This column originally appeared in The Washington Times on January 4, 2009.
America is careening in overdrive in exactly the wrong direction, and the American people know it. All across this nation, people crave a new vision of leadership to restore traditional American prosperity and the American Dream, which they rightly see slipping away.
That traditional American prosperity arose from a system of thorough economic freedom, involving low taxes, property rights, freedom of contract, the rule of law, and comprehensive democratic accountability to ensure that government policies follow the will of the people. Government spending, deficits, debt and regulation have traditionally been held to the minimum necessary.
Prosperity arises from free minds spurred by the incentives of decentralized free markets to compete in serving the needs and wants of everyone in the marketplace, and to get there first with the most.
Prosperity does not arise from centralized government bureaucracies with no real economic incentives, and quite limited knowledge, especially as compared to the broad based decentralized knowledge that producers as a whole bring to the marketplace. Prosperity arises from private investment in pursuit of private profit, not from runaway government spending, record-shattering deficits and debt, and the trashing of the dollar and validly earned profit, as the Obama-Pelosi-Reid machine seems to believe.
The history of the entire 20th century served as virtually an ideal experiment regarding this American doctrine of prosperity. A booming America drew working people from every corner of the Earth, voting with their feet in recognition of the economic realities. In sharp contrast were the results of the big government, big bureaucracy, central planning policies of the egalitarian left elsewhere around the world. Those countries had to build walls topped with barbed wire and manned by armed guards to keep their people in, even shooting them in the back as they struggled to leave.
We saw this Grand Experiment carried out within the same cultural contexts in different countries around the world, with the same definitive results. Compare East and West Germany, North and South Korea, Communist China and postwar Japan.
Unfortunately, after one year, the record of the Obama-Pelosi-Reid machine shows they do not learn from experience. They are all abstract theory, and rigid adherence to radical ideologies, no matter the results. On issue after issue, they are taking us back to the failed fallacies of the past, from the Keynesian economics of the 1970s and even the 1930s, to the pre-Sept. 11, 2001, mentality on terrorism, to the overregulation of energy production and the Synfuels fiasco of Jimmy Carter, to the failed socialized medicine policies adopted deep in the last century by foreign countries with lower living standards.
America chose just the opposite course with renewed commitment in 1980. Reagan cut the top marginal tax rate from 70 percent to 28 percent, with just one other rate of 15 percent for the middle class, and no income taxes for the working poor. He cut federal spending across the board by roughly 5 percent in his first year, in sharp contrast to President Obama’s wasted trillion dollar “stimulus” spending. Even with the defense buildup that won the Cold War without firing a shot, over his two terms Reagan slashed federal spending as a percent of gross domestic product by 10 percent, cutting nondefense discretionary spending by one-sixth in his first two years. He deregulated energy production, resulting in sharply declining prices for oil and natural gas. He rapidly slayed roaring inflation through strong dollar monetary policies.
The result was a historic, 25-year, economic boom, with only short, shallow recessions in 1990 and 2001. In their prescient book, “The End of Prosperity” (Threshold Editions, SimonSchuster, 2008), Art Laffer and Steve Moore called it, “the greatest period of wealth creation in the history of the planet.” Steve Forbes called it an economic Golden Age, saying, “Never before have so many people advanced so far economically in so short a period of time.”
Contributing to the extension of this 25-year boom were the tax cuts and other pro-growth policies adopted by the Republican congressional majorities in the 1990s. Indeed, the House passed a budget resolution in 1995 that cut federal spending by a trillion dollars over 10 years, and that was when $1 trillion was real money. As a percent of GDP, federal discretionary spending was slashed by 17.5 percent in just four years, from 1995 to 1999. Total federal spending relative to GDP declined from 1995 to 2000 by an astounding 12.5 percent, a reduction in the federal government relative to the economy of about one-eighth in just five short years.
As a result, $200 billion annual federal deficits, which had prevailed for more than 15 years, were transformed into surpluses by 1998, which peaked at $236 billion by 2000. This experience proves, as did the experience under Reagan, that Republicans can cut government spending, deficits and debt when they have real leadership. The 25-year boom ended only when we departed over several years from the policies that freed America to create it.
What America needs today is a fundamental change of course in economic policy to create a new economic boom by restoring the policies that have proved to work. Tax reform can center our system around income tax rates of 15 percent or less, with zero capital gains and death taxes. Slashing unnecessary federal spending can balance the federal budget again as we did in the 1990s.
Personal savings, investment and insurance accounts can eventually finance the benefits paid for today through payroll taxes, eventually displacing those taxes entirely, and dramatically reducing government spending over the long run.
Deregulation of energy production from all sources would unleash the private sector to create a new, world leading, energy boom in America. Innovative policies to extend market incentives to health care, build a true safety net assuring essential health care for all, and repeal the health care rationing bureaucracies that Mr. Obama and the Democrats are creating would restore the world leading, cutting-edge, booming health care system appropriate to America’s high standard of living.
Let’s tip our hats to the New Revolution.