Ronald Reagan's Economics
By Arnold Kling
High inflation was the result of a dozen years of bad fiscal and monetary policy under two Republicans — Nixon and Ford — and two Democrats — Johnson and Carter — that was brought under control only when Paul Volcker, the Carter-appointed head of the Federal Reserve, jammed interest rates up to national-heart-attack levels and left them there until inflationary expectations were well and truly tamed. Reagan had nothing to do with unemployment and interest rates falling; that was the inevitable result of a drastic monetary tightening finally working its way through the economy.
This is true. Milton Friedman thinks that Reagan deserves credit for supporting Volcker, but in fact Volcker’s position was impregnable.
Jane Galt continues,
To my mind, the single greatest achievement of Reagan’s presidency was tax reform–not marginal rate reduction, but the simplification of the tax code.
Alan Blinder’s book Hard Heads, Soft Hearts, which contains extensive attacks on Reagan-era supply-side economics, also pays homage to the tax reform of 1986, much of which was undone by the Clinton Administration, notwithstanding the fact that Clinton appointed Blinder to some top policy positions.
My personal opinion is that Reagan’s greatest economic policy was the decontrol of oil prices. The left and the media viewed this as madness, sure to exacerbate inflation and knock the stuffing out of the American consumer. Instead, OPEC was soon on its knees. Unlike the typical contemporary politicians, who espouses government intrusion in the name of “energy independence,” President Reagan seems to have understood Oil Econ 101.
For Discussion. To me, supply-side economics means cutting taxes without cutting spending. President Reagan made supply-side economics the staple of the Republican Party. Is this a good thing?