll in 2013 showed Reagan would trounce Obama.

Some national conservatives point to Trump’s victory as an alternative, but I think that had more to do with Hillary Clinton. In any event, I very much doubt Trumpism is a long-term model for political success. Or economic success.

Maybe the real lesson is that good policy is good politics?

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Reagan’s Pro-Trade Wisdom

President Trump’s view of global trade is so bizarre, risky, uninformed, misguided, and self-destructive that I periodically try to maintain my sanity by reviewing the wisdom of one of America’s greatest presidents.

• Ronald Reagan’s remarks in 1985 about the self-destructive impact of trade barriers.
• Ronald Reagan’s remarks in 1988 about the economic benefits of trade liberalization.

Today, let’s travel back to 1982 for more wisdom from the Gipper.

What’s especially remarkable is that Reagan boldly defended free and open trade at the tail end of the 1980-82 double-dip recession that he inherited.

Many politicians, facing an unemployment rate above 10 percent, would have succumbed to the temptation for short-run barriers.

But just as Reagan did the right thing on inflation, even though it was temporarily painful, he also advocated good long-run policy on trade. He understood Bastiat’s wise insight about “seen” benefits vs “unseen” costs.

Trump, by contrast, has a very cramped and limited understanding of trade. Which is why almost all economists disagree with his approach.

…on Trump’s other point — that protectionism offers Americans the road to riches — most specialists in international trade would beg to differ. “Even by Washington standards, Trump’s tweet was profoundly wrong,” said Daniel J. Mitchell, a conservative economist. In a recent column criticizing Trump’s tweet, Mitchell wrote, “The last time the United States made a big push for protectionism was in the 1930s. At the risk of understatement, that was not an era of prosperity.” …said Lawrence White, a professor at New York University’s Stern School of Business…”tariffs, like any tax, generally introduce an inefficiency and makes the two sides of the trading relationship poorer — not richer.”

I appreciated the chance to be quoted in the story, and I also was happy that a link to one of my columns was included.

Though I gladly would have traded that bit of publicity if Politifact instead had shared my “edits” to Trump’s infamous “Tariff Man” tweet.

I’ll conclude by noting that Reagan’s record didn’t always live up to his rhetoric.

P.S. I winced when Reagan positively cited the International Monetary Fund in his remarks. Though maybe the IMF in the early 1980s wasn’t the pro-tax, anti-market, bailout-dispensing bureaucracy that it is today.

P.P.S. I noted that Reagan was one of America’s great presidents. I also include Calvin Coolidge and Grover Cleveland on that list.

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Trump’s Cramped Protectionism vs. Reagan’s Trade Expansionism

The good news is that President Trump wants to boost economic growth, which is a laudable goal after the economy’s sub-par performance during the Obama years.

The bad news is that he may sabotage his good reforms of tax policy and regulation with protectionism.

In a column earlier this month for the Wall Street Journal, Robert Zoellick warns about the likely consequences.

The Trump administration has stacked up a pile of trade cases that will come tumbling down early in 2018. More important than any specific case is the signal of a strategy of economic defeatism. …Mr. Trump’s tactic will likely trigger retaliation from other countries. …“safeguards” to block imports of solar panels and washing machines…doesn’t even require a claim of unfairness. …these amount to an overture to the big show: likely withdrawal from the North American Free Trade Agreement, the U.S.-Korea Free Trade Agreement or both. …The president…relies on the support of economic isolationists who find it easier to blame others than to make America more competitive. Killing Nafta would fit the bill.

Charles Hughes addresses the same topic for Economics 21 and specifically explains that the net effect of trade barriers on solar panels will be to destroy jobs.

President Trump approved new tariffs on solar imports… Manufacturing of solar panels is only one component of the solar industry, which employs between 260,000 and 374,000 workers.  Out of this group, only 38,000 work in manufacturing. Even this oversells the number of people whose work would be insulated from competition from imports, as Solar Energy Industries Association estimates that only 2,000 of these solar manufacturing workers make the products covered by the tariffs.  Significantly more people work in installation. Their jobs would be at risk from higher solar panel prices that would reduce demand for installations, with one estimate that the tariffs would cost 23,000 U.S. jobs in the first year.

These numbers are not a surprise. There have been many studies looking at the impact of protectionism and lost jobs are the usual result, both because trade barriers create inefficiencies, reduce consumer buying power, and increase input prices.

As is so often the case, it’s a question of the seen versus the unseen.

But don’t take my word for it. Here’s President Reagan talking about trade shortly before he left office (h/t: Cafe Hayek).

By the way, some people try to justify Trump’s protectionism by citing some protectionist policies during the Reagan years.

As explained by Colin Grabow and Scott Lincicome in National Review, that is historical revisionism.

Trumpist efforts to save U.S. jobs through higher tariffs, bilateral trade deals, and lower trade deficits can find no “conservative” justification in Reagan-era trade actions. In fact, it’s just the opposite. The Reagan administration did indeed pursue unilateral import restrictions and foreign-trade “enforcement” actions, but history shows that — unlike protectionist policies proposed by Trump — such moves were intended to liberalize trade… Reagan also often sought to educate his fellow Americans on the U.S. trade balance, even extemporaneously (and correctly) explaining at a 1985 press conference that trade deficits often correlate with job growth and economic vitality. …Reagan negotiated and concluded the 1988 Canada–United States Free Trade Agreement — the basis for the North American Free Trade Agreement (NAFTA). …Reagan administration negotiators also helped launch the Uruguay Round under the General Agreement on Tariffs and Trade (GATT), which would in 1994 strike the single biggest blow for free trade in the last 70 years by establishing the World Trade Organization (WTO).

Amen. I may have to revise my assessment of Reaganomics and give the Gipper an even better grade.

So what would it mean if Trump’s protectionist push led to similar statist policies by other nations?

A World Bank study gives us an idea of the potential implications.

This paper quantifies the wide-ranging costs of potential increases in worldwide barriers to trade…a coordinated global withdrawal…from all existing bilateral/regional trade agreements, as well as from unilateral preferential schemes coupled with an increase in the cost of traded services, is estimated to result in annual worldwide real income losses of 0.3 percent or US$211 billion relative to the baseline after three years. …Highlighting the importance of preferences, the impact on global trade is estimated to be more pronounced, with an annual decline of 2.1 percent or more than US$606 billion relative to the baseline if these barriers stay in place for three years. Second, a worldwide increase in tariffs up to legally allowed bound rates coupled with an increase in the cost of traded services would translate into annual global real income losses of 0.8 percent or more than US$634 billion relative to the baseline after three years. The distortion to the global trading system would be significant and result in an annual decline of global trade of 9 percent or more than US$2.6 trillion relative to the baseline in 2020.

I wonder if those numbers underestimate the threat given how tit-for-tax protectionism caused much greater levels of damage during the 1930s.

Anyhow, let’s conclude with a very effective (and concise) video from Matt Ridley on the principle of comparative advantage. It’s about trade between two people, but the same principle applies to trade between nations. Simply stated, trade allows for specialization, which enables higher productivity (and therefore higher wages and living standards).

P.S. I also invite readers to watch excellent videos on trade and protectionism from Professors Tyler Cowen and Don Boudreaux.

P.P.S. I also encourage people to read Walter Williams on this topic.

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Ranking Presidents on Economic Policy: The Impressive Record of Ronald Reagan

Back in 2013, I put together a visual showing the good and bad policies that were enacted during the Clinton years. The big takeaway was that the overall burden of government was substantially reduced during his years in office.

Two days ago, I did the same thing for Richard Nixon, but noted that his record was universally awful. I couldn’t think of a single pro-growth policy when he was in the Oval Office.

Now let’s look at the Ronald Reagan. I analyzed his record last year, but mostly looking at the aggregate results.

So let’s look at the details, putting specific pro-growth policies in one column and specific anti-growth policies in another column. As you can see, there was a substantial net improvement during the Reagan years.

I gave extra credit for his tax cuts, the spending restraint, and the taming of inflation.

On the negative side of the ledger, Reagan did approve some post-1981 tax hikes, imposed some protectionism, and also supported Medicare expansion, so he certainly wasn’t perfect.

I also was tempted to give Reagan some credit for NAFTA and the WTO since those initiative got their start during his presidency, but that would break my rule of only counting policies that were implemented while a president was in office.

The bottom line is that Reagan was a net plus for economic liberty. And if you count the collapse of the Soviet Empire, he was a net plus for global liberty.

Let’s close by discussing Henry Olsen’s new book on Ronald Reagan. Henry tried to make the case that Reagan was sort of a New Deal Democrat rather than a libertarian-ish ideologue. Writing for the Claremont Review of Books, Steven Hayward obviously is a fan of the book but is not entirely sympathetic to Henry’s hypothesis.

You should read Steven’s entire review, and also get Henry’s book and read it as well. I’ll simply cite two passages from the review for the simple reason that they match my beliefs (shocking, huh?). First, Reagan (quite correctly) was not a big fan of the New Deal.

Reagan’s long-time economic adviser Martin Anderson once told me that despite Reagan’s general kind words for FDR and the New Deal, he could not recall Reagan ever endorsing a specific New Deal policy… But if anyone wants to see Reagan as the heir of the New Deal, he has to get past one of Reagan’s most famous critiques of it—his 1976 remark that “Fascism was really the basis for the New Deal.” …Reagan, to his campaign managers’ consternation, stoutly defended his comments. In August 1980 Reagan told dumbfounded reporters: “Anyone who wants to look at the writings of the Brain Trust of the New Deal will find that President Roosevelt’s advisers admired the fascist system. . .  They thought that private ownership with government management and control a la the Italian system was the way to go, and that has been evident in all their writings.”

And he also opposed Washington-based income redistribution (another sensible view).

When Reagan opposed Nixon’s guaranteed annual income proposal, the Family Assistance Plan, in 1969 and 1970—the only governor in the country to do so—he said in a TV debate that “I believe that the government is supposed to promote the general welfare; I don’t think it is supposed to provide it.” If welfare was centralized in Washington, Reagan knew, reform would be all but impossible and there would be a bias toward increased spending in the future. …“If there is one area of social policy,” Reagan began to say in his standard stump speech, “that should be at the most local level of government possible, it is welfare. It should not be nationalized—it should be localized.” …In another 1982 speech to the NAACP (amidst a fierce recession), Reagan argued that the Great Society had done more harm than good for black Americans. Liberals howled with indignation about both of these heresies.

Amen.

I’m not a Reagan historian like Olson or Hayward, so I’ll wrap up this conversation with one small observation. Reagan was not as libertarian as I would like. I came to DC near the beginning of his second term and I remember feeling disappointed at the time that more progress could be made. I’ve now learned much more about the very weak records of other senior Republican and I now realize his accomplishment were large and meaningful.

It wasn’t just what he achieved. He also changed the “Overton Window,” meaning that he substantially expanded the acceptability of ideas about free markets and limited government. Prior to the Gipper’s tenure, Republicans rarely challenged the welfare state. They basically accepted the New Deal and Great Society. Reagan didn’t have much success unraveling welfare state programs, but he showed that such programs could be criticized and big-picture ideas about reform were not politically toxic.

P.S. Let’s also not forget that Reagan opposed the value-added tax. The rejection of a bad policy doesn’t belong on the above list, but it’s a notable piece of evidence about Reagan’s economic wisdom.

P.P.S. Reagan also showed that good policy can be good politics.

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Mirror, Mirror, on the Wall, Obama Definitely Was Not the Biggest Spender of All

I’ve learned that it’s more important to pay attention to hard numbers rather than political rhetoric. Republicans, for instance, love to beat their chests about spending restraint, but I never believe them without first checking the numbers. Likewise, Democrats have a reputation as big spenders, but we occasionally get some surprising results when they’re in charge.

President Obama was especially hard to categorize. Republicans automatically assume he was profligate because he started his tenure with a Keynesian spending binge and the Obamacare entitlement. But after a few years in office, some were arguing he was the most frugal president of modern times.

• So I crunched the data in 2012 and discovered that he was either a big spender or a closet Reaganite depending on how the numbers were sliced.
• I then re-calculated the budget numbers in 2013 and found that spending grew at a slower rate the longer Obama was in office.
• And when I did the same exercise in 2014, using another year of data, Obama looked even more like a tight-fisted fiscal conservative.

Or, to be more accurate, what I basically discovered is that debt limit fights, sequestration, and government shutdowns were actually very effective. Indeed, the United States enjoyed a de facto spending freeze between 2009 and 2014, leading to the biggest five-year reduction in the burden of federal spending since the end of World War II. And it’s unclear that Obama deserves any of the credit since he was on the wrong side of those battles.

Anyhow, I’ve decided to update the numbers now that we have 8 years of data for Obama’s two terms.

But first, a brief digression on methodology: All the numbers you’re about to see have been adjusted for inflation, so these are apples-to-apples comparisons. Moreover, all my calculations are designed to show average annual increases. I also made sure that the “stimulus” spending that took place in the 2009 fiscal year was included in Obama’s totals, even though that fiscal year began (on October 1, 2008) while Bush was President.

We’ll start with a look at total outlays. On this basis, Obama is actually the most conservative President since World War II. And Bill Clinton is in second place.

But total outlays doesn’t really capture a President’s track record because interest payments are included, which effectively means they get blamed for all the debt run up by their predecessors.

So if we remove payments for net interest, we get a measure of what is called primary spending (total outlays minus net interest). As you can see, Obama is still in first place and Reagan jumps up to second place.

I would argue that one other major adjustment is needed to make the numbers more accurate.

There have been two major financial bailouts in the past 30 years, the savings & loan bailout in the late 1980s and the TARP bailout at the end of last decade. Those bailouts created big one-time expenses, followed by an influx of money (from asset sales and repaid loans) that actually gets counted as negative spending.

Those bailouts added a big chunk of one-time spending at the end of the Reagan years and at the end of the George W. Bush years, while then producing negative outlays during the early years of the George H.W. Bush Administration and Obama Administration.

So if we take out the one-time effects of those two bailouts (which I categorize as “non-TARP” for reasons of brevity), we get a new ranking.

Reagan is now in first place, followed by Clinton and Obama.

By the way, Lydon Johnson has been in last place regardless of how the numbers are calculated, and George W. Bush has had the second-worst numbers.

For all intents and purposes, the above numbers are how a libertarian would rank the various Presidents since both domestic spending and military spending are part of the calculations.

So let’s close by looking at how a conservative would rank the presidents, which is a simple exercise because all that’s required is to remove military spending. Here are the numbers showing the average inflation-adjusted increase in overall domestic outlays for various Presidents (still excluding the one-time bailouts, of course).

By this measure, Reagan easily is in first place. Though it’s worth noting that three Democrats occupy the next positions (though Obama’s numbers are no longer impressive), while Republicans (along with LBJ) get the worst scores.

The bottom line is that Reaganomics was a comparative success. But should we also conclude that Obama was a fiscal conservative?

I don’t think he deserves credit, but I won’t add anything to what I wrote above. Instead, I’ll simply note that Brian Riedl of the Manhattan Institute has a good analysis of Obama’s fiscal record. Here’s his conclusion.

It is important to recognize that Obama did not stop trying to expand government after 2010. The president’s eight annual budget requests gradually upped their 10-year revenue demands from $1.3 trillion to $3.4 trillion, while proposing an average of $1.0 trillion in new program spending over the next decade. His play, in short, was to gradually trim the budget deficit by chasing large spending increases with even larger tax increases. The Republican Congress stopped him. My assessment: Obama’s most important fiscal legacy was a sin of omission. Despite promising to confront Social Security and Medicare’s unsustainable deficits, the president refused to endorse any plan that would come close to achieving solvency. This surrendered eight crucial years of baby-boomer retirements while costs accelerated. With baby boomers retiring and a national debt projected to exceed $90 trillion within 30 years, this was no small surrender.

In other words, the relatively good short-run numbers were in spite of Obama. And the long-run numbers were bad – and still are bad – because he chose to let the entitlement problem fester. But he was still better (less worse) than Bush I, Bush II, and Nixon.

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Four (Past) Presidents Debunk the Case for Higher Taxes

I’m currently in Iceland for a conference organized by the European Students for Liberty. I spoke earlier today on the case for lower taxes and I made six basic points.

• Taxes undermine prosperity.
• Taxes reduce competitiveness.
• Taxes are self-destructive.
• Taxes are unfair and corrupt.
• Taxes are immoral.
• Taxes “feed the beast.”

Sadly, not everyone agrees with my views, either in Iceland or the United States.

Regarding the latter, Robert Samuelson expressed a contrary position last month when writing about the tax debate in the Washington Post.

…we need higher, not lower, taxes. …We are undertaxed. Government spending, led by the cost of retirees, regularly exceeds our tax intake.

After reading his column, I thought about putting together a detailed response. I was especially tempted to debunk the carbon tax, which is his preferred way of generating additional tax revenue.

But then it occurred to me that could make an “appeal to authority.” In my Iceland presentation today, I cited very wise words from four former presidents on tax policy. And their statements are all that we need to dismiss Samuelson’s column.

We’ll start with Thomas Jefferson, who argues for small government and against income taxation.

We then take a trip through history so we can see what Grover Cleveland said about the topic.

Simply stated, he viewed any taxes – above what was needed to finance a minimal state – as “ruthless extortion.”

The great Calvin Coolidge said the same thing about four decades later.

Highly underrated president from Libertarian

Last but not least, the Gipper addresses Samuelson’s point about the difference between taxes and spending.

Reagan is right, of course. The burden of federal spending is the problem whether looking at pre-World War II data or post-World War II data.

Four good points of view from four good Presidents.

The only missing component is that I need to find a President who correctly explains that higher taxes will lead to higher spending and more red ink.

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Reagan vs. Obama, America vs. Europe

Every time I’ve gone overseas in the past six months, I’ve been peppered with questions about Donald Trump. It doesn’t matter whether my speech was about tax reform, entitlements, fiscal crisis, or tax competition, most people wanted to know what I think about The Donald.

My general reaction has been to disavow any expertise (as illustrated by my wildly inaccurate election prediction). But, when pressed, I speculate that Hillary Clinton wasn’t a very attractive candidate and that Trump managed to tap into disdain for Washington (i.e., drain the swamp) and angst about the economy’s sub-par performance.

What I find galling, though, is when I get follow-up questions – and this happens a lot, especially in Europe – asking how it is possible that the United States could somehow go from electing a wonderful visionary like Obama to electing a dangerous clown like Trump.

Since I’m not a big Trump fan, I don’t particularly care how they characterize the current president, but I’m mystified about the ongoing Obama worship in other nations. Even among folks who otherwise are sympathetic to free markets.

I’ve generally responded by explaining that Obama was a statist who wound up decimating the Democratic Party.

And my favorite factoid has been the 2013 poll showing that Reagan would have trounced Obama in a hypothetical matchup.

I especially like sharing that data since many foreigners think Reagan wasn’t a successful President. So when I share that polling data, it also gives me an opportunity to set the record straight about the success of Reaganomics.

I’m motivated to write about this topic because I’m currently in Europe and earlier today I wound up having one of these conversations in the Frankfurt Airport with a German who noticed my accent and asked me about “crazy American politics.”

I had no problem admitting that the political situation in the U.S. is somewhat surreal, so that was a bonding moment. But as the conversation progressed and I started to give my standard explanation about Obama being a dismal president and I shared the 2013 poll, my German friend didn’t believe me.

So I felt motivated to quickly go online and find some additional data to augment my argument. And I was very happy to find a Quinnipiac poll from 2014. Here are some of the highlights, as reported by USA Today.

…33% named Obama the worst president since World War II, and 28% put Bush at the bottom of post-war presidents. “Over the span of 69 years of American history and 12 presidencies, President Barack Obama finds himself with President George W. Bush at the bottom of the popularity barrel,” said Tim Malloy, assistant director of the Quinnipiac University Poll. …Ronald Reagan topped the poll as the best president since World War II, with 35%. He is followed by presidents Bill Clinton (18%) and John F. Kennedy (15%).

Yes, Ronald Reagan easily was considered the best President in the post-World War II era.

Here’s the relevant chart from the story. Kudos to the American people from giving the Gipper high scores.

And what about the bottom of the list?

Here’s the chart showing Obama edging out George W. Bush for last place.

By the way, I suspect these numbers will look much different in 50 years. I’m guessing many Republicans picked Obama simply because he was the most recent Democrat president and a lot of Democrats picked W because he was the most recent Republican President.

With the passage of time, I think Nixon and Carter deservedly will get some of those votes (and I think LBJ deserves more votes as the worst president, for what it’s worth).

The bottom line, though, is that I now have a second poll to share with foreigners.

P.S. If there’s ever a poll that isn’t limited to the post-World War II era, I would urge votes not only for Reagan, but also for Calvin Coolidge and Grover Cleveland.

P.P.S. People are surprised when I explain that Bill Clinton deserves to be in second place for post-WWII presidents.

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Prosperity and Taxation: What Can We Learn from the 1980s?

In a column in today’s  New York Times, Steven Rattner attacks Trump’s tax plan for being unrealistic. Since I also think the proposal isn’t very plausible, I’m not overly bothered by that message. However, Rattner tries to bolster his case by making very inaccurate and/or misleading claims about the Reagan tax cuts.

Given my admiration for the Gipper, those assertions cry out for correction. Starting with his straw man claim that the tax cuts were supposed to pay for themselves.

…four decades ago…the rollout of what proved to be among our country’s greatest economic follies — the alchemistic belief that huge tax cuts can pay for themselves by unleashing faster economic growth.

Neither Reagan nor his administration claimed that the tax cuts would be self-financing.

Instead, they simply pointed out that the economy would grow faster and that this would generate some level of revenue feedback.

Which is exactly what happened. Heck, even leftists agree that there’s a Laffer Curve. The only disagreement is the point where tax receipts are maximized (and I don’t care which side is right on that issue since I don’t want to enable bigger government).

Anyhow, Rattner also wants us to believe the tax cuts hurt the economy.

…the plan immediately made a bad economy worse.

This is remarkable blindness and/or bias. The double dip recession of 1980-1982 was the result of economic distortions caused by bad monetary policy (by the way, Reagan deserves immense credit for having the moral courage to wean the country from easy-money policy).

But even if one wants to ignore the impact of monetary policy, how can you blame the second dip of the recession, which began in July 1981, on a tax cut that was signed into law in August 1981?!?

Moreover, while Reagan’s tax cut was adopted in 1981, it was phased in over several years. And because of previously legislated tax increases, as well as inflation-driven bracket creep (prior to 1985, households were pushed into higher tax brackets by inflation even though their real income did not rise), the economy did not enjoy a tax cut until 1983. Not coincidentally, that’s when the economy began to boom.

Rattner even wants us to believe the Reagan tax plan caused higher interest rates.

…the Reagan tax cut increased the budget deficit, helping elevate interest rates over 20 percent, which in turn contributed to the double-dip recession that ensued. The stock market fell by more than 20 percent.

The deficit jumped mostly because of the double-dip recession, just as red ink always climbs when there is an economic downturn.

And interest rates were high largely because inflation was so high (lenders don’t like to deliberately lose money).

But the most amazing part of the above excerpt is that Rattner wants us to believe the Reagan tax cuts caused the part of the double-dip recession that occurred in 1980, when Jimmy Carter was still president.

That’s sort of like Paul Krugman trying to imply that Estonia’s 2008 recession was caused by spending cuts that took place in 2009!

You also won’t be surprised to learn that Rattner selectively likes Keynesianism.

Big deficits can sometimes be advisable, as they were in aiding recovery from the 2009 recession.

I guess he wants us to applaud Obama’s so-called stimulus and be impressed by the very anemic recovery that followed.

But we’re supposed to overlook the booming economy of the Reagan years.

Last but not least, it’s noteworthy that Rattner – in spite of his bias – endorses part of the Trump tax plan.

I understand our need to lower the corporate tax rate to compete with other countries and adjust other provisions to keep companies and jobs here. Critics are correct that our business-tax structure encourages companies to ship jobs and even themselves overseas.

And when even folks like Rattner realize that the current corporate tax system is indefensible, that explains why I’m semi-hopeful that we’ll get a lower rate at some point in the near future.

Now let’s look at broader lessons from the Reagan tax cuts.

Lesson #1: Lower Tax Rates Can Boost Growth

We can draw some conclusions by looking at how low-tax economies such as Singapore and Hong Kong outperform the United States. Or we can compare growth in the United States with the economic stagnation in high-tax Europe.

We can also compare growth during the Reagan years with the economic malaise of the 1970s.

Moreover, there’s lots of academic evidence showing that lower tax rates lead to better economic performance

The bottom line is that people respond to incentives. When tax rates climb, there’s more “deadweight loss” in the economy. So when tax rates fall, output increases.

Lesson #2: Some Tax Cuts “Pay for Themselves”

The key insight of the Laffer Curve is not that tax cuts are self financing. Instead, the lesson is simply that certain tax cuts (i.e., lower marginal rates on productive behavior) lead to more economic activity. Which is another way of saying that certain tax cuts lead to more taxable income.

It’s then an empirical issue to assess the level of revenue feedback.

In the vast majority of the cases, the revenue feedback caused by more taxable income isn’t enough to offset the revenue loss associated with lower tax rates. However, we do have very strong evidence that upper-income taxpayers actually paid more to the IRS because of the Reagan tax cuts.

This is presumably because wealthier taxpayers have much greater ability to control the timing, level, and composition of their income.

Lesson #3:Reagan Put the United States on a Path to Fiscal Balance

I already explained above why it is wrong to blame the Reagan tax cuts for the recession-driven deficits of the early 1980s. Indeed, I suspect most leftists privately agree with that assessment.

But there’s still a widespread belief that Reagan’s tax policy put the United States on an unsustainable fiscal path.

Yet the Congressional Budget Office, as Reagan left office in early 1989, projected that budget deficits, which had been consistently shrinking as a share of GDP, would continue to shrink if Reagan’s policies were left in place.

Moreover, the deficit was falling because government spending was projected to grow slower than the private sector, which is the key to good fiscal policy.

Lesson #4: Lower Tax Rates Are Just One Piece of a Larger Puzzle

Having just disgorged hundreds of words on the importance of lower tax rates, let’s close by noting that fiscal policy is just one of many factors that determines an economy’s performance.

Indeed, tax and budget issues only account for 20 percent of a nation’s economic performance according to Economic Freedom of the World.

So it’s quite possible for a nation to be relatively free even with a bad tax system, and it’s also possible for a country to be economically repressed if it has a good tax system.

And this explains why economic freedom increased in America during the Clinton years, notwithstanding the 1993 tax hike. Simply stated, it’s the overall policy mix that matters.

I’ll conclude by noting that aggregate economic freedom in America increased during the Reagan years.

And the biggest reason for the increase was better fiscal policy.

It’s possible that we may also get more economic freedom during the Trump years. Indeed, I gave him a decent score for his first 100 days.

But it takes a lot of political courage to consistently fight for economic liberty in a town that cheers statism. And even though there’s a strong case to be made that there are political benefits to good policy, I’m not overly optimistic that Trump will be another Reagan.

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Republicans Need to Learn from Ronald Reagan that Good Policy Is Good Politics

For three decades, I’ve been trying to convince politicians to adopt good policy. I give them theoretical reasons why it’s a good idea to have limited government. I share with them empirical evidence demonstrating the superiority of free markets over statism. And I’m probably annoyingly relentless about disseminating examples of good and bad policy from around the world (my version of “teachable moments”).

But if you want to get a politician to do the right thing, you need more than theory, data, and real-world case studies. You need to convince them – notwithstanding my Second Theorem of Government – that good policy won’t threaten their reelection.

My usual approach is to remind them that Ronald Reagan adopted a bunch of supposedly unpopular policies, yet he got reelected in a landslide because reducing the burden of government allowed the private sector to grow much faster. George H.W. Bush, by contrast, became a one-term blunder because his tax increase and other statist policies undermined the economy’s performance.

I’m hoping this argument will resonate with some of my friends who are now working in the White House. And I don’t rely on vague hints. In this clip from a recent interview, I bluntly point out that good policy is good politics because a faster-growing economy presumably will have a big impact on the 2020 election.

Here’s another clip from that same interview, where I point out that the GOP’s repeal-and-replace legislation was good news in that it got rid of a lot of the misguided taxes and spending that were part of Obamacare.

But the Republican plan did not try to fix the government-imposed third-party-payer distortions that cause health care to be so expensive and inefficient. And I pointed out at the end of this clip that Republicans would have been held responsible as the system got even more costly and bureaucratic.

Now let’s shift to fiscal policy.

Here’s a clip from an interview about Trump’s budget. I’m happy about some of the specific reductions (see here, here, and here), but I grouse that there’s no attempt to fix entitlements and I’m also unhappy that the reductions in domestic discretionary spending are used to benefit the Pentagon rather than taxpayers.

The latter half of the above interview is about the corruption that defines the Washington swamp. Yes, it’s possible that Trump could use the “bully pulpit” to push Congress in the right direction, but I wish I had more time to emphasize that shrinking the overall size of government is the only way to really “drain the swamp.”

And since we’re talking about good policy and good politics, here’s a clip from another interview.

Back when the stock market was climbing, I suggested it was a rather risky move for Trump to say higher stock values were a referendum on the benefits of his policies. After all, what goes up can go down.

The hosts acknowledge that the stock market may decline in the short run, but they seem optimistic in the long run based on what happened during the Reagan years.

But this brings me back to my original point. Yes, Reagan’s policies led to a strong stock market. His policies also produced rising levels of median household income. Moreover, the economy boomed and millions of jobs were created. These were among the reasons he was reelected in a landslide.

But these good things weren’t random. They happened because Reagan made big positive changes in policy. He tamed inflation. He slashed tax rates. He substantially reduced the burden of domestic spending. He curtailed red tape.

In other words, there was a direct connection between good policy, good economy, and good political results. Indeed, let’s enshrine this relationship in a “Fourth Theorem of Government.”

For what it’s worth, Reagan also demonstrated leadership, enacting all those pro-growth reforms over the vociferous opposition of various interest groups.

Will Trump’s reform be that bold and that brave? His proposed 15-percent corporate tax rate deserves praise, and he seems serious about restraining the regulatory state, but he will need to do a lot more if he wants to be the second coming of Ronald Reagan. Not only will he need more good policies, but he’ll also need to ditch some of the bad policies (childcare subsidies, infrastructure pork, carried-interest capital gains tax hike, etc) that would increase the burden of government.

The jury is still out, but I’m a bit pessimistic on the final verdict.

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Was Reaganomics a Success?

Among Republicans and conservatives, Ronald Reagan is widely revered as a great President.

From their perspective, he was the candidate who actually made America great again.

Fans of the Gipper tell us the economy rebounded, inflation was tamed, incomes rose, unemployment fell, and the Evil Empire was defeated. What’s not to love?

That’s an impressive list of accomplishments, but is it accurate? Did Reagan and his policies produce good results, or has history created a misleading perspective (just as people for many decades credited Franklin Roosevelt for ending the Great Depression when we now know that FDR’s policies actually lengthened and deepened the downturn)?

Some libertarians are skeptics, arguing that Reagan’s rhetoric about reining in big government was much better than his actual record.

So let’s look at what actually happened in the 1980s.

The place to start, if we want neutral and unbiased data, is Economic Freedom of the World. Annual data for the 1980s isn’t available, but the every-five-year data allows us to see that economic liberty did increase between 1980 and 1990.

By the way, a couple of caveats would be helpful at this point. Reagan entered office in January 1981 and left office in January 1989, so there’s not a perfect overlap between the EFW data and the Reagan years. Also, the EFW data measures changes in a nation’s economic liberty and it silent on whether a president (or the legislative branch) deserves credit or blame.

Now let’s look at the specific components to see the potential impact of Reaganomics on important variables such as fiscal policy, rule of law and property rights, trade policy, regulatory policy, and monetary policy.

I’ve created a table from the data on page 188 of the latest Economic Freedom of the World. As you can see, there was a substantial improvement in fiscal policy, a modest improvement in monetary policy, no change in regulation, no change in rule of law and property rights, and a small drop in trade.

And if you then dig into the EFW excel file and look at the specific variables that are used to create these five scores, you’ll get more details.

On fiscal policy, for instance, there was a modest improvement in the “government consumption” score but a huge jump in the “top marginal tax rate” score. All of which makes sense because the burden of government spending (measured as a share of GDP) fell slightly during the Reagan years while the top tax rate dropped dramatically from 70 percent t0 28 percent.

Monetary policy improved for the obvious reason that the big drop in inflation meant a big increase in the “inflation” score. And the trade score dipped mostly because of an erosion in score for “tariffs.”

Now for my subjective assessment. I think Reagan was even better than shown by the EFW data. Here are three reasons.

1. The overall burden of government spending only fell by a small amount, but that number masks the fact that domestic spending was reduced significantly as a share of GDP during the Reagan years. That decrease was somewhat offset by a buildup of defense spending, but you can argue that the subsequent collapse of the Soviet Union meant this was a rare instance of government outlays actually generating a positive rate of return.
2. Reagan’s approach to monetary policy rarely gets the credit it deserves. By supporting a tough anti-inflation policy, he made it possible for the Federal Reserve to restore price stability. It’s very rare for a politician to allow some short-run pain (especially political pain) to achieve long-run gain for the country. And, to be fair, some of the credit goes to Jimmy Carter (though he also deserves blame for letting the inflation genie out of the bottle in the first place).
3. On trade policy, Reagan’s legacy is much better than indicated by the EFW scores. During his tenure, the NAFTA and GATT/WTO trade liberalization negotiations began and gained considerable steam. Yes, the implementation occurred later (with both the first President Bush and President Clinton deserving credit for following through), but we never would have reached that stage without Reagan’s vision of expanded trade and rejection of the protectionist philosophy.

Last but not least, let’s look at what Reagan’s policies meant for ordinary people. Did more economic liberty lead to better lives?

The answer is yes. The poisonous hidden tax of inflation largely disappeared. The unemployment rate fell. Labor force participation increased (in marked contrast with Obama). And there was a big increase in income for average Americans (again, in sharp contrast with Obama).

No wonder, when presented with a hypothetical matchup, the American people said they would elect Reagan over Obama in a landslide.

P.S. Critics of Reaganomics, including some on the right, inevitably raise the issue of deficits and debt and assert that Reagan failed. I think red ink is the wrong measure, but even for those who fixate on that variable, it’s worth noting that deficits were relatively small by the time Reagan left office and the Congressional Budget Office predicted they would continue falling if his policies were maintained. Moreover, the 1980-1982 double-dip recession was the reason red ink expanded so much during the early Reagan years, and that was primarily the inevitable consequence of the reckless monetary policy of the 1970s.

P.P.S. For Reagan humor, click here, here, and here.

P.P.P.S. If you want to be inspired, click here and here to see two short clips of Reagan in action. And at the bottom of this post, there’s a great video of Reagan embracing libertarianism.

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A Reaganesque Recipe to Reinvigorate China’s Economy?

The long-term trend in China is positive. Economic reforms beginning in the late 1970s have helped lift hundreds of millions of people out of abject poverty.

And thanks to decades of strong growth, living standards for ordinary Chinese citizens are far higher than they used to be. There’s still quite a way to go before China catches up to western nations, but the numbers keep improving.

That being said, China’s economy has hit a speed bump. The stock market’s recent performance has been less than impressive and economic growth has faltered.

Is this the beginning of the end of the Chinese miracle?

If you asked me about six months ago, I would have expressed pessimism. The government was intervening in financial markets to prop up prices, and that was after several years of failed Keynesian-style spending programs that were supposed to “stimulate” growth.

But maybe my gloom was premature.

An article in The Economist examines the new “supply-side” focus of China’s leader (h/t: Powerline).

Mr Xi has seemed to channel the late American president. He has been speaking openly for the first time of a need for “supply-side reforms”—a term echoing one made popular during Reagan’s presidency in the 1980s. It is now China’s hottest economic catchphrase (even featuring in a state-approved rap song, released on December 26th: “Reform the supply side and upgrade the economy,” goes one catchy line). …Mr Xi’s first mentions of the supply side, or gongjice, in two separate speeches in November, were not entirely a surprise. For a couple of years think-tanks affiliated with government ministries had been promoting the concept (helped by a new institute called the China Academy of New Supply-Side Economics).

Sounds encouraging, though it’s important to understand that there’s a big difference between rhetoric and reality.

Talking about “gongjice” is a good start, but are Chinese officials actually willing to reduce government’s economic footprint?

Perhaps.

Their hope is that such reforms will involve deep structural changes aimed at putting the economy on a sounder footing, rather than yet more stimulus. …Mr Xi’s aim may be to reinvigorate reforms that were endorsed by the Communist Party’s 370-member Central Committee in 2013, a year after he took over as China’s leader. They called for a “decisive” role to be given to market forces

Wow, the communists in China want free markets. Maybe there’s hope for some of America’s more statist politicians!

All kidding aside, there’s some evidence that officials in Beijing realize that the Keynesian experiment of recent years didn’t work any better than Obama’s 2009 spending binge.

Here’s more from the article.

Those who first pushed supply-side reform onto China’s political agenda want a clean break with the credit-driven past. Jia Kang, an outspoken researcher in the finance ministry who co-founded the new supply-side academy, defines the term in opposition to the short-term demand management that has often characterised China’s economic policy—the boosting of consumption and investment with the help of cheap money and dollops of government spending.The result of the old approach has been a steep rise in debt (about 250% of GDP and counting) and declining returns on investment. Supply-siders worry that it is creating a growing risk of stagnation, or even a full-blown economic crisis. Mr Jia says the government should focus instead on simplifying regulations to make labour, land and capital more productive. Making it easier for private companies to invest in sectors currently reserved for bloated state-run corporations would be a good place to start, some of his colleagues argue.

This is music to my ears.

Assuming President Xi is willing to adopt the types of reforms advocated by Mr. Jia, China’s economy will have a very bright future.

The key goal for policy makers in Beijing should be to improve China’s economic freedom score over the next 10 years by as much as it improved between 1980 and 2005.

In other words, if China adopts genuine free markets like Hong Kong and Singapore (and, to a lesser extent, Taiwan), then it will simply be a matter of time before living standards reach – and exceed – levels found in western nations.

I’ll close by outlining two challenges for Beijing.

First, entrenched interest groups will be an obstacle to pro-growth reform. In this sense, politics in China is very similar to politics in Greece, America, France, and South Africa. The sad reality is that too many people – all over the world – think it’s morally acceptable to obtain unearned wealth via the coercive power of government. Though there are reasons to be optimistic because a strong majority of Chinese people have expressed support for free markets.

Second, even if China’s leaders overcome the interest groups and adopt good long-run policy, there’s still the challenge of short-term dislocation and instability caused by so-called stimulus programs and easy-money policy from the central bank. Just like you can’t un-ring a bell, you can’t magically undo the malinvestments caused by those policies. So Beijing will need to weather a temporary economic storm at the same time it engage in long-run reform.

P.S. If you want to know a recipe for Chinese stagnation, simply look at the IMF’s recommendations.

P.P.S. Some senior Chinese officials have a very astute understanding of why welfare states don’t work.

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More Flawed Partisan Analysis from Paul Krugman

When I get my daily email from the editorial page of the New York Times, I scroll through to see whether there’s anything on economic issues I should read.

As a general rule, I skip over Paul Krugman’s writings because he’s both predictable and partisan. But every so often, his column will grab my attention, usually because the headline will include an assertion that doesn’t make sense.

The bad news is that this is usually a waste of time since most of his columns are ideological rants. But the good news is that I periodically catch Krugman making grotesque errors when he engages in actual analysis. Here are a few examples:

• Earlier this year, Krugman asserted that America was outperforming Europe because our fiscal policy was more Keynesian, yet the data showed that the United States had bigger spending reductions and less red ink.
• Last year, he asserted that a supposed “California comeback” in jobs somehow proved my analysis of a tax hike was wrong, yet only four states at the time had a higher unemployment rate than California.
• And here’s my favorite: In 2012, Krugman engaged in the policy version of time travel by blaming Estonia’s 2008 recession on spending cuts that took place in 2009.

And if you enjoyed those examples, you can find more of the same by clicking here, here, here, here, here, here, here, and here.

But perhaps he’s (sort of) learning from his mistakes. Today, we’re going to look at Paul Krugman’s latest numbers and I’ll be the first to say that they appear to be accurate.

But accurate numbers don’t necessarily lead to honest analysis. Krugman has a post featuring this chart, which is supposed to show us that GOP presidential candidates are wrong to pursue “Bushonomics.”

In looking at this chart and seeing how Krugman wants it to be interpreted, I can’t help but think of the famous zinger Reagan used in his debate with Jimmy Carter: “there you go again.”

Let’s consider why he’s wrong.

First, he asserts the chart is evidence that GOP candidates shouldn’t follow Bushonomics.

I actually agree. That’s because the burden of government spending jumped significantly during the Bush years and the regulatory state became more oppressive. All things considered, Bush was a statist.

Krugman, however, would like readers to believe that Bush was some sort of Reaganite. That’s where we disagree. And if you want to know which one of us is right, just check what happened to America’s rating in Economic Freedom of the World during the Bush years.

Second, Krugman would like readers to think that Presidents have total control over economic policy. Yet in America’s separation-of-powers system, that’s obviously wrong. You also need to consider what’s happening with the legislative branch.

So I added a couple of data points to Krugman’s chart. And, lo and behold, you can just as easily make an argument that partisan control of Congress is the relevant variable. As you can see, Republican control of Congress boosted job growth for Obama, whereas the Democratic takeover of Congress led to bad results during the Bush years.

By the way, I don’t actually think congressional control is all that matters. I’m simply making the point that it is misleading to assert that control of the White House is all that matters.

What is important, by contrast, are the policies that are being implemented (or, just as important, not being implemented).

And since the economic policies of Bush and Obama have been largely similar, the bottom line is that it’s disingenuous to compare job creation during their tenures and reach any intelligent conclusions.

Third, since Krugman wants us to pay attention to job creation during various administrations, we can play this game – and actually learn something – by adding another president to the mix.

Krugman doesn’t identify his data source, but I assume he used this BLS calculation of private employment (or something very similar).

So I asked that website to give me total private employment going back to the month Reagan was nominated.

And here’s what I found. As you can see, good private-sector job growth under Reagan and Clinton, but relatively tepid job growth this century.

Now let’s take a closer look at the total change in private employment for the first 81 months of the Reagan, Bush, and Obama Administrations. And you’ll see that Krugman was sort of right, at least in that Obama has done better than Bush.

And if there’s no recession before he leaves office, he’ll look even better than Bush than he does now. But Obama doesn’t fare well when compared against Reagan.

So does this mean Krugman will now argue GOP candidates should follow Reaganomics rather than Obamanomics or Bushonomics?

I’m not holding my breath waiting for him to make a correction. By the way, keep in mind what I said before. Presidents (along with members of Congress) don’t have magical job-creation powers. The best you can hope for is that the overall burden of government diminishes a bit during their tenure so that the private sector can flourish.

That’s what really enables job creation, and that’s the lesson that really matters.

But it’s not easy to find the truth if you put partisanship above analysis. Krugman erred by making a very simplistic Bush-Republican-bad/Obama-Democrat-good argument.

In reality, the past several decades show that it’s more important to look at policy rather than partisan labels. For instance, the fiscal policies of Ronald Reagan and Bill Clinton are relatively similar and are in distinct contrast to the more profligate fiscal policies of George W. Bush and Barack Obama.

P.S. Paul Krugman’s biggest whopper was about healthcare rather than fiscal policy. In 2009, he said “scare stories” about government-run healthcare in Great Britain “are false.” But you can find lots of scary stories here.

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The First World War and the Costly Burden of Obamanomics

What does World War I have to do with Obamanomics?

There’s no real connection, of course, but it did give me an opportunity to present a good analogy. At a conference in London last week, I was discussing with some folks the state of the American economy and the role of public policy.

I was trying to explain what’s happened in the past few years, describing the avalanche of bad policy last decade, culminating with the faux stimulus in 2009 and the enactment of Obamacare in 2010.

I then said that Obama’s efforts to impose further statism have been largely stymied, particularly after the Tea Party election of 2010. There have been lots of skirmishes in recent years, to be sure, with Obama winning a few (such as the recent imposition of “net neutrality” regulations on the Internet) but also losing a few (such as spending restraint caused by policies like the sequester).

But the fact that Obama hasn’t been able to make additional “progress” is not really a victory. It’s simply a stalemate.

And that’s where the World War I analogy fits. As I was trying to get across my point, it occurred to me that it’s vaguely like World War I.

When the war started, the Germans gained considerable ground, overrunning much of Belgium and a lot of territory in northwestern France. That’s akin to Obama’s victories in 2009-2010.

But then the period of trench warfare began and neither side made much progress. And that’s a good description of what’s been happening in recent years in Washington.

This is a good news-bad news situation. To continue with my analogy, the good news is that Obama isn’t conquering more territory. The bad news is that we aren’t pushing Obama back into Germany and reclaiming territory.

And so long as we’re in this stalemate, it’s unlikely that we’ll enjoy robust economic growth. And that’s our topic for today.

In my actual speech, I dusted off my charts based on Minneapolis Fed data, and updated them to compare today’s weak recovery with what’s happened during previous business cycles. And I specifically focused on a comparison of the very strong growth of the Reagan years with the lackluster growth of the Obama years.

But it’s a pity that my speech wasn’t one week later, because I’ve just seen some really good contributions on the same topic from economists Robert Higgs and John Taylor.

Writing for the Independent Institute, Higgs looks at what’s been happening with a key measure of our prosperity.

Arguably the best single, currently available measure of the entire public’s payoff from economic activity is real disposable income per capita. This is the average amount per annum that Americans receive in exchange for the use of their labor and other input services, after taxes, corrected for changes in the purchasing power of the dollar. …this measure of economic well-being has scarcely increased at all since 2007.

Higgs also prepared a table to make it easier to compare performance of this important variable during various business cycles.

As you can see, the current “recovery” has been dismal compared to previous periods.

And here’s his analysis of why we’re suffering from sub-par growth.

These figures demonstrate that even though the rate of increase has varied substantially in the past, it has never remained so low as it has been in recent years. Even during the decade of so-called stagflation from the early 1970s to the early 1980s, real disposable income per capita grew more than twice as fast as it has grown in the past seven years. In the past, recessions were always followed by relatively brisk growth during the first several years of the ensuing recovery. Such has not been the case this time. Nor do forecasters anticipate any such surge of growth in the future. Might it be that the state’s burdens loaded onto the private producers of wealth—taxes, regulations, uncertainties, intrusions of all sorts, including demands for elaborate reports, asset seizures, and threats of felony prosecution for completely innocent and harmless actions—have finally become the “last straw” for these long-suffering camels? …the current situation is clear enough. The U.S. economy, though not yet completely stagnant, has made little headway for more than seven years, and there is little reason to foresee any great change in this regard.

Returning to my analogy, Higgs is basically saying that we’ll be mired in trench warfare for the foreseeable future.

Not exactly a rosy projection.

Now let’s look at the analysis of Professor John Taylor of Stanford University. He starts by walking through a timeline of the current “recovery.”

At the time of the first anniversary of current recovery in 2010, it showed clear signs of weakness compared to the recovery from the recessions in the early 1980s and from all other deep recessions in American history.  …By the recovery’s second anniversary in 2011, it was weak for long enough that I called it “a recovery in name only, so weak as to be nonexistent.” …By the recovery’s third anniversary in 2012, it was now the worst recovery from a deep recession in American history. …By the recovery’s fourth anniversary in 2013, few disputed any more that it was unusually weak and disappointing.  …By the recovery’s fifth anniversary, we were so far away from the recession that linking the terrible performance to the recession became increasing far-fetched.

Professor Taylor has a couple of charts of his own that bolster his argument.

Here’s a comparison of quarterly growth during the Obama recovery and Reagan recovery.

If you’re keeping score, Reagan’s economy out-performed Obama’s economy (often by a very wide margin) in 19 out of 22 quarters.

If this was a boxing match, it would have been stopped long ago.

Taylor also looks at the performance of the labor market during the Obama recovery and Reagan recovery.

Once again, there’s no comparison. During the Reagan years more people were working and adding to the productive capacity of the nation.

During the Obama years, by contrast, the most optimistic assessment is that we’re treading water.

Here’s more of his analysis about the ongoing stagnation.

With the recovery now approaching its sixth anniversary, there is more optimism that we are finally coming out the excruciating slow growth. There is also some wishful thinking that the drop of people out of the labor force—which has made the unemployment rate come down—is due to demographic factors not the slow growth itself. And we are not as bad as Europe. But as these charts show there is still not much in this recovery to write home about. Growth over the four quarters of 2014 looks to average only 2.2% compared with 4.4% in the corresponding quarters of the 1980s recovery. And as of January 2015 the employment-to-population ratio is still lower than at the start of the recovery.

So what’s the bottom line?

To be blunt, you can’t make America more like Europe and then be surprised that our economy isn’t firing on all cylinders.

Returning to our analogy, we need to defeat the enemy of statism and reclaim our lost territory.

But that won’t happen until 2017 at the earliest. And it’s possible it will never happen, particularly if we don’t implement genuine entitlement reform.

P.S. The bad news is that we’re becoming more like Europe. The good news is that we’re not there yet. Our overall burden of government has expanded, but we still have considerably more economic liberty than the average European nation. And that helps to explain why our recovery (even though anemic by American standards) is far more impressive than what’s been happening across the Atlantic.

P.P.S. Based on insightful analysis from Thomas Sowell, John Mackey, and Ronald Reagan, it may have been more accurate (albeit snarky and inappropriate) to have used a World War II example, with Obama’s first two years being akin to the Nazi blitzkrieg and the conquest of France, and recent years being akin to the period between the Battle of Britain and D-Day.

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The Empirical Case for a Much Smaller Public Sector

As a fiscal policy economist who believes in individual liberty and personal responsibility, I have two goals.

1. Replace the corrupt and punitive internal revenue code with a simple and fair flat tax that raises necessary revenue in the least-destructive and least-intrusive manner possible.

2. Shrink the size of the federal government so that it only funds the core public goods, such as national defense and rule of law, envisioned by America’s Founding Fathers.

Needless to say, I haven’t been doing a great job. The tax code seems to get worse every year, and even though we’ve made some progress in recent years on spending, the long-run outlook is still very grim because there’s hasn’t been genuine entitlement reform.

But I continue with my Sisyphean task. And part of my efforts include educating people about the Rahn Curve, which is sort of the spending version of the Laffer Curve. it shows the non-linear relationship between the size of government and economic performance.

Simply stated, some government spending presumably enables growth by creating the conditions (such as rule of law and property rights) for commerce.

But as politicians learn to buy votes and enhance their power by engaging in redistribution, then government spending is associated with weaker economic performance because of perverse incentives and widespread misallocation of resources.

I’ve even shared a number of videos on the topic.

The video I narrated explaining the basics of the Rahn Curve, which was produced by the Center for Freedom and Prosperity.

A video from the Fraser Institute in Canada that reviews the evidence about the growth-maximizing size of government.

A video from the Centre for Policy Studies in the United Kingdom that explores the relationship between prosperity and the size of the public sector.

Even a video on the Rahn Curve from a critic who seems to think that I’m a closeted apologist for big government.

Now we have another video to add to the collection.

Narrated by Svetla Kostadinova of Bulgaria’s Institute for Market Economics, it discusses research from a few years ago about the “optimal size of government.”

If you want to read the research study that is cited in the video, click here. The article was written by Dimitar Chobanov and Adriana Mladenova of the IME

The evidence indicates that the optimum size of government, e.g. the share of overall government spending that maximizes economic growth, is no greater than 25% of GDP (at a 95% confidence level) based on data from the OECD countries. In addition, the evidence indicates that the optimum level of government consumption on final goods and services as a share of GDP is 10.4% based on a panel data of 81 countries. However, due to model and data limitations, it is probable that the results are biased upwards, and the “true” optimum government level is even smaller than the existing empirical study indicates.

Two points in that excerpt are worth additional attention.

First, they understand that not all forms of government spending have equal effects.

Spending on core public goods (rule of law, courts, etc) generally are associated with better economic performance.

Spending on physical and human capital (infrastructure and education) can be productive, though governments often do a poor job based on a money-to-outcomes basis.

Most government spending, though, is for transfers and consumption, and these are areas where the economic effects are overwhelmingly negative.

So kudos to the Bulgarians for recognizing that it’s particularly important to restrain some types of outlays.

The other point that merits additional emphasis is that the growth-maximizing size of government is probably far lower than 25 percent of economic output.

Here’s what they wrote, citing yours truly.

…the results from the above mentioned models should not be taken as the “true” optimal level of government due to limitations of the models, and lack of data as already discussed. As Dan Mitchell commented, government spending was about 10% of GDP in the West from the end of the Napoleonic wars to World War I. And we do not have any data to think that growth would have been higher if government was doubled or tripled. However, what the empirical results do show is that the government spending should be much less than is the average of most countries at the moment. Thus, we can confidentially say the optimum size of general government is no bigger than 25% but is likely to be considerably smaller because of the above-mentioned reasons.

And here’s their version of the Rahn Curve, though I’m not a big fan since it seems to imply that government should consume about one-third of economic output.

I much prefer the curve to show the growth-maximizing level under 20 percent of GDP.

Though I often use a dashed line to emphasize that we don’t really know the actual peak because there unfortunately are no developed nations with modest-sized public sectors.

Even Singapore and Hong Kong have governments that consume about 20 percent of economic output.

But maybe if I someday achieve my goal, we’ll have better data.

And maybe some day I’ll go back to college and play quarterback for my beloved Georgia Bulldogs.

P.S. Since I shared one video, I can’t resist also including this snippet featuring Ronald Reagan talking about libertarianism.

What impresses me most about this clip is not that Reagan endorses libertarianism.

Instead, notice how he also explains the link between modern statism and fascism.

He had a much greater depth of knowledge than even supporters realize. Which also can be seen in this clip of Reagan explaining why the Keynesians were wrong about a return to Depression after World War II.

And click here if you simply want to enjoy some classic Reagan clips. For what it’s worth, this clip from his first inauguration is my favorite.

Given my man crush on the Gipper, you also won’t be surprised to learn that this is the most encouraging poll I’ve ever seen.

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Ronald Reagan’s Most Under-Appreciated Triumph

It’s no secret that I’m a huge fan of Ronald Reagan.

He’s definitely the greatest president of my lifetime and, with one possible rival, he was the greatest President of the 20th century.

If his only accomplishment was ending malaise and restoring American prosperity thanks to lower tax rates and other pro-market reforms, he would be a great President.

He also restored America’s national defenses and reoriented foreign policy, both of which led to the collapse of the Soviet Empire, a stupendous achievement that makes Reagan worthy of Mount Rushmore.

But he also has another great achievement, one that doesn’t receive nearly the level of appreciation that it deserves. President Reagan demolished the economic cancer of inflation.

Even Paul Krugman has acknowledged that reining in double-digit inflation was a major positive achievement. Because of his anti-Reagan bias, though, he wants to deny the Gipper any credit.

Robert Samuelson, in a column for the Washington Post, corrects the historical record.

Krugman recently wrote a column arguing that the decline of double-digit inflation in the 1980s was the decade’s big economic event, not the cuts in tax rates usually touted by conservatives. Actually, I agree with Krugman on this. But then he asserted that Ronald Reagan had almost nothing to do with it. That’s historically incorrect. Reagan was crucial. …Krugman’s error is so glaring.

Samuelson first provides the historical context.

For those too young to remember, here’s background. From 1960 to 1980, inflation — the general rise of retail prices — marched relentlessly upward. It went from 1.4 percent in 1960 to 5.9 percent in 1969 to 13.3 percent in 1979. The higher it rose, the more unpopular it became. …Worse, government seemed powerless to defeat it. Presidents deployed complex wage and price controls and guidelines. They didn’t work. The Federal Reserve — custodian of credit policies — veered between easy money and tight money, striving both to subdue inflation and to maintain “full employment” (taken as a 4 percent to 5 percent unemployment rate). It achieved neither. From the late 1960s to the early 1980s, there were four recessions. Inflation became a monster, destabilizing the economy.

The column then explains that there was a dramatic turnaround in the early 1980s, as Fed Chairman Paul Volcker adopted a tight-money policy and inflation was squeezed out of the system much faster than almost anybody thought was possible.

But Krugman wants his readers to think that Reagan played no role in this dramatic and positive development.

Samuelson says this is nonsense. Vanquishing inflation would have been impossible without Reagan’s involvement.

What Reagan provided was political protection. The Fed’s previous failures to stifle inflation reflected its unwillingness to maintain tight-money policies long enough… Successive presidents preferred a different approach: the wage-price policies built on the pleasing (but unrealistic) premise that these could quell inflation without jeopardizing full employment. Reagan rejected this futile path. As the gruesome social costs of Volcker’s policies mounted — the monthly unemployment rate would ultimately rise to a post-World War II high of 10.8 percent — Reagan’s approval ratings plunged. In May 1981, they were at 68 percent; by January 1983, 35 percent. Still, he supported the Fed. …It’s doubtful that any other plausible presidential candidate, Republican or Democrat, would have been so forbearing.

What’s the bottom line?

What Volcker and Reagan accomplished was an economic and political triumph. Economically, ending double-digit inflation set the stage for a quarter-century of near-automatic expansion… Politically, Reagan and Volcker showed that leaders can take actions that, though initially painful and unpopular, served the country’s long-term interests. …There was no explicit bargain between them. They had what I’ve called a “compact of conviction.”

By the way, Krugman then put forth a rather lame response to Samuelson, including the rather amazing claim that “[t]he 1980s were a triumph of Keynesian economics.”

Here’s what Samuelson wrote in a follow-up column debunking Krugman.

As preached and practiced since the 1960s, Keynesian economics promised to stabilize the economy at levels of low inflation and high employment. By the early 1980s, this vision was in tatters, and many economists were fatalistic about controlling high inflation. Maybe it could be contained. It couldn’t be eliminated, because the social costs (high unemployment, lost output) would be too great. …This was a clever rationale for tolerating high inflation, and the Volcker-Reagan monetary onslaught demolished it. High inflation was not an intrinsic condition of wealthy democracies. It was the product of bad economic policies. This was the 1980s’ true lesson, not the contrived triumph of Keynesianism.

If anything, Samuelson is being too kind.

One of the key tenets of Keynesian economics is that there’s a tradeoff between inflation and unemployment (the so-called Phillips Curve).

Yet in the 1970s we had rising inflation and rising unemployment.

While in the 1980s, we had falling inflation and falling unemployment.

But if you’re Paul Krugman and you already have a very long list of mistakes (see here, here, here, here, here, here, here, here, and here for a few examples), then why not go for the gold and try to give Keynes credit for the supply-side boom of the 1980s

P.S. Since today’s topic is Reagan, it’s a good opportunity to share my favorite poll of the past five years.

P.P.S. Here are some great videos of Reagan in action. And here’s one more if you need another Reagan fix.

P.P.P.S. And let’s close with some mildly risqué Reagan humor that was sent to me by a former member of Congress.

If you want more Reagan humor, click here, here, and here.

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The No-Comparison Comparison of Reagan v Obama

Have you ever wondered why, in a hypothetical match-up, the American people would elect Ronald Reagan over Barack Obama in a landslide?

And have you ever wondered why Americans rate Reagan as the best post-WWII President and put Obama in last place?

There are probably a couple of reasons for these polling numbers, but I suspect one reason for the gap is that Reaganomics generated much better results than Obamanomics.

I’ve already made this point using data from the Minneapolis Federal Reserve Bank, but today we’re going to look at some updated information from Tom Blumer, who put together a strong indictment of Obama’s record for PJ Media.

He points out that both Reagan and Obama inherited very weak economies. But that’s where the similarity ends. Reagan pushed an agenda of free markets and small government while Obama doubled down on Bush’s statism.

The results, he explains, confirm that big government is the problem rather than solution.

Obama’s economic policy, with the help of a pliant Federal Reserve, has been built on the notion that massive deficit spending and easy money would bring the economy roaring back and “stimulate” job growth.  The former strategy was tried during the 1930s. It only succeeded in lengthening the Great Depression, as the nation’s unemployment rate never fell below 12 percent. The fact that Team Obama insisted on making the same mistakes, while at the same time unleashing the federal government’s regulatory apparatus to harass the economy’s productive participants, is enough to make reasonable people question whether this president and his administration have ever truly wanted to see a genuine recovery occur. On the other hand, five years of strong, solid and uninterrupted economic performance following a serious recession is how you create a positive economic legacy. Ronald Reagan’s post-recession economy — an economy which faced arguably greater challenges when he took office, particularly double-digit inflation and a prime interest rate of 20 percent — did just that.

Those are strong words, but I think the accompanying graphics are even more persuasive.

Here’s a chart comparing post-recession growth for both Presidents.

And here’s the data on jobs, including breakdown of private-sector employment gains.

And here are the numbers for median household income. Once again, Obama is presiding over dismal numbers, particularly when compared to the Gipper.

What’s especially ironic, as I explained back in March, is that rich people are the only ones who have experienced income gains during the Obama years.

So Obama claims that his class-warfare policy is designed to hurt the wealthy, but the rest of us are the ones actually paying the price.

Let’s look at one final chart.

These poverty numbers weren’t included in the article, but I think they’re worth sharing because you can see that both the poverty rate and the number of Americans in poverty fell once Reagan’s policies took effect in the early 1980s. Under Obama, by contrast, the best we can say is that the numbers aren’t getting worse.

One final point, I imagine that some leftists will argue that Mr. Blumer is being unfair by looking only at Reagan’s post-1982-recession numbers.

That’s a fair point…but only if you think that the recession was caused by Reagan’s policies. Like most economists, I disagree with that accusation. The recession almost certainly was an unavoidable consequences of inflationary monetary policy in the 1970s.

Indeed, Reagan deserves special praise for his willingness to endure short-term pain in order to address that problem and set the stage for future prosperity. Obama, by contrast, wants continued money printing by the Fed in hopes that easy money can cure problems caused by easy money.

As you might imagine, I’m skeptical about that approach.

P.S. Here’s some snarky humor comparing the Gipper with Obama. And if you liked the story of what happens when you try socialism in the classroom, you’ll also enjoy this video of Reagan schooling Obama.

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