Interest rates of 21 percent. Inflation rate 12.5 percent. Consumer Price Index rising 13 percent annually. Unemployment rate 7.5 percent. Top personal tax rate of 70 percent. Government spending constituted 43 percent of total spending.
Does this sound familiar? It should. This was the economy President Reagan inherited from President Carter in 1981.
Ronald Reagan took the reins of government and immediately set forth his Program for Economic Recovery with four major policy objectives: 1) reduce the growth of government spending; 2) reduce the marginal tax rates on income from both labor and capital; 3) reduce government regulation of business; and 4) reduce inflation by controlling the growth of the money supply. In short, Reagan’s plan was to reduce the size and scope of government so that private enterprise could flourish and thereby solve the nation’s economic woes.
Reagan’s economic policy became known as “Reaganomics” and was the biggest change in U.S. economic policy since the New Deal. “Only by reducing the growth of government can we increase the growth of the economy,” Reagan explained. The maximum personal tax rate was cut from 70 percent to 50 percent and further cut to 28 percent in 1986. Across the board, federal income taxes were reduced by 25 percent.
And it worked! By 1988 the unemployment rate had dropped to 5.5 percent, interest rates had been cut to between 6 and 8 percent, and the inflation rate was reduced to between 2 and 3 percent. Government’s share of total spending was cut to 40 percent. President Reagan presided over the longest period of peacetime economic growth in American history, and he left the nation in far better economic condition than he found it.
Like President Reagan, Obama inherited an economic crisis from his predecessor. During the first six years of President Bush’s administration, we saw relative prosperity, but the economy began a downward spiral in 2007. Still, economic conditions when Obama took office were not nearly as bad as in 1980; the January 2009 prime interest rate was 3.25 percent, the unemployment rate was 7.6 percent, and the annual inflation rate was approximately zero. Total federal spending in 2008 was $2.979 trillion, and the top personal tax rate was 35 percent.
However, Obama’s proposed solution to America’s economic problems is the polar opposite of Reagan’s. While Reagan sought to reduce the size and scope of government, decrease taxes and regulations that chained the private sector, and allow the private sector to flourish, Obama’s solution is to dramatically increase federal spending by stimulus packages in excess of $3 trillion dollars (so far), thereby injecting the federal government into the economy at a scale that dwarfs anything previous. And with increased federal aid comes increased control by the federal government over banks, the auto industry, medicine, education and other areas of the economy too numerous to mention.
Ignoring the lessons of our history, Obama’s economic policies of big government, enlarged federal control over our lives and eventually, as even he predicts, increased taxation has garnered a name of its own – “Obamanomics.” Obamanomics is simply the philosophy of socialism, loosely defined as “collective or governmental ownership and administration of the means of production or distribution of goods.” Nations that embrace socialism inevitably experience stagnation and economic decline.
Socialism is contrary to the laws of God concerning private property and liberty of contract, and also contrary to the basic laws of human nature, which teach us over and over that unless people have an incentive to work hard and be productive, they will become lazy and live off the production of others. Adam Smith, the Scottish economist whose “Wealth of Nations” (1776) was eagerly read by America’s Founding Fathers, spoke of the “Invisible Hand” that guides the economic affairs of all nations by the laws of nature: principles of private property, liberty of contract, supply and demand, and others. Reflecting those principles, Patrick Henry declared:
“Fetter not commerce, sir; let her be as free as air; she will range the whole creation, and return on the wings of the four winds of heaven, to bless the land with plenty.
These time-tested laws of economics will not fail us if we apply them today. And why should we think that we can ignore or violate these laws without reaping disastrous consequences?
America should heed a warning that came to us in January 2009, from an unusual source in the former Soviet Union, who stated:
In the 20th century, the Soviet Union made the state’s role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated. …
Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.
Who is this wise sage? None other than Vladimir Putin, former president and current prime minister of Russia. Coming as it does from a former Communist and KGB official who leads one of our chief adversaries, Putin’s words of warning deserve our attention and careful consideration.