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Friday, February 3, 2012

Bruce Bartlett And The Ghost Of Reagan

Feb 3rd, 2012

Throughout the GOP primary season, the supposed legacy of Ronald Reagan has been invoked by the hopefuls a stunning number of times. It has occurred to me that this endless collection of promises to somehow re-institute the past exposes a pretty poor grasp of actual economic history. But why take my word for it when you can hear it from Bruce Bartlett?

"Judging from the candidates’ tax proposals, they seem to believe that the most Reagan-like candidate is the one with the biggest tax cut. But, as the person who drafted the 1981 Reagan tax cut, I think Republicans misunderstand the premises upon which Reagan’s economic policies were based, and why those policies can’t — and shouldn’t — be replicated today." EMPHASIS OURS

It doesn't get much harder to argue for a return to Reaganomics when one of its principle architects declares the proposition to be ridiculous. Inflation was generally agreed upon in those days to be the biggest threat to growth. In the intervening years, our economy has been so transformed that we've managed to ride out the worst crisis since the 1930s without much inflationary instability at all.

"When comparing Reagan’s policies with Republican proposals today, several things stand out. Inflation is low now. We are not looking at “bracket creep” or sharply rising taxes, as we were in the late 1970s. The top income tax rate is 35 percent, half the rate Reagan inherited. And federal revenue is at a 60-year low of about 15 percent of GDP, compared with a post-World War II average of about 18.5 percent.

These differences are essential to understanding why Reagan’s policies worked when they did — and why they are not appropriate today.

All of the evidence tells us that the economy’s fundamental problem today is not on the supply side but the demand side. According to a recent study by Credit Suisse, two-thirds of the difference in growth at this point in the business cycle, compared with previous cycles, is due to slower consumer spending. And low inflation — as well as widespread unemployment, vast stocks of unsold houses, empty factories and other indicators — tells us that money is tight, not loose, as was the case in the late 1970s."

Contemporary Republican economic proposals aren't any more grounded in reality than their regressive social and cultural demands.

The past is the past. They just cannot accept that fact. 

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