-Caveat Lector- <A HREF="http://www.ctrl.org/">
</A> -Cui Bono?-
New York Post-February 4, 2000
IT'S STILL THE REAGAN BOOM
By LAWRENCE KUDLOW and STEPHEN MOORE
THIS week America crosses one of its great economic milestones,
breaking the record for the longest expansion in U.S. history.
But this isn't exactly sweet vindication for Clintonomics: The
politician most responsible for laying the groundwork for this
prosperous era is Ronald Reagan.
America's economic turnaround started in the early 1980s, a
decade before Bill Clinton arrived in Washington. In fact,
according to the National Bureau of Economic Research, what we
are really celebrating this month is the 18th straight year of
prosperity -- the longest of the 20th century.
Reagan's supply-side economic ideas -- cutting tax rates; a
strong dollar, trade globalization (the Gipper started NAFTA with
a U.S.-Canadian free trade agreement); deregulation of key
industries like energy, financial services and transportation;
and a re-armed military -- unleashed a great wave of
entrepreneurial-technological innovation. That wave transformed
and restructured the economy, resulting in a long boom prosperity
that continues to throw off economic benefits to this day.
Reagan also set the stage for America's winning of the Cold War.
That victory has been a major contributing factor to the growth
of the '90s: By our estimates, the "peace dividend" is saving
U.S. taxpayers more than $100 billion a year. And peace is
bullish -- when fears of war vanish, long-term investment booms.
The trend of the stock market, shown in the nearby chart,
provides compelling evidence that the real turning point of the
U.S. economy was the early 1980s, not the early 1990s. From
1967-82, the 15 years before Reaganomics, the Dow Jones
Industrial Average suffered one of its blackest bear markets in
history, falling 23 percent in nominal terms and nearly 6 percent
a year in inflation-adjusted terms. The wealth of American fami-
lies vanished right before their very eyes.
In 1982, the Dow Jones Industrial Average swooned to its nadir of
800. Then Reagan's policies began to take effect. Over the rest
of the Reagan years the market more than tripled. In the 1990s it
would nearly quadruple (to 11,000 today). During the 1982-2000
Reagan bull market, stocks soared by 12 percent per year, raising
the net worth of U.S. households by some $30 trillion.
More evidence of the Reagan-induced boom comes from Michael Cox,
an economist at the Dallas Federal Reserve Bank and co-author of
the brilliant new book "The Myth of Rich and Poor." Cox recently
calculated that, since the dawning of Reaganomics 18 years ago,
the U.S. economy has slumped into recession for just 6 of the
last 200 months, or a mere 3 percent of the time. That is almost
unprecedented -- historically, the U.S. economy has been in
decline one-third of the time.
Yes, Bill Clinton and ex-Treasury Secretary Robert Rubin deserve
some credit for keeping the expansion moving. Their strong-dollar
and hands-off-the-Fed policies extended disinflation, creating an
economywide tax-cut effect that offset the mistaken 1993 tax
increase. Free-trade measures during the mid '90s also
constituted a tax-cut stimulus effect.
Importantly, the Republican Congress forced Clinton to swallow
his opposition and sign into law key measures such as welfare
reform, the balanced-budget bill and capital-gains tax cuts. The
congressional heirs to Reagan's legacy helped restore business
confidence, setting off a phenomenal investment boom over the
past five years.
Bill Clinton's greatest economic achievement has been that most
of his liberal policy ideas never became law. Remember the
proposed energy tax, the $50-billion fiscal stimulus package and,
most of all, Hillary's health-care plan? Thankfully, we dodged
all of these economic wrecking balls.
The lesson of the past 20 years is that when American
entrepreneurs and workers are liberated from heavy-handed and
intrusive fiscal policies, punitive tax rates and destabilizing
monetary policies, the U.S. economy's growth potential is almost
limitless.
If Washington officials can resist four key prosperity killers --
high inflation, big tax hikes, re-regulation and trade
protectionism -- then more decades of technology-led growth are
clearly possible.
It was Reagan's vision of economic freedom that blazed the path
to prosperity. Numerous countries in Europe, Latin America and
Asia are now adopting free-market policies. For its part, the
United States must not rest on its laurels. To maintain our
leadership abroad, there is more work to be done here at home. A
frequently confused and agitated political class need only
consult Ronald Reagan's compass of liberty and freedom to arrive
at the next right decision.
------
Lawrence Kudlow is chief economist at Schroder & Co., Inc. and
CNBC.com. Stephen Moore is an economist at the Cato Institute.
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