A few days ago one of the architects of Reaganomics, Murray Weidenbaum, passed away.
Looking back, Reaganomics was a success.
ECONOMY BEFORE REAGAN
When President Reagan entered office in 1981, he faced actually much worse economic problems than Obama faced in 2009:
REAGAN’S ECONOMIC SUCCESS
Reagan conservative policies amounted to the most successful economic experiment in world history:
(The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.)
The Bush tax cuts helped end the 2001 recession and softened the blow of the 2008 crisis. Trickle down economics may have its flaws but no one has proposed a better alternative. On a related note, ending the gold standard lifted the constraints that had been holding the economy back. The world has never seen this much cash, profits, innovation, wealth creation, and liquidity. Everything is awesome, and no one (especially the left) is happy. While the left still insist the economy is weak, corporate profits are smashing records every quarter. The largest six banks alone earned $76 billion in profits last year. Compared to the cyclical low of $55.71 trillion of household net worth in Q1 2009, US households have gained almost $25 trillion in wealth over the last four years. It’s better to help the rich get ahead because that can help everyone else, even if it takes time the benefits to trickle down. Supply side economics works because instead of appropriating the poor a bigger slice of the pie from the successful, you make the pie higher instead.
The economic impact of the weak labor market isn’t as significant as all the headline hype would suggest. Even if the Luddite fallacy is no longer a fallacy that doesn’t mean it’s time to abandon technological process. It’s a bifurcated recovery. Nominal hourly earnings, labor market & GDP only give a small piece of the picture. Other parts of the economy such as profits & earnings, exports, consumer spending, web 2.0, and real estate are thriving. The left has unrealistic expectations for job creation and GDP. The recovery may seem slow but it’s still faster than all of Europe and no slower than before the recession. The low labor force participation is a social problem more than an economic one. It’s time to choose profits and growth over class warfare. We’re becoming a nation of crybabies, blaming the economy, Washington, the fed, the rich, and technology for falling between the cracks, instead of ourselves.
Ending the Gold Standard may have worked in the short run. It remains to be seen if it will work in the long run. All fiat currencies have failed in the end.
Admittedly in the end we are all dead, but fiat currencies don’t seem to have done all that well to me since the end of the gold standard. They may be about to do a lot worse.
This is an example of the fallacy of the hasty generalization. Just because other fiat currencies have failed doesn’t prove the US dollar will share their fate. The overwhelming evidence suggests this wont happen. For example, long & short term yields are still at historic lows. As shown below, the US is paying less interest on its debt relative to GDP than in the 80’s. The US dollar has out-performed over 95% of currencies since 2011.
The only criticism of Reaganomics lies with Paul Volcker – the overrated, liberal octogenarian hero of the left. Volcker didn’t need to ‘break the back’ of inflation, creating a bad recession in the process. Considering the persistence of the decline of long term rates, it’s reasonable to assume double digit inflation would have resolved itself, without his heavy-handedness. Tax cuts and cheaper energy (80’s oil glut) ended the recession and contributed to the decline of interest rates, neither of which Volcker played a role in. It came as little surprise Volcker was one of the leading proponents of regulation post 2008 since destroying wealth is one of his expertises.