Friday, August 12, 2011

Is Obama really considering trying 'Reaganomics" ?

Official Portrait of President Ronald ReaganThe other day I read an interesting interview with Arthur Laffer, a member of President Reagan's (right) Economic Policy Advisory Board. In the interview, Laffer said that he was contacted by the White House earlier in the year. They asked him to speak to Austen Golsbee, the former chair of Obama's Council of Economic Advisors. Laffer says he told Golsbee that the only way to fix the U.S. economy is through "Reaganomics."

Laffer is known best for an economic theory called the Laffer Curve. Laffer's theory states that somewhere between 0% and 100% there is a tax rate that will result in the most tax revenue. The Laffer Curve was one of the theories around which President Reagan's economic policies, "Reaganomics," were based. Reagan was a firm believer that lower tax rates, controlling the money supply to reduce inflation, less government regulation of the economy, and reducing government spending will lead to economic growth. After the four-year economic debacle called the Carter Administration, the following happened as a result of "Reaganomics" :
  • By the end of Reagan's last year in office, unemployment had fallen from about 12% when he took office to about 4%. In other words, he cut it by two-thirds.
  • Gross Domestic Product (GDP) grew at a rate of nearly 4% from 1981-'89.
  • Federal Income Tax receipts grew from $309 Billion to $549 Billion from 1981-'89.
Reagan's "trickle down" economic policies worked. The top tax bracket was reduced from 70% to 28%  by the mid-'80s spurring investment and creating millions of jobs leading to greater tax revenues. Laffer said in the interview that five things needed to be done to fix the economy. They are :
  1. Get rid of current Federal tax structure in favor of one low-rate flat tax.
  2. Cut Federal spending.
  3. Have sound money. He said Ben Bernanke's policies are poor.
  4. Ease up on the regulations that are causing unintended damage.
  5. Have free trade.
It's good to see the Obama Administration finally consulting with someone with Laffer's background in successful economic policies. The question I have is, what the heck took you so long ? This should have been done two years ago.

Source : article on titled Laffer : Obama Must Use Reaganomics to Save Economy

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