Remember prosperity? Want it back? Here’s the secret formula, which has always worked and would work again: Cut marginal tax rates and restore integrity to the dollar.
Donald Trump campaigned on meaningful marginal tax rate cuts and implying, with his offstage praise of the gold standard , a solid instinct for monetary integrity and how to produce it. One hopes so as it requires both together.
Here’s the brief. Lawrence Kudlow and Brian Domitrovic have just published what deserves to be the most important book of the 2016 presidential election cycle: JFK and the Reagan Revolution: A Secret History of American Prosperity . It provides a solid understanding of the key issue of the 2016 race — the economy.
Reagan made “Supply-Side” famous by campaigning on and then enacted most of the Kemp-Roth 30% across-the-board tax rate cut. But John F. Kennedy was the original Supply-Sider. The book’s Big Reveal: Jack Kemp designed this tax cut as a direct copy of Kennedy’s own.
American memories are short. Most have forgotten the truly lousy economic growth of the 91%-top-tax-rate Eisenhower era (a rate for which Candidate Sanders expressed nostalgia ). Most have forgotten Kennedy’s campaign promise to “get America moving again.” Most have forgotten his initial embrace of the Neo-Keynesian formula of high taxes, “easy” money from the Fed, and big spending infrastructure projects. And the failure of all that.
We forget JFK’s decisive pivot toward big marginal tax rate cuts while defending the dollar as defined by a fixed weight of gold. We only dimly remember the rip-roaring job creation that promptly followed the enactment of Kennedy’s tax rate cut after his assassination.
Sixteen years of economic stagnation have stupefied us as to how the economy inherited by Reagan, in 1981, was worse. Few remember that after the enactment of Reagan’s across-the-board marginal tax rate cuts (lowering the top rate from 70% to 50% and then, with overwhelming bipartisan support, to 28%), another prolonged period of massive job creation and economic growth ensued.
Reagan’s policies were subverted by his successor, President George H.W. Bush. This subversion is also vanished into the mists of history. During their primary campaign Bush had attacked Reagan’s tax-rate-cut promises as “Voodoo Economics.” Somehow the ensuing massive job creation never converted Bush.
Bush’s repudiation of his predecessor’s policies precipitated a recession and he lost his re-election bid. Bush hasn’t changed his mind. Politico reports that “Kathleen Hartington Kennedy Townsend, the former Maryland lieutenant governor and daughter of the late Robert F. Kennedy… posted a picture on her Facebook page shaking hands next to the former president and this caption: ‘The President told me he’s voting for Hillary!!’” Bush’s spokesman did not deny this claim.
Most also have forgotten how President Bill Clinton, after the Republicans took a Congressional majority, pivoted from his own misery-inducing Neo-Keynesian preferred policies to a supply-side policy mix. Regrettably, following Bush’s lead, Clinton also raised the top marginal tax rate.
That said, Clinton also cut the capital gains tax rate, embraced free trade, and mended a morally hazardous welfare system. He was rewarded by rip-roaring job creation and general prosperity. From those millions of new jobs came a federal budget surplus in place of deficits. This resulted in immense popularity.
Many have forgotten, although perhaps not forgiven, President George W. Bush’s abandonment of supply-side economics. That abdication caused a near decade of joblessness and economic misery.
Now do you remember? If not, Kudlow and Domitrovic to the rescue by showing how Supply-Side economics is not, by nature, a partisan thing. Democrats as well as Republicans love job creation. It’s great politics. The only thing that stands between us and greatness isn’t partisanship. It’s dogma.
Amazon rated Kudlow and Domitrovic’s JFK and the Reagan Revolution as the #1 new release in the category of economic history. Santayana taught us that “Those who cannot remember the past are condemned to repeat it.” Skipping this book is to connive at one’s own doom.
Dislike doom? Read this book before election day. Bonus: it spills a lot of secrets or at least forgotten lore. Some of its revelations are game changers.
#NeverTrumpers will be incredulous at the proposition that Trump could be akin to JFK, Reagan, and Bill Clinton. Trump is by disposition very, very different from all three. But it doesn’t much matter.
Peter Drucker, the man who transformed management from craft to art, wrote in The Effective Executive :
Among the effective executives I have known and worked with, there are extroverts and aloof, retiring men, some even morbidly shy. Some are eccentrics, others painfully correct conformists. Some are fat and some are lean. Some are worriers, some are relaxed. Some drink quite heavily, others are total abstainers. Some are men of great charm and warmth, some have no more personality than a frozen mackerel. There are a few men among them who would answer to the popular conception of a “leader.” But equally there are colorless men who could attract no attention in a crowd.
Moreover, among the five elements of effectiveness Drucker inventories we find this:
Effective executives concentrate on the few major areas where superior performance will produce outstanding results. They force themselves to set priorities and stay with their priority decisions. They know that they have no choice but to do first things first—and second things not at all. The alternative is to get nothing done.
Many harbor doubts about Trump, including some elite Republicans. That said, the right policy mix, not the personality, delivers the goods.
This book is also important, in part, because Kudlow has become one of Trump’s most trusted economic policy advisors. This is not an academic work. It’s written right from the center of the political cyclone.
If you buy the policy mix but doubt the man, take into account that Trump has surrounded himself with authentic supply-siders, like Kudlow, and likely will staff his top economic policy shops with these loyalists. Elizabeth Warren recently observed , “personnel is policy.”
This book will help you assess Trump’s personnel as well.
Kudlow writes with first-hand authority. He is a distinguished front lines veteran of the Reagan “Supply-Side” wars as Reagan’s Associate Director for Economics and Planning in the Office of Management and Budget. Domitrovic, a historian, professor, and author of the authoritative history of supply-side economics, Econoclasts , also writes with authority. He is also a regular contributor to Forbes.com.
The bottom line? Government, though airbrushed by the media, is a very sloppy, confusing business. As Herman Wouk perceptively wrote in the first chapter of his novel Inside, Outside, “[T]he longer I’m in Washington the more I realize that most people in this town tend to act with the calm forethought of a beheaded chicken.”
I’ve been in Washington far longer than Wouk’s protagonist and the “calm forethought of a beheaded chicken” observation remains true to this day. While acknowledging the full catastrophe that is politics, let��s keep firmly in mind that underneath all the sound and fury resides the real deal: the policy mix. Yet therein lies the key to prosperity.
I found the most fascinating parts of this book to be those that reveal how prestige economists and elite government officials perennially embrace historically discredited Big Government policies. And the stories of the recurring fights by a vastly outnumbered and Death Starred Supply-Side Rebel Alliance who, against all odds, vanquish the Emperor.
The Rebel Alliance has won, in part, because it was coached and guided by Jedi Grandmasters. The Yoda of this movie, to whom Kudlow and Domitrovic pay tribute, was the Nobel Prize-winning maverick economist Robert Mundell. Mundell, to whom I have attributed the increase in the world GDP from $11T/year to, as of last year, ~$73T/year. While not adjusted for inflation or population growth, that’s a stunning increase.
Prof. Mundell, who I consider worthy of the Nobel Peace Prize, now has been sidelined by health issues. Yet his legacy prescription of low marginal tax rates and high integrity money lives on in the veterans of the Supply-Side wars such as Kudlow and Mundell’s Obi Wan, Arthur Laffer.
The right policy mix, as Kudlow and Domitrovic show, takes us up the stairway to economic Heaven. The wrong mix leads us into economic Hell.
Economists call embracing faith-based thinking “strong priors.” That’s a fancy phrase for dogmatism, and dogma besets the policy elites. The electorate – on the receiving end of policy – typically displays more common sense than does our most distinguished experts.
Elites persist in a faith-based adherence to Neo-Keynesian policies of big spending Big Government, high tax rates, and “easy” money. I’ve said before and it bears repeating: Keynes, who was certainly no Neo-Keynesian, wrote in his General Theory of Unemployment, Interest, and Money (chapter 24, part V):
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
Read JFK and the Reagan Revolution: A Secret History of American Prosperit y. Learn the Secret History of the Supply-Side Rebel Alliance and its never ending battle for economic opportunity and growth. Then, whether you vote Republican, Democrat, Libertarian or Green, demand that whoever gets elected adopt low tax rates and high integrity money policies.
Such policies are not partisan. They inevitably lead to massive job creation and upward income mobility for all.
Originating at Forbes.com