“Reagan Revolution Blueprint is Trump’s Guideline for Success!”
Ty J. Young Editorial
Oh, the joy of the 1980s. The Reagan Revolution ushered in almost 27 years of uninterrupted economic growth!
The Reagan Revolution was unique; it was built on sound economic policy, strong fundamentals, and avoided artificial stimulants like the plague. The Ronald Reagan years were focused on fixing the U.S. economy across-the-board: tax reduction, pro-growth fiscal policy, strong dollar policies, sound monetary policy, massive deregulation, and fair trade policy. It was unprecedented in its scale, and unmatched in its success!
Many forget, however to achieve such a healthy, and prosperous, economy, we had to go through some pain in the early years. The President-elect, Donald Trump, would be wise to follow Reagan’s example, but it could be painful to steer the ship of state onto the right path.
Reagan is largely remembered for his massive tax cutting – and they were a crucial, and perhaps decisive component, to the country’s economic boom and success during the 1980s and beyond. But there were other equally important policy decisions that were made as well. Rooting out the decay, dysfunction, and socialist tendencies of the 1970’s was an enormous task. So, there is a scope of problems and solutions that Reagan offered to consider:
I. What were several key economic policies Reagan implemented?
1. A strong dollar policy.
2. Sound monetary policy.
4. Fair Trade.
II. What were the short-term negatives of Reagan’s policies?
1. Export-driven employment hurt by strong dollar policy. From a macro perspective, a stronger dollar benefits the U.S. by getting more imports (the benefits of trade) per dollar of exports (the cost of trade). This could have negative consequences for manufacturing jobs that export, which could further exacerbate the jobs situation for the voters in the rust belt who supported Trump. But it lowers prices for the consumer at home. You gain a strong dollar by not printing more dollars.
2. Interest rates went up. Borrowing and debt will cost more. But going hand in hand with less money printing, Reagan’s voters wanted inflation stopped. While debt costs can slow business expansion, the higher priority in 1982 was whipping inflation. When the Federal Reserve raises interest rates, banks follow suit. This makes it more difficult to obtain a loan and helps keep price increases in check. But the negative consequences were pronounced – businesses contracted and unemployment spiked to above 10% by 1982.
3. Deregulation left some industries temporarily unregulated. Reagan’s deregulation of ALL layers of government was perhaps as important, or more, important, than his tax reduction policy. Business was freed across all sectors of the economy, creating the greatest economic boom since the end of World War II. However, the Garn-St. Germain Depository Institutions Act, among other laws and regulatory repeals, helped spur bad real estate investments, ending with the 1989 S&L crisis. Sound familiar? Outside of that crisis, however, deregulation in oil and gas, cable television, long-distance phone service, interstate bus service, and ocean shipping all helped U.S. businesses and the stock market rapidly expand!
4. Fair Trade meant increased costs. Reagan was rhetorically a free trader, but enacted a greater number of trade restrictions than Jimmy Carter. Usually, trade restrictions increase costs for the consumer, and would be antithetical to his free trade rhetoric. Reagan increased the number of imports subject to U.S. tariffs from 12% to 23% of imports. This included much of the manufacturing industry, the part of the country where you found the original Reagan Democrats, and now modern Trump supporters.
III. What were the positives of Reagan’s policies?
1. A strong U.S. dollar revived confidence in the American free market. A stronger dollar, as weighted against other foreign currencies, means travel abroad is cheaper, imports are cheaper, and the cost to foreign governments to obtain dollars is higher. While export companies and multinational companies will face headwinds for sales in foreign markets, the result of Reagan strong dollar policies was an improved bottom line for American multinational companies. The value of their brand “improved” globally, and that increased demand for their products. When combined with other pro-growth policies, a strong dollar leads to a stronger America.
2. Sound monetary policy defeated inflation. Reagan and his Fed Chairman, Paul Volcker, committed to a rising interest rate environment in order to defeat non-stop rising inflation. The Fed funds rate reached 20% in June 1982, and the Prime Rate reached 21.5% in the same month. The Democrats and the media were howling as unemployment spiked and the country went into recession. But the medicine was needed to reverse the easy money, high tax, and high regulatory state of the economy during the 1970s. By the end of 1982, the groundwork had been laid for a true economic recovery based upon the fundamentals of the business cycle. A real economic expansion occurred with money that was strong and could retain its value. Inflation had been defeated!
3. Deregulation freed small business to hire and expand! Airline prices dropped and access to easier, cheaper, and quicker travel was available to more of the American public. Cable TV deregulation increased the number of TV channels and offerings available for the consumer. Deregulation of telephone markets was the critical launch point for the satellite/smart phones we have today. Gas prices collapsed thanks to deregulation, and was perhaps the most important impact on the Soviet Union as it killed their primary source of revenue. While tax cutting gets the lion’s share of credit for the Reagan Revolution, it is clear in hindsight that deregulation was just as important to our 20+ year economic boom which followed.
4. Fair trade brought jobs to the U.S.! Reagan took the mantle of the classic “free trader” and is historically considered a free trade absolutist – this was in keeping with his economic mentors, Milton Friedman and Art Laffer. While Reagan supported free trade in principle, he implemented fair trade policies in practice. Free trade assumes a partner who conducts free trade equally. That has not been the case and is rarely ever the case with American trading partners. Reagan increased import restrictions from 12% of imported goods up to 23% of imported goods. Instead of launching a trade war, foreign competitors realized they could not live without the U.S. market. This had the surprising result (to everyone but Reagan) of bringing foreign companies into the U.S. – The U.S. was opening factories, and hiring blue collar workers! In order to sell Nissan’s, you had to build a U.S. Nissan plant. To sell BMW’s, you had to build a U.S. BMW plant. Free trade became fair trade that was “fair” to the American worker.
A President Trump could do a lot worse than following the economic policies of “The Gipper”. But the circumstances of today are not the same as they were back then. The debt is 20 times larger … budget deficits are unsustainable … the insolvency of social security is clearly on the horizon … and the world faces global conflicts that are hot, not cold. Nonetheless, the broad principles of the Reagan Revolution can serve as a guide. If followed, this could help bring about another era of healthy and explosive American economic growth.
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