To Millennials coming of age today, the reverence that many conservatives have for Ronald Reagan must seem inexplicable. Nothing that they have been taught about Ronald Reagan’s presidency justifies the deep admiration and respect conservatives have for him. They have lived their entire lives in the shadow of Reagan’s “shining city on the hill”, growing up in an America without serious economic rivals or even military peers, with prosperity that is without parallel in human history. For them, the economic abundance all around them is as normal as the air they breathe, but it isn’t connected in any meaningful way to Reagan’s legacy.
The fact remains that, whatever one may think about Ronald Reagan as a man or as a politician, it is undeniable that his eight years in office has shaped the course of American politics for over three decades. So immense is Reagan’s legacy that almost thirty years after leaving office and over a decade since his death, the left continues to talk about Reagan. Not because they want to, but because they have to. When people talk politics, Ronald Reagan is brought up along side Thomas Jefferson, Abraham Lincoln, and Franklin D. Roosevelt. That is Reagan’s legacy.
It’s Ronald Reagan in this context that the Millennials don’t grasp, and it’s why the left is rising now, crying “Change!”, because the “change” they seek is impossible without the support of a whole generation of young Americans with no idea of who Ronald Reagan was. Because to change Americanism, to do away with the basic idea that the individual’s rights to “life, liberty, and the pursuit of happiness” trumps the collective power of the state, to break the beating heart of capitalism, the left must destroy Reagan. And this is exactly what they are trying to do.
At the core of Reagan’s legacy is his economics policy. Whether you want to call it “trickle down economics” (as his critics do), “supply side economics” (as conservative economists do), or even just “Reaganomics”, it’s not possible to understand how Reagan changed history without first talking about how things were before he took office. Let’s take a brief look at the three decades before Reagan, from January 1st, 1950 through December 31st, 1980.
Government is the problem.
Since Adam Smith and Karl Marx, we have lived in a world of competing economic perceptions but not economic realities. The business cycle (expansion, recession, and recovery) is a fact of life in any civilized culture. Economies will grow, economies will shrink, and economies will recover, as long as resources are scarce in any way. This is just how things are and is not up for debate. For decades, however prevailing wisdom, especially of those in government, was that government solved recessions, and very few could even imagine that the government could actually be the cause.
In 1950, the top marginal income tax rate was around 90%. Taxes stayed between 80% and 94% of all top incomes since 1945. It wasn’t until 1964, when Congress finally brought it down to 77%. By election night in 1980, the top personal income tax rate had been 70% for a decade (taxfoundation.org).
In this same time period from 1950 to 1980, there were 22 quarters with GDP growth at 0% or less, with 5 periods of consecutive quarters of negative GDP growth (www.tradingeconomics.com). Like harsh winters, droughts, or hurricanes, when these recessions came, they destroyed businesses, personal livelihoods, and jobs. Unemployment spikes in time with recessions, making recessions the number one killer of jobs (shown below).
With 5 recessions in 30 years, that is a recession every 6 years, lasting 7 to 8 months each, leaving just 5 years for recovery and growth on average. In most cases, there were fewer than 4 years for recovery and growth, which led unemployment to trend upward. In the 1960’s, there was a respite where economic and job growth continued unabated for over a decade, this after the decrease of the top marginal income tax to 77% in 1964.
In the late 1970’s, the economy entered a state of high inflation, high interest rates, high unemployment, and low economic growth that became known as “stagflation” (a stagnant economy with high inflation). As always, the American people turned to the government for a solution but no solution was forthcoming. Then along came Ronald Reagan promising a “morning in America”, but so ingrained was the inevitability of recessions that George H. W. Bush, then Reagan’s GOP presidential rival, called Reagan’s policies “voodoo economics”.
Ronald Reagan’s optimistic campaign won out, taking 44 out of 50 states and the District of Columbia. As soon as he was in office, Reagan lowered the top tax rate from 70% to 50% and taxes on unearned incomes to 20%. Though he rolled back some of these cuts in 1982, in 1986, he lowered the top marginal rates from 50% all the way down to 28%. Reagan deregulated the petroleum industry and lowered the windfall profit tax in 1981, and later eliminated the windfall profit tax altogether in 1988. Many in Washington, D.C. fully expected the wheels to come off of the economy.
The Last Best Hope
In the 30 year period from the recovery in 1983 to 2013, there have been only 10 quarters where GDP was 0% or less with only 2 recessions in that period (www,tradingeconomics.com). Reagan’s “voodoo economics” cut the number of recessionary quarters in half. The average economic boom/bust cycle went from 6 years to 15 years, with average recovery and growth cycles growing from 4 to 5 years up to 9 to 10 years.
His core principles of low taxes and deregulation have been the beating heart of the United States economic machine, and most of his policies have remained untouched through most of four presidential Administrations. But the true miracle occurs for the American worker. When you compare the GDP growth to unemployment trend line for the 30 year period from 1980 to 2010, it becomes obvious why Reagan won reelection by a landslide margin of 49 out of 50 states and the District of Columbia.
From the recession of 1981 through 1982, until 2007’s Great Recession, the unemployment numbers trended downward in a complete reversal of the 30 year period from 1950 to 1980. This is Reagan’s true legacy. Many on the left have tried to give credit to Clinton for the economic successes, but they won’t tell the Millennials that the only thing Clinton changed was to adjust the top marginal tax rate up to 39.6% and expand the Carter era Community Reinvestment Act (C.R.A.) which arguably sewed the seeds of the mortgage loan collapses that led to the recession in 2007 and 2008.
It took the Great Recession to bring the Reagan economy to an end, but the pieces of the Reagan legacy are still in place. Like the ruins of the Roman Empire in the waste of Dark Ages Europe, the fundamental building blocks of a new Reagan economy are still there. They will just need a true believer to restart the American engine. A visionary that understands that the government can’t solve economic problems, only creating them. Our only hope for a new “morning in America” will come in 2016. If Millennials can come to understand the real legacy of Reagan, then the future of Americanism is bright indeed.
Liberty is For The Win!