by Brian Domitrovic
Remember when people were saying that the old Republican ideas, the venerable supply-side reforms that first made their mark in the Ronald Reagan era of the 1980s, were no longer relevant in terms of getting us out of our rut today, on account of their already having been made policy? It was only yesterday that we heard all this—in the campaign of 2012.
Cut taxes? Done plenty over the last thirty years by Reagan, even Bill Clinton, and then George W. Bush. Roll back regulation? Done again (and we apparently saw the fruits in the financial crisis). Sound money? Interest rates are undetectable these days, a tiny fraction of those Jimmy Carter conducted over to Reagan in the massive dollar crisis of 1980-81. Free up trade? We now live in a bewildering era of globalization!
These four things—low taxes, stable money, deregulation, and free trade—are known as the “four pillars of Reaganomics,” one of the classical statements of which the great supply-sider Arthur B. Laffer set down here.
All so quaint, aren’t they, applicable as they may have been to the challenges of a generation ago.
But wait…now in 2013, taxes have gone up, and President Obama insists that more increases must come; regulation, in the form of Dodd-Frank, the Federal Reserve’s new plenary powers, Obamacare, and EPA mandates, has taken a giant leap; dollar substitutes like gold have blown through the roof; and big dogs in international trade, Japan and the Eurozone, are contemplating such things as competitive devaluations and the possibility of a breakup into autarky.
So the four pillars of Reaganomics are not so irrelevant after all, in that there is plenty of “room” for them to be applied with gusto right now, and certainly once President Obama really gets going during his 2013-2017 stint.
For what we are experiencing, as the economy digests the big Obama boondoggles of his first term and the big statist plans for his second, is the renaissance of the relevance of the four pillars of Reaganomics. No longer will it be necessary for some political aspirant to put a twist on the old supply-side ideas, to go for some clever repackaging and “updating,” to think outside of the box á la the blessed authors of Grand New Party from a few years ago. The old warhorse ideas will be precisely up to the task at hand.
Could you imagine what would happen if we cut taxes, reined in regulation, stabilized the dollar, and recommitted to world trade? Which is to say: what if the private economy were freed of impediments? The outsized growth that we last saw in the 1980s and the 1990s would come again today. Out of the trough of the recession in the 1980s, the economy grew 17% in three years, about triple the rate of the Obama recovery from the Great Recession. And after that momentous start in the mid-1980s, there was another fifteen years of real growth at 3-4%. This is the minimum we should expect from a program based on the four pillars of Reaganomics given our dilapidated state today. Maybe we could grow at 4-5% for the long term, since our current GDP denominator is so dismal, so low.
Fifteen years at 4% growth would add so much wealth and so many resources to the economy that virtually all the problems which have this country in the doldrums right now would fade from the scene. It would be impossible to keep running budget deficits (as the 1990s proved), because of the rush into the private sector. The big entitlements, Social Security and Medicare, would become both less relevant (on account of everyone’s private prosperity) and more solvent (on account of a government that can only get rich in such a context).
The problem facing this country, in this sixth year since the beginning of the Great Recession, is substandard growth. And growth is exactly what the four pillars of Reaganomics were identified to spur. The argument that there is no “room” to cut taxes or regulation or what have you simply makes no sense this far along into Obama.
Reaganites were always a little squeamish about suggesting what obviously should be the fifth pillar of their program—permanent reductions in government spending. They had to be, since spending swelled to nearly 24% of GDP as the Reagan plan got going in the context of Tip O’Neill’s Congress. Let this then be the “new idea” of the twenty-first century: there are five pillars of Reaganomics, the last one remorselessly shrinking public expenditures in the face of a booming real sector.
Cut spending, taxes, and regulation, get the dollar stable (one of the effects of which is to fix exchange rates and thus facilitate trade), and show economic leadership to the world? We could seriously be talking about 5% growth for the long term after a mammoth start, with all of the intractable problems of the Obama era bygone, the butt of jokes.
The best revenge against the current incompetence will be the return to growth. President Obama is setting the table for the next Reagan Revolution, if only the Gipper’s heirs are clear-eyed enough to see it.
Originally published at Forbes.com the essay is reprinted here with gracious permission of Brian Domitrovic, the author of Econoclasts: the Rebels who Sparked the Supply Side-Revolution and Restored American Prosperity.