QUORA: ‘How did Reaganomics get the country back on track?’

 QUORA: ‘How did Reaganomics get the country back on track?’

I posted this answer:

It’s a bit simplistic to say Reaganomics got the country back on track. It’s largely true, but there's more to the story. Reaganomics was part of a larger trend toward freer markets and globalization of trade. Reagan’s policies can’t get all of the credit. But they deserve a lion’s share of the credit, because he accelerated the deregulation trend of the Carter Administration and his radical restructuring of income tax rates—cutting top rates from 70% to 39% and ultimately to 28%—refocused the economic incentives from stagnation to growth.* 

Reagan’s policies corresponded to an amazing resurgence in American economic power, which in turn corresponded to dramatic global economic improvements. Reagan would avoid taking credit, instead placing credit with “We the People''—the “men and women who raise our food, patrol our streets, man our mines and factories, teach our children, keep our homes, and heal us when we're sick -- professionals, industrialists, shopkeepers, clerks, cabbies, and truckdrivers.” The result was a predictable outcome of freer markets—the economy took off, with a job and innovation-filled expansion that many did not expect, except of course Reagan himself. Reagan understood that people working and trading for personal benefit is the fountainhead of economic prosperity, and that more freedom and minimal government obstructionism was all they needed.

Let’s examine the record.

As the economic expansion took hold, after the 1980 - 82 “double dip recession”—the third and fourth in 14 years— GDP growth surged 8% growth out of the box, and averaged 4% from 1983 through the end of the century (compare that to today’s “new normal” of 2% growth). And that powerful expansion was accompanied by a phenomenon that was thought impossible by the prevailing 1970s logic of Phillips Curve economics: The strong expansion was accompanied simultaneously by falling inflation (12.5% to 3,4%), falling interest rates (19% to 8%), and falling unemployment (10.8% to 3.9%). 

Thanks to Britain’s Margaret Thatcher and other world leaders, such as Red China’s Deng Xiaoping, the successor to madman Mao Zedong, free market-oriented policies spread around the world, igniting a surging global trend of prosperity. Global extreme poverty plummeted from more than 40% in 1980 to less than 10% today. At the same time, the share of the world population living middle class (or higher) lives has passed 50%. How much Reaganonmomics inspired the global free market trend, as opposed to following it, is a matter of debate. But either way, Reaganomics played a significant role in advancing it, not least of which by giving voice to free markets and individualism.

All of this astounding progress now faces multiple threats, especially the growing attacks on global free trade, the resurgence of central planning ideologies, and the Environmentalists' war on reliable energy, especially fossil fuels. But as to the question, How did Reaganomics get this country back on track? Simple. He recognized that “In this present [1970s] crisis, government is not the solution to our problem; government is the problem,” and pursued policies to reduce government interference and thus give private individuals more freedom and incentive to work, innovate, take risks, and trade for their own personal betterment.

* [I emphasize rate, rather than tax, cuts. Between 1983, when Reagan’s first round of tax rate cuts were fully implemented, and 1989, Reagan’s last year in office, individual federal income tax revenues rose 55% as the economy soared, rising every year in that period. A tax policy that leads to strong increases in federal income tax revenues can hardly be called a tax cut.] 

Related Reading:

There's a Hole in the Middle of Doughnut Economics by Steven Horwitz

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

Global Poverty Decline Denialism: An anti-market ideologue tortures the data at The Guardian. By Ronald Bailey for Reason

The Growth of the World’s Middle Class May Be the Greatest Story of Our Age

Did the New York Times Just Vindicate Reaganomics?

We now have a Biden Doctrine. It makes me nervous.

EXCERPTS:

First, it is a fundamentally pessimistic view of America’s recent history. Sullivan recalls the glory days of American economic power after 1945, but then notes that in “the last few decades” that strength has waned. He talks about the hollowing-out of the country’s industrial base, the export of American jobs and the atrophying of industries. We “stopped really focusing on building,” Sullivan said, as he summarized the subsidies, tariffs, bans and investments that are at the heart of Biden’s new approach.

Ironically, only a couple of weeks before Sullivan made his speech, the Economist had a cover story on “America’s astonishing economic record.” It begins with 1990 — often used as the start of the rot in the narrative of decline — and points out that despite the rise of huge new economies such as China and India, the United States’ share of global gross domestic product has stayed roughly the same since then: around 25 percent. During that same period, America’s share of the Group of Seven’s economic output increased substantially, from 40 percent to 58 percent. Today, eight of the world’s 10 biggest companies are American. In 1989, only four were American (and six were Japanese). As for building, during these decades, the United States created and built the information economy, surely one of the greatest transformations and advances in human history.

In 1990, the great fear in the United States was of being overtaken by Japan, then seen as the predatory economic power that was eating our lunch. But, as the Economist notes in the same edition, in 1990, the income per person in the United States was just 17 percent higher than in Japan; today it is a staggering 54 percent higher. Look at demographics or energy or leading technology companies, and everywhere you see the United States in a dominant position. Perhaps we got something right.

It's Time to Bury the "Trickle-Down" Myth

Capitalism: The Unknown Ideal—Ayn Rand

Three Cheers for "Trickle-Down!"

Related Listening:

Carter Trumps Reagan on Deregulation [CATO, 14 minutes]

Did the New York Times Just Vindicate Reaganomics?

The 1970s was racked by what came to be known as “stagflation”—the simultaneous existence of high inflation, repeated recessions, and low economic growth. Driven by high taxes, excess money creation to monetize massive federal spending, and massive government regulation, stagflation endured from the late 1960s to the early 1980s. It didn’t end until a major change in federal economic policy took hold. 

Inflation, properly understood, is an economy-wide scourge consisting of “too much money chasing too few goods.” A spike in the price of some particular good or service due to supply chain disruptions—such as the spike in gasoline prices in the months following Hurricane Katrina, which disrupted oil production in the Gulf—is not inflation. Inflation permeates every nook and cranny of the economy.

After years of stagflation, a new idea began to take hold in the late 1970s among many economists. And the idea led to a major new economic policy direction. 

That policy change came to be known as supply-side economics. That policy, embraced and implemented by the Reagan Administration, consisted of a three-pronged strategy; reigning in the money supply by the Federal Reserve, dramatic cuts in personal income tax rates, and widespread deregulation (deregulation actually began under the Carter Administration). Increasing the supply of goods by incentivizing production while cutting the money supply, the theory held, would bring supply and demand into balance, ending inflation while spurring economic growth.

The results were astounding. A massive job- and innovation-filled economic expansion took hold, with GDP growth of 8% growth out of the box, and 4% average GDP growth from 1983 through the end of the century. And that powerful expansion was accompanied by a phenomenon that was thought impossible by the prevailing 1970s logic of Phillips Curve economics: The strong expansion was accompanied simultaneously by falling inflation (12.5% to 3,4%), falling interest rates (19% to 8%), and falling unemployment (10.8% to 3.9%). 

Which brings us to today. For the first time since the 1970s, America is facing massive inflation. Will it degenerate into a long-term stagflation? Already, economic growth for the past 20 years has been half the 1980 - 2000 period, thanks largely to increasing regulation and government interference into the economy. Now that weak growth is joined by rampant inflation.

The political signs don’t look good. Unlike the late 1970s/early 1980s, which saw a major shift away from regulation and taxes, the current Washington policy features increased calls for regulation, especially through antitrust law and restrictions on energy production, and calls for increased taxes on producers. The Fed is attempting to reign in the money supply, but it seems to be well behind the inflation curve, now in the 8 - 10% range.

Furthermore, as the New York Times observed in The Painful Path, the government’s plan to fight inflation could cost jobs and restrict wage growth. Meaning, it’s back to the Phillips Curve, which holds that to lower inflation one must slow economic growth and raise unemployment. Have the lessons taught by supply-side economics already been lost. The times observes:

The country’s main tool for fighting price increases is Federal Reserve policy. The Fed is trying to bring inflation back under control by raising interest rates, which sets off an economy-cooling chain reaction. Higher interest rates increase the cost of mortgages and company borrowing, which slows business growth and translates into less hiring. As the job market weakens, paycheck growth slows, which further tamps down buying. Less shopping gives supply a chance to catch up.

So the Times acknowledges that the supply side of the equation has to “catch up.”  But how? The Times observes:

Fed policy works on the demand side of that equation. When fewer people shop for cars, because auto loans are expensive and the job market feels less secure, a smaller supply of vehicles might be enough to go around without causing prices to shoot up.

But crushing demand ranks somewhere between unpleasant and agonizing. When the Fed pushed interest rates to double-digit levels in the early 1980s, in an effort to bring down rapid inflation, it set off brutal back-to-back recessions that pushed the unemployment rate to nearly 11 percent. (Right now, the rate is at a historically low 3.6 percent.)

That grim historical example has prompted some labor-focused groups to call for a more holistic response to today’s price increases, which are the result of both strong demand and disrupted supply.

The White House and Congress could help to ramp up production in key parts of the economy, offering relief on the supply side of the inflation equation. [my emphasis]

And there-in lies the rub. The Biden Administration is to “help to ramp up production in key parts of the economy,” which to it means choosing cronyism, especially for its concept of “key parts” like unreliable renewable energy and electric vehicles and various “build-in-America” strategies. Whereas Reagan simply sought to get the government the hell out of the way and let productive innovative citizens rip, Biden wants to disincentivize production by selectively “helping” favored constituents. It calls for increased taxes on the most profitable corporations, while pursuing increased antitrust enforcement against the most successful businesses and an anti-merger fever that stifles innovation.

I like that the New York Times is mentioning the supply side. But the Times is calling for the supply side of the equation to be “helped” by more government, when what it really needs is less government and more freedom. As Reagan understood, and today’s leadership doesn’t, the driving force of economic growth is the individual’s pursuit of personal gain and happiness. Government policies that favor some and not others, or redistribute wealth from one pocket to deposit it in another, does not and can not cause growth. Only increasing incentives like reducing taxes (including inflationary government spending) and economic regulation can leave individuals freer to pursue more productive goals. The only way to “help” the supply side is to reduce government involvement. The direction we are currently heading is in the direction of a repeat of the 1960s and 1970s, when inflation came in wave after wave in an ever higher trend, rather than the 1980s and 1990s, when that pattern was broken amid powerful growth.  

Related Reading:

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

Jeb Bush’s Tax Plan, Hoover, and Reagan

On "Costly" Tax Cuts

Three Cheers for "Trickle-Down!"

Why a Government Can't "Stimulate" an Economy

Jimmy Carter Sparked a Craft Beer Explosion by Getting Government Out of the Way

GOP Needs a Philosophically Coherent Agenda

I’ve been around awhile—65 years. I’ve seen a lot of Republican electoral surges. Mostly, I’ve been disappointed. The only exception; the Reagan Republicans of the early 1980s. But even that faded. Rather than build on and correct the “Reaganomics” revolution, the GOP slipped back into me-too, country club land. The G.W. Bush era was a blatant leap to the Left.

Typically, Republican control has resulted in the consolidation of the welfare state advances scored by prior Democrat controlled legislatures. At best—with rare exceptions—Republican control only stalls the statist advance, and paves the way for another lurch to the Left.

I’m hopeful that this time will be different. One thing is certain: It won’t be, if the GOP takes the advice of former Republican New Jersey Governor Christine Todd Whitman. Whitman urges, Republicans Must Put Forward Ideas After Big Wins.

Whitman correctly observes that the GOP cannot merely be anti-government or anti-Obama. It must put forward a positive policy agenda based on “our”—Republican—ideas.

But Whitman doesn’t hint at what those ideas are. More importantly, she offers no principles upon which those ideas should rest. Instead, she retreats into meaningless generalities:

I have been dismayed to watch just how polarized Washington has become in recent years - every issue that is discussed is done so from the political, rather than policy perspective.  I am not naïve to think that one midterm election's result will lead to greater political compromise – much less one midterm election that so clearly favored one party over the other.  But I remain hopeful that my party will lead well from their place of political strength – be willing to negotiate for the sake of ordinary Americans, and foster a policy discourse that shows our ideas are the right ones for the nation. The next two years can be a time of great policy achievement in the United States, and it all depends on how Republicans choose to lead.

“Political” vs. “policy perspective?” What about the philosophical perspective? Compromise? On what. To what end; “great policy achievement?” “Negotiate for the sake of ordinary Americans?” As opposed to whom; extraordinary Americans? If Republicans are to avoid “polarization”—i.e., fighting the Democrats on fundamental ideas—then what kind of leadership does that imply? What kind of ideas?

I left these comments:

It can’t be just about ideas. It must be about pro-liberty ideas. Republicans have always had some good ideas in this area; e.g. school choice in education; expanded health savings accounts and other free market reforms in healthcare; lower and flatter tax rates; deregulation. But Republicans need a focussed, philosophically coherent agenda based on a core principle. They need to sharply distinguish themselves from the Dems on terms that are clear and easy to grasp.

I suggest the Self-Reliant Society, as contrasted to the Democrats’ Dependency Society.

The Democrats common theme is: Whatever the problem (real or concocted), only government can solve it. If all Republicans are going to do is propose different ways for government to run our lives and solve our problems—like “universal health care” through “market-based” policies—then what’s the point of electing Republicans?

Everything the Democrats do or suggest moves Americans toward dependence on government. They only “compromise” if they can move the ball in their direction. Republicans should counter with a policy that whatever they do or propose must result in greater control for individuals over their own lives. Compromise, yes. But only so long as it results in more freedom for individuals to manage their affairs and solving their own problems.

The only alternative to the Democrats’ statism is individual rights and limited, rights-protecting government. Stop obsessing over “polarization.” It’s time Americans had “a choice, not and echo.” Whatever the legislative policy, tie it to the Self-Reliance principle, and then trash Democrat opponents as pro-Dependency and anti-self-determination. Let voters know explicitly the broad direction the GOP wishes to move America.

Americans still respect self-reliance. Give them a choice—a Self-Reliant Society, or a Dependency Society—and I think the GOP could score big.

Related Reading:

Why Conservatism is a Perpetual Loser

My Challenge To the GOP: A Philosophical Contract With America

Extremists vs. the Moderates: Why the Left Keeps Winning, and the Right has been Powerless to Stop It

The Coming GOP Restructuring: Toward Liberty or Religious Authoritarianism?

In August, Albert R. Hunt raised the specter of a radical restructuring of the Republican Party, noting that Romney May Signal the End of Establishment Republicans' Rule.

At that point in the presidential campaign, the Romney team appeared to be headed for defeat. Unsurprisingly, that has now become a reality. Hunt wrote:

The grass-roots, ideologically driven base typified by the Tea Party movement ... is maturing into full control.

The establishment Republicans generally hold more moderate views, some having grown up in the party, others coming from business, and with a general appreciation of an “activist, limited government.”

Movement conservatives are motivated by ideology, sometimes small-government economics, other times the religious social agenda. They range from Paul Ryan, the small-government, economic policy-savvy vice-presidential candidate, to Todd Akin, the Missouri Senate contender who last week suggested that it is rare for women to become pregnant as a result of rape, saying “If it’s a legitimate rape, the female body has ways to try to shut that whole thing down.”

From Washington to the state capitals to the local level, the movement conservatives are in the ascendancy. For years, the Republican base was divided; it’s now dominated by the movement types.

From the end of the Reagan Administration through the second Bush Administration, Hunt notes, the GOP was dominated by liberal or "moderate" ("Establishment") Republicans. But the Establishment Republicans' reign culminated in the surging statism of the last 12 years, and the loss of an election that should have brought them a sweeping victory. Clearly, if the Republican Party is to become relevant, it needs to radically restructure.

But the movement conservatives and the Tea Party movement are afflicted by their own great divide--between (a general appreciation of) economic liberty and social authoritarianism. Free market capitalism simply cannot coexist with the Religious Right, or religion generally. On the dark side are the likes of Akin and Richard Mourdock and their cruel comments on rape. On the bright side are the likes of Margaret Hoover, who has called on the Republican Party to repudiate the anti-abortion, anti-immigration, anti-same-sex marriage Religious Right and social conservative elements of its agenda and unite the party platform under the principle of "American Individualism."  (See my Objective Standard review of her book of that title.)

To become relevant, the New Republican Party will have to choose one direction or the other. To learn how to help push the GOP in the right direction--the direction of individualism and individual rights--I urge you to read Free Market Revolution: How Ayn Rand's Ideas can End Big Government.


Related Reading:

My Challenge to the GOP; a Philosophical Contract with America

Understanding Obama: It's Not the Economy, Stupid!

Will the 58% Save America?

Politics 2012: Can "American Individualism" Save the GOP--and America?

Election 2010: Is it 1966, or a Real Turning of the Statist Tide?

Ayn Rand Foresaw Conservatism's Second Obituary

Welfare Statists Circle the Wagons

The political strategy of the Left is becoming clearer as we move deeper into the 2012 election cycle. After being seemingly knocked back a bit on their heels by the Tea Party rebellion, the Left is beginning to regroup and circle the wagons around the welfare state. One battle line has formed along the moral front. Another is forming on the economic front. The Left’s latest target is the growing “wealth gap” between rich and poor, a rehash of an old bugaboo. Its main weapon is, as always, its extreme collectivist ideology. NJ Star-Ledger columnist Tom Moran seized upon a report allegedly showing a widening gap:

Shake the numbers any way you want and the answer is the same: Millionaires are getting richer fast, and their tax burden has been cut in half since World War II. The middle class is slowly sinking, despite working longer hours with greater productivity. And the army of the poor is flooded with new recruits, most of them with a long history of working in lousy, low-wage jobs.

The tax statement is utterly false, of course. Tax rates have come down, but the tax burden has shifted steadily up the income scale. The top 1% of earners now pay about 40% of all income taxes. The bottom 50% pays virtually no income tax. (Moran is vague here, however. The Left has taken to throwing payroll taxes into the mix, which skews the overall tax burden down the income scale, as measured by percentage of income. But even including payroll taxes, the top 1% pays nearly 30% of all federal taxes. Furthermore, Medicare and Social Security are tied to contributions, with the benefit calculations skewed toward the lower end of the income scale, as well. In other words, in relation to what they pay in taxes, lower income folks make out quite well. Payroll taxes are much less progressive, owing to the earnings cap. This is hardly unfair, though. One can hardly say that the economic bottom is being cheated)

How do they propose to correct that alleged problem? Not by liberating the economy from oppressive government, but by targeting the people that by their own admission are doing well. How will that foster a return to economic health? It won’t, but they don’t care. Why? Because they are ideologically driven, uncompromising, unabashed statists:

The irony is that robust government programs on a scale we need today are very popular. The GI Bill helped create the middle class by sending a generation of veterans to college. Social Security ended widespread poverty among the elderly. Medicare made sure they would not die without a doctor.

No serious person can argue that private charity would have matched this government effort.

That last sentence is all too true, and that points to the fundamental problem. The private sector could not and would not match it, because the vast majority of people receiving government “help” neither need it nor are worthy of private, voluntary charity. (The GI Bill is a special case, which can be seen as payment for services rendered in defense of America. But that is beside the main point.) All of those programs are still in place, and have in fact been expanded into uncharted, vastly unfunded territory. And many more have been added. The results are in. But again, the Left statists are not interested in reexamining the entire welfare state concept. Their goal is more of the same, as they press forward toward their long dreamed of egalitarian utopia. The inverted mentality that seeks to achieve a better economy by sacrificing people who are doing well is dramatized on page 535 of Atlas Shrugged:

“There are people who aren’t broke,” said Boyle slowly [at an economic crisis meeting of top-level government officials]. “You boys have no excuse for permitting all that need and misery to spread through the country – so long as there are people who aren’t broke.”

Moran continues:

America wasn’t always like this. After World War II, the country made big gains that were widely shared. The result was the most prosperous middle class the world has ever known. Play by the rules and you could make out fine, and expect that your kids would do even better.

What was the difference between the post WWII period and today? For one thing, the New Deal and thus the Great Depression ended, Truman lifted wage and price controls, and the gold-backed Bretton Woods international currency system kicked in. Tax rates were high – 91% at the top – but almost no one paid the highest rates, and they were widely seen as a drag on the economy. Remember that Democrat JFK ran on a 1960 presidential campaign slogan “get America moving again”, and followed that up with his signature tax accomplishment that lowered the top rate to 70% in his across-the-board rate reduction plan.

But the most important difference between then and now was the size and scope of government, which was much, much smaller then. Beginning in the mid 1960s, the welfare state exploded, the gold standard ended, and government spending soared at an accelerating rate. Today, the welfare state has reached new heights, federal spending alone now consumes 25% of GDP, and government regulations are descending upon the economy at the most feverish pace since at least the Great Depression.

No, as Tom Moran says, “America wasn’t always like this.” There was a time when we were freer, and consequently individuals had a much easier time rising economically. The struggles of the middle and lower income people that Moran describes are exactly what one would expect in a controlled economy like we have today. But, the Left doesn’t see the obvious correlation between today’s economic troubles and today’s burgeoning welfare state. They don’t want to see it, because the facts threaten their statist worldview. So, they set up a straw man like the wealth gap, and point to that as a symptom of what’s wrong with the economy. It is a symptom, but not in the way the Left believes. Moran and others on the Left have taken a huge bite of foot, this time. The supreme irony is, all of the government-imposed programs Moran credits for lifting the lower and middle classes are still in place, and have been joined by a myriad of new programs piled on top as the welfare state continues to expand to this day. If the size and scope of the welfare state is to be the measure of middle and lower class well-being, then the only conclusion one can draw is that it has been a dismal failure, having wrecked both the middle class and the economy.

[Note: I use the term “class” only in the economic sense of reflecting income brackets. There are no actual classes in America.]

The dream of every stripe of American socialist is to turn the middle class into a welfare class. This is being accomplished by forcing productive Americans to launder their hard-earned money through politicians’ hands via an ever-growing assortment of wealth redistribution programs, return that money in various strings-attached ways, and then call them vital “government benefits”. Social welfare programs did not create the middle class. They were created by politicians – regrettably, often with widespread popular support; but still, by politicians making an end run around the constitution they swore to uphold. Who pays for the welfare state? It is the productive achievements of private citizens that pay for and make the welfare state possible.

What created the middle class? – The individuals that make it up, led by the highly productive rich who break out to new economic heights, creating the mass market products we see all around us, jobs, raising the physical labor productivity that leads to rising real wages, and providing investment opportunities that enable millions to share in the profits of productive businesses. The middle class arose naturally as a direct corollary of the rise of free market capitalism in the 19th century, which arose naturally as a direct consequence of the American ideals of unalienable individual rights and limited rights-protecting government. Popular support or public opinion polls notwithstanding, the facts speak for themselves: The modern welfare state did not create the middle class, but was made possible by the exploitation of the middle class.

The statist mentality has to create the myth that free individuals acting on their own judgement can not take care of themselves, despite all of the evidence to the contrary, in order to justify the case for omnipotent government. Welfare statists love to claim credit for such things as educating veterans, “end[ing] widespread poverty among the elderly”, and “ma[king] sure they would not die without a doctor”, even though such programs are actually paid for by widespread forced taxation of private productive citizens. But the fact is, the very few people who can’t – as opposed to won’t – take care of themselves were merely the rationalization for forcing everyone into a welfare state trap.

What is it that the Left depends upon to make such a defense of its welfare state crown jewel appear to make sense? Moran writes:

Now that social contract has been broken. In the past 20 years, all of the economic gains we’ve made were captured by the top 10 percent of earners. The bottom 90 percent lost ground.

The “social contract” is a euphemism for the legalized armed robbery of forced wealth redistribution. The Left is driven by a bastardized egalitarian conception that views individuals not as equal before the law but as equal in the sense of an ant colony. All wealth is an anonymous collective achievement, this view holds. Intelligence, self-motivation, ability, self-discipline, innovativeness, and all of the virtuous individual character traits that productive work demands are irrelevant to the “distribution” of that wealth. The wealth or “economic pie” just appears, independent of individual activity, and falls into one big tribal pot. It is created by everyone but no one in particular. If someone has too high an income, it’s because they “captured” too much out of the pot. We are all ants, incapable of individually producing wealth by our own capabilities and voluntary private trade. The tribal wealth pot is a static quantity, where one man’s gain is another man’s loss. Left free, some will “capture” an unfair amount, leaving less for others. We need the queen ant, or the tribal chief, or the welfare state – variations of Plato’s “philosopher king” all - to step in to create a fairer distribution by cutting down the successful top. Then somehow, “the economic gains we’ve made” will keep coming.

Of course, all wealth is the product of individual minds, individual initiative, and individual work – the relative individual value of which is determined by free and voluntary association and trade, and, to the extent there is a free market, manifested in the amount of money each individual makes. This fact is buried under a mountain of collectivist jargon and the tribal view of wealth, which unfortunately is a view held beyond just the Left. The result is an ever-expanding government and the rise of force as the dominant means of social interaction. (See my post of 10/6/11).

Over the past century, power-lusting American politicians, by regularly exploiting the genuine needs of the few and the greed of those unwilling to plan their own lives, created today’s economic crisis. The alleged “income gap” is a straw man. The solution is not to go after the one economic group that still manages to flourish, which will only worsen the plight of everyone else. The solution is to begin to lift the suffocating blanket of statism from the economy – beginning with taxes and regulations.

The income gap isn’t growing because the top 10% is in some mystical way benefiting unfairly, it is growing because the government is stifling upward mobility through taxes, spending, monetary policy, central planning, and regulations, while destroying incentives through an expanding array of handouts that encourage the lazy and the shiftless and discourage the ambitious. The middle and lower economic groups are victims not of the top 10%, but of government. More than ever, to cite the Reagan wisdom that Moran quotes in his article, "Government is not a solution to our problems. It is the problem."

The soft communism of welfare state socialism is inexorably approaching its inevitable blind alley throughout the West. We could be witnessing the last gasp of the deadly 20th century scourge of collectivism. One can observe Moran’s reliance on collectivist premises to fortify his Leftist call to action. It is those collectivist premises that must be challenged, and the only alternative is individualism. There are signs that that challenge is beginning to emerge. But, by and large, the Right has so far failed to mount an ideological counter-attack, thus conceding the philosophical battlefield to statism. We must explicitly uphold individualism, otherwise the largely reflexive national recoil against “big government” epitomized by the Tea Party will crash and burn on the rocks of philosophical incoherence.

The Resurrection of Ronald Reagan

The Democrats have re-anointed former Democrat Ronald Reagan into their party! They are lecturing Republicans to follow their hero’s example. But, what is the real lesson the GOP should draw from the Left’s sudden infatuation with Reagan?

Ronald Reagan is the icon of the modern conservative movement. He is also the only American politician that I have ever been passionate about. To be sure, he was a very mixed bag from an Objectivist perspective. But he stood for certain definite principles, even though in practice he was far from consistent. On the positive side, he went to bat for the productive members of society, he extolled the individual and the private sector against the state, and his agenda of income tax rate cuts, modest regulatory restraint, and sound Federal Reserve monetary policy ignited a nearly two decade long economic expansion that blasted Keynesian economics into the dust bin of history, despite its vampire-like reincarnation of the past few years. From the early 1980s to the late 1990s, unemployment, interest rates, and price inflation all trended steadily lower simultaneously. This was thought to be impossible according to Keynesian dogma (along with the 1970s “stagflation” – the combination of high price inflation and slow economic growth).

Perhaps the biggest blockbuster of his presidency was his policy towards the Soviet Union. He firmly championed, and pursued policies to reflect, the fervent belief that Soviet Communism was a house of cards that would collapse of its own weight if only the West would stop propping it up economically. The results were dramatic.

He had plenty of flaws and inconsistencies, however. He supported the New Deal, and as president signed a bill raising Social Security taxes in order to save it for 75 years (remember that?). He helped ignite the Religious Right by courting them as part of the “Reagan Coalition”, swinging to their authoritarian social agenda including eroding the separation of church and state. He failed to fight hard enough to reign in government spending.

The Left has seized upon this last to transform Reagan into a welfare state icon. In The new party of Reagan, Dana Milbank writes:

After he switched to the Republican Party in 1962, Ronald Reagan famously quipped: “I didn’t leave the Democratic Party. The party left me.”

Now, the Republican Party is doing the same thing to him — and Democrats are happy to take Reagan back.

Milbank then reels off a litany of compromises Reagan made, both as Governor of California and President of the United States. They range from tax hikes to debt limit increases to a Medicare expansion. He is “revered by many Democrats”, a “procession” of whom “claimed Reagan’s support for their position…during the debt-limit debate”. Audio recordings of Reagan warning of the dangers of failing to raise the debt limit is the new rallying cry of the Democrats. There is even a quote from Mike Huckabee about how “he made deals with Democrats [and] compromised on things in order to move the ball down the field.”

But what are the Democrats really saying? Perhaps not exactly what they think they are saying. There is a lesson hidden behind the Democrats’ sudden resurrection of Reagan from liberal hell.

The NJ Star-Ledger weighs in:

[The GOP] is no longer the party of Ronald Reagan, who raised the debt limit 18 times and included tax hikes in 11 of them. He saw that deficits were skyrocketing on his watch, and he understood that compromising on his conservative principles was not the same as betraying them. He was a realist.

In answer, I left the following comment:

Zemack, posted July 22, 2011 at 6:59PM

In their enthusiasm to trash the Tea Party, the editors made the “radical Republicans’ ” case. Every budget Reagan sent to congress in the 1980s was declared “dead on arrival” by the liberal Democrats, who then so larded them up that even the surging federal tax revenues of the ‘80s, which doubled under Reagan’s watch, couldn’t keep up. Yet, Reagan “compromised his conservative principles” in the name of “realism”.

Imagine if, instead, Reagan had taken the “radical” stand of drawing the line somewhere along that parade of debt ceiling and tax increases? Imagine if he had stuck to his conservative principles and demanded that congress bring its spending into line with the generous revenue stream emanating from the Reagan economic boom? Imagine if his party then picked up where he could have left off, rather than go the way of neo-conservatism and George W. Bush.

The obvious lesson to be drawn here is that the explosive growth of the welfare state spending juggernaut – now at an astounding and destructive 25% of GDP - is driven by the Left’s best secret weapon, those principle-compromising Republicans. It’s a pattern that has been going on for decades. The Republicans are guilty, all right. We’ve been brought to the economic precipice by welfare statists traveling on a long road paved by conservative compromises.

Democrats are trying to save their winning strategy, by posthumously re-anointing Reagan back into their party. Suddenly, Reagan is the liberals’ new hero! But any retreat by the GOP on the very modest principle of no tax hikes would be disastrous. In fact, we need true reform proposals, starting with the complete privatization of SS and Medicare through personal accounts and a new low-rate flat income tax. The GOP – or at least part of it - is merely trying to hold the line, and only because of the much-needed intransigence of the Tea Party. You call that radical? I call it a starting point, because that’s not enough. The West’s and America’s economic crisis is a failure of the soft socialism of the welfare state. The Republicans need to go on offense with a pro-free market, pro-individual rights economic agenda. I have hope, but I’m not holding my breath.

But at least the editors clarified the issue for us, and demonstrated the value of today’s Tea Party.

Where did Reagan’s repeated compromises with the Left get the country. For one thing, they killed his own “Reagan Revolution”. Since Reagan, the welfare state has surged, especially over the past dozen years. No wonder the Dems suddenly want to hold Reagan up to the country as a model for today’s Republicans to emulate.

Of course, Reagan had his strengths, as I pointed out at the outset of this article – strengths that Democrats ignore. I believe that his strengths outweighed his weaknesses, even though his weaknesses – his compromises – helped sow the seeds for the problems we have today. The implications behind Reagan’s economic policies of income tax rate cuts, regulatory restraint, and support for a sound Fed monetary policy should be a model for any president who has widespread prosperity as a goal. But, as Steve Forbes recently observed, “Sadly, …President [Obama] does not … have much interest in slowing down Washington's spending machine, recognizing that big spending means more power for the central government.”

Amen! The Democrats are not interested in learning from Reagan’s strengths, either, because they are not interested in emulating Reagan's pro-growth economic policies and actually compromising on their principles. Their phony exaltation of Reagan contains a lesson for Republicans that they ignore at their, and the country’s, peril: compromising on your principles of free markets and limited government paves the way for expanded government and shrinking freedom.