Reagan's Economic Policy Legacy
Byline: Jeffrey A. Eisenach and James C. Miller III, SPECIAL TO THE WASHINGTON TIMES
The history of 20th-century economic policymaking is marked by two watershed presidencies: those of Franklin Delano Roosevelt and Ronald Wilson Reagan. By "watershed," we mean those presidencies changed forever the way we think about the role of the federal government.
President Roosevelt taught us free markets often contain imperfections that need to be addressed. His were primarily the "macro" concerns of high unemployment, deflation and income distribution. But he also felt regulation and government-orchestrated "cooperation" within industry was needed to a theretofore unprecedented extent.
President Reagan taught us that while free markets aren't perfect, neither is government. In fact, government often presents serious and debilitating imperfections. As he often said, "Government isn't the solution to our problems; government is the problem." Like Roosevelt, Reagan saw these imperfections as having both macro and micro effects.
Both presidents faced historic economic crises. Roosevelt's crisis was defined by unemployment lines and deflation; Reagan's by gasoline lines and "stagflation."
Both men were eternal optimists. President Roosevelt's line, "We have nothing to fear but fear itself," set the tone for his administration. President Reagan's constant invocation of the "shining city on a hill," and "ain't seen nothing yet" mark his approach. Moreover, throughout their careers, both were willing to compromise - on outcomes, not principles - because of confidence they would prevail in the end. For example, in negotiating with Congress, President Reagan would often get much less than he asked for, but he would take half a loaf, thank Congress, and then plan to get the rest the next year.
President Roosevelt's economic policies were primarily about redistribution. President Reagan's were primarily about making the pie grow larger. In fairness, Roosevelt tried hard to get the economy growing again, but the state of economic learning - at least on the part of the most influential policymakers - was rather primitive, and we know in retrospect his policies had little positive effect on gross economic activity. President Reagan's policies were geared to growth, and in these he was exceedingly successful.
How did Reagan make the pie grow larger? First, he recognized the importance of the "supply side" of government policies. Until Reagan, most attention had been on the "demand side" of government policies - how to regulate aggregate demand to maintain full employment without generating inflation.
First, said Reagan, get the basics right: respect legal institutions and maintain a stable medium of exchange. …