Published in The Tennessean, Sunday, July 31, 2011
by Richard J. Grant
In recent days, President Barack Obama has become quite fond of quoting his esteemed predecessor, President Ronald Reagan. We all know the dangers of quoting out of context and of misunderstanding quotes, but it is also rumored that Obama has been studying Reagan's career.
Perhaps he came across this 1986 Reagan quote: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Given President Obama's record so far, it seems that he mistook this for advice.
Superficially, the two men do have some similarities. Both share the same job title and both inherited very poorly performing economies. Both saw unemployment rise during their first two years in office.
At no time during Reagan's two terms did Republicans control both houses of Congress. The Republicans never had a majority in the House of Representatives. The “Reagan revolution” occurred despite this, and sometimes despite the Republican establishment. We never did get to see what Reagan would have done with a less hostile Congress, but we were never in doubt as to which direction he wanted to go.
President Obama began his term with Democrats controlling both houses of Congress. But after 22 months of experience, voters decided to take away that luxury. If we are still in doubt about which direction he wishes to take us, then it is only because it is so hard to believe. He is no Reagan.
Reagan understood that there is pain even when healing from a wound. The transition from bad management to good management means change; it means disruption. To the untrained eye, the initial stages of making things better will appear little different from making things worse. This explains the superficial resemblance between the first two years of the Reagan and Obama administrations.
President Obama uses the nice-sounding words “balanced” and “compromise” as often as possible. By focusing on the budget deficit rather than the total size of government, he implies that tax increases are somehow needed to “balance” spending cuts. By emphasizing compromise, he implies a moral equivalence where there is none. He likes to remind us that President Reagan compromised and agreed to raise taxes on occasion.
In 1982, the Democratic leaders in Congress promised Reagan three dollars in spending cuts for every dollar in tax increases. Reagan agreed. The tax rates increased, but the spending cuts never happened.
Later, President Reagan achieved significant tax-rate reductions. By 1986, the income-tax base had been broadened and the top tax rate had been reduced by over 40 percentage points to 28 percent. He also continued to push deregulation, which allowed oil prices to fall and businesses to serve customers and to grow accordingly. The economy boomed, unemployment fell, and tax revenues increased.
Our current president should study this.
He, and we, might also think about the universal applicability of these words that Reagan spoke in 1983: “I urge you to beware the temptation of pride, the temptation of blithely declaring yourselves above it all and label both sides equally at fault, to ignore the facts of history and the aggressive impulses of an evil empire, to simply call the arms race a giant misunderstanding and thereby remove yourself from the struggle between right and wrong and good and evil.”
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: email@example.com
Copyright © Richard J Grant 2011