Ronald Reagan and the 13th Theorem of Government

May 25, 2025 by Dan Mitchell @ International Liberty

I admire Ronald Reagan because he walked the walk and talked the talk, which basically means he said the right things and did the right things.

Here’s another example of his wisdom.

If Reagan’s analysis sounds familiar, it may be because you’re a long-time reader and remember my 13th Theorem of Government.

 

The message of that theorem is that people theoretically like freebies from government.

But if they are asked whether they are willing to pay more taxes to finance a new program, they suddenly become much more frugal.

In other words, people are Bernie Sanders when asked if they want goodies financed by other people’s money, but they turn into Rand Paul when asked if they want handouts financed with their own money.

 

There’s even proof of this. I shared polling data back in 2016 showing that supporters of Bernie Sanders were almost completely unwilling to pay the taxes needed to finance his big-government agenda.

I also recommend the second-half of this video from the Fraser Institute, which reaches the same conclusion.

All of this sounds like good news. When asked to look at both costs (taxes) and benefits (handouts), people are not fans of big government.

However, I’ll close with two depressing political observations.

1. People are susceptible to supporting big government if it’s financed by borrowing (i.e., their children will pay for it).
2. People are susceptible to supporting big government if they think all the taxes will be imposed on other people (usually the rich).

Observation #1 is why I fear an eventual debt crisis. And “eventual” is now likely to be much sooner than I would have guessed only five years ago.

Observation #2 is very frustrating because there’s so much data showing that there are not enough rich people to finance European-sized government.

P.S. One positive observation is that people also tell pollsters they favor smaller government.

Improved Data on Ronald Reagan’s Fiscal Performance

April 21, 2025 by Dan Mitchell @ International Liberty

In 2020, I crunched numbers from OMB’s Historical Tables to rank the fiscal performance of nine recent presidents, going all the way back to LBJ.

I was especially interested to see which presidents did best and worst when looking on overall domestic spending (entitlements plus discretionary).

The numbers showed that Ronald Reagan easily was the most fiscally prudent while Richard Nixon was the worst of the worst (though there’s an argument that LBJ was even worse when looking at the long-run impact of his policies).

So it’s no surprise that I consider myself a Reaganite.

That being said, that chart actually understates Reagan’s success. As I wrote last year, it “doesn’t even fully capture what he achieved since he was able to rescind some of the spending in Jimmy Carter’s last fiscal year.”

Time to rectify that oversight and we’ll base today’s analysis on a report from the Government Accountability Office. According to GAO, Reagan proposed to rescind more than $15 billion of spending in 1981 and Congress agreed to rescind nearly $10.9 billion.

So what happens if we update the budget rankings to capture this additional fiscal restraint? As you can see, Reagan’s remarkable record gets even better compared to the numbers I prepared in 2020 and Jimmy Carter’s so-so performance deteriorates.

To put Reagan’s rescission in context, a $10.9 billion cut was equal to more than 7 percent of total domestic discretionary spending in Jimmy Carter’s last fiscal year.

Doing the same thing today would require a rescission of more than $70 billion.

I also calculated back in 2011 that Reagan reduced domestic spending by 2.5 percentage points of GDP. If we include the impact of his rescission, he deserves credit for shrinking the welfare state by more than 2.8 percentage points of economic output.

Now it’s time for two caveats.

• Reagan and Congress rescinded budget authority, which is not the same as budget outlays (in simple terms, budget authority puts money in an agency’s checkbook and budget outlays is when the money gets spent). It’s possible, of course, that the authority and outlay effects of the rescissions were not identical.
• I also assumed that all of the rescissions reduced domestic discretionary spending, which seems reasonable given that Reagan promised to boost military spending and shrink the welfare state. But the GAO study (as well as this report from the Congressional Institute) don’t provide that level of detail.

The bottom line is that I am completely confident in the numbers I calculated in 2020 but only reasonably confident in the rescission-adjusted numbers in today’s column.

That being said, these new numbers are closer to the truth and they further demonstrate that Reagan did a remarkable job of restraining the size and growth of the federal government. Another win for Reaganomics.

P.S. Several readers have asked me why I haven’t updated the presidential spending numbers to include the last two years of Trump’s first term and the four years of Biden’s presidency. The answer is that I’m not sure how to measure the impact of the supposed emergency spending during the COVID pandemic. As a general principle, I don’t think presidents should be blamed (or credited) for unexpected one-time events, which is why my 2020 calculations exclude the impact of TARP (along with the Savings & Loan bailout more than 30 years ago). Yet it’s also true that politicians used the pandemic as an excuse to shovel money to various special interests, so I don’t want to give Trump or Biden a free pass for the 2020-2021 spending orgy. Given these difficulties, I don’t think there’s a fair way of handling the issue. But I have no hesitation in stating that both of them were fiscally irresponsible.

P.P.S. I also have never bothered to rank Gerald Ford because of his short time in the White House.

P.P.P.S. You have to go back to Harding and Coolidge to find presidents who were analogous to Reagan.

P.P.P.P.S. For those interested in international comparisons, there are examples of governments that have done a reasonably good job of spending restraint, at least for certain periods of time. Sweden and Taiwan also are good case studies. But nothing compares to Javier Milei’s first year in office.

Reagan’s Victory Over Communism

August 31, 2024 by Dan Mitchell @ International Liberty

As an economist, I’m very tempted to say that Ronald Reagan‘s greatest achievement was America’s economic rejuvenation.

He had a very impressive list of accomplishments, including lower tax rates, spending restraint, and getting inflation under control.

 

But from a global perspective, Reagan’s victory over communism must rank first. And that victory was the main takeaway of the movie, Reagan, that I saw last night.

I strongly recommend the movie, especially for people who were not lucky enough to be alive for Reagan’s presidency.

You won’t learn much about his economic accomplishments (for that, read this, this, this, this, and this), but you’ll learns about Reagan’s “we win, they lose” attitude toward the Soviet Union.

He relentlessly mocked the “evil empire.” Even more important, he attacked the (im)moral foundations of communism. It was not simply an alternative system of government. It was disgusting totalitarianism.

Cal Thomas agrees with my assessment. Here’s some his review.

The film opens with real news footage of Reagan being shot as he left the Washington Hilton Hotel on March 30, 1981. It includes his now famous line to Nancy Reagan, (played convincingly by Penelope Ann Miller): ”Honey, I forgot to duck,” along with his quip to surgeons at George Washington University Hospital, “I hope you are all Republicans.” …Reagan’s insistence on pursuing his Strategic Defense Initiative (“Star Wars” to his critics) is rightly credited with contributing to the fall of the Soviet Union…

“Reagan” is more of a love note to a man who did great things for his country and the world. There could be no better epitaph for any political leader. If you are under 40, go see it and learn something beyond what biased historians and the media have said about the man. If you are over 40 and lived through his presidency, go see it and be reminded of what real leadership looks like and how one man, in collaboration with a British prime minister and a pope, helped bring freedom to millions in Eastern Europe and restored the faith of many Americans in their country.

I don’t want to give away any of the highlights, but I will say that Reagan’s “tear down this wall” speech in Berlin is portrayed as the final nail in the coffin.

Go watch the film!

P.S. Readers won’t be surprised to learn that this is one of my favorite polls of all time.

P.P.S. And it’s disgusting that some leftists miss the Soviet Union.

Venezuela Timeline to Marxism

By Robin Itzler

Editor's Note:  This is one of the commentaries selected from Robin's weekly newsletter Patriot Neighbors. Any cartoons appearing will have been added by me.  If you wish to get the full edition, E-mail her at PatriotNeighbors@yahoo.com to get on her list, it's free. RK 

 

Decades ago, Communist Party of the United States of America (CPUSA) leader Alexander Trachtenberg (1884 - 1966) wrote to fellow CPUSA activist Bella Dodd (1904 - 1969) that:

“when communism came to America, it would come under the label of ‘progressive democracy.’ Today, the Democrat party uses the term “democratic socialism.”

Several days before his 2009 inauguration Barack Obama declared:

“We are five days away from fundamentally transforming the United States of America.”

Today, Obama plays golf with former presidents Bill Clinton (Democrat) and George W. Bush (Republican). The happy threesome is united in their desire to stop the America First movement. And what do America First Patriots want to stop? We want to stop America’s march toward communism/socialism/Marxism (whatever you want to call the destruction of our Constitutional Republic).

If you think “it” can’t happen here, put down your remote and consider how much has changed in our once great nation in less than four years of the damaging Harris/Biden administration. Didn’t you just see the coup that ousted Joe Biden, who won 14+ MILLION primary votes, and give it to a cackling’ ignoramus who never won a single primary vote?

Look how fast it happened in Venezuela:

1992 - Venezuela became third richest nation in Hemisphere
1997 - Venezuela became second largest purchaser of F-150
2001 - Venezuela voted for a Socialist president—“Income Inequality”
2004 - Venezuela’s private healthcare is completely socialized
2007 - Venezuela’s higher education becomes free to all citizens
2009 - Venezuela’s socialist government bans private ownership of guns
2012 - Vermont’s Socialist Senator Bernie Sanders praises Venezuela’s version of the “American Dream”
2014 - Venezuela’s opposition leaders are imprisoned
2016 - Food and healthcare shortages in Venezuela become widespread
2017 - Venezuela suspends its Constitution and elections are suspended
2019 - Unarmed citizens are massacred by the Venezuelan government

In recent weeks, we have witnessed Venezuela dictator Nicolás Maduro steal the July 28 presidential election, as his government-controlled National Electorate Council announced that Maduro had won reelection with almost 52% of the vote. (Just like Joe Biden won with 81 million votes.)

It didn’t take long before the Venezuelan government started arresting protesting citizens (just like January 6). And seek the arrest of his leading opponent María Corina Machado (just like lawfare against Donald Trump). Pictured: A small Venezuelan grocer—before and after socialism.

On August 16, Kamala Harris endorsed PRICE CONTROLS to reduce inflation. (Hellooo Kamala, you are already in office and can do something NOW to reduce the inflation that you and Joey caused!) Let’s see who else embraced price controls:

Soviet Union’s Stalin … millions starved to death
Cuba’s Fidel Castro … millions starved to death
Communist China’s Mao …. millions starved to death
Maduro’s Venezuela … millions are starving to death

Ronald Reagan warned us:

“Freedom is a fragile thing and it’s never more than one generation away from extinction. It’s not ours by way of inheritance; it must be fought for and defended constantly by each generation, for it comes only once to a people. And those who have known freedom and then lost it have never known it again.”

The Life of KGB Defector Vladimir Vetrov

The most important spy of the 20th century. Who helped Reagan bring the Soviet Union down. Plus: How Reagan ended the Soviet Union. 

 Michael Flores Apr 4, 2024

In his young years, Vladimir Vetrov was a model Soviet citizen – an ardent Communist and good patriot. He belonged to that “sons of the people” generation which the USSR dutifully promoted. The new officer is lucky enough to be sent to Paris, beyond the iron curtain. There, he discovers the affluence and freedom of the West, which comes as a genuine shock. He works as an accomplished spy, but his attraction to luxury and the high life turns his head and gets him into trouble. He is called back to Moscow. Returning to the routine life of a KGB employee in the gloomy Moscow of the Brezhnev years is all the more unbearable to Vladimir Vetrov that he is not granted the promotion that the quality of his service in Paris should have brought him. His disgust leads him to revenge - by means of treason...............

 And he was no ordinary spy. Think Aldrich Ames, to the power of ten. Vladimir Vetrov oversaw the entire KGB directorate charged with a critical program: Line X, which surveilled western R&D and passed its fruits back to Mother Russia. In the 1960s and 1970s, Line X stole jaw-dropping volumes of military, computer, and industrial advances........... “The Soviet military and civil sectors were in large measure running their research on that of the West, particularly the United States,” ......... “Our science was supporting their national defense.”..........The Farewell dossier exposed the entirety of the Soviet technology-stealing infrastructure, with a couple of enormous consequences. ...........

By feeding Soviet agents promising but subtly flawed technology, the Americans infiltrated sabotage points into the USSR — a Trojan Horse for the information age. In 1982, software running the Soviet Trans-Siberian Pipeline allegedly escalated gas pressure fatally on the Urengoy-Surgut-Chelyabinsk pipeline, triggering an explosion so large (three kilotons) that some foreign monitoring stations initially suspected a nuclear detonation............“Pseudo-software disrupted factory output. Flawed but convincing ideas on stealth, attack aircraft and space defense made their way into Soviet ministries.” Suddenly, the Russians couldn’t know which Line X acquisitions were dependable and which were time bombs. ................

In January 1982, President Ronald Reagan approved a CIA plan to sabotage the economy of the Soviet Union through covert transfers of technology that contained hidden malfunctions, including software that later triggered a huge explosion in a Siberian natural gas pipeline, according to a new memoir by a Reagan White House official...............To Read More....

Government Intervention and Relative Prices

February 24, 2024 by Dan Mitchell @ International Liberty 

Editor's Note: This was lost in my draft file, and while it's a bit old, that doesn't change the facts. RK

I periodically share Mark Perry’s famous “Chart of the Century” to show that government intervention is a recipe for rising relative prices.*

Since economic principles don’t change when you cross national borders, one might expect to see similar patterns in other countries.

And we do. Here’s a chart from Matthew Lesh of the Institute for Economic Affairs in London. As you can see, overall inflation in the United Kingdom since 2000 has been 80 percent.

But prices have risen much faster in the sectors with lots of government intervention.

And prices have fallen, or risen at a slower-than-average pace, in the sectors where market forces dominate.

Here’s some of what he wrote to accompany the chart.

Prices have risen significantly faster than wages in the United Kingdom over recent years. The result has been a falling quality of life and significant hardship for tens of millions of households. Real household disposable incomes are now expected to be 3.5% lower in 2024-25 than their pre-pandemic levels… A useful starting point is considering which products have, and which have not, risen in price over recent years. …There have also been significant price increases in services and costs the government more directly controls, such as rail transport (+143%) – where the government sets around half the fares and heavily controls the sector – and council rates (+139%). …The products that have gone up most rapidly in cost include electricity (+425%), housing (+254%), and childcare (193%). Notably, these are sectors that have extensive state intervention through regulation and subsidies. …governments can and should change their approach to regulation. Cutting red tape in areas such as housing, energy, and financial services could reduce business costs and increase supply, resulting in lower costs for consumers.

This is spot on. As Ronald Reagan said more than 43 years ago, government is the problem.

And more government simply makes a bad situation even worse.

* Bad monetary policy is the recipe for overall increases in prices.

Lessons from Reaganomics for the 21st Century, Part V

November 17, 2023 by Dan Mitchell @ International Liberty

Based on a study I authored for the Club for Growth Foundation, I’ve dedicated this week to a series about Reaganomics.

• Part I was about Reagan’s track record on spending and lessons for today.
• Part II was about Reagan’s track record on taxes and lessons for today.
• Part III was about Reagan’s track record on red tape and lessons for today.
• Part IV was about Reagan’s track record on inflation and lessons for today.

The main takeaway from those columns is that Reagan’s policies were very successful.

Which probably helps to explain why polling data shows that Reagan is still very popular with voters

 

(you can see my favorite poll result here).

In a bizarre twist, however, there are some Republicans who think Reagan’s free-market principles are outdated.

These people call themselves national conservatives, though I think of them as reincarnated Rockefeller Republicans (what else would you call people who favor awful policies such as industrial policy and tax increases?).

Today’s column explains why they are wrong.

…many of Reagan’s reforms have been eroded over the past 30-plus years, and the United States is once again facing major economic challenges. Is it time for Reaganomics 2.0? Some argue that America faces different problems that require different solutions. They assert that pushing for the same policies is “Zombie Reaganism.” Many of those critics are avowed leftists, so their antipathy is not surprising. But there are also some self-described conservatives who use the same term to express hostility. …To assess the merits of modern-day small-government conservatism, this paper will briefly explain the problems Reagan faced and the solutions he pursued, followed by an examination of today’s problems and the degree to which similar policies could and should apply. In short, America faces remarkably similar challenges to those that confronted President Reagan. …Policymakers who wish to boost middle-class incomes would be wise to emulate President Reagan.

For what it’s worth, I think some of the national conservatives are not statists. Instead, they merely think they should reject Reaganism for non-economic reasons.

So I included a section about being in favor of limited government regardless of views on other topics.

They assume support for Reagan-style small government conservatism:

• implies support for other policies adopted during the Reagan years, such as immigration amnesty.
• comes at the expense of conservative social policy.
• means no concern for the value of a defense industrial base.
• means being in favor of a “neoconservative” nation-building agenda.
• is somehow inconsistent with communitarian values.

This paper does not address those issues, other than to state that the desirability of Reagan’s four-pillar agenda does not depend on those other topics.

The bottom line is that everyone should be united by a desire for greater prosperity. And that explicitly implies being in favor of free markets and limited government.

P.S. The only hyphenated conservatism I like is small-government conservatism. In previous columns, I’ve pointed out the shortcomings of compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, and reform conservatism.

P.P.S. At the risk of understatement, Reagan was a not a small-government conservative in his younger days. Like a fine wine, however, he improved with age, migrating to the top-right of my Venn diagram.

Lessons from Reaganomics for the 21st Century, Part I

November 13, 2023 by Dan Mitchell @ International Liberty

As a long-time admirer of President Reagan and his economic policies, I was very pleased to author a new study for the Club for Growth Foundation entitled Reaganomics for the 21st Century.

In the report, I ask “Is it time for Reaganomics 2.0?”

This week, I’m going to look at key economic issues and see whether Reagan’s policies worked and whether similar policies are needed again today.

 

We’ll start with fiscal policy. Here’s Figure 2 from the study, showing that the burden of federal spending, measured as a share of economic output, increased significantly during the 1970s.

Most troubling, almost all of the increase was because of additional domestic spending.

What happened during the Reagan years? Did policy improve?

As you can see from this next chart, Figure 3, Reagan reversed that worrisome trend. The burden of government spending fell during his years in office (Reagan’s budgets covered 1981-1989, but I also included 1980 and 1988 for people who focus on election years).

Most impressively, Reagan reduced the burden of domestic spending (both entitlements and discretionary) by 2.5 percentage points of GDP.

For those who want more information on Reagan’s successful spending restraint, I recommend this 2011 video.

The purpose of today’s column, though, is to focus on the future. Specifically, what are the challenges we face today and would a Reagan-style approach be appropriate?

The first part of that question is easy to answer. The federal government is far too big and America’s fiscal burden is projected to become an even bigger problem in the near future.

In the study, I included this chart from the Congressional Budget Office, which shows that the burden of federal spending is on a very bad upward trajectory over the next three decades.

The second part of the question also is easy to answer.

Reagan’s approach was to restrain spending and that same approach is needed today. Here’s some of what I wrote.

America’s spending problem today is worse than it was when Reagan was elected and inaugurated. The overall burden of spending has reached more than 24 percent of economic output and domestic spending by itself consumes more than 19 percent of GDP. …All this spending…undermines growth by diverting resources from the productive sector of the economy. …Domestic discretionary spending is a very ripe target for budget savings. …Entitlements are the major budget challenge. More than 70 percent of the federal budget is allocated to these programs, and that share will increase since entitlement spending is projected to become an even bigger burden in the future. …some sort of spending restraint would be desirable. One option is a…spending cap. The best model in the United States is Colorado’s Taxpayer Bill of Rights. The TABOR provision in Colorado’s constitution effectively limits spending so that it cannot grow faster than the combination of inflation plus population. …Globally, the best model is Switzerland’s spending cap.

In the study, I explain that domestic discretionary spending should be significantly reduced, including elimination of various departments and agencies.

 

And I also make the case for entitlement reform, including Medicare, Medicaid, and Social Security.

To conclude this column, let’s look at the big picture.

I wrote that some sort of spending cap is needed. To help make the case, I showed what would have happened to federal spending if Washington was subjected to a TABOR-style spending cap at the start of the Trump years.

As you can see in Figure 5. the savings would be enormous. Limiting spending increases to population plus inflation would have resulted in a federal budget of about $5 trillion for 2023, which is more than $1 trillion less than politicians actually spent.

The bottom line is that TABOR has produced big savings for Colorado taxpayers, but those numbers would be dwarfed by nationwide savings is Washington was constrained by a spending cap.

P.S. Politicians who oppose spending restraint implicitly support massive tax increases on lower-income and middle-class households.

 

National Conservatism vs. Reagan’s Small-Government Libertarianism

August 10, 2019 by Dan Mitchell @ International Liberty
 

Having been inspired by Ronald Reagan’s libertarian-ish message (and track record), I’ve always been suspicious of alternative forms of conservatism for the simple reason that they always seem to mean bigger government.

• There was George H.W. Bush’s “kinder and gentler” conservatism, which translated into more statism.
• There was George W. Bush’s “compassionate conservatism,” which translated into more statism.
• The “national greatness” conservatism associated with John McCain seemed to justify more statism
• The more-recent movement called “reform conservatism” also seems to involve more statism.

To be fair, proponents of all these approaches always paid homage to the role of markets, so we’re not talking about Bernie Sanders-type nuttiness.

But I don’t want to travel in the wrong direction, even if only at 10 miles-per-hour rather than 90 miles-per-hour.

Now there’s a new alternative to Reaganism called “national conservatism.” It’s loosely defined, as you can see by reports from both left-leaning outlets (New York, New Republic) and right-leaning outlets (Townhall, Daily Signal).

There are parts of this new movement that are appealing, at least if I’m reading them correctly. Proponents are appropriately skeptical of global governance, though maybe not for the reasons that arouse my antipathy. But the enemy of my enemy is my friend in this battle.

They also don’t seem very fond of nation building, which also pleases me. And I also am somewhat sympathetic to their arguments about national unity – assuming it’s based on the proper definition of patriotism.

But their economic views, at best, are worrisome. And, as George Will opines, they’re sometimes awful.

…“national conservatives”…advocate unprecedented expansion of government to purge America of excessive respect for market forces and to affirm robust confidence in government as a social engineer allocating wealth and opportunity. …The Manhattan Institute’s Oren Cass advocates “industrial policy” — what other socialists call “economic planning”… He especially means subsidizing manufacturing..he admits that as government, i.e., politics, permeates the economy on manufacturing’s behalf, “regulatory capture,” other forms of corruption and “market distortions will emerge.” Emerge? Using government to create market distortions is national conservatism’s agenda. …Their agenda is much more ambitious than President Richard M. Nixon’s 1971 imposition of wage and price controls, which were temporary fiascos. Their agenda is even more ambitious than the New Deal’s cartelization of industries, which had the temporary (and unachieved) purpose of curing unemployment. What national conservatives propose is government fine-tuning the economy’s composition and making sure resources are “well” distributed, as the government (i.e., the political class) decides, forever. …Although the national conservatives’ anti-capitalism purports to be populist, it would further empower the administrative state’s faux aristocracy of administrators who would decide which communities and economic sectors should receive “well”-allocated resources. Furthermore, national conservatism is paternalistic populism. This might seem oxymoronic, but so did “Elizabeth Warren conservatives” until national conservatives emerged as such.

Since Nixon and FDR were two of America’s worst presidents, Will is drawing a very harsh comparison.

To give the other side, here are excerpts from a New York Times column by Oren Cass.

…a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy. Genuine prosperity depends upon people working as productive contributors to their society, through which they can achieve self-sufficiency, support their families, participate in their communities, and raise children prepared to do the same.

None of this sounds bad.

Heck, it sounds good. I’m in favor of strong families and strong communities.

But what does this rhetoric mean? Here’s where I start to worry.

Crucially, while a labor market left alone will seek an efficient equilibrium, economic theory never promises that the equilibrium will be a socially desirable, inclusive one. A genuine conservatism values markets as powerful mechanisms that foster choice, promote competition and deliver growth, but always in service to the larger end of a cohesive society in which people can thrive. …In some cases, …conservatives will head in new directions or even reverse course. …an insistence that workers throughout the labor market share in productivity growth……longstanding hostility toward organized labor will give way to an emphasis on reform. …new forms of organizing through which workers can support one another, engage with management and contribute to civil society should be a conservative priority.

And my worry turns to unfettered angst when I read some of the specific ideas that Cass mentions.

…a wage subsidy delivered directly into each low-wage paycheck…skepticism of unfettered international trade…legislation that would require the Federal Reserve to close the trade deficit by taxing foreign purchases of American assets.

To put it mildly, more redistribution, more protectionism, and taxes on investment is not a Reaganite agenda.

I’ll close with a political observation. Defenders of national conservatism have told me that the Reagan message is old and stale. It supposedly doesn’t apply to new problems in a new era.
Yet non-conservative Republicans lost twice to Obama while a hypothetical poll in 2013 showed Reagan would trounce Obama.

Some national conservatives point to Trump’s victory as an alternative, but I think that had more to do with Hillary Clinton. In any event, I very much doubt Trumpism is a long-term model for political success. Or economic success.

Maybe the real lesson is that good policy is good politics?

 

America’s Most Profligate President Is…?

May 29, 2023 by Dan Mitchell

Looking just at fiscal policy, who is the worst president in American history?

Based on historical data from the Office of Management and Budget, I calculated a few years ago that Richard Nixon was the biggest spender, followed by Lydon Johnson.

But I was only looking at the growth of inflation-adjusted spending during the fiscal years when various presidents were in office.

What about long-run estimates of how various presidents have changed America’s (depressing) fiscal trajectory.

Glenn Kessler of the Washington Post did something like this, though he focused on red ink rather than the spending burden.

That being said, he found somewhat similar results. Only he reports that LBJ was the worst with Nixon being the second worst.

Policy choices made long ago are more responsible for the fiscal state of the nation. Assigning a particular president responsibility for a debt increase is rarely productive, because so much depends on factors beyond a president’s control — an economic crisis such as the Great Recession or the pandemic, for example. …Which president has contributed the most to the nation’s long-term fiscal imbalance? That would be Lyndon B. Johnson… Through an exhaustive study of Congressional Budget Office and Office of Management and Budget reports, …LBJ’s share of the fiscal imbalance is 29.7 percent. Close behind is Richard M. Nixon, with 29.2 percent. Johnson enacted Medicare and Medicaid in the mid-1960s, and then Nixon in the early 1970s expanded both programs and also enhanced Social Security so that benefits were indexed to inflation. …almost two-thirds of the nation’s long-term fiscal imbalance is a result of policy choices made more than 50 years ago.

I’m not surprised that Medicare and Medicaid get so much blame. They deserve it!

By the way, Kessler did not do his own calculations.

Instead, he relied on some research by Charles Blahous. Here’s the relevant table from that study, which was published in late 2021.

I’m not surprised that Reagan was the best president.

P.S. Biden was not included since he has just entered office when the research was conducted. If there is a similar study 10 years from now, I’m guessing he will be like Obama with bad but not horrible results. Yes, Biden has an awful fiscal agenda, but his failed stimulus and the watered-down (and absurdly misnamed) Inflation Reduction Act may wind up being the only significant damage he imposes.

Reagan’s Spirit – On His Birthday

Grady Trent

Editor's Note:  Given the craven character and destructive behavior of so many of the nation's leaders today, I think this outline of who Reagan was is worth noting.   RK 

Today would be Ronald Reagan’s 112^th birthday. Reagan died at 93 in 2004. What we need – fittingly on his birthday – is his spirit. What was his spirit? Having worked in his White House, later kept up with the former president from afar, his spirit was a combination of goodwill and good cheer, faith in America and God, inevitable triumph of individual liberties over suppression, optimism over despondency, action over lethargy, and People’s will over government.

In practical terms, he was about staying engaged, talking straight, keeping government small, spending less, trusting your conscience, working together to advance age-old values – about getting it right on everything from national security and moral compass to humility in office and accountability.

Interestingly, he did not do any of this in an angry, shrill, dismissive, disparaging or personal way. He educated America – left, right, and middle – with stories they could all relate to, light humor. He modeled decency and the common touch that defined his entire life. He knew regular habits, respect for the Constitution, concern for your neighbor lifted everyone, politics aside........To Read More....

Whatever Happened to Free Enterprise?

Editor's Note:  This was sent to me by Hillsdale University from their Imprimis publication, January 1978 | Volume 7, Issue 1.  This speech, with highlights added by me, is in line with the rest of my posts today, and I think it fitting to publish President Reagan's speech, which should be foundational to every article dealing with government and economics written, and remember, this was in 1978.  RK

Ronald Reagan Former President of the United States 

During the presidential campaign last year, there was a great deal of talk about the seeming inability of our economic system to solve the problems of unemployment and inflation. Issues such as taxes and government power and costs were discussed, but always these things were discussed in the context of what government intended to do about it. May I suggest for your consideration that government has already done too much about it? That indeed, government, by going outside its proper province, has caused many if not most of the problems that vex us.

How much are we to blame for what has happened? Beginning with the traumatic experience of the Great Depression, we the people have turned more and more to government for answers that government has neither the right nor the capacity to provide. Unfortunately, government as an institution always tends to increase in size and power, and so government attempted to provide the answers.

The result is a fourth branch of government added to the traditional three of executive, legislative and judicial: a vast federal bureaucracy that’s now being imitated in too many states and too many cities, a bureaucracy of enormous power which determines policy to a greater extent than any of us realize, very possibly to a greater extent than our own elected representatives. And it can’t be removed from office by our votes.

To give you an illustration of how bureaucracy works in another country, England in 1803 created a new civil service position. It called for a man to stand on the cliffs of Dover with a spy glass and ring a bell if he saw Napoleon coming. They didn’t eliminate that job until 1945. In our own country, there are only two government programs that have been abolished. The government stopped making rum on the Virgin Islands, and we’ve stopped breeding horses for the cavalry.

We bear a greater tax burden to support that permanent bureaucratic structure than any of us would have believed possible just a few decades ago. When I was in college, governments federal, state and local, were taking a dime out of every dollar earned and less than a third of that paid for the federal establishment. Today, governments, federal, state, and local, are taking 44 cents out of every dollar earned, and two-thirds of that supports Washington. It is the fastest growing item in the average family budget, and yet it is not one of the factors used in computing the cost of living index. It is the biggest single cost item in the family budget, bigger than food, shelter and clothing all put together.

When government tells us that in the last year the people in America have increased their earnings 9 percent, and since the inflation is 6 percent, we’re still 3 percentage points better off, or richer than we were the year before, government is being deceitful. That was before taxes. After taxes, the people of America are 3 percentage points worse off, poorer than they were before they got the 9 percent raise. Government profits by inflation.

At the economic conference in London several months ago, one of our American representatives there was talking to the press. He said you have to recognize that inflation doesn’t have any single cause and therefore has no single answer. Well, if he believed that, he had no business being at an economic conference. Inflation is caused by one thing, and it has one answer. It’s caused by government spending more than government takes in, and it will go away when government stops doing that, and not before.

Government has been trying to make all of us believe that somehow inflation is like a plague, or the drought, or the locusts coming, trying to make us believe that no one has any control over it and we just have to bear it when it comes along and hope it will go away. No, it’s simpler than that. From 1933 until the present, our country has doubled the amount of goods and services that are available for purchase. In that same period we have multiplied the money supply by 23 times. So $11.50 is chasing what one dollar used to chase. And that’s all that inflation is: a depreciation of the value of money.

Ludwig von Mises once said, “Government is the only agency that can take a perfectly useful commodity like paper, smear it with some ink, and render it absolutely useless.”

There are 73 million of us working and earning by means of private enterprise to support ourselves and our dependents. We support, in addition, 81 million other Americans totally dependent on tax dollars for their year-round living. Now it’s true that 15 million of those are public employees and they also pay taxes, but their taxes are simply a return to government of dollars that first had to be taken from the 73 million. I say this to emphasize that the people working and earning in private business and industry are the only resource that government has.  

In Defense of Free Enterprise  

More than anything else, a new political economic mythology, widely believed by too many people, has increased government’s ability to interfere as it does in the marketplace. Profit is a dirty word, blamed for most of our social ills. In the interest of something called consumerism, free enterprise is becoming far less free. Property rights are being reduced, and even eliminated, in the name of environmental protection. It is time that a voice be raised on behalf of the 73 million independent wage earners in this country, pointing out that profit, property rights and freedom are inseparable, and you cannot have the third unless you continue to be entitled to the first two.

Even many of us who believe in free enterprise have fallen into the habit of saying when something goes wrong: “There ought to be a law.” Sometimes I think there ought to be a law against saying: “There ought to be a law.” The German statesman Bismark said, “If you like sausages and laws you should never watch either one of them being made.” It is difficult to understand the ever-increasing number of intellectuals in the groves of academe, present company excepted, who contend that our system could be improved by the adoption of some of the features of socialism.

In any comparison between the free market system and socialism, nowhere is the miracle of capitalism more evident than in the production and distribution of food. We eat better, for a lower percentage of earnings, than any other people on earth. We spend about 17 percent of the average family’s after-tax income for food. The American farmer is producing two and one-half times as much as he did 60 years ago with one-third of the man-hours on one-half of the land. If his counterparts worldwide could reach his level of skill we could feed the entire world population on one-tenth of the land that is now being farmed worldwide.

The biggest example comes, I think, when you compare the two superpowers. I’m sure that most of you are aware that some years ago the Soviet Union had such a morale problem with the workers on the collective farms that they finally gave each worker a little plot of ground and told him he could farm it for himself and sell in the open market what he raised. Today, less than 4 percent of Russia’s agricultural land is privately farmed in that way, and on that 4 percent is raised 40 percent of all of Russia’s vegetables, and 60 percent of all its meat.

Some of our scholars did some research on comparative food prices. They had to take the prices in the Russian stores and our own stores and translate them into minutes and hours of labor at the average income of each country. With one exception they found that the Russians have to work two to ten times as long to buy the various food items than do their counterparts here in America. The one exception was potatoes. There the price on their potato bins equaled less work time for them than it did for us. There was one hitch though—they didn’t have any potatoes.

In spite of all the evidence that points to the free market as the most efficient system, we continue down a road that is bearing out the prophecy of De Tocqueville, a Frenchman who came here 130 years ago. He was attracted by the miracle that was America. Think of it: our country was only 70 years old and already we had achieved such a miraculous living standard, such productivity and prosperity, that the rest of the world was amazed. So he came here and he looked at everything he could see in our country trying to find the secret of our success, and then went back and wrote a book about it. Even then, 130 years ago, he saw signs prompting him to warn us that if we weren’t constantly on guard, we would find ourselves covered by a network of regulations controlling every activity. He said if that came to pass we would one day find ourselves a nation of timid animals with government the shepherd.

Was De Tocqueville right? Well, today we are covered by tens of thousands of regulations to which we add about 25,000 new ones each year.

The Cost of Government Regulation

A study of 700 of the largest corporations has found that if we could eliminate unnecessary regulation of business and industry, we would instantly reduce the inflation rate by half. Other economists have found that over-regulation of business and industry amounts to a hidden five-cent sales tax for every consumer. The misdirection of capital investment costs us a quarter of a million jobs. That’s half as many as the president wants to create by spending $32 billion over the next two years. And with all of this comes the burden of government-required paperwork.

It affects education—all of you here are aware of the problems of financing education, particularly at the private educational institutions. I had the president of a university tell me the other day that government-required paperwork on his campus alone has raised the administrative costs from $65,000 to $600,000. That would underwrite a pretty good faculty chair. Now the president of the Eli Lilly drug company says his firm spends more man-hours on government-required paperwork than they do today on heart and cancer research combined. He told of submitting one ton of paper, 120,000 pages of scientific data most of which he said were absolutely worthless for FDA’s purposes, in triplicate, in order to get a license to market an arthritis medicine. So, the United States is no longer first in the development of new health-giving drugs and medicines. We’re producing 60 percent fewer than we were 15 years ago.

And it’s not just the drug industry which is over-regulated. How about the independent men and women of this country who spend $50 billion a year sending 10 billion pieces of paper to Washington where it costs $20 billion each year in tax money to shuffle and store that paper away. We’re so used to talking billions—does anyone realize how much a single billion is? A billion minutes ago Christ was walking on this earth. A billion hours ago our ancestors lived in caves, and it is questionable as to whether they’d discovered the use of fire. A billion dollars ago was 19 hours in Washington, D.C. And it will be another billion in the next 19 hours, and every 19 hours until they adopt a new budget at which time it’ll be almost a billion and a half.

It all comes down to this basic premise: if you lose your economic freedom, you lose your political freedom and in fact all freedom. Freedom is something that cannot be passed on genetically. It is never more than one generation away from extinction. Every generation has to learn how to protect and defend it. Once freedom is gone, it’s gone for a long, long time. Already, too many of us, particularly those in business and industry, have chosen to switch rather than fight.

We should take inventory and see how many things we can do ourselves that we’ve come to believe only government can do. Let me take one that I’m sure everyone thinks is a government monopoly and properly so. Do you know that in Scottsdale, Ariz., there is no city fire department? There, the per capita cost for fire protection and the per capita fire loss are both one-third of what they are in cities of similar size. And the insurance rates reflect this. Scottsdale employs a private, profit-making, firefighting company, which now has about a dozen clients out in the western states.

Sometimes I worry if the great corporations have abdicated their responsibility to preserve the freedom of the marketplace out of a fear of retaliation or a reluctance to rock the boat. If they have, they are feeding the crocodile hoping he’ll eat them last. You can fight city hall, and you don’t have to be a giant to do it. In New Mexico there’s a little company owned by a husband and wife. The other day two OSHA inspectors arrived at the door. They demanded to come in in order to go on a hunting expedition to see if there were any violations of their safety rules. The wife, who happens to be company president, said “Where’s your warrant?” They said, “We don’t need one.” She said, “You do to come in here,” and shut the door. Well, they went out and got a warrant, and they came back, but this time she had her lawyer with her. He looked at the warrant and said it does not show probable cause. A federal court has since upheld her right to refuse OSHA entrance.

Why don’t more of us challenge what Cicero called the arrogance of officialdom? Why don’t we set up communications between organizations and trade associations? To rally others to come to the aid of an individual like that, or to an industry or profession when they’re threatened by the barons of bureaucracy, who have forgotten that we are their employers. Government by the people works when the people work at it. We can begin by turning the spotlight of truth on the widespread political and economic mythology that I mentioned.

A recent poll of college and university students (they must have skipped this campus) found that the students estimated that business profits in America average 45 percent. That is nine times the average of business profits in this country. It was understandable that the kids made that mistake, because the professors in the same poll guessed that the profits were even higher.

Then there is the fairy tale born of political demagoguery that the tax structure imposes unfairly on the low earner with loopholes designed for the more affluent. The truth is that at $23,000 of earnings you become one of that exclusive band of 10 percent of the wage-earners in America paying 50 percent of the income tax but only taking 5 percent of all the deductions. The other 95 percent of the deductions are taken by the 90 percent of the wage-earners below $23,000 who pay the other half of the tax.

The most dangerous myth is that business can be made to pay a larger share of taxes, thus relieving the individual. Politicians preaching this are either deliberately dishonest, or economically illiterate, and either one should scare us. Business doesn’t pay taxes, and who better than business could make this message known? Only people pay taxes, and people pay as consumers every tax that is assessed against a business. Passing along their tax costs is the only way businesses can make a profit and stay in operation.

The federal government has used its taxing power to redistribute earnings to achieve a variety of social reforms. Politicians love those indirect business taxes, because it hides the cost of government. During the New Deal days, an under-secretary of the treasury wrote a book in which he said that taxes can serve a higher purpose than just raising revenue. He said they could be an instrument of social and economic control to redistribute the wealth and income and to penalize particular industries and economic groups.

We need to put an end to that kind of thinking. We need a simplification of the tax structure. We need an indexing of the surtax brackets, a halt to government’s illicit profiteering through inflation. It’s as simple as this: every time the cost-of-living index goes up one percent, the government’s revenue goes up one and one-half percent. Above all we need an overall cut in the cost of government. Government spending isn’t a stimulant to the economy; it’s a drag on the economy. Only a decade ago, about 15 percent of corporate gross income was required to pay the interest on corporate debt; now it’s 40 percent. Individuals and families once spent about 8 percent of their disposable income on interest on consumer debt, installment buying, mortgages, and so forth. Today, it’s almost one-fourth of their total earnings. State and local government in the last 15 years has gone from $70 billion to $220 billion. The total private and public debt is growing four times as fast as the output of goods and services.

Again, there is something we can do. Congressman Jack Kemp (R-N.Y.) has a bill before the Congress designed to increase productivity and to create jobs for people. Over a three-year period, it calls for reducing the income tax for all of us by a full one-third. And also it would reduce the corporate tax from 48 to 45 percent. The base income tax would no longer be 20 percent but 14 percent, and the ceiling would be 50 percent instead of 70 percent. Finally, it would double the exemption for smaller businesses before they get into the surtax bracket. It would do all of the things that we need to provide investment capital, increase productivity, and create jobs.

We can say this with assurance, because it has been done twice before: in the ’20’s under Harding and Coolidge and again in the ’60’s under John F. Kennedy. In the ’60’s the stimulant to the economy was so immediate that even government’s revenues increased because of the broadening base of the economy. Kemp’s bill is gaining support but unfortunately the majority in Congress is concerned with further restrictions on our freedom.

To win this battle against Big Government, we must communicate with each other. We must support the doctor in his fight against socialized medicine, the oil industry in its fight against crippling controls and repressive taxes, and the farmer, who hurts more than most because of government harassment and rule-changing in the middle of the game. All of these issues concern each one of us, regardless of what our trade or profession may be. Corporate America must begin to realize that it has allies in the independent business men and women, the shopkeepers, the craftsmen, the farmers, and the professions. All these men and women are organized in a great variety of ways, but right now we only talk in our own organizations about our own problems. What we need is a liaison between these organizations to realize how much strength we as a people still have if we’ll use that strength.

In regard to the oil industry, is there anyone who isn’t concerned with the energy problem? Government caused that problem while we all stood by unaware that we were involved. Unnecessary regulations and prices and imposed price limits back in the ’50’s are the direct cause of today’s crisis. Our crisis isn’t because of a shortage of fuel; it’s a surplus of government. Now we have a new agency of enormous power, with 20,000 employees and a $10.5 billion budget. That’s more than the gross earnings of the top seven oil companies in the United States. The creation of the Department of Energy is nothing more than a first step towards nationalization of the oil industry.

While I believe no one should waste a natural resource, the conservationists act as if we have found all the oil and gas there is to be found in this continent, if not the world. Do you know that 57 years ago our government told us we only had enough for 15 years? Nineteen years went by and they told us we only had enough left for 13 more years, and we’ve done a lot of driving since then and we’ll do a lot more if government will do one simple thing: get out of the way and let the incentives of the marketplace urge the industry out to find the sources of energy this country needs.

We’ve had enough of sideline kibitzers telling us the system they themselves have disrupted with their social tinkering can be improved or saved if we’ll only have more of that tinkering or even government planning and management. They play fast and loose with a system that for 200 years made us the light of the world. The refuge for people all over the world who just yearn to breathe free. It’s time we recognized that the system, no matter what our problems are, has never failed us once. Every time we have failed the system, usually by lacking faith in it, usually by saying we have to change and do something else. A Supreme Court Justice has said the time has come, is indeed long overdue, for the wisdom, ingenuity, and resources of American business to be marshalled against those who would destroy it.

What specifically should be done? The first essential for the businessman is to confront the problem as a primary responsibility of corporate management. It has been said that history is the patter of silken slippers descending the stairs and the thunder of hobnail boots coming up. Back through the years we have seen people fleeing the thunder of those boots to seek refuge in this land. Now too many of them have seen the signs, signs that were ignored in their homeland before the end came, appearing here. They wonder if they’ll have to flee again, but they know there is no place to run to. Will we, before it is too late, use the vitality and the magic of the marketplace to save this way of life, or will we one day face our children, and our children’s children when they ask us where we were and what we were doing on the day that freedom was lost?

The Big Question for Tories (and Republicans): What’s the Alternative to “Free-Market Fundamentalism”?

October 15, 2022 by Dan Mitchell @ International Liberty

Because of her support for lower tax rates, I was excited when Liz Truss became Prime Minister of the United Kingdom.

 

Especially since her predecessor, Boris Johnson, turned out to be an empty-suit populist who supported higher taxes and a bigger burden of government spending.

But I’m not excited anymore.

Indeed, it’s more accurate to say that I’m despondent since the Prime Minister is abandoning (or is being pressured to abandon) key parts of her pro-growth agenda.

For details, check out this Bloomberg report, written by Julian Harris, about the (rapidly disappearing) tax-cutting agenda of the new British Prime Minister.

Westminster’s most hard-line advocates of free markets and lower taxes are looking on in despair as their agenda crumbles… When Liz Truss became prime minister just over five weeks ago, she promised to deliver a radical set of policies rooted in laissez-faire economics — an attempt to boost the UK‘s sluggish rate of growth.

Yet her chancellor of the exchequer, Kwasi Kwarteng, faced a quick reality check when his mini-budget, packed with unfunded tax cuts and unaccompanied by independent forecasts, …triggered mayhem…

Truss fired Kwarteng and replaced him with Jeremy Hunt as she was forced into a dramatic u-turn over her tax plans. …Truss conceded…and dropped her plan to freeze corporation tax. …Still, some believers are sticking by “Trussonomics”…Patrick Minford,..a professor at Cardiff University, said..

“Liz Truss’s policies for growth are absolutely right, and to be thrown off them by a bit of market turbulence is insane.” …Eamonn Butler, co-founder of the Adam Smith Institute, similarly insisted that Truss “is not the source of the problem — she’s trying to cure the problem.”

Eamonn is right.

The United Kingdom faces serious economic challenges. But the problems are the result of bad government policies that already exist rather than the possibility of some future tax cuts.

In a column for the Telegraph, Allister Heath says the U.K.’s central bank deserves a big chunk of the blame.

Liz Truss and Kwasi Kwarteng have been doubly unlucky. While almost everybody else in Britain remained in denial, they correctly identified this absurd game for the con-trick that it truly was, warned that it was about to implode and pledged to replace it with a more honest system.

Instead of a zombie economy based on rising asset prices and fake, debt-fuelled growth, their mission was to encourage Britain to produce more real goods and services, to work harder and invest more by reforming taxes and regulation. What happened next is dispiriting in the extreme. …

Truss and her Chancellor moved too quickly and, paradoxically, given their warnings about the rottenness of the system, ended up pulling out the last block from the Jenga tower, sending all of the pieces tumbling down. …they didn’t crash the economy – it was about to come tumbling down anyway – but they had the misfortune of precipitating and accelerating the day of reckoning. …

Andrew Bailey, the Governor of the Bank of England…, has been deeply unimpressive in all of this, helping to keep interest rates too low… The idea, now accepted so widely, that the price of money must be kept extremely low and quantitative easing deployed at every opportunity has undermined every aspect of the economy and society. …Too few people realise how terribly the easy money, high tax, high regulation orthodoxy has failed.

Allister closes with some speculation about possible alternatives. If the Tories in the U.K. decide to reject so-called “free-market fundamentalism,” what’s their alternative?

He thinks the Labour Party will take control, and with very bad results. Jeremy Corbyn will not be in charge, but his economic policies will get enacted.

If Truss is destroyed, the alternative won’t even be social democracy: it will be Labour, the hard Left, the full gamut of punitive taxation, including of wealth and housing, and even more spending, culminating rapidly in economic oblivion.

That is an awful scenario. Basically turning the United Kingdom into Greece.

I want to take a different approach, though, and contemplate what will happen if the Conservative Party rejects the Truss approach and embraces big-government conservatism.

Here are some questions I’d like them to answer:

• Do you want improved competitiveness and more economic growth?
• If you want more growth, which of your spending increases will lead to those outcomes?
• Which of your tax increases will lead to more competitiveness or more prosperity?
• Will you reform benefit programs to avert built-in spending increases caused by an aging population?
• If you won’t reform entitlements, which taxes will you increase to keep debt under control?
• If you don’t plan major tax increases, do you think the economy can absorb endless debt?

I’m asking these questions for two reasons. First, there are no good answers and I’d like to shame big-government Tories into doing the right thing.

Second, these questions are also very relevant in the United States. Even since the Reagan years, opponents of libertarian economic policies have flitted from one trendy idea to another (national conservatism, compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, reform conservatism, etc).

 

To be fair, they usually don’t try to claim their dirigiste policies will produce higher living standards. Instead, they blindly assert that it will be easier to win elections if Republicans abandon Reaganism.

So I’ll close by observing that Ronald Reagan won two landslide elections and his legacy was strong enough that voters then elected another Republican (the same can’t be said for big-government GOPers like Nixon, Bush, Bush, or Trump).

Switching back to the United Kingdom, Margaret Thatcher repeatedly won election and her legacy was strong enough that voters then elected another Conservative.

The bottom line is that good policy can lead to good political outcomes, whereas bad policy generally leads to bad political outcomes.

P.S. To be sure, there were times when Reagan’s poll numbers were very bad. And the same is true for Thatcher. But because they pursued good policies, economic growth returned and they reaped political benefits. Sadly, it appears that Truss won’t have a chance to adopt good policy, so we will never know if she also would have benefited from a similar economic renaissance.