Most of his enemies are gracious today, but I remember their viciousness well. He was too old, tottering and doddering, a warmonger, a simplistic cowboy who would be lost without his 3x5 cards. I ended up voting for him twice but, two years into his first term, wondered if I had made the right decision.
Mr. Reagan didn’t trim taxes, he took an axe to them. Marginal rates were halved and deductions and credits dramatically expanded. If companies couldn’t use the credits because they had no income to be taxed, they could sell them to other companies who could use them. The deficit mushroomed.
Meanwhile, the Federal Reserve under Paul Volcker tightened the money supply to wring inflation out of the system. The rate on the 30-year Treasury bond climbed past an unprecedented 14%. “Crowding out” entered the popular lexicon. (The U.S. Government, which is the risk-free borrower, i.e., the only borrower which is 100% certain to pay its debts, the only condition being the continued existence of the United States of America, can set its borrowing rate as high as it needs in order to attract funds. It is the 800-pound gorilla in the credit markets and crowds out other borrowers, regardless of their creditworthiness.) Mortgage rates soared; the housing and automobile markets collapsed, dampening the rest of the economy.
Mr. Reagan removed the last controls over the price of oil. The price of gasoline fell, and I had to write off the investment in an energy partnership, which represented a sizeable portion of my net worth at the time. Consumers benefited while energy investors lost.
Mr. Reagan believed that deregulation and lower taxes would free the animal spirits of the American people and that the economy would surge. He did it boldly, amidst much hand-wringing by detractors and some supporters. His belief that these policies would work was based more on his understanding of human nature than macroeconomic evidence, which had been heretofore limited.
President Reagan not only spoke against totalitarianism—all Presidents do--but, over vociferous objections both here and abroad, he introduced weapons systems into Europe that first halted the expansion of the Soviet Empire, then contributed to its dissolution.
George W. Bush has been compared to Ronald Reagan, usually for the purpose of drawing an unflattering contrast with the former, but for those of us with clear memories, the comparison is apt. The criticisms are exactly the same as we heard 20 years ago:
Unlike Ronald Reagan, George W. Bush will not win 49 states in his campaign for re-election; it is very possible that he will lose. Yet I do believe in one final similarity: posterity will be kind to Mr. Bush, because the big decisions he made will have resulted in a better life for many millions of people. © 2004 Stephen Yuen