The federal government screws up so many things it is truly amazing. I have been ranting and raving about the U.S. Postal Service on here over and over and over. Now it is time to move on to some other areas where the federal government is involved when they have no business being. (Read below how the Soviets were very impressed when Reagan put the Air Traffic Controllers union in their place. They looked at each other and said that their days were numbered if Reagan was that direct with them.)
The Washington Post today describes the latest near-miss disaster at National Airport, apparently the result of screw-ups by our government-run air traffic control (ATC) system. The Post notes that this near-accident is one of many troubling incidents in recent years:
…the near-collision was another among several thousand recorded errors by air traffic controllers nationwide in recent years. National has been the site of some of the most notable incidents, including one revealed last year in which the lone controller supervisor on duty was asleep and didn’t respond when regional controllers sought to hand off planes to National for the final approach.
News of the sleeping controller at National last year led to the revelation that controllers on overnight shifts at several other airports were napping on the job.
Is our ATC system is so troubled because it is
a government bureaucracy,
a monopoly that doesn’t face competitive pressures to improve quality, or
a union-dominated organization?
I don’t know the answer; maybe it’s all three. But news stories like the one today usually don’t mention the role of the unions, and newspaper readers may just conclude that the fault is simply one of a bumbling Federal Aviation Administration (FAA) bureaucracy.
However, I coincidentally received a letter in the mail today from an anonymous FAA official who points to some of the problems caused by the militant National Air Traffic Controllers Association (NATCA). He or she says that the “NATCA union holds the FAA management hostage and little is done to correct the problems … The NATCA union is too powerful and management is too intimidated to do their jobs.”
The letter writer may or may not have all his or her facts straight–the letter is here [PDF] so you can judge for yourself. However, I do think that the media could do a better job probing the role of unionization in the FAA’s substandard performance. People remember Ronald Reagan’s battle with the air traffic controllers, but that was just a blip in a much longer story. Unions have been creating problems for the ATC system since the 1960s, as I mention in this essay.
His most underestimated political achievement? In the spring of 1981 the Professional Air Traffic Controllers Organization called an illegal strike. It was early in Reagan’s presidency. He’d been a union president. He didn’t want to come across as an anti-union Republican. And Patco had been one of the few unions to support him in 1980. But the strike was illegal. He would not accept it. He gave them a grace period, two days, to come back. If they didn’t, they’d be fired. They didn’t believe him. Most didn’t come back. So he fired them. It broke the union. Federal workers got the system back up. The Soviet Union, and others, were watching. They thought: This guy means business. It had deeply positive implications for U.S. foreign policy. But here’s the thing: Reagan didn’t know that would happen, didn’t know the bounty he’d reap. He was just trying to do what was right.
President and Nancy Reagan with Ray Charles after acceptance speech at the Republican National Convention, Dallas, Texas. 8/23/84.
Uploaded by YAFTV on Aug 19, 2009 Nobel Laureate Dr. Milton Friedman discusses the principles of Ronald Reagan during this talk for students at Young America’s Foundation’s 25th annual National Conservative Student Conference MILTON FRIEDMAN ON RONALD REAGAN In Friday’s WSJ, Milton Friedman reflectedon Ronald Reagan’s legacy. (The link should work for a few more […]
Ronald Reagan was my favorite president. Read this excellent article on his accomplishments from the Heritage Foundation: What Were Ronald Reagan’s Achievements? Julia Shaw February 3, 2012 at 1:00 pm February 6 is Ronald Reagan’s birthday. While the right has long looked to Reagan as the standard-bearer of conservative leadership, over the past few years, even […]
Unfortunately Hollywood has their own agenda many times. Great article from the Heritage Foundation. Morning Bell: The Real ‘Iron Lady’ Theodore Bromund January 11, 2012 at 9:24 am Streep referred to the challenge of portraying Lady Thatcher as “daunting and exciting,” and as requiring “as much zeal, fervour and attention to detail as the real […]
Uploaded by HeritageFoundation on Dec 16, 2010 http://blog.heritage.org/2010/12/16/new-video-pork-filled-spending-bill-just-… Despite promises from President Obama last year and again last month that he opposed reckless omnibus spending bills and earmarks, the White House and members of Congress are now supporting a reckless $1.1 trillion spending bill reportedly stuffed with roughly 6,500 earmarks. ________________________ Below you see an […]
I have a son named Wilson Daniel Hatcher and he is named after two of the most respected men I have ever read about : Daniel from the Old Testament and Ronald Wilson Reagan. One of the thrills of my life was getting to hear President Reagan speak in the beginning of November of […]
President Reagan, Nancy Reagan, Bill Clinton and Hillary Clinton attending the Dinner Honoring the Nation’s Governors. 2/22/87. Ronald Reagan is my favorite president and I have devoted several hundred looking at his ideas. Take a look at these links below: President Reagan and Nancy Reagan attending “All Star Tribute to Dutch Reagan” at NBC Studios(from […]
My favorite president is Ronald Wilson Reagan. President Reagan with Nancy Reagan, William Wilson, Betty Wilson, Walter Annenberg, Leonore Annenberg, Earle Jorgensen, Marion Jorgensen, Harriet Deutsch and Armand Deutschat at a private birthday party in honor of President Reagan’s 75th Birthday in the White House Residence. 2/7/86. Milton Friedman’s book “Free to Choose” did influence […]
Government Spending Doesn’t Create Jobs Uploaded by catoinstitutevideo on Sep 7, 2011 Share this on Facebook: http://on.fb.me/qnjkn9 Tweet it: http://tiny.cc/o9v9t In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t […]
I really wish that President Obama would have not had the federal government buy up General Motors. We need to keep the federal government out of the private market as much as possible. This goes for the post office too. It should be in private hands. Senators voted recently to hold off closing some post […]
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. When you […]
When you look at how good the private enterprise does with deliveries and then compare it to how bad the federal government does with the same duties it is laughable. The answer to the federal post office problem is to encourage private entrepreneurs to fill the gap and provide competition for the post office in […]
Senator Mark Pryor wants our ideas on how to cut federal spending. Take a look at this video clip below: Senator Pryor has asked us to send our ideas to him at cutspending@pryor.senate.gov and I have done so in the past and will continue to do so in the future. On May 11, 2011, I emailed to […]
The Arkansas Times rightly jumped on Republicans for whining about the local post office branches that were closing. (It is sad to me that Republican Presidential Candidates are not very brave about offering any spending cuts.) The real answer is privatizing the post office. Here is a good article from the Cato Institute: The USPS […]
We need to close U.S.Post Office There is only one option in my view. We can not keep on losing money every year like the U.S.Postal Service (7 billion this year). Closing Post Offices PrintThe U.S. Postal Service just posted a $3.1 billion loss for the third quarter and the outlook for the rest […]
Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in Economic Sciences grades the achievements of the Clinton administration and evaluates the programs the President proposed in his 1999 State of the Union address.
ROBINSON Just the last eight years, or would you give high marks to Volcker as well, Greenspan’s predecessor?
FRIEDMAN That’s an interesting case, because you have to give the credit there really to Reagan. There’s no other President who would have stood by while the Fed followed the policy it did. If you remember— you don’t remember that period but if you go back…
ROBINSON I do actually, I had just started at the White House in those days…
FRIEDMAN …if you go back to that period, stopping the inflation that was raging which reached double-digit levels at the end of the ’70s and early ’80s required stepping on the brakes hard and produced a recession. And if you remember, Reagan’s popular ranking went way down in…
ROBINSON Down into the thirties.
FRIEDMAN …thirties, right. No other President would have stood by and said to the Fed, keep doing what you’re doing, you’re doing the right thing. But Reagan did do that. And that’s what enabled Volcker to do what Volcker did.
ROBINSON Back to the present to find out what Milton Friedman thinks of President Clinton’s legislative goals for the rest of his term.
THE SUNSHINE PLOYS
ROBINSON Let me ask you to apply your thinking to the principle points of Bill Clinton’s program for the remaining couple of years in office. The President’s program is intended— we’ll take old folks first— to, I quote now, “Address the challenge of a senior boom by using the budget surplus to help save Social Security.”
FRIEDMAN Well, the proposal, if you look at it in detail, is a complete fake.
ROBINSON A complete fake?
FRIEDMAN Absolutely.
ROBINSON He wants to take sixty percent— a little more than sixty percent of budget surplus over the next fifteen years…
FRIEDMAN Where does that come from? He’s counting that twice. That comes from the proceeds of the payroll taxes that are now in, which, in principle, though not in practice, are supposed to be used for Social Security, but which have indeed been financing every regular event. If he doesn’t do a thing about the surplus, that would still end up in bonds in the hands of the Social Security so-called Trust Fund.
ROBINSON You say he’s guilty of a little bit of a flim-flam game with the books.
FRIEDMAN Absolutely.
ROBINSON Within forty-eight hours of that State of the Union Address in which he made this proposal, Alan Greenspan, whom you have just praised, endorsed the proposal— in general terms, not specific terms, but he endorsed the proposal— and the Republicans in Congress said yep, that’s a good idea, sign us up for that too. How is it that he’s able to get everybody to go for what you call a flim-flam game?
FRIEDMAN Look, do you need to ask that question now after six years of Clinton? How he’s been able to get one flim-flam game after another. How he’s been able to bamboozle the people into thinking that he deserves higher ratings because he lies. Clinton is a superb politician who has a most extraordinary capacity to exude sincerity. He’s an incredible phenomenon. I think he’s a genius. But go back to the Social Security program. The first thing to be said is that all this nonsense about saving something for Social Security is pure fiction. It’s wrong to think that what people are paying into Social Security, what people are paying in the form of wage taxes, is what they’re paying for their own security. [
ROBINSON That’s nonsense.] There is no relationship whatsoever. We have a system under which you have a set of taxes for Social Security— named for Social Security, but it doesn’t matter, they’re payroll taxes, terrible taxes, regressive taxes. Nobody… you could not get a legislature to vote such a tax on its own. Can you imagine proposing a tax that would impose — let’s say sixteen percent tax— on all wages from the first dollar up to the maximum and nothing beyond that. Can you imagine voting that? Similarly, the other side of the picture is that we have made a series of commitments to people like me— I receive Social Security payments…
ROBINSON Oh so, it’s my payroll tax that goes to…
FRIEDMAN Absolutely. Absolutely. It’s not only your payroll tax, it’s your income tax, it’s whatever taxes you pay. I get them. And if you think you’re going to get ’em, you’re kidding yourself.
ROBINSON It is a fundamental deceit hoisted upon the American people and sustained for lo these six decades.
FRIEDMAN Absolutely. If you read the Social Security brochures, they say this is a system under which you are putting aside money now for your retirement.
ROBINSON And that’s nonsense.
FRIEDMAN That is utterly fake. But let’s suppose it were true…
ROBINSON All-right.
FRIEDMAN …for a moment. Why is it that it’s appropriate for government to come and tell me what fraction of my income I should save for my old age? If that’s okay, why can’t it come in and tell me exactly what fraction of my income I have to spend for food, what fraction for housing, what fraction for clothing. Let me show you the absurdity of this.
ROBINSON All-right.
FRIEDMAN Consider a young man of thirty-five who has AIDS for whom the expected length of life is ten years at the most maybe. Maybe there’ll be a cure. But his expected length of life is not very long. Is it really intelligent for him to put aside fifteen percent of his income for retirement at age sixty-five?
ROBINSON It’s outrageous.
FRIEDMAN It’s outrageous.
ROBINSON Outrageous.
FRIEDMAN Exactly. The only word you can give to it. And in my opinion, the whole Social Security system is an outrage.
ROBINSON If Social Security is ‘an outrage,’ what would Milton Friedman do about it? A Bonding Experience
ROBINSON How would you get rid of it?
FRIEDMAN Very simply. Here I am, I’m entire to a certain number of payments in the future. Have the government give me a bond equal to the current present value of— expected value of what I’m entitled to. You have already accumulated some rights. And so have the government give you a bond which will be due when you’re sixty-five which will be the present value of what you’ve already accumulated under the law. And then close the whole thing up.
ROBINSON And just close the books.
FRIEDMAN Everybody gets what he’s entitled to— what he’s been promised. The unfunded debt under Social Security is funded, it’s made open and above-board. There’s not a penny of transition cost, and everybody is… In my world, the payroll tax would be abolished, would be eliminated. It’s the worst tax we have on the books. And everybody would be free to do what he wanted about his own retirement.
ROBINSON Okay.
FRIEDMAN And on the whole he would do very well. Now undoubtedly, people who argue against that say, well what are you going to do about these people who are so careless and so unprudent that they don’t accumulate anything for retirement. That’s a general problem. What do you do about people who are poor, whether for their own fault or not for their own fault? You and I and society in general is not willing to see ’em starve to death.
ROBINSON Correct.
FRIEDMAN Well, I have always been in favor of having a program under which (a negative income tax) under which you will have some income minimum you will provide for people whether they are indigent because they’re wastrels or whether they’re indigent because they’re in bad health…
ROBINSON Even if it’s their own fault, they don’t starve.
FRIEDMAN The problem is, it’s always seemed to me absurd that you make a hundred percent of the people do something in order to make sure that one or two percent of the people don’t behave badly.
ROBINSON Milton, that negative income tax proposal actually started to go someplace, if I remember my history correctly, that actually started to go someplace during the Nixon years, didn’t it? Didn’t Cap Weinberger…
FRIEDMAN Yes, it did… No, Moynihan, Pat Moynihan…
ROBINSON Moynihan. And what happened to it? Why did it die?
FRIEDMAN Because the public pressure was converted into a program that I testified against. It’s what happens in Washington all the time.
ROBINSON Right, right, okay.
ROBINSON Next question. What would Milton Friedman do with the mounting budget surplus?
SAVING PRIVATE EARNING
ROBINSON We’ve got seventy-nine, eighty billion dollars more coming in this year than the government…
FRIEDMAN I am in favor of reducing taxes under any circumstances, for any excuse, with any reason whatsoever because that’s the only way you’re ever going to get effective control over government spending. Sooner or later [
ROBINSON Choke off the supply.] if you don’t reduce taxes to get rid of that surplus, it’s going to be spent. The rule from not only the last few years, hundreds of years, is that governments will spend whatever the tax system will raise plus as much more as they can get away with.
ROBINSON The Republicans are calling for a ten percent…
FRIEDMAN It’s not enough.
ROBINSON …cut. Not enough. What is… Now Dan Quayle, who’s running for President— this is the most extreme- extreme may be the wrong word but this is the most dramatic proposal I’m aware of that’s on the table anywhere at the moment— he’s called for a thirty percent cut. Is that enough?
FRIEDMAN I don’t know. I would cut it as much as you can get away with.
ROBINSON So you’d run the numbers and give back virtually all the surplus.
FRIEDMAN What do you mean give back? Not take.
ROBINSON Excuse me. It’s not take. You’d lower taxes…
FRIEDMAN You know, this idea of giving back, which is a word you use, assumes…
ROBINSON I take back my words, but go ahead and ram them down my throat.
FRIEDMAN …it assumes that every individual is a property of the government and that all of the income that you earn is really the government’s, and it decides how much you can keep and how much it gets. I’ve always said, it treats people as if they were running around with an IBM card on their back which says ‘do not mutilate, punch, or disturb.’
ROBINSON Right. You’ve got more money coming in at the moment than is going out.
FRIEDMAN You ought to reduce taxes by enough to generate…
ROBINSON You don’t want to pay down the debt.
FRIEDMAN Oh no. No, I want to generate a deficit because I want pressure on to get the government to spend less.
ROBINSON You like a federal deficit.
FRIEDMAN No, I don’t like a federal deficit, but I like lower government spending.
ROBINSON All-right. President Clinton has another proposal for using that surplus, and he calls them USA accounts. He’s proposing to use about eleven percent of the surplus over the next fifteen years or so to establish, I quote now from his speech, “universal savings accounts, USA accounts, to give all Americans the means to save,” again quotation here, “with extra help for the least able to save.” Details to follow. You like that idea?
FRIEDMAN No, I think it’s a terrible idea. You know, the idea is saying, I’m going to take your money, but then I’ll give it back to you if you do with it what I tell you to do. Is that a way you have a free society of free, self-reliant individuals who are responsible for themselves? It’s a terrible…
ROBINSON Do you even agree with the premise that the savings rate is too low in this country?
FRIEDMAN I don’t agree with that premise. What is the right savings rate?
ROBINSON Well, gee, you’re the Nobel Prize winner, I thought you’d be able to clue me in.
FRIEDMAN The right savings rate… In a world in which you did not have distortions, in which you did not have government stepping in and distorting the rate at which people save or not, the right saving rate is whatever all the people of the community simply want to save. How much you want to save, how much I want to save. Why shouldn’t people be free to save what they want?
ROBINSON Let’s move to a more theoretical question. Why do we end up with so many stupid government programs when we’re supposed to be so smart in our own private affairs?
THINK LOCALLY, ACT GLOBALLY
ROBINSON How is it, you credit great intelligence, shrewdness, on the part of individuals when they’re spending their own money and managing their own property in the marketplace, how can we all be so dumb when we give up being players in the marketplace and become citizens participating in the political process? We get hoodwinked by Clinton, we go for this crazy sham of Social Security, how can we be so dumb?
FRIEDMAN Because it’s always so attractive to be able to do good at somebody else’s expense. That the real problem of our government. Government is a way by which every individual believes he can live at the expense of everybody else. That’s— I’m just repeating what Bastiat said two centuries ago, more than two centuries ago. You know, the thing that people don’t really understand is that free societies of the kind we’ve been lucky enough to experience for the last hundred-hundred and fifty years are a very rare exception in human history. Most people, most of history, and at any one time, most people at any one time, have lived in tyranny and misery. And it’s only for a brief period, and why? It is precisely because once you get some government program in— may have been a very good idea, it’s always proposed for good reasons— once it gets in, it becomes a special privilege of a small group which has an enormously strong interest to maintain it, and you do not have any comparable group that has the interest to get rid of it. And therefore, the hardest thing in the world is to get rid of any government program, however badly it works. In fact, try to name any government programs that have been eliminated.
ROBINSON The draft. Well, that’s not a…
FRIEDMAN Yes, the draft is an example, it’s one of the rare examples of a program that has been eliminated. One of the others was Postal Savings. It used to be that the postal system had a savings system which became very popular as a result of the Great Depression. But it disappeared. Why? Because by accident when they set it up, they limited the interest they could pay on postal savings to two percent, and when the market rate got higher than that, all the money was taken out of postal savings and postal savings came to an end. But aside from that, can you name programs that have been eliminated because they failed? And so how will we set a limit on government, and keep it coming back, and the only thing I can see on the horizon that offers a real chance are term-limits.
ROBINSON Term limits?
FRIEDMAN Right now, being a politician is a lifetime career. Being a Congressman is a lifetime career.
ROBINSON Do we have any evidence in the states where term-limits apply that it has worked as you would like to see it work? Term-limits have been in effect here in California for about a decade now… They may have been enacted a decade ago, so they’ve been in effect for perhaps six years…
FRIEDMAN It’s a little early. We don’t really have any very good… However, it so happened, I had occasion to have a conversation the other day with a former Governor of Virginia: Allen, George Allen.
ROBINSON Who, everybody says he’s going to be running for the Senate. Against Chuck Robb.
FRIEDMAN Yes, that’s what he intends to do.
ROBINSON He intends to do. All-right.
FRIEDMAN However, he had, Virginia has a one-term four-year term for the Governor. And he said, you know, he said, if we had had a two-year term, if we had had the situation in most states, that you can run for a second term, I would have spent the third and fourth year of my term working for re-election. I would never have been able to get done what I got done. It was the first real hands-on testimonial I’ve seen to a term-limit. It’s not a good idea for being a legislator to be a lifetime profession. The founders of our country had the idea of legislation as a part-time activity. It is in many states today. But at the federal government level, it’s a full-time profession. And that is very unhealthy because the legislature— it’s not a criticism of the individual— but any human being in that position, he’s going to sit in committee meetings, and day after day he’s going to hear arguments, good arguments, worthy arguments for new programs. He’s going to get very few arguments for getting rid of programs. And the evidence is clear: the longer people are in Congress, the more willing they are to vote government spending.
ROBINSON The polls all show the American people are very concerned about our public schools. What does Milton Friedman think of President Clinton’s proposals to improve those public schools? Hire Learning
ROBINSON President Clinton on public schools. According to the White House fact sheet, he wants to, I quote, “raise standards and increase accountability in public schools (I’ve got to take a deep breath to get through this) through proposals to end social promotion, bring high-quality teachers into the classroom, intervene in failing schools, provide school report cards to parents, strengthen our commitment to smaller class-sizes, and boost our efforts for school modernization.” What grade do you give that proposal?
FRIEDMAN F.
ROBINSON F.
FRIEDMAN What does it mean? It means more government control of schools. What do we really need in schools? We need competition. What we have is a monopoly, and like every monopoly, it’s producing a low-quality product at a very high cost. The way to improve that is to have competition, to make it possible for parents to have a choice of the schools their children attend. All high-income people have that choice now. They can choose their residence for a place with good schools, or they can send their children to private schools, pay twice for schooling: once in taxes and once in tuition. But the lower income classes can’t.
ROBINSON They’re stuck. Milton, didn’t public schools used to work?
FRIEDMAN Yes. When I graduated from high-school in 1928, there were 150,000 school districts in this country. Today, there are 15,000 and the population is twice as great. In the early day, you had local control of schools, and there was effective competition between a large number of local areas. But school districts got consolidated. They got run not by local people but by the professional educators. And most important of all, in the 1960s you began to have the emergence of teachers’ unions taking control of the schools. And since 1960, since the teachers’ unions started emerging, you have had on the whole a rather steady decline in the quality of schooling. If you want to improve automobiles, do you have government step in and tell people what brakes to put on, and so on, or do you rely on the fact that General Motors is going to try to beat Ford, is going to try to beat Toyota? Competition is the most effective way to improve quality, whether in computers, in automobiles, in suits, or in schooling.
ROBINSON Let me ask you to close, if I may, with a prediction. It’s 2009, ten years from today. Is the government of the United States bigger, or smaller?
FRIEDMAN Smaller.
ROBINSON Your ideas are winning?
FRIEDMAN No. The Internet is going to make it harder and harder to collect taxes.
ROBINSON How come?
FRIEDMAN Because you’ll be able to evade taxes, you’ll be able to do your deals in the Cayman Islands.
ROBINSON So the Internet…
FRIEDMAN At the moment I see the Internet as the most likely source of the smaller government.
ROBINSON But in your mind it really will have an effect. That’s not speculative…
FRIEDMAN No, no, no. I believe it will and I believe it’s having it now.
ROBINSON I see. Okay. Milton Friedman— Bill Clinton I hope you’re taking notes, we’ll send a tape of this to the White House— Milton Friedman, thank you very much.
FRIEDMAN That’s all-right. I assure you they won’t look at it. Thank you.
ROBINSON Doctor Friedman believes the government should be smaller and that it will become so. Maybe some future President will preside over such a small government that he can shrink up the State of the Union Address enough to get rid of the Teleprompter and deliver the speech from memory. I’m Peter Robinson. Thanks for joining us.
2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being revisited in a new 3-part PBS broadcast.
To learn more visit: miltonfriedmanscentury(dot)org
Amidst continuing nervousness about the Eurozone and slower global growth, political debate in the U.S. is centered around the best path forward to return to sustainable prosperity. The Wall Street Journal reminded us this past weekend of similar tough times 32 years ago, and the group of economic advisors led by 1976 Nobel Laureate Milton Friedman who steeled a new President’s nerves to “stay the course” on a pro-growth and pro-investment policy mix — exactly what needs to happen again today.
The Global Backdrop Compared to 1980
This past week the continuing stream of data about the global economy was not good around the globe but, we hasten to add, “not bad” for the United States. Manufacturing is contracting in the Eurozone and in China (for the seventh straight month in the latter), and slowing in the U.S., along with orders for durable goods including aircraft, computers, and heavy machinery (though still all positive growth here). Both the OECD and IMF have cut their 2012 forecast for global growth, now below the 3.9% seen in 2011. The Morgan Stanley MSCI Index for global equities is off 9% since mid-March, and the price of crude oil, the leading globally-traded industrial commodity – and hence indicator of commercial appetites – is down 15% since the beginning of May alone. Worries about Greece and its possible-to-likely exit (or forced eviction) from the Eurozone after its June 17 elections have only added to investor nervousness on a global scale: Greece is of course a small country, but its Euro-exit and debt repudiation could be a harbinger for the other heavily-indebted member states in the Eurozone, beginning with the 4th largest economy in the union, Spain, whose banking system is increasingly stressed.
Thus, Greece has an outsized influence on global markets as we head into June. While in more “normal” times a Greek default and currency reconstruction would be absorbed in a global economy with $60 trillion in GDP, these are not normal times: in the current environment, the play-out of tragedy in Greece sends out echoes to Italy, Portugal, Spain, and elsewhere, threatening a general depression if devalued currency warfare stunts global trade, as per its potential.
The economy in the United States continues to show amazing resilience, even as equity markets traded flat last week and are down 7% since peaking in April. Indeed some of the performance metrics in the U.S. are nothing short of outstanding: retail sales are now up for 21 of the previous 22 months, during a 26-month span when 4.2 million private sector jobs have been created since the unemployment peak. Consumer spending is up 4% in real terms from a year ago, exemplified by a preferred leading indicator for us, auto sales, up 10% year-on-year to a new annual run rate of 14.3 million vehicles.
Work hours are continuing a two-year rise as well, and business (nonresidential fixed) investment, while still way off its 2006 peak and well-below long term trend, is recovering smartly as well, up 12% year-on-year.
Meanwhile data out in the past week reinforces the positive “spin” on the U.S., even in the case of declining durable goods orders mentioned above. New single-family home sales increased 3.3% in April, to a 343,000 annual rate (up nearly 10% from a year earlier), continuing a three year recovery that is on track to double from existing production levels in the next four years based on demographic needs (in contrast to Japan and most all of Europe, the United States is actually getting younger). Sales were up in the Northeast, West, and Midwest, as the supply of new homes fell to 5.1 months’ inventory from 5.2 the prior month. Further, the median price of new homes sold was $235,700 in April, up 4.9% from a year ago; the average price was $282,600, up 5.1% from 2011; this is very positive data that casts doubt on the recent gloom contained in the Case-Shiller data (all homes’ pricing is also up, by 2.7% from year-earlier levels).
Data on existing home sales matched that of new product: volumes of existing home sales rose 3.4% in April, to an annual rate of 4.62 million units; sales of these homes are also up 10.0% versus a year ago, and are up in all four regions of the U.S. including the South. Median prices for existing homes are up 10.1% from a year ago, with average prices up 7.4% in that time. New orders for durable goods were positive, too: they increased 0.2% in April, and are up 6.9% year on year (and orders excluding the volatile transport sector are still up 6.3%). While there was a severe decline in core capital goods production (viz., excluding aircraft and defense-related), the continuing rise in capacity utilization (nearing 80% for the first time in four years) and home-building should lead to a rebound in capital equipment production of all types in the months ahead.
What Reagan Faced
Considering the turmoil elsewhere, as well as the uncertainty around near term conditions here in the U.S., the continuing relative buoyancy here, and intrepid resourcefulness of American producers, is nothing short of astounding. And related to this, how heartening it was, too, to see the reprint of portions of a famous memo on economic growth strategy appearing in the Wall Street Journal this past weekend. Written to then President-Elect Reagan within two weeks of his election victory, the memo, signed by a committee including George Schultz, Milton Friedman, William E. Simon, and the incoming Chair of the Council of Economic Advisors Murray Weidenbaum, outlined the serious challenges facing the U.S. economy, and the priorities to meet them.
The committee did not mince words at a time of nearly 8% unemployment, 13% inflation, and 21% interest rates. The core concepts of a new plan, indeed, governing paradigm, for sustainable growth, included the following:
You have identified in the campaign the key issues and lines of policy necessary to restore hope and confidence in a better economic future:
• Reestablish stability in the purchasing power of the dollar.
• Achieve a widely-shared prosperity through real growth in jobs, investment, and productivity.
• Devote the resources needed for a strong defense, and accomplish the goal of releasing the creative forces of entrepreneurship, management, and labor by:
• Restraining government spending.
• Reducing the burden of taxation and regulation.
• Conducting monetary policy in a steady manner, directed toward eliminating inflation.
This amounts to emphasis on fundamentals for the full four years, as the key to a flourishing economy.
Reading the document in its entirety is an eerie experience because the solutions proffered mirror almost precisely what needs to happen today. The leading influence in the memo’s production, which was itself a compendium of several economic policy position papers developed during the campaign, was Milton Friedman. Professor Friedman, born 100 years ago this summer, went on to serve all eight years on President Reagan’s economic policy advisory committee, later joined by such luminaries as Thomas Sowell — it was a group Mr. Reagan described in his memoirs as enjoying immensely throughout his two terms, and a group whose 6-8 meetings per year he never missed. Indeed, in one of the understated circumstances of history, it was this group that provided encouragement to Mr. Reagan to steel his courage to “stay the course” on this 1981 Economic Recovery and Tax Act, which in the horrible economy of 1982 he was repeatedly encouraged to abandon — by his own people. In spite of electoral thrashing that November, he did exactly that, and engendered the 1983-89 seven year boom, with three million new jobs per year and a steadily declining debt-to-GDP ratio across his term.
The entire document is worth reading, but for our purposes, it is fascinating to see the items for action listed — and their priority in emphasis — as laid out by Professor Friedman. At the top of the list was restoring a sound dollar, followed by the need to promote productivity-enhancing investment. This was followed by building up the national defense in conjunction with a roll-back in spending and burdensome regulations. The Committee knew that growth in the public sector — in both taxes and spending — had led to a fiscal “crowding out” of resources available for the private sector, including defense spending. The committee advised the incoming President that his tax cuts, lessened government spending, and fewer regulations would unleash an entrepreneurial boom, and ignite the U.S. economy’s natural propensity for being the global drive-train of growth. 21 million jobs soon followed.
For those old enough to remember, it will be recalled that 1979-80 were miserable times in the U.S.: gas lines, high unemployment, stagnant real wages, increasing global trade tensions, high inflation, and an era of diminshed expectations as encouraged by the incumbent President. Mr. Reagan would have none of it, and encouraged by Milton Friedman and his confreres, applied the wisdom of Adam Smith to that era’s troubles. The resulting 25-year boom, in which the U.S. economy effectively added new growth the size of the German economy, can be re-ignited once again, and indeed could be transposed around the world to all troubled economies, including that of Greece. To do so only requires the will to implement anew the policies followed then.
For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, John Chapman can be reached at john.chapman@alhambrapartners.com. The views expressed here are solely those of the author, and do not necessarily reflect that of colleagues at Alhambra Partners or any of its affiliates.
Milton Friedman on the American Economy (4 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: […]
Milton Friedman’s negative income tax explained by Friedman in 1968: We need to cut back on the Food Stamp program and not try to increase it. What really upsets me is that when the government gets involved in welfare there is a welfare trap created for those who become dependent on the program. Once they […]
Milton Friedman on the American Economy (3 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: Now […]
Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman The Power of the Market 4-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman on the American Economy (2 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: General […]
Milton Friedman The Power of the Market 3-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman The Power of the Market 2-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman on the American Economy (1 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: THE OPEN […]
Milton Friedman The Power of the Market 1-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman – Public Housing Uploaded by LibertyPen on May 6, 2011 Professor Friedman looks at the destination of another road paved with good intentions. _______________ 10 great quotes from Milton Friedman below: Nov 29, 2011 10 Of The Best Economics Quotes From Milton Friedman John Hawkins John Hawkins is a professional blogger who runs […]
Myth:Conservative Herbert Hoover responsible for Depression When I grew up I always heard that the conservative Herbert Hoover was responsible for the depression. Is that true? The Hoover Myth Marches On Posted by David Boaz In the New York Times today, columnist Joseph Nocera quotes a book published in 1940 on Herbert Hoover and the Great Depression: […]
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]
Milton Friedman – Redistribution of Wealth Uploaded by LibertyPen on Feb 12, 2010 Milton Friedman clears up misconceptions about wealth redistribution, in general, and inheritance tax, in particular. http://www.LibertyPen.com _______________________________ Many times in the past our government has tried to even the playing field but the rich and poor will always be with us as […]
The President references the Gipper’s remark about useful tax hikes but neglects to mention they were a quid pro quo for spending cuts on which the Democrats reneged.
by John Gizzi
07/26/2011
By far the most memorable line from President Obama’s address on the debt ceiling last night was his quoting “one of my predecessors” on a measure similar to the budget proposal Obama supports to “raise revenue” by closing loopholes on higher-income-earning Americans.
The predecessor cited by Obama was Ronald Reagan, who appears to be agreeing with the incumbent by saying: “Would you rather reduce deficits and interest rates by raising revenue from those who are not now paying their fair share, or would you rather accept larger budget deficits, higher interest rates and higher unemployment?”
The quote, from an address by Reagan to the Centennial Celebration of Billings and Yellowstone County (Montana) on Aug. 11, 1982, is accurate. But it is a bit unfair, because Reagan’s remarks were made in support of a measure he came to deeply regret.
That year, nervous about deficit projections from the Reagan tax cuts of 1981, a bipartisan group of members of Congress known as the “Gang of 17” (sound familiar?) came up with TEFRA—the Tax Equity and Fiscal Responsibility Act—which former Reagan administration official Gary Hoitsma described as “a legislative package sold to President Reagan as a grand compromise constituting a 3-to-1 rate of spending cuts to tax increases.”
Reagan, as Hoitsma wrote in the Washington Examiner, “reluctantly agreed” with TEFRA and campaigned for it in addresses such as those in Billings on Aug. 11 of 1982 and in a nationally televised address Aug. 16.
When TEFRA was passed and signed by Reagan, the 40th President described it as “a limited loophole-closing tax increase to raise more than $98.3 billion over three years in return for … agreement to cut spending by $280 billion during the same period.”
While the closing of the loopholes was quickly put into place, Congress never enacted any of the spending cuts. Reagan came to regret his support for TEFRA, and years later he wrote: “The Democrats reneged on their pledge [to cut spending] and we never got those cuts.”
“I believe that the TEFRA compromise—the ‘Debacle of 1982’—was the greatest domestic error of the Reagan administration,” Edwin Meese III, Reagan’s counselor at the time, wrote in his 1992 book, With Reagan: The Inside Story. “It was a complete departure from our tax-cutting mandate, failed to reduce the growth of government spending [and] did not decrease the deficit. … Judged by the results, TEFRA was not only a mistake, it was an abject lesson in how not to reduce the deficit.”
So Obama did indeed quote Reagan accurately, but rather unfairly. He was quoting Reagan’s words about something he soon came to regret—a lot.
Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in Economic Sciences grades the achievements of the Clinton administration and evaluates the programs the President proposed in his 1999 State of the Union address.
ROBINSON Welcome to Uncommon Knowledge, I’m Peter Robinson. Our show today: The State of the Union, or more precisely, The State of the Union According to the Nobel Prize Winning Economist, Milton Friedman. Every year the President of the United States travels from the White House to the House of Representatives to deliver a major televised address, the State of the Union Address. The President outlines for the American people the accomplishments of his administration to date, the challenges the nation still faces, and his programs for meeting those challenges. Now, by the time the President delivers his address, it will have been worked on for many days by the President himself and by a large team of speech-writers. There will have been draft after draft after draft, mark-ups, cross-outs, corrections of all kinds. Yet, when we finally see the address, when we watch the President seem to speak all but flawlessly for thirty, forty minutes or more, delivering a speech that must be many pages in length, we never see him refer to a single sheet of paper. The trick: a machine called a Teleprompter that projects the text of the speech onto a plate of glass in such a way that the President, and he alone, can see it. A trick with mirrors. An illusion. Milton Friedman, perhaps the most influential economist of the last half century, believes that when Bill Clinton gave his own most recent State of the Union Address, the Teleprompter wasn’t the only illusion the speech involved.
ROBINSON Milton Friedman, we are in the sixth year of the Clinton Administration, the nation is at peace, the economy is booming, the federal government has gone from a budget deficit of 290 billion dollars in 1992, the year Bill Clinton was elected, to a surplus of at least 76 billion dollars for this year. Don’t you want to give Bill Clinton an A?
FRIEDMAN (laughs) No, I want to give the economy an A.
ROBINSON Give the economy an A. How much credit does he deserve?
FRIEDMAN Well, there’s only one way in which I believe he deserves some credit. Because you have a Democrat in the White House and Republicans control the Congress, it’s hard to get any laws passed, and that’s been a great advantage. The source of our prosperity in my opinion dates back to Mr. Reagan’s reductions in tax rates…
ROBINSON 1982.
FRIEDMAN …1982, and deregulation during the Reagan Administration, also go down to the 1986 Tax Act which eliminated a lot of interventions, unfortunately which have been creeping back in. And that unleashed a private enterprise boom which we’re still benefitting from.
ROBINSON We’re not in the sixth year of the Clinton expansion, we’re in the seventeenth year of the Reagan boom.
FRIEDMAN Exactly. The Reagan— I won’t call it a boom, because it really hasn’t been a boom, it’s been a very good, healthy expansion.
ROBINSON Steady, sustainable…
FRIEDMAN It’s a boom in the stock market, but so far as the economy is concerned the average rate of growth is not out of line with what it’s been in the past many times.
ROBINSON It’s in line with historical standards.
FRIEDMAN The long-term rate of growth since the Civil War, for example, is in the order of about three to four percent a year, of which one percent is population growth, one-and-a-half to two percent per capita growth, and we’re in about that same range. But it’s been a notable period for other things. It’s been a notable period because we’ve had this expansion at the same time that inflation has been brought down and relatively stable, and for that the credit belongs to the Federal Reserve under the leadership of Alan Greenspan. I think Alan Greenspan deserves more credit for that than anything else.
ROBINSON More credit than he’s being given, or more credit than Bill Clinton’s being given.
FRIEDMAN No, no— oh, Bill Clinton deserves no credit for that. That’s entirely a result of the Fed and its behavior. The Fed has done a lot of bad things in the past, so I’m delighted to be able to give it credit for one good thing, and it’s done very well under Alan Greenspan.
ROBINSON Does the so-to-speak extra-constitutionality of the Fed disturb you?
FRIEDMAN Yes. I have always been in favor of abolishing the Fed, primarily from a political point of view.
ROBINSON And how would you handle the currency, how would you then manage the currency without the Fed?
FRIEDMAN My favorite proposal is to have a fixed amount of what’s called high-powered money and just keep it there.
ROBINSON Just keep the money supply static?
FRIEDMAN Not the money supply. High-powered money…
ROBINSON Which is…
FRIEDMAN …the currency plus the reserves in the banking system that are now deposits in the Fed, under my system you would convert to currency.
ROBINSON So you would eliminate the policy functions of the Fed, but you might keep a few of their statisticians around to keep tabs on the money supply… but that’s a relatively technical and modest…
FRIEDMAN Well, no, you don’t even have to do that. You just have to keep somebody around to make sure that you replace the worn-out notes and keep the stock quantity of money, in the narrow sense of currency, essentially unchanged, or if you want, growing at three percent a year. But some purely mechanical regime. Given that you do have a Fed, it makes a great deal of difference how it performs. I believe that the inflation that we had in the ’70s was primarily the responsibility of the Fed. I believe that the Great Depression of the ’30s was primarily the responsibility of the Fed. So I’m not… it has in the past done a great deal of harm, but as it happens in this last eight years or so it’s been very good and has brought about…
Milton Friedman and Chile – The Power of Choice Uploaded by FreeToChooseNetwork on May 13, 2011 In this excerpt from Free To Choose Network’s “The Power of Choice (2006)”, we set the record straight on Milton Friedman’s dealings with Chile — including training the Chicago Boys and his meeting with Augusto Pinochet. Was the tremendous […]
Milton Friedman’s negative income tax explained by Friedman in 1968: President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a […]
Milton Friedman on the American Economy (5 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: […]
Milton Friedman videos and transcripts Part 6 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 5 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 4 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 3 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 2 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 1 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
The True Cost of Public Education Uploaded by catoinstitutevideo on Mar 5, 2010 What is the true cost of public education? According to a new study by the Cato Institute, some of the nation’s largest public school districts are underreporting the true cost of government-run education programs. http://www.cato.org/pub_display.php?pub_id=11432 Cato Education Analyst Adam B. Schaeffer explains […]
President Reagan, Nancy Reagan, Bill Clinton and Hillary Clinton attending the Dinner Honoring the Nation’s Governors. 2/22/87.
Ronald Reagan is my favorite president and I have devoted several hundred looking at his ideas. Take a look at these links below:
President Reagan and Nancy Reagan attending “All Star Tribute to Dutch Reagan” at NBC Studios(from left to right sitting) Colleen Reagan, Neil Reagan, Maureen Reagan, President, Nancy Reagan, Dennis Revell. (From left to right standing) Emmanuel Lewis, Charlton Heston, Ben Vereen, Monty Hall, Frank Sinatra, Burt Reynolds, Dean Martin, Eydie Gorme, Vin Scully, Steve Lawrence, last 2 unidentified. Burbank, California 12/1/85.
Above you will see the picture of Charlton Heston. My wife actually got her picture taken with Heston in 1992 when he came in to try to jump start Mike Huckabee’s effort to beat Senator Dale Bumpers.
My favorite president is Ronald Wilson Reagan. President Reagan with Nancy Reagan, William Wilson, Betty Wilson, Walter Annenberg, Leonore Annenberg, Earle Jorgensen, Marion Jorgensen, Harriet Deutsch and Armand Deutschat at a private birthday party in honor of President Reagan’s 75th Birthday in the White House Residence. 2/7/86. Milton Friedman’s book “Free to Choose” did influence […]
Government Spending Doesn’t Create Jobs Uploaded by catoinstitutevideo on Sep 7, 2011 Share this on Facebook: http://on.fb.me/qnjkn9 Tweet it: http://tiny.cc/o9v9t In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t […]
Uploaded by HeritageFoundation on Dec 16, 2010 http://blog.heritage.org/2010/12/16/new-video-pork-filled-spending-bill-just-… Despite promises from President Obama last year and again last month that he opposed reckless omnibus spending bills and earmarks, the White House and members of Congress are now supporting a reckless $1.1 trillion spending bill reportedly stuffed with roughly 6,500 earmarks. ________________________ Below you see an […]
Uploaded by YAFTV on Aug 19, 2009 Nobel Laureate Dr. Milton Friedman discusses the principles of Ronald Reagan during this talk for students at Young America’s Foundation’s 25th annual National Conservative Student Conference MILTON FRIEDMAN ON RONALD REAGAN In Friday’s WSJ, Milton Friedman reflectedon Ronald Reagan’s legacy. (The link should work for a few more […]
Washington Could Learn a Lot from a Drug Addict Concerning spending cuts Reagan believed, that members of Congress “wouldn’t lie to him when he should have known better.” However, can you believe a drug addict when he tells you he is not ever going to do his habit again? Congress is addicted to spending too […]
A Ronald Reagan radio address from 1975 addresses the topics of abortion and adoption. This comes from a collection of audio commentaries titled “Reagan in His Own Voice.” I just wanted to share with you one of the finest prolife papers I have ever read, and it is by President Ronald Wilson Reagan. I have […]
Princess Diana dancing with John Travolta in the entrance hall at the White House. 11/9/85. From November of 1980, here is CBS’s coverage of Election Night. Taped from WJKW-TV8, Cleveland. This is part 3 of 3. Lee Edwards of the Heritage Foundation wrote an excellent article on Ronald Reagan and the events that transpired during the […]
The Reagans have tea with Prince Charles and Princess Diana in the White House residence. 11/9/85 . I remember when I visited London in July of 1981 and the whole town was getting ready for the big royal wedding between Prince Charles and Princess Diana. Above you will see them pictured with President Reagan. From […]
Ronald Reagan and Bill Clinton both reduced the relative burden of government, largely because they were able to restrain the growth of domestic spending. The mini-documentary from the Center for Freedom and Prosperity uses data from the Historical Tables of the Budget to show how Reagan and Clinton succeeded and compares their record to the fiscal profligacy of the Bush-Obama years.
___________________
Ronald Reagan was my hero and he did slow the growth of federal spending. In this post I did want to admit that Republicans have spent way too much in the past too, but we do have some spending cut heroes too. I have a lot of respect for Tea Party heroes like Tim Huelskamp and Justin Amash who are willing to propose deep spending cuts so we can eventually balance our budget.
John Brummett wrote in the online addition of the Arkansas Democrat-Gazette on May 30, 2012:
Obama did indeed run up the deficit with a stimulus measure to keep the economy from collapsing as he entered office…But in regard to budgets that he actually has proposed as president, beginning with the one for the fiscal year starting nearly a year after his election, Obama has raised spending at a slower rate than Clinton…
Republicans simply are more effective than Democrats at declaring a simple untruth loudly and repetitively through a pliable and powerful echo chamber of talk radio and cable news, thus embedding that untruth beneath the superficial consciousness of people otherwise disengaged.
__________
Now the truth of the matter is that Obama has spent around 25% of GDP when Clinton and most of the other presidents spent 20% or less. This fact allow disproves Brummett’s assertions listed above, but I will admit the Republicans have been guilty of spending too much also.
Dan Mitchell of the Cato Institute sets the record straight concerning the Republican’s spending which has been excessive too at times:
In a post last week, I explained that Obama has been a big spender, but noted his profligacy is disguised because TARP outlays caused a spike in spending during Bush’s last fiscal year (FY2009, which began October 1, 2008). Meanwhile, repayments from banks in subsequent years count as “negative spending,” further hiding the underlying trend in outlays.
When you strip away those one-time factors, it turns out that Obama has allowed domestic spending to increase at the fastest rate since Richard Nixon.
President George W. Bush, for instance, scores below both Clinton and Jimmy Carter, regardless of whether defense outlays are included in the calculations. That’s not a fiscally conservative record, even if you’re grading on a generous curve.
Here’s a simple suggestion for Mitt Romney: Admit that the Democrats have a point. Right before the Memorial Day weekend, Washington was consumed by a debate over how much Barack Obama has spent as president, and it looks like it’s picking up again. …all of these numbers are a sideshow: Republicans in Washington helped create the problem, and Romney should concede the point. Focused on fighting a war, Bush — never a tightwad to begin with — handed the keys to the Treasury to Tom DeLay and Denny Hastert, and they spent enough money to burn a wet mule. On Bush’s watch, education spending more than doubled, the government enacted the biggest expansion in entitlements since the Great Society (Medicare Part D), and we created a vast new government agency (the Department of Homeland Security). …Nearly every problem with spending and debt associated with the Bush years was made far worse under Obama. The man campaigned as an outsider who was going to change course before we went over a fiscal cliff. Instead, when he got behind the wheel, as it were, he hit the gas instead of the brakes — and yet has the temerity to claim that all of the forward momentum is Bush’s fault. …Romney is under no obligation to defend the Republican performance during the Bush years. Indeed, if he’s serious about fixing what’s wrong with Washington, he has an obligation not to defend it. This is an argument that the Tea Party — which famously dealt Obama’s party a shellacking in 2010 — and independents alike are entirely open to. Voters don’t want a president to rein in runaway Democratic spending; they want one to rein in runaway Washington spending.
Jonah’s point about “fixing what’s wrong with Washington” is not a throwaway line. Romney has pledged to voters that he won’t raise taxes. He also has promised to bring the burden of federal spending down to 20 percent of GDP by the end of a first term.
But even those modest commitments will be difficult to achieve if he isn’t willing to gain credibility with the American people by admitting that Republicans helped create the fiscal mess in Washington. Especially since today’s GOP leaders in the House and Senate were all in office last decade and voted for Bush’s wasteful spending.
It actually doesn’t even take much to move fiscal policy in the right direction. All that’s required is to restrain spending so that is grows more slowly than the private sector (with the kind of humility you only find in Washington, I call this “Mitchell’s Golden Rule“). The entitlement reforms in the Ryan budget would be a good start, along with some much-needed pruning of discretionary spending.
I personally saw Arthur Laffer speak in 1981 and he predicted what would happen in the next few years because of the Reagan tax cuts and he was right. Why do liberals ignore these facts? Raising taxes will not work. Liberals act like the Laffer Curve does not exist.
Unfortunately, some people misinterpret the insights of the Laffer Curve. Politicians, for instance, tend to either pretend it doesn’t exist, or they embrace it with excessive zeal and assume all tax cuts “pay for themselves.”
That’s the theory of the Laffer Curve. What about the evidence? Where are the revenue-maximizing and growth-maximizing points on the Laffer Curve?
Well, ask five economists and you’ll get nine answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer Curve.
With those caveats in mind, we have some very interesting research produced by two economists, one from the Federal Reserve and the other from the University of Chicago. They have authored a new study that attempts to measure the revenue-maximizing point on the Laffer Curve for the United States and several European nations. Here’s an excerpt from their research.
Figure 6 shows the comparison for the US and EU-14. Interestingly, the capital tax Laffer curve is affected only very little across countries when human capital is introduced. By contrast, the introduction of human capital has important effects for the labor income tax Laffer curve. Several countries are pushed on the slippery slope sides of their labor tax Laffer curves. …human capital turns labor into a stock variable rather than a flow variable as in the baseline model. Higher labor taxes induce households to work less and to acquire less human capital which in turn leads to lower labor income. Consequently, the labor tax base shrinks much more quickly when labor taxes are raised.
There’s a bit of jargon in this passage, so here are the charts from Figure 6. They look complex, but here are the basic facts to make them easy to understand.
The top chart shows the Laffer Curve for labor taxation, and the bottom chart shows the Laffer Curve for capital taxation. And both charts show different curves for the United States and an average of 14 European nations. Last but not least, the charts show how the Laffer Curves change is you add some real-world assumptions about the role of human capital.
Some people will look at these charts and conclude that there should be higher tax rates. After all, neither the U.S. or E.U. nations are at the revenue-maximizing point (though the paper explains that some European nations actually are on the downward-sloping portion of the curve for capital taxes).
But let’s think about what higher tax rates imply, and we’ll focus on the United States. According to the first chart, labor taxes could be approximately doubled before getting to the downward-sloping portion of the curve. But notice that this means that tax revenues only increase by about 10 percent.
This implies that taxable income would be significantly smaller, presumably because of lower output, but also perhaps due to some combination of tax avoidance and tax evasion.
The key factoid (assuming my late-at-night, back-of-the-envelope calculations are right) is that this study implies that the government would reduce private-sector taxable income by about $20 for every $1 of new tax revenue.
Does that seem like good public policy? Ask yourself what sort of politicians are willing to destroy so much private sector output to get their greedy paws on a bit more revenue.
What about capital taxation? According to the second chart, the government could increase the tax rate from about 40 percent to 70 percent before getting to the revenue-maximizing point.
But that 75 percent increase in the tax rate wouldn’t generate much tax revenue, not even a 10 percent increase. So the question then becomes whether it’s good public policy to destroy a large amount of private output in exchange for a small increase in tax revenue.
Once again, the loss of taxable income to the private sector would dwarf the new revenue for the political class. And the question from above bears repeating. What should we think about politicians willing to make that trade?
And that’s the real lesson of the Laffer Curve. Yes, the politicians usually can collect more revenue, but the concomitant damage to the private sector is very large and people have lower living standards. So that leaves us with one final question. Do we think government spending has a sufficiently high rate-of-return to justify that kind of burden? This Rahn Curve video provides the answer.
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Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
Twenty-five years ago Tuesday, President Ronald Reagan made his famous speech at the Berlin Wall in which he declaimed:
General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!
On a trip to East Germany in 2006 I talked to a politician who had been involved in the 1989 Leipzig protests that led to the opening of the Berlin Wall. I asked him, “When Reagan said ‘Mr. Gorbachev, tear down this wall!’ in 1987, did you know that?” He said, yes, not from East German TV but from West German TV, which they could watch. And what did you think, I asked. “We thought it was good, but we thought it was impossible.” And yet just two years later, “peace prayers” in Leipzig’s Nikolaikirche turned into protests for liberalization and open borders. The Leipzig politician told me, “As it says in the Bible, we walked seven times around the inner city, and the wall came down.”
Then I went to a museum exhibit in Leipzig on the history of the German Democratic Republic. It was very impressive, with a large collection of posters, letters, newspapers, video, and more. Alas, it was all in German, so I had only a dim understanding of what it all said. I did get the impression that it wasn’t a balanced presentation of communism such as might be found in a Western museum; these curators knew that communism had been a nightmare, and they were glad to be out of it. As it happened, the only English words in the entire exhibit came in the collection of audio excerpts that greeted visitors in the entry foyer. And they were a familiar voice proclaiming: “Mr. Gorbachev, open this gate!”
Berlin Wall” Speech – President Reagan’s Address at the Brandenburg Gate – 6/12/87 Uploaded by ReaganFoundation on Apr 15, 2009 President Reagan’s remarks on East-West relations at the Brandenburg Gate in West Berlin, Germany on June 12, 1987. ___________________ My favorite president Ronald Reagan made a great speech 25 years ago today. Mr. Gorbachev, Tear […]
The Heritage Foundation ran a fine article on Ronald Reagan today. June 12 marks the 25th anniversary of President Reagan’s historic speech at Berlin’s Brandenburg Gate. Over the objections of advisors who thought the lines were too provocative, President Reagan made a dramatic demand: There is one sign the Soviets can make that would be […]
President Ronald Reagan’s 100th birthday anniversary In his earliest movies, many of his roles emphasized Reagan’s physical prowess. This is a publicity photo of Ronald Reagan from Warner Brothers/First National Studios. HALT:HaltingArkansasLiberalswithTruth.com A :30 commercial for the Ronald Reagan Centennial Celebration. I remember walking in Austria in 1981 with an elderly man who did not know English but when […]
June 12 marks the 25th anniversary of President Reagan’s historic speech at Berlin’s Brandenburg Gate. Over the objections of advisors who thought the lines were too provocative, President Reagan made a dramatic demand:
There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev—Mr. Gorbachev, tear down this wall!
In his speech, Reagan talked about the need to tear down more than just this physical barrier to freedom:
In West Germany and here in Berlin, there took place an economic miracle, the Wirtschaftswunder. Adenauer, Erhard, Reuter, and other leaders understood the practical importance of liberty—that just as truth can flourish only when the journalist is given freedom of speech, so prosperity can come about only when the farmer and businessman enjoy economic freedom. The German leaders reduced tariffs, expanded free trade, lowered taxes. From 1950 to 1960 alone, the standard of living in West Germany and Berlin doubled.
For over a decade, The Heritage Foundation, in partnership with The Wall Street Journal, has tracked the march of economic freedom around the world with the influential Index of Economic Freedom. The data vindicate President Reagan’s 1987 declaration: “After these four decades, then, there stands before the entire world one great and inescapable conclusion: Freedom leads to prosperity. Freedom replaces the ancient hatreds among the nations with comity and peace. Freedom is the victor.”
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My sons Wilson and Hunter got to see all the sites of California and Sherwood Haisty Jr. took them to Reagan’s presidential library in March of 2011 after Sherwood finished his seminary work in the morning at the Masters Seminary. Wilson told me that Sherwood actually bought him a McArthur Study Bible that he wanted.
Below you will see a part of the Berlin wall and my two sons standing in front of it.
“If you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here, to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall.”
Arguably one of Reagan’s best television moments, he urged Soviet leader Mikhail Gorbachev to stop the communist hold over East Berlin and allow the country to unify under a democracy. Two years later, it happened in the dark of night.
I remember walking in Austria in 1981 with an elderly man who did not know English but when I told him I was from the USA, he responded, “Jimmy Carter is no good, but Reagan is strong and will stand up to Russia.” He did not say those words in English but another student that was with me was able to interpret at least those words.
Also on the same trip, I got to visit 4 Communist countries and while in Hungry, I heard one of the saddest stories I had ever heard. Our tour guide (who knew 6 languages) spoke to a gentleman who met all of us. This poor man said (in German) that he was married in 1944 to a lady from Hungary who wanted to live by her relatives. He left his homeland of Austria and moved to Hungary. He said that he regretted moving to what would later become a communist country. His relatives in Austria had done really well but he was stuck in a communist country that basically caused everyone to live in poverty.
Berlin Wall” Speech – President Reagan’s Address at the Brandenburg Gate – 6/12/87 Uploaded by ReaganFoundation on Apr 15, 2009 President Reagan’s remarks on East-West relations at the Brandenburg Gate in West Berlin, Germany on June 12, 1987. ___________________ My favorite president Ronald Reagan made a great speech 25 years ago today. Mr. Gorbachev, Tear […]
The Heritage Foundation ran a fine article on Ronald Reagan today. June 12 marks the 25th anniversary of President Reagan’s historic speech at Berlin’s Brandenburg Gate. Over the objections of advisors who thought the lines were too provocative, President Reagan made a dramatic demand: There is one sign the Soviets can make that would be […]
President Ronald Reagan’s 100th birthday anniversary In his earliest movies, many of his roles emphasized Reagan’s physical prowess. This is a publicity photo of Ronald Reagan from Warner Brothers/First National Studios. HALT:HaltingArkansasLiberalswithTruth.com A :30 commercial for the Ronald Reagan Centennial Celebration. I remember walking in Austria in 1981 with an elderly man who did not know English but when […]
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