Will a tax cut help?

In 1980 Ronald Reagan suggested a tax cut could help the US boost growth. It was called Reaganomics. The Democrats called Ronald Reagan an idiot actor. They derided him as senile. They made jokes about him.

He won of course. He got some resistance for his tax cut but ultimately was able to get it passed. The economy went on a massive growth spree. The deficit climbed as well.

Over the next 7 years the economy soared beyond anybodies expectations. Trump got 2.6% GDP growth last quarter, the highest in nearly 10 years. and Trump is projecting we will crack 3% growth but in Reagan’s first term there were quarters where growth was 7.5%! We were growing as fast as some third world countries. Unemployment and participation rates reached new levels not seen.

In 1980 the US, this kind of growth was not expected. We were suffering from economic malaise of massive proportions. This made Reagan’s assurances that the US could be the shining city on the mountain seem insane. Nobody but Reagan seemed to believe that anything great would happen. The US had seen 10 years of slow growth with inflation at 10%, interest rates approaching 14% and unemployment was surging to new highs also approaching double digits. Jimmy Carter argued we needed to put sweaters on to keep warm in the winter not tax cuts. Frankly, the best days of America seemed to be over.

Who could possibly believe this wacky westerns actor would revitalize the US, and defeat the Soviet Union? Certainly not the Democrats. They were complaining accusing and attacking Reagan as irresponsible, incompetent. That he was falling asleep in cabinet meetings. That he would lapse into embarrassing stories from his western days.

But amazingly Reagan would give these incredible speeches that proved to be inspirational. Every single word not much different than how right the founders who wrote the US constitution were. He seemed to be channeling them.

Reagan was reelected with a 49 state victory that is one of the biggest wins by any president in US history.

The World copied

This growth sudden change of fortunes of the US eventually caught the attention of the world. Mexico had 1/3 of its population move to the US. El Salvador has had 25% of its population move to the US. Most of these were illegal immigrants but with such high growth rates nobody cared.

In retrospect if Mexico and El Salvador had copied US policies more like other countries they would have been much better off than expunging 30% of their populations. But these countries instead chose the “beggar” mindset and were happy to send their workers to America instead of challenging the status quo and instead of trying to be different they decided living off stipends of people who worked illegally in the US doing grunt work.

Virtually every country in the world decided to copy the US model. Even socialist counties did so such as Sweden and Finland. Russia threw in the towel.

Ireland the poorest country in Europe and perennially for 500 years the complainer they were the underdog oppressed nation adopted Reagan policies on steroids. In 12 years Ireland became the richest country in Europe! From the poorest. I don’t think the Irish accepted they had changed fortunes so rapidly and so much. They still complained for years.

In 1999 when Hong Kong had to be given back to China the big question was would China force the ultra capitalist state of Hong Kong to accept the communist system of its new owner. China surprised the world. It had also learned a lesson from Ronald Reagan. They copied Hong Kong to other parts of China. The result has been a consistent 10% growth rate in China for 15 years in a row practically.

For 500 years China had gone from one of the richest countries in the world to the poorest. Suddenly in 15 years China was back.

1 billion people lifted from poverty in China. The breakup of dictatorships and the massive growth of wealth across America in all classes and races reduced social frictions in the US. The crime rate over 25 years plunged from 1970s war zones to the lowest rates in a century.

Even the democrats decided to change. Bill Clinton abandoned unions and embraced free trade changing a century of Democrat policy. He continued Reagan policies.

The Obama Plan

When Obama came in we were faced with a recession. He continued the policies of Bush to keep the financial system from collapsing but Obama refused to do a tax cut. He raised taxes as Democrat economists argued was better. This is what Carter would have done.

The result has been the slowest recovery from a recession since the Great Depression. This was predictable because Obama refused to do what was necessary to boost the US economy by helping business. He hated business and instead he did what every Democrat has wanted to do. He imposed regulations, he raised taxes and he created lots of government jobs.

I knew this would be bad. An incredible number of people had been put out of work by the recession. At least 12 million people lost their jobs over a couple years. Obama was growing the economy barely. It would take decades at the rate Obama grew it to get everybody back to work and all the new immigrants and children jobs. You didn’t have to be a math genius to see the numbers wouldn’t add up. We simply weren’t growing fast enough to put the economy back to work.

Over the next 8 years the Democrat run economy produced less than 2% annually. It was consistent growth but it was not fast enough. People fell off the unemployment rolls and moved to something called the non-participating. This non-participating Americans rose 4% meaning those people were considered permanently unemployed. Every month the Democrats were showing more employment but it turned out a lot of these jobs were part time and temp jobs or simply people falling off the counting system and moving to permanently unemployed.

Pay was going down. American middle class was being crushed. It was not a concern of Democrats or Obama. He was concerned with climate change and how racist American white cops were. The death tate of white cops tripled. In the meantime the homicide rate in america climbed by 30% in these last 2 years as cops relaxed engagement rules. Almost everyone killed was blacks. Nobody on the Democrat side even seemed to notice. The press didn’t seem to think it was a problem. The main stream media was happy we had a black President.

Black unemployment in cities remained at 19%. They were dying by the thousands more from increased homicide but democrats didn’t care. Obama said the problem was that white cops needed to admit they were racist. Hillary said white cops could do better.

The difference between the Obama recovery and the Reagan recovery or the bush recovery was stunning.

Here is the cumulative GDP growth

If you read the second graph you’ll notice that 6 years after the recession Obama’s percentage of the US population employed was unchanged from the end of the recession. In other words we had not really brought those workers back into the work force. The job growth had barely been able to keep up with new entrants to the work force. The people who lost their jobs in 2008 were on the whole not able to regain their jobs.

This is stunning if you think about it because after recessions we usually boomed back pretty fast before. The Democrats economists are monetarist and they believed that simply keeping the interest rates low and printing money was good enough to get the economy going. The private sector didn’t have anything to do it. They would respond like mathematical equations to their money manipulation techniques. If the private sector didn’t do that well, well that is okay because they are all rich money grabbers anyway, right?

This kind of “loser” thinking and Democratic economics I knew would never work. The fact it didn’t work wasn’t surprising. I knew why the Reagan revolution worked and it depended on giving a larger share of the economy to the private sector not the government.

What is the difference of 14% in growth? Enormous, not just abstractly or because of more goodies under the Christmas tree. It means many many millions of jobs for people who now can support their family better, it means hope to millions of millions of people who were ignored by Obama.

Some will argue the Bush recession was more severe than the Carter recession that Reagan was handed.

You had to be there. In 1980 the US felt hopeless. We didn’t seem to be able to grow. Out economy seemed to have unbreakable high inflation. There was a sense of hopelessness that was palatable. Reagan called it the misery index. Add these horrible numbers and the US was being dominated by Middle East countries let alone Russia.

If you have read this narrative you have seen an incredible repeat of history. We are literally 36 years from the Ronald Reagan revolution and we faced an election amazingly reminiscent of the election 36 years ago. The people picked a candidate that at first seemed unqualified crazy and with ideas that couldn’t possibly work we were told.

It is unfortunate that so few people remember the lessons of 36 years ago.

Republicans believe in tax cuts because they give more money to the private sector. Democrats don’t because they hate and distrust the private sector.

For those that subscribe to that bogus idea I strongly ask you to read my article titled “the capitalism faq.” This article explains why we have no choice. We have to believe in our private sector. The private sector is the only place we can get sustainable growth and good jobs. It is the only way to boost our middle class and to improve our standard of living. Government cannot do this. Government jobs and regulations are not sustainable.

A big criticism of Reagans recovery is that he grew our debt substantially. However, after 25% growth and further high growth over decades more the US had eliminated its debt problems. In other words high growth made the debt seem like nothing.

Obama by comparison has raised our debt by 10 trillion doubling it and bringing the us to the highest debt since WWII. But we don’t have high growth. We aren’t growing our way out of debt. This debt is permanent debt that without high growth represents a massive threat to the future of America and its people.

This debt is a serious problem because if interest rates go up again the US treasury will be forced to print massive amounts of money and go into more debt to pay the interest. All the money we seem to have now for healthcare and social programs will disappear and we will be in terrible shape. All that needs to happen is for interest rates to rise to 4 or 5% for several years and the debt burden of the US will become crushing. We are in a precarious position that is worse than before this recession. We are NOT better off. We have been treading water.

Do we need the tax cuts?


In the meantime so many people have suffered in the US!

Millions and millions of people have suffered because we haven’t grown this economy fast enough to recover the jobs lost and to fill the jobs of new immigrants and people reaching age to join the labor force. We have been stuck in a fairy land where there are all kinds of things more important than providing jobs for Americans. We have let the American economy and people become more and more hopeless and dependent.

As far as I’m concerned Trump hcan tweet whatever the F he wants as long as he gets the tax cuts in. He can change his staff as many times as he wants. Yes we need the tax cuts.

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