Metropolitan News-Enterprise


Tuesday, August 28, 2012


Page 6



Reaganomics: It Worked Then; It Would Work Now




President Barack Obama, who has failed to pull this nation out of a recession, is bad-mouthing the approach employed by President Ronald Reagan in the 1980s…an approach that lifted us from a recession that was considerably worse than the one Obama encountered when he entered office.

It escapes me how anyone can be taken in by the smooth-talking Obama who eschews the very method that worked, denies with a straight face its efficacy, and clings to a scheme that never has been successful and can’t be.

His reelection (which, regrettably, seems likely) would delay by at least four years an economic rebound. A prescription for recovery will be provided in Tampa; it’s up to the electorate to fill that prescription in November and take the elixer over the succeeding four years.

This is a truism, one that should be obvious to all:

To the extent businesses are crippled, they will be unable to supply jobs.

The obverse is that to the extent businesses are allowed to thrive, they will be able to maintain or increase their workforces.

Government oppression of businesses means unemployment; government incentives to businesses spell increased employment.

It’s simple; it’s basic.

And it’s proven time and again—most dramatically, in recent years, after Reagan became president in 1981.

The “trickle-down theory” was said by critics to underlie Reagan’s economic plan. That was a pejorative term which some at the time fancied to be a new one, coined in reaction to what was dubbed “Reaganomics.” In fact, it was a phrase long used by those sneering at the concept that drying up resources of capitalists will inevitably harm the economic interests not only of those direct victims, but also those from whom the capitalists would otherwise purchase goods or to whom they would otherwise provide jobs.

The phrase is generally attributed to a comment by humorist Will Rogers in his nationally syndicated column (generally appearing in newspapers on Nov. 26 or 27 of 1932) that “money was all appropriated for the top in hopes that it would trickle down to the needy.”

However, the term “trickle-down theory” should properly be attributed to President Franklin Delano Roosevelt. While others had used it, he popularized it. On Oct. 16, 1936, in campaigning for reelection, he provided an audience in Cleveland with figures showing an upsurge in the economy in Ohio, and remarked:

“The fact that recovery has come to all of these groups is a refutation of the old theory which had guided the previous administration, and which I call the ‘trickle-down’ theory. That theory is that if you lend some money to the few financial interests at the top of the economic pyramid, it will trickle down and some of it will find its way into the pay envelopes of the workers, into the ledgers of the millions of independent businessmen through the nation and into the pocketbooks of the farmers.

“The trouble with that theory was that there was always too little left to trickle more than halfway down.”

Envy is a base emotion. Yet, envy of those “at the top of the economic pyramid” no doubt is, and has been, the primary impetus behind tax schemes to strip them of the bulk of their resources. The launching of new business enterprises or expansion of existing ones hold the prospect of the creation of jobs—yet, in times of  confiscatory taxation, there is a marked disincentive to embark on such projects. If the potential reward is slim, it necessarily follows that there is little incentive to proceed, and the economy stagnates.

Those who have, despite all, taken the risks, applied their energies, and succeeded, surely are morally entitled to the fruits of their labors, and should not be begrudged their retention of a large chunk of the proceeds…rather than all but a smidgen of the profits “trickling down” or flowing to the general coffers to be allocated to others.

The salient point is that jobs are not provided by persons who, or businesses that, cannot afford to pay salaries. Our economy depends on encouraging, not impeding, commercial enterprises.

President Harry S Truman, in his Jan. 5, 1949 “State of the Union” address, proclaimed:

“We have rejected the discredited theory that the fortunes of the nation should be in the hands of a privileged few. We have abandoned the ‘trickle-down’ concept of national prosperity. Instead, we believe that our economic system should rest on a democratic foundation and that wealth should be created for the benefit of all.”

The United States is a democratic republic. Democracy means that the people rule; rule is not imposed on us.

This precept relates to our political system.

Our economic system is free enterprise. That is the system that has rendered the United States the wealthiest nation in the world, that has created general satisfaction among the populace, and accounts for the longevity of our nation under a constitution framed in 1776—a constitution that’s been altered on infrequent occasion through the years, but with the basic precepts remaining intact.

That economic system does envision that “fortunes…should be in the hands of a…few.” (With the population of the United States now set at 314,223,620, a “few” would still be in the millions.)

In a democracy, those whose hands clutch fortunes do not have their riches because they are nobility. Ideally, it would be because they have been the wisest, ablest, and most productive competitors in the free enterprise system. In fact, luck and other factors do play a role. But what our system does is to encourage endeavors, and spur growth, by holding out the prospect of wealth as a reward.

Truman referred in that address to the “privileged few”; in a March 29, 1952 speech he alluded to “the favored few.” He asserted in the latter talk that the Democratic Party (his party) had “been giving the country good government” during its 20 years in power while the Republicans would want “to build up the prosperity” of those “favored few, and letting some of it trickle down to the rest.”

However, the Republican concept has never been that government should bestow “privileged” or “favored” status on anyone. That’s the Jacksonian spoils system. Rather, the Republican notion was, and is, that the people should confer such status—by choosing what stores to patronize, what products to buy, what movies to see, what services to use. And those who offer what the public wants, and make money, should be able to keep enough of that money to render the effort they expended, the gambles they took, worth it.

For an incisive look at the consequences inherent in removing this incentive, read the article on the next page by Beverly Hills Courier publisher Clif Smith.

Speaker of the House Sam Rayburn, on March 16, 1954, lashed out at President Dwight D. Eisenhower’s tax plan in a radio and television broadcast. The Texas Democrat said:

“[The Republicans’] philosophy is that if they give tax relief to those in the high income groups, some of the benefit may eventually trickle down to the great majority of taxpayers. This ‘trickle down’ has never come about, in all history of Republican tax laws.”

Oh? When businesses are thriving, they do not supply jobs?

“Trickle-down theory” is a clever, scornful term that has been used by innumerable Democratic office-holders and candidates and others through the years in disparaging Republican economic proposals.

A student in Manchester, New Hampshire used it in questioning a candidate who was conducting an ill-fated campaign in 1976 for the Republican presidential nomination. Former California Gov. Ronald Reagan, appearing at a high school, told the inquiring student, according to a Feb. 13 Los Angeles Times account:

“To say the trickle-down theory doesn’t work is wrong. It has never had a chance to work because Democrats have controlled the Congress for 40 of the past 42 years.”

Four years later, Reagan attained the nomination, then the presidency. He placed into operation what his administration called “supply-side economics,” a term concocted in the 1970s. It was a clumsy term, the meaning of which was not readily grasped. The rationale, however, did make sense: by rendering it less onerous to supply goods and services through lowering taxes and eliminating needless regulations, businesses would be more apt to succeed and the economy would benefit.

A syndicated opinion piece by historian Arthur M. Schlesinger Jr., published in the Times on Oct 22, 1981, observes that what “was called the ‘trickle-down theory’ ” earlier “is ‘supply-side economics’ today.”

The klutzy positive term fell into disuse; the loaded and effective negative term reemerged.

If you visit the Reagan Library, you can view a videotape of the late president musing that the press labeled his economic policy “Reaganomics” in a cynical way when it was put into effect, but that the term, tying his name to the approach, was abandoned once it started to succeed.

In a speech in Chicago on Aug. 12, Obama derided Michigan Gov. Mitt Romney’s economic plan, and commented:

“Let me tell ya something, they have tried this before. They have tried to sell us this trickle down fairy dust before and guess what? It did not work. It did not work.”

On Aug. 18, in New Hampshire, Obama declared of the Romney-Ryan approach:

“They have been trying to sell this trickle-down snake oil before. It did not work then. It will not work now.”

Despite a rocky start, from the time Reagan entered office to his departure, the inflation rate plummeted from 13.3 percent to 4.1 percent, the median annual family income went up by $4,000, and the gross domestic product growth swelled from -0.3 percent to 4.1 percent. There was a $15 trillion upswing in national wealth.

Yet, our current president—who has failed to pull this nation out of a recession—brazenly proclaims that Reaganomics, which led to prosperity, “did not work.”

The Los Angeles City Council on Aug. 1 voted unanimously to lob the heads off 645 parking meters from streets near the port in San Pedro and Wilmington.

That will mean a loss to the city of about $50,000 in coins dropped in the meters. But the lack of a meter is an inducement to the motorist to pull up to the curb and go in stores and spend. That means more money collected in sales taxes and more employment.

It’s Reaganomics.

Reagan induced Congress to enact the Economic Recovery Tax Act of 1981, which he signed into law on Aug. 13 of that year. It provided for cumulative a reduction of individuals’ income taxes for 1981 of 1.25 percent, by 10 percent the next year, 19 percent in 1983, and 23 percent in 1984. The maximum rate was slashed from 70 percent to 50 percent—and 1986 legislation cut it to 28 percent.

The tax cuts encouraged spending, and the economy boomed. The same philosophy has led to beheadings of parking meters in the harbor area; it will encourage parking, and businesses will profit.

Reagan told Congress, in his Jan. 26, 1982 State of the Union address:

“Together, we not only cut the increase in government spending nearly in half, we brought about the largest tax reductions and the most sweeping changes in our tax structure since the beginning of this century. And because we indexed future taxes to the rate of inflation, we took away government’s built-in profit on inflation and its hidden incentive to grow larger at the expense of American workers.

“Together, after 50 years of taking power away from the hands of the people in their States and local communities, we have started returning power and resources to them.

“Together, we have cut the growth of new Federal regulations nearly in half. In 1981 there were 23,000 fewer pages in the Federal Register, which lists new regulations, than there were in 1980.”

That’s after only one year in office. After four years, of what can Obama boast?

In his final State of the Union address, Reagan was able to say this:

“[A]s we have worked together to bring down spending, tax rates, and inflation, employment has climbed to record heights; America has created more jobs and better, higher paying jobs; family income has risen for 4 straight years, and America’s poor climbed out of poverty at the fastest rate in more than 10 years.

“Our record is not just the longest peacetime expansion in history but an economic and social revolution of hope based on work, incentives, growth, and opportunity; a revolution of compassion that led to private sector initiatives and a 77-percent increase in charitable giving….”

And what will be Obama’s legacy?

No one should dare grumble about the withering court finances in Los Angeles County without, in the next breath, pledging support for the election of Mitt Romney.

The economy simply won’t improve under Obamanomics. A four-year failed effort has proven that.

The national unemployment rate in December 2007, the month before Obama took office, was 5.0 percent; it’s now 8.3 percent. The inflation rate now is relatively low—1.4 percent—but in December 2007, it was at .1 percent.

And in Los Angeles in December 2007, courthouses weren’t closing, court reporters were not a vanishing species, and layoffs of courthouse staff were unheard of. The term “furlough” was thought of as something a soldier coveted rather than it being a forced day-off from a job without pay.

In 1980, Reagan beseeched voters to ask themselves: “Are you better off now than you were four years ago?” Most Americans weren’t, and most Americans voted for him.

The Republican Party would do well to put together a television commercial showing Reagan posing that query, followed by Romney pledging a faithful application of the Reagan policies that 32 years earlier delivered us from a recession. That ought to be a predominant theme of Romney’s acceptance speech in Tampa.

It is to be hoped that no amount of deceitful rhetoric by an affable president will deter the American electorate from a realization that Reaganomics did work in the 1980s, and will work now, or whenever it is applied.


Copyright 2012, Metropolitan News Company


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