Applied Republican Economic Theory

I was a strong supporter of Ronald Reagan in the 1980 election. I promoted his supply side economic message (Reaganomics) especially aggressively. I made speeches to anyone who would listen about its absolute brilliance. I presented “proof” that demonstrated graphically how reducing taxes on the wealthy and corporations, combined with free international trade, would unleash previously unimaginable economic growth. That in turn would raise the living standards of the middle class and bring in substantially more federal revenue than the higher tax rates then in effect. I could not even imagine how anyone could not see the wisdom of what Reagan was proposing.

Then he won the election and with support of Congress implemented “Reaganomics”. Confident as I had been before the election, I was totally astounded by how wrong we all had been about how it would work. It absolutely did spur economic growth just as we knew it would. But the federal revenue never came close to offsetting the loss from the reduced tax rates. Deficits began to explode and tax increases eventually had to be implemented to reduce the disastrous results of the supply side economic experiment. Finally after more than 6 tax rate “adjustments” (increases) by bipartisan initiatives over more than a dozen years the federal budget actually balanced late in the 1990s. I learned from that experience; the Republican Party didn’t.

So with the federal budget finally balanced Republicans took over both the Presidency and the Congress in 2001. That is when I realized the Party had gone completely off the rails when it comes to sound economic policy. President Bush and Republicans immediately took that balanced budget and implemented supply side economic theory again reducing tax rates to spur growth. Of course, predictably this time, deficits exploded just as I remembered from 20 years before. But also economic over-stimulation in the housing market fueled banking irresponsibility which ultimately led to a worldwide recession and the near collapse of the American financial system in 2008.

Obama inherited that mess and with an early Democratic Congress initiated financial recovery, including sequestration, which gradually reduced the annual federal budget deficit over his 8 years in the White House. Throughout his presidency though the Republican legislators who helped create the 2008 financial crisis in the first place attacked him mercilessly for not reducing the annual deficit still faster than his administration’s policies were addressing it.

Fast forward to today:  Since taking office after the previous administration’s effort to reduce deficits, Trump, with support from most of the same Republican Congress members who continuously criticized Obama for deficits, has succeeded in trying supply side economics yet a third time ( though without the free trade element this time). Were they expecting a different result?  And just as we have learned from the two previous experiments it is dramatically exploding the annual deficit again to a trillion dollars a year with apparently no strategy for even addressing it in the future. That annual deficit is now nearly double what it was down to when Obama left office.

As a result of that resurgence in deficit spending and other irresponsible behaviors of the Trump Administration the coming decade will be a severe reckoning for working and middle class Americans regardless of whether Trump or his Democratic opponent is elected in 2020. Current deficit spending is absolutely unsustainable over the long term. Major increases in federal taxes as well as significant reductions in and/or repurposing of expenditures must occur if our democracy is to remain healthy.

Adding more crisis to the mix, some time in the next couple of years a worldwide recession will begin. The seeds for that have already been sown by Trump’s unpredictable behavior on the international stage. The world economy needs a sense of political and economic stability. He has disrupted that to the point that no other country (ally or enemy) knows what to expect from the United States. Unpredictability is not smart as he likes to claim, but utterly stupid, with catastrophic implications for US national security and economic health. It will take a while for his tariff threats, warmongering, and other destabilizing behavior to ripple through the various national economies but it is already too late to stop it. And though the administration and its hired economists here in the States are issuing reassuring statements about US economic health there is a growing number of objective economists who see signs of coming economic decline in the same indicators that I follow.

A final word about national economics:  Our national debt is one of the two or three most critical issues the government must address immediately if we want our democracy to survive intact. Republicans are not even talking about the debt anymore. And Trump is talking about cutting taxes again to improve his chances for re-election. He is already on record saying that he intends to dramatically reduce social spending in his second term. That means Social Security and Medicare. Those social programs are the only two where the budget is large enough that reduction could make a difference in the deficit without raising taxes on the wealthy or substantially cutting military spending.

If Trump wins re-election, which I suspect, baring a major economic downturn in the US, is at least as likely as not, people approaching retirement age will take the hit in SS and Medicare benefits. That will ripple through the economy too and create or deepen any recession. It will also drive every measure of quality of life in America lower than it needs to be.

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