How Was the Budget Balanced in the Late 1990s?

Earlier this month, I explained that Ronald Reagan deserves praise for shrinking the burden of government spending.

Today, starting with this video, let’s add Bill Clinton to the mix and look at how America wound up with budget surpluses in the late 1990s.

The core point of the above video is that there was spending restraint under both Reagan and Clinton.

And this, not Clinton’s 1993 tax increase, led to budget surpluses in the late 1990s.

Here’s a chart, based on Table 8.4 of OMB’s Historical Tables. You can see how the burden of government spending (as a share of economic output) changed under Carter, Reagan, Bush I, and Clinton.

Based on this chart, it would appear that Bill Clinton was more fiscally conservative than Reagan.

Perhaps, but keep in mind that the above chart includes the “peace dividend.”

To be more specific, Reagan’s policies helped bring about the collapse of the Soviet Union. As a result, a defense budget that totaled 5.5 percent of GDP when Reagan left office dropped to just 2.9 percent of GDP by the time Clinton left office.

Perhaps I’m being biased, but Reagan deserves the lion’s share of the credit for that.

It’s also worth noting that interest rates were lower in the 1990s than the 1980s, in part because Reagan brought inflation under control, so maybe he should also get some credit for lower interest payments on the national debt.

Those are judgement calls and I know some people will have a different perspective.

But there’s no ambiguity about our next chart. Reagan was easily the biggest champion when looking at the burden of domestic spending.

Reagan made a lot of progress. Some of that progress was undone by Bush I, but then we moved in the right direction again under Clinton. Click here if you want details (including information on the S&L bailout, which makes Bush look worse than he was and makes Clinton look better than he was).

The net result was that there was enough spending restraint that the country eventually got a budget surplus.

P.S. My friends on the left doubtlessly will point out that revenues also rose during the 1990s. That’s true, but there’s a big difference between revenues climbing because of economic growth and revenue climbing because of higher tax rates. In any event, the most relevant point is that we would have a budget surplus today if the overall spending burden (as a share of GDP) was the same as it was when Clinton left office.

P.P.S. Speaking of tax policy in the 1990s, smart leftists are fond of arguing that high tax rates don’t matter because we had decent growth during the Clinton years when the top tax rate was 39.6 percent. So wouldn’t it be a good idea, they ask, to return to those halcyon days? As I’ve explained before, that might be a worthwhile trade if we also got the lower spending levels and lower levels of regulation that existed at the time.

Read Full Post »

Reagan’s Spending Victory over the Welfare State

I wrote two months ago that President Ronald Reagan did a good job with regards to government spending. I echoed that sentiment in this recent interview.

I’ve tried to show Reagan’s success with various charts (see here, here, here, and here).

Today, let’s try a new visual.

This chart is taken from data in Table 8.4 of the OMB’s Historical Tables on the Budget. I added Column E (non-defense discretionary) and Column H (programmatic mandatory, i.e., entitlements) to come up with a measure of total domestic spending as a share of economic output.

Here are the key takeaways from the chart.

• Reagan moved policy in the right direction, shrinking the burden of domestic spending (and this chart doesn’t even fully capture what he achieved since he was able to rescind some of the spending in Jimmy Carter’s last fiscal year).
• All other presidents did a bad job, but LBJ and Nixon were especially awful (as also confirmed by long-run fiscal data) when looking at the pre-Reagan years.
• Looking at the post-Reagan years, there’s been a steady increase in the burden of domestic spending, punctuated by two episodes of massive one-time spending increases that are identified on the chart.
• We got decent results during the Clinton years, which in part was because of the GOP landslide in 1994, so plenty of credit to share.

The bottom line is that Reagan showed that a principled president can make progress.

Given America’s current fiscal trajectory, it’s more important than ever to mimic his successful policies today.

P.S. If you have some time to spare, click here for a two-hour video showing how Reagan (and Thatcher) saved the western world.

Read Full Post »

A Great Moment from the Education Establishment

Of all the useless and counterproductive bureaucracies in Washington, the Department of Education may be at the top of the list.

It certainly hasn’t produced good results, at least if we care about student performance.

Though it does keep a bunch of bureaucrats on a gravy train, so there are some (undeserving) beneficiaries.

Speaking of which, the top bureaucrat at the DOE, Secretary Miguel Cardona, recently showed that he skipped some history lessons.

As shown in this amusing little video, he completely botched Reagan’s famous warning about getting “help” from government.

Fixed it. pic.twitter.com/6R6Zcr8uBE

— Dave Rubin (@RubinReport) November 27, 2023

To be fair, Reagan’s quote was about government and help, so even though he turned the quote upside down, he was referring to something real.

Moreover, I recall that President George W. Bush said something that libertarians didn’t like about it being government’s role to help when someone is hurting. So I wouldn’t be surprised if Secretary Cardona simply mixed up a good Republican president with a not-so-good Republican president.

Since I once made a $16 trillion mistake on a national TV program, I won’t be overly critical of his misstatement.

But I am glad that his goof has drawn attention to Reagan’s very apt warning.

Read Full Post »

Bidenomics vs. Reaganomics

Bidenomics is unpopular for the simple reason that prices have been rising faster than incomes have been rising.

And when people are sinking – or even if they are treading water – that is a recipe for dissatisfaction.

Yet people like Paul Krugman claim that there is a “Biden boom.”

Today, we are going to look at other examples of how journalists are trying to rationalize and defend Bidenomics.

We’ll start with a conversation in the New York Times between Peter Coy and Binyamin Appelbaum.

Peter Coy: …Americans seem very grumpy about the economy lately, despite what looks like some pretty good news. …Binyamin Appelbaum: …there are basically two flavors of answers to this question. The first looks at the economic data and sees good reason for America’s bad mood. …The second concludes that people are mad despite the economic data. Our colleague Paul Krugman is on that side of the debate. I want to introduce a third kind of explanation. …when people say they’re unhappy about the economy, we should understand that primarily as a statement of concern about where we’re headed. …Coy: …To an economist, Bidenomics is a set of policies… More public investment. Empowering workers. More competition. …But when most people hear “Bidenomics,” they just think “Biden’s economy” — the state of the economy while President Biden is in office. And they aren’t happy about it. …Appelbaum: In an NBC News poll released last weekend, only 19 percent of respondents said that they were confident the next generation would have better lives than their own generation. …this is the great failure of the Biden administration and its economic policies: Americans simply aren’t convinced that the future is bright. …Coy: Yeah, pessimism is a tough problem to fix. We need someone like Franklin Roosevelt, who lifted the spirits of the nation when things were much worse than they are now. Actually, Mr. Biden has modeled himself a bit on Roosevelt. He’s inveighing against crony capitalists, saying the government is here to help and so on. …Appelbaum: I’m skeptical that prices are the problem. ..Americans aren’t behaving like people crushed by inflation. Consumer spending has been a lot stronger this year than pretty much anyone predicted. And the pace of price increases has slowed down to something close to normal… I think what we’re experiencing is a crisis of faith in the narrative of capitalism — at least as practiced in the United States in 2023 — as an engine of shared prosperity.

Some of the above conversation is reasonable. People won’t be happy, for instance, if they think the future is grim (and there are reasons to be worried).

But they largely ignored or dismissed the elephant in the room, which is that inflation-adjusted earnings have been declining or – at best – stagnant.

And I rolled my eyes when Coy described Bidenomics as being about “empowering workers.”

I also didn’t know whether to laugh or cry when Appelbaum asserted that the current malaise is because people are having “a crisis of faith in the narrative of capitalism.”

In other words, Biden makes government bigger and more expensive. And when the economy suffers, people at the New York Times think that’s the fault of capitalism?!?

Next we have an article in the Washington Post by Jeff Stein and Taylor Lorenz.

Olive’s video about a $16 McDonald’s order went viral, racking up hundreds of thousands of views. After a McDonald’s revenue report recently, the same post went viral again earlier this month… Posts…tied the cost to President Biden’s economic management: Inflation, the theory went, had gotten so out of control that the price of a fast-food burger was approaching $20. …In reality, inflation has been steadily subsiding… The Big Mac conundrum reflects what Biden aides and senior Democratic officials regard as one of their most vexing challenges… Even as inflation has fallen…and although the labor market has remained hot amid strong growth, voters still don’t like the economy, and they blame the president. …Some economists…have been astounded by polling data on Biden’s economic approval and surveys of consumer sentiment, where results during the Biden administration are similar to the Great Recession…and that it is vital to make clear that this remains by many measures one of the best recoveries in modern U.S. history.

Stein and Taylor also ignore the elephant in the room. They dismiss concerns about inflation and they totally ignore the problem of what’s happened to inflation-adjusted income.

But the most absurd part of the article was the assertion from “some economists” that the country is experiencing “one of the best recoveries in modern U.S. history.”

I went to the Minneapolis Federal Reserve’s webpage where you can compare recessions and recoveries.

Here’s the chart that the site auto-generated when I compared Reaganomics (in green) and Bidenomics (in red). Reaganomics wins by so much that the chart doesn’t even show the peak for Reagan.

To fully visualize and appreciate the superiority of Reaganomics, I created my own version of the chart, based on the Minneapolis Fed’s data.

You can see that GDP expanded nearly twice as much during Reagan’s recovery (13.1 percent) as during Biden’s recovery (7.4 percent).

Game, set, and match.

Let’s conclude by looking at a column in the New York Times by Karen Petrou. She admits that voters are unhappy and she writes that they have good reason to be unhappy.

As the White House proclaimed U.S. prosperity, a New York Times/Siena College poll found that 59 percent of voters in six key swing states said they had more confidence in Mr. Trump’s ability to manage the economy than in Mr. Biden’s, regardless of whom they thought they’d vote for. Zero — yes, zero — respondents under 30 in three of the swing states said they considered the economy “excellent.” The West Wing may believe Bidenomics is working because the macroeconomic gurus at the Federal Reserve are telling the White House it’s working. But Bidenomics has failed to create sufficient tangible improvement in the lives of most voters in a world in which groceries still cost more than they did a year ago, average rent and mortgage rates have spiked and health and child care grow ever more unaffordable.

The column has plenty of good analysis, especially her observation that prices have been rising faster than incomes.

But I think her main point is wrong. She wants readers to think that the real problem is inequality.

…income inequality is worse than ever. …In a nation this unequal, the income generated by a growing G.D.P. is so unevenly shared that the impression of widespread prosperity falls apart. …America’s top 1 percent always got far more than 1 percent of national income and wealth, but they have rarely gotten as much as they do now. …What’s different now is not only that inequality is more deeply entrenched but also that Americans are less inclined to hope that even as they fall behind, they and their children will soon catch up.

Needless to say, Ms. Petrou presents no evidence to suggest that voters with modest incomes be happier if rich people suddenly had less income.

And the reason that she presents no evidence is that only a small share of the population is motivated by envy. Normal people with modest incomes are more interested in having their incomes go up instead of having someone else’s income go down.

P.S. Reaganomics also easily triumphed in comparisons with Obamanomics.

Read Full Post »

Lessons from Reaganomics for the 21st Century, Part V

Based on a study I authored for the Club for Growth Foundation, I’ve dedicated this week to a series about Reaganomics.

• Part I was about Reagan’s track record on spending and lessons for today.
• Part II was about Reagan’s track record on taxes and lessons for today.
• Part III was about Reagan’s track record on red tape and lessons for today.
• Part IV was about Reagan’s track record on inflation and lessons for today.

The main takeaway from those columns is that Reagan’s policies were very successful.

Which probably helps to explain why polling data shows that Reagan is still very popular with voters (you can see my favorite poll result here).

In a bizarre twist, however, there are some Republicans who think Reagan’s free-market principles are outdated.

These people call themselves national conservatives, though I think of them as reincarnated Rockefeller Republicans (what else would you call people who favor awful policies such as industrial policy and tax increases?).

Today’s column explains why they are wrong.

…many of Reagan’s reforms have been eroded over the past 30-plus years, and the United States is once again facing major economic challenges. Is it time for Reaganomics 2.0? Some argue that America faces different problems that require different solutions. They assert that pushing for the same policies is “Zombie Reaganism.” Many of those critics are avowed leftists, so their antipathy is not surprising. But there are also some self-described conservatives who use the same term to express hostility. …To assess the merits of modern-day small-government conservatism, this paper will briefly explain the problems Reagan faced and the solutions he pursued, followed by an examination of today’s problems and the degree to which similar policies could and should apply. In short, America faces remarkably similar challenges to those that confronted President Reagan. …Policymakers who wish to boost middle-class incomes would be wise to emulate President Reagan.

For what it’s worth, I think some of the national conservatives are not statists. Instead, they merely think they should reject Reaganism for non-economic reasons.

So I included a section about being in favor of limited government regardless of views on other topics.

They assume support for Reagan-style small government conservatism:

• implies support for other policies adopted during the Reagan years, such as immigration amnesty.
• comes at the expense of conservative social policy.
• means no concern for the value of a defense industrial base.
• means being in favor of a “neoconservative” nation-building agenda.
• is somehow inconsistent with communitarian values.

This paper does not address those issues, other than to state that the desirability of Reagan’s four-pillar agenda does not depend on those other topics.

The bottom line is that everyone should be united by a desire for greater prosperity. And that explicitly implies being in favor of free markets and limited government.

P.S. The only hyphenated conservatism I like is small-government conservatism. In previous columns, I’ve pointed out the shortcomings of compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, and reform conservatism.

P.P.S. At the risk of understatement, Reagan was a not a small-government conservative in his younger days. Like a fine wine, however, he improved with age, migrating to the top-right of my Venn diagram.

Read Full Post »

Lessons from Reaganomics for the 21st Century, Part IV

When Reagan campaigned for the White House, his economic plan was based on four pillars. I wrote a study about those policies for the Club for Growth Foundation and I wanted to answer two questions.

First, was Reaganomics successful? Second, should similar policies be pursued today?

Today’s column is Part IV of a five-part series.

• In Part I, we reviewed Reagan’s successful record of spending restraint and explained why the same approach is needed today, particularly to control entitlements.
• In Part II, we examined Reagan’s much-needed supply-side tax reforms and said the same insights are needed today to address the problem of double taxation.
• In Part III, we looked at Reagan’s track record on red tape, noting that he arrested the growth of regulatory restrictions and regulatory budgets and urged the same policies today.

For Part IV, let’s look at Reagan’s approach to inflation.

We’ll start with Figure 14 from the study, which shows how inflation dramatically increased during the 1970s.

That was the problem Reagan faced when he took office.

Here’s some of what I wrote in the study.

The United States was plagued by double-digit inflation when Reagan was elected. Rising prices were a problem throughout the 1970s, and the problem became particularly acute during the Carter Administration (see Figure 14), with prices climbing by nearly 50 percent in just four years. …The Federal Reserve deserved the blame for the surge in prices. The central bank created too much liquidity, motivated in part by a belief in Keynesian monetary policy and in part by a desire to appease politicians who like the sugar high of easy money. To make a bad situation worse, prices were increasing faster than income, which meant that the average household was falling behind. According to the Census Bureau, when Reagan took office in 1981, both median and mean household income was several hundred dollars lower than when Carter took office in 1977.

Here’s what Reagan achieved.

Unlike other presidents, who favored the sugar high of easy money, Reagan understood that the Federal Reserve needed a restrictive policy to bring inflation under control. He supported Chair Paul Volcker’s efforts to slow monetary growth even when it became politically unpopular. He courageously did what was best for the nation, even though it hurt his party in the 1982 mid-term elections. …Reagan’s courage paid dividends. The inflation rate came down very quickly. As shown Figure 15 below, inflation was down to about 4 percent in 1988:

Here’s the chart showing what Reagan achieved.

As I did with Part I, Part II, and Part III, let’s now consider whether Reagan’s policies are still relevant today.

In the case of monetary policy, the answer clearly is yes. The Federal Reserve (and other central banks) recklessly expanded their balance sheets during the pandemic. In effect, they repeated the mistakes of the 1970s, albeit for a different reason.

Regardless of the reason for bad policy, the solution is the same. Replicate Reagan’s courage and bring inflation under control.

The bottom line is that Reaganism was the right approach in the 1980s and it is the right approach today.

Read Full Post »

Lessons from Reaganomics for the 21st Century, Part III

This week is focusing on Reaganomics, both to learn what happened in the 1980s and to determine whether similar policies are needed today.

I’m citing a paper I wrote for the Club for Growth Foundation.

• In Part I, we reviewed Reagan’s successful record of spending restraint and explained why the same approach is needed today, particularly to control entitlements.
• In Part II, we examined Reagan’s much-needed supply-side tax reforms and said the same insights are needed today to address the problem of double taxation.

Today, in Part III, let’s look at Reagan’s record with regards to red tape.

This chart from the study summarizes Reagan’s biggest achievement. He was able to arrest the growth of both regulatory restrictions and regulatory spending during his eight years in office.

Here’s some of what I wrote in the study, including some recognition of some good policies enacted at the end of the Carter years.

The chart…captures the broader impact of Reagan’s presidency. You can see that both regulatory budgets and regulatory restrictions were rising before Reagan took office, were basically flat when he was in office, and then resumed rising after he left office… Incidentally, it should be noted that Reagan’s predecessor got the ball rolling on deregulation. Airlines, trucking, and rail were partially or fully deregulated during the Carter Administration. Those policies were very successful in lowering prices and increasing efficiency in the respective industries. Reagan’s appointees helped implement those good reforms.

That’s the good news.

The bad news is that subsequent presidents have not shared Reagan’s belief in competitive markets.

…there has been a regulatory tsunami since Reagan left office. There are now almost twice as many pages in the federal register as there were in the late 1980s. Meanwhile, regulatory budgets have tripled and regulatory restrictions have doubled since the end of the Reagan years.

Since regulatory policy covers so many areas, dealing with excessive red tape requires several reforms.

In the study, I listed some changes that would help.

• Require the elimination of a certain number of existing regulations before a bureaucracy can impose a new regulation.
• Insist that all regulations pass a cost-benefit test overseen by independent economists at the Office of Information and Regulatory Affairs.
• Enact a regulatory budget to limit the overall cost of red tape.
• Implement a competitiveness requirement so that regulation is never stricter than our foreign competitors with regards to so-called agreements like the Paris Climate Accord.
• Require stand-alone approval by both the House and Senate before any major regulation (costing $100 million and above) can be finalized.
• Adopt “mutual recognition” agreements with advanced allied nations so that Americans can access everything from baby formula to prescription drugs without waiting for bureaucratic approval in the U.S.
• Create a Regulatory Bill of Rights to give anyone investigated by a regulatory agency the same legal rights as accused criminals, as well as the right to recover damages if bureaucrats engage in abusive behavior.

I’ll close by sharing another chart from the study.

Here is the Competitive Enterprise Institute’s estimate of how much regulation is costing the U.S. economy.

So yes, there is a need for a renewed commitment to control red tape.

I’ll close with two observation.

First, regulation is akin to creating an obstacle course for workers and entrepreneurs. Second, Americans are more likely to recognize that there is a problem than people in other nations.

Read Full Post »

Lessons from Reaganomics for the 21st Century, Part II

In Part I of this series, I looked at Ronald Reagan’s reasonably successful track record on government spending (which could be characterized as fantastically successful when compared to other Republican presidents) and explained why we need Reaganomics 2.0 to deal with today’s federal leviathan that is far too big and projected to get even bigger.

In Part II, let’s look at Reagan’s track record on tax policy and ask whether we need another dose of “supply-side economics.”

When he took office, one of Reagan’s main goals was to lower marginal tax rates on American households. This was necessary for two reasons.

• First, tax rates were too high, including a staggering 70-percent top rate for the personal income tax.
• Second, more and more Americans were being hit by punitive tax rates because of “bracket creep.”

Since I’ve already written a lot about the problem of high tax rates, let’s address the second point.

During the 1970s, when inflation was high, there was understandable pressure to increase wages and salaries so that workers did not fall behind.

But when employees got pay raises to keep pace with inflation, that often meant they had to pay higher tax rates even though their inflation-adjusted incomes stayed constant.

This was not a trivial problem. Here’s a table from the study I recently wrote for the Club for Growth Foundation. As you can see, middle class households wound up paying much higher marginal tax rates as the 1970s came to a close.

President Reagan recognized this problem and he did two things to help American families.

• First, he lowered tax rates across board as part of his 1981 tax cut and his 1986 tax reform, with the top tax rate dropping from 70 percent in 1980 to 28 percent in 1988.
• Second, he “indexed” the personal income tax for inflation, meaning households no longer would be pushed into higher tax brackets because of bad monetary policy.

These reforms helped produce an economic boom.

Here’s some of what I wrote in the study.

In 1981, Reagan convinced Congress to enact the Economic Recovery Tax Act, which phased in lower income tax rates for all taxpayers. …Equally important, Reagan got Congress to adopt “indexing,” which meant that tax brackets were automatically adjusted for inflation. That reform ensured that government no longer profited from inflation. During his second term, Reagan then worked with Congress to approve the Tax Reform Act of 1986. That legislation further lowered tax rates for all taxpayers. …the Reagan tax cuts helped trigger an economic boom. The United States experienced a record economic expansion, with millions of jobs being created and family incomes rising to record levels after the malaise and stagnation of the Carter years. Households earned more money, and they got to keep a greater share of their earnings. Net worth also increased substantially, putting America’s middle class in a very strong position.

By the way, even though my left-leaning friends are viscerally opposed to lower tax rates for upper-income taxpayers, it’s worth noting that the IRS wound up collecting more money from the rich after Reagan slashed tax rates. A lot more money.

All things considered, the Reagan tax cuts were a smashing success (notwithstanding Paul Krugman’s protestations).

But is Reagan’s supply-side tax policy still relevant today?

Some people think tax policy is no longer a problem because individual income tax rates are lower than they were when Reagan took office and indexing is still protecting people from inflation (which has recently been a problem).

For what it’s worth, I think personal income tax rates are still far too high.

But the main reason that we need Reaganomics 2.0 is that the United States faces a major problem with double taxation. To be more specific, the IRS imposes very harsh tax rates on income that is saved and invested.

Here’s Figure 9 from the paper. You can see on the left that America’s personal income tax rate is only slightly higher than the average of other rich nations and the corporate tax rate is only somewhat higher.

But you can see on the right where America really lags, with significantly higher tax burdens on capital gains and dividend income.

Incidentally, the chart also shows that the United States would be wildly uncompetitive if Biden’s tax proposals were enacted.

So the obvious takeaway is that Biden’s class-warfare plan should never be resuscitated and that lawmakers instead should lower (or ideally eliminate) the capital gains tax and to reduce (or hopefully eliminate) the double tax on dividends.

P.S. The capital gains tax is not indexed for inflation, so people often are hit by that tax even when they lose money on an investment. That’s obviously another area where we need Reaganomics 2.0.

Read Full Post »

Lessons from Reaganomics for the 21st Century, Part I

As a long-time admirer of President Reagan and his economic policies, I was very pleased to author a new study for the Club for Growth Foundation entitled Reaganomics for the 21st Century.

In the report, I ask “Is it time for Reaganomics 2.0?”

This week, I’m going to look at key economic issues and see whether Reagan’s policies worked and whether similar policies are needed again today.

We’ll start with fiscal policy. Here’s Figure 2 from the study, showing that the burden of federal spending, measured as a share of economic output, increased significantly during the 1970s.

Most troubling, almost all of the increase was because of additional domestic spending.

What happened during the Reagan years? Did policy improve?

As you can see from this next chart, Figure 3, Reagan reversed that worrisome trend. The burden of government spending fell during his years in office (Reagan’s budgets covered 1981-1989, but I also included 1980 and 1988 for people who focus on election years).

Most impressively, Reagan reduced the burden of domestic spending (both entitlements and discretionary) by 2.5 percentage points of GDP.

For those who want more information on Reagan’s successful spending restraint, I recommend this 2011 video.

The purpose of today’s column, though, is to focus on the future. Specifically, what are the challenges we face today and would a Reagan-style approach be appropriate?

The first part of that question is easy to answer. The federal government is far too big and America’s fiscal burden is projected to become an even bigger problem in the near future.

In the study, I included this chart from the Congressional Budget Office, which shows that the burden of federal spending is on a very bad upward trajectory over the next three decades.

The second part of the question also is easy to answer.

Reagan’s approach was to restrain spending and that same approach is needed today. Here’s some of what I wrote.

America’s spending problem today is worse than it was when Reagan was elected and inaugurated. The overall burden of spending has reached more than 24 percent of economic output and domestic spending by itself consumes more than 19 percent of GDP. …All this spending…undermines growth by diverting resources from the productive sector of the economy. …Domestic discretionary spending is a very ripe target for budget savings. …Entitlements are the major budget challenge. More than 70 percent of the federal budget is allocated to these programs, and that share will increase since entitlement spending is projected to become an even bigger burden in the future. …some sort of spending restraint would be desirable. One option is a…spending cap. The best model in the United States is Colorado’s Taxpayer Bill of Rights. The TABOR provision in Colorado’s constitution effectively limits spending so that it cannot grow faster than the combination of inflation plus population. …Globally, the best model is Switzerland’s spending cap.

In the study, I explain that domestic discretionary spending should be significantly reduced, including elimination of various departments and agencies.

And I also make the case for entitlement reform, including Medicare, Medicaid, and Social Security.

To conclude this column, let’s look at the big picture.

I wrote that some sort of spending cap is needed. To help make the case, I showed what would have happened to federal spending if Washington was subjected to a TABOR-style spending cap at the start of the Trump years.

As you can see in Figure 5. the savings would be enormous. Limiting spending increases to population plus inflation would have resulted in a federal budget of about $5 trillion for 2023, which is more than $1 trillion less than politicians actually spent.

The bottom line is that TABOR has produced big savings for Colorado taxpayers, but those numbers would be dwarfed by nationwide savings is Washington was constrained by a spending cap.

P.S. Politicians who oppose spending restraint implicitly support massive tax increases on lower-income and middle-class households.

Read Full Post »

The Practical Case for “Freedom Conservatism”

I’m not a fan of so-called national conservatism, largely because many proponents of this Trump-like approach want a bigger burden of government.

• In some cases, they want new programs to increase Washington’s power over the economy (such as per-child handouts and industrial policy).
• In other cases, they want to allow existing programs to expand (such as the built-in growth of entitlements), which means massive tax increases.

I’ve long argued that folks on the right should instead rally around a Reagan-like agenda of small-government conservatism.

That is not a surprise, given my libertarian inclinations.

I even put together a Venn Diagram to show that Reaganism is a natural home for people who are not comfortable with either Trumpism or establishment Republicanism.

And I’m not the only one who wants an alternative.

There’s a new manifesto entitled Freedom Conservatism: A Statement of Principles.

It is based in part on the notion that “individual liberty is essential to the moral and physical strength of the nation.”

Here are the core principles that unite the various signatories.

1. Liberty.
2. The pursuit of happiness.
3. The foundation of prosperity.
4. Full faith and credit.
5. A nation of laws, not men.
6. Americans by choice. 
7. Out of many, one.
8. America’s promissory note.
9. The shining city on a hill.
10. Freedom of conscience.

You can click on the link to get details on these 10 items, though you’ll notice it’s mostly “motherhood and apple pie” rhetoric rather than specific policies.

By the way, the same is true for the competing manifesto, which is entitled National Conservatism: A Statement of Principles.

Heck, I’m surprised that there are not people who signed both documents since they are similarly well crafted to attract support (I even praised several features of the National Conservatism manifesto in a column last year, and some of the people who signed it are genuine believers in limited government).

That being said, I added my name to the Freedom Conservatism manifesto.

Why? Because I believe that Freedom Conservatism – as a concept – is based on a superior philosophy (liberty rather than nationalism) and I also think that advocates of that approach are more likely to support sound economic policies (Reaganism rather than Trumpism).

Let’s put this in practical terms. Here’s a chart showing how economic liberty in the United States has declined so far this century, thanks to an overall shift to more dirigiste policies by Bush, Obama, Trump, and Biden.

Which group wants to reverse this decline?

I think it is safe to say that the Freedom Conservatism group, on average, has sounder views.

And which group wants to reform entitlements to protect the country from massive future increases in the fiscal burden of government?

Once again, the Freedom Conservatism folks presumably are more likely to be on the right side.

I’ll close by reiterating that some of the people on the National Conservatism list are very good on economic issues, just like some of the Freedom Conservatism signatories are a bit weak. Indeed, it’s quite likely that some people signed up (with either group) because of views on non-economic issues such as immigration or foreign policy.

P.S. Even since the Reagan years, opponents of limited government and libertarian economic policies have flitted from one trendy idea to another (compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, reform conservatism, etc). Hopefully national conservatism will fade like these other fads.

Read Full Post »

This Is What Happens When People Think Government Solves Problems

Ronald Reagan has many famous quotes, including “government is the problem” and “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.'”

Channeling Reagan’s wisdom, I have repeatedly shared examples of how government makes things worse rather than better.

• America’s dependency-creating welfare state.
• America’s job-destroying unemployment system.
• America’s anti-achievement education monopoly.
• America’s lifespan-reducing regulatory apparatus.
• America’s inflation-creating monetary policy.
• America’s boondoggle-producing infrastructure laws.

If it is any comfort, however, politicians in other nations routinely also make the mistake of thinking (or claiming) that more government can solve problems.

A report in the New York Times by Constant Méheut asks why there is ongoing discontent in French neighborhoods where the government has spent billions of euros.

After the 2005 riots, the French government invested billions of euros to revamp its immigrant suburbs, or banlieues, to try to rid them of run-down social-housing blocks. But the similarity of the recent riots, and what spurred them, almost a generation later has raised questions about whether the efforts to improve conditions in the banlieues have failed. …The reasons for the failure, they say: Change has come too slow, and, perhaps more important, the government programs have done little to address deeper, debilitating issues of poverty… Clichy-sous-Bois embodies the challenges facing France. The city was the center of the 2005 riots and has since become something of a laboratory for the changes promised by various governments. New social housing has sprung up in many neighborhoods. A government-funded cultural center opened in 2018… But when riots broke out across the country after the recent police shooting, Clichy-sous-Bois was hit hard again… A 2018 parliamentary report noted that the successive governments’ efforts to improve life in the suburbs had mostly failed, in part because they did not focus enough on helping residents escape poverty.

The article does not say how many billions were spent, but France has the highest burden of government spending in Europe. Which is saying something.

And it has the biggest welfare state. Along with stifling taxes.

Have those policies worked? Of course not.

Like many European welfare states, France is economically lagging.

It is also a country where poor people get plenty of handouts, but the article reminds us that that government spending to “help” the poor has an unfortunate consequence of trapping them in poverty (a problem that also exists in the United States).

P.S. None of this is a surprise to people who understand economic history.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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?

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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).

Read Full Post »

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).

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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).

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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?

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »

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.

Read Full Post »