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With Ronald Reagan Rowing, America Rode A Capital Wave
by TexasBlue Sun Sep 12, 2010 12:47 pm
With Ronald Reagan Rowing, America Rode A Capital Wave
Paul Whitfield
Investor's Business Daily
Sept. 3, 2010
As President Ronald Reagan finished his second term, the New York Times wrote a Jan. 1, 1989, editorial headlined, "Will Reagan's Luck Outlast Reagan?"
The editorial argued that Reagan was "a lazy and inattentive man, sometimes dreamily disengaged from reality." But the article conceded that inflation fell from 13% to 4% under his watch and that "six straight years of recovery and expansion" cut unemployment to 5.3%.
On foreign policy, the Times sniffed that "much of what he accomplished abroad might not have been possible without the emergence of Mikhail Gorbachev."
Reagan's success was mostly luck, according to the Times.
The luck theory wasn't new. In 1985, Michael Mandelbaum, then editorial director of the Lehrman Institute, wrote in Foreign Affairs that America's standing in the world "has largely improved since 1981." He added that Reagan's first term saw the U.S. "averting geopolitical setbacks." Plus, Reagan had "no Vietnam or Iran" under his watch.
How did the president do it?
"Reagan has been a lucky president," Mandelbaum wrote.
Not everybody characterizes Reagan's legacy as luck.
Reagan's Keys
* His tax cuts helped unleash the free market, leading to 92 consecutive months of economic growth.
* On foreign policy, his sense of restraint kept the U.S. out of no-win wars.
His tax cuts helped ignite a strong and lasting economic rebound.
He kept the U.S. out of no-win military conflicts.
And he openly sided with forces that led to Soviet communism's fall.
His presidency, though, did begin with what looked like a stroke of luck. As Reagan (1911-2004) was being sworn into office in January 1981, Iran released 52 hostages it had held in violation of international law for 444 days.
During the campaign, Reagan didn't criticize President Carter on Iran. "He just gave the impression that he wouldn't stand for it," Lawrence Korb, assistant secretary of defense from 1981 to '85, told IBD.
After the election in November 1980, the Carter administration told the Iranians they weren't going to get a better deal from Reagan.
The Iranians knew that Reagan was no Jimmy Carter. The Secret Service's code name for the new president said it all: Rawhide. The code name for Carter was Deacon.
So did Iran want to deal with Rawhide or Deacon?
Iran released the hostages.
With Reagan off to that fast start, good things followed, but not without work and patience. The economy was a wreck. A month before Reagan's inauguration, the prime interest rate hit 21.5%. Inflation was 13%. The jobless rate was 7.2%.
Solution: Less Government
His hands-off stance on the economy let the free market do what it does best — grow and innovate.
Reagan's aggressive tax cuts in 1981 sent a signal to Wall Street and to entrepreneurs that his administration didn't see capitalism as something that needed to be restrained. It needed to be unleashed.
In an interview with IBD, Daniel Mitchell, an economist and senior fellow at the libertarian Cato Institute, said "the Reagan tax cuts were very successful."
The impact went beyond America. "Reagan triggered a global shift to lower tax rates," Mitchell said. Countries saw that what the U.S. was doing worked and copied the policies.
Mitchell added that tax cuts alone don't cause booms, and that tax increases alone don't cause recessions. But they do affect the slope of the curve.
Reagan didn't get everything he wanted to improve that slope. Dealing with Congress, he engaged in budgetary horse trading that eventually erased half of the 1981 tax cuts.
But few presidents can point to a better economic trajectory.
Critics initially derided Reagan's policies as "trickle-down economics" that would help only the rich. But Reagan believed the invisible hand of the free market was more efficient in picking winners and losers than government officials would be.
In a way, Reagan was junking the Great Society's trickle-down redistribution — the idea that government could grab wealth through taxation and direct the trickle to the most deserving people.
Reagan replaced that fatal conceit with the efficiency of the market.
In November 1982, 10 months after passage of the Reagan tax cuts, the first of 92 months of economic expansion began. The stock market was climbing. During Reagan's eight years, the S&P 500 increased by about 120%. By June 1988, unemployment had hit a 14-year low.
Meanwhile, Reagan's greatest accomplishment in foreign policy was avoiding military messes and correcting mistakes promptly.
Reagan's approach was similar to President Eisenhower's posture.
"If you look at Eisenhower, he got us out of Korea in six months and he didn't get us into Vietnam," said Korb, who nowadays is a senior fellow at the Center for American Progress. The French asked for U.S. help in Indochina. Ike refused.
Reagan faced similar pressure. Neoconservatives pushed for him to police the world. In September 1983, Reagan sent U.S. troops into Lebanon as part of a multinational force to protect refugees who were being massacred.
Defense Secretary Caspar Weinberger had argued against the deployment. "The military was not happy because the mission was not clear," Korb said.
Other aides convinced Reagan that this was a good idea.
Then came disaster.
In October 1983, two truck-bomb attacks on a compound at Beirut International Airport left 241 U.S. troops dead.
"I begged the president at least to pull them back and put them back on their transports as a more defensible position," Weinberger said of the troops in a 2002 interview for the University of Virginia's oral history program.
Some in the administration called for even more troops in Lebanon.
Reagan convened a commission to study the bombing. The report criticized the administration. The president responded by accepting responsibility and the need to act.
He redeployed the troops to ships in the Mediterranean Sea.
Reagan knew he would get heat for the decision. But he also knew the critics were dead wrong.
"If we had stayed in Lebanon, we'd still be there," Korb said.
Conservatism to Reagan meant limited government, and that meant not overreaching in foreign affairs.
"At the time, many attacked Reagan for 'cutting and running,' but Reagan's decision saved the United States from becoming further entangled in a raging civil and regional war," Korb and Max Bergmann wrote in a 2006 article for the Center for American Progress.
The Long View
Like a wise investor, Reagan understood that sometimes you have to cut your losses rather than let them turn into greater losses because of your inability to admit a mistake. (that's something our current occupant should embrace - Tex)
Later in Reagan's administration, some advisers urged him to commit U.S. troops to Nicaragua. "He wouldn't do it," Korb said.
When Reagan deployed U.S. troops, he insisted that the mission be clear and achievable, such as the Grenada invasion in October 1983.
On the Cold War front, Reagan agreed to negotiate an arms deal with Gorbachev.
Even then, some bashed the move. One newspaper, the Orange Country Register, editorialized in September 1988 that "Ronald Reagan has become the Neville Chamberlain of the 1980s."
But in the end, Reagan won. The Berlin Wall and Soviet Union crumbled soon after he left office. Today his critics look more than unlucky — they look silly. His presidency was a success. He left the country better off than it was before he came.
Paul Whitfield
Investor's Business Daily
Sept. 3, 2010
As President Ronald Reagan finished his second term, the New York Times wrote a Jan. 1, 1989, editorial headlined, "Will Reagan's Luck Outlast Reagan?"
The editorial argued that Reagan was "a lazy and inattentive man, sometimes dreamily disengaged from reality." But the article conceded that inflation fell from 13% to 4% under his watch and that "six straight years of recovery and expansion" cut unemployment to 5.3%.
On foreign policy, the Times sniffed that "much of what he accomplished abroad might not have been possible without the emergence of Mikhail Gorbachev."
Reagan's success was mostly luck, according to the Times.
The luck theory wasn't new. In 1985, Michael Mandelbaum, then editorial director of the Lehrman Institute, wrote in Foreign Affairs that America's standing in the world "has largely improved since 1981." He added that Reagan's first term saw the U.S. "averting geopolitical setbacks." Plus, Reagan had "no Vietnam or Iran" under his watch.
How did the president do it?
"Reagan has been a lucky president," Mandelbaum wrote.
Not everybody characterizes Reagan's legacy as luck.
Reagan's Keys
* His tax cuts helped unleash the free market, leading to 92 consecutive months of economic growth.
* On foreign policy, his sense of restraint kept the U.S. out of no-win wars.
His tax cuts helped ignite a strong and lasting economic rebound.
He kept the U.S. out of no-win military conflicts.
And he openly sided with forces that led to Soviet communism's fall.
His presidency, though, did begin with what looked like a stroke of luck. As Reagan (1911-2004) was being sworn into office in January 1981, Iran released 52 hostages it had held in violation of international law for 444 days.
During the campaign, Reagan didn't criticize President Carter on Iran. "He just gave the impression that he wouldn't stand for it," Lawrence Korb, assistant secretary of defense from 1981 to '85, told IBD.
After the election in November 1980, the Carter administration told the Iranians they weren't going to get a better deal from Reagan.
The Iranians knew that Reagan was no Jimmy Carter. The Secret Service's code name for the new president said it all: Rawhide. The code name for Carter was Deacon.
So did Iran want to deal with Rawhide or Deacon?
Iran released the hostages.
With Reagan off to that fast start, good things followed, but not without work and patience. The economy was a wreck. A month before Reagan's inauguration, the prime interest rate hit 21.5%. Inflation was 13%. The jobless rate was 7.2%.
Solution: Less Government
His hands-off stance on the economy let the free market do what it does best — grow and innovate.
Reagan's aggressive tax cuts in 1981 sent a signal to Wall Street and to entrepreneurs that his administration didn't see capitalism as something that needed to be restrained. It needed to be unleashed.
In an interview with IBD, Daniel Mitchell, an economist and senior fellow at the libertarian Cato Institute, said "the Reagan tax cuts were very successful."
The impact went beyond America. "Reagan triggered a global shift to lower tax rates," Mitchell said. Countries saw that what the U.S. was doing worked and copied the policies.
Mitchell added that tax cuts alone don't cause booms, and that tax increases alone don't cause recessions. But they do affect the slope of the curve.
Reagan didn't get everything he wanted to improve that slope. Dealing with Congress, he engaged in budgetary horse trading that eventually erased half of the 1981 tax cuts.
But few presidents can point to a better economic trajectory.
Critics initially derided Reagan's policies as "trickle-down economics" that would help only the rich. But Reagan believed the invisible hand of the free market was more efficient in picking winners and losers than government officials would be.
In a way, Reagan was junking the Great Society's trickle-down redistribution — the idea that government could grab wealth through taxation and direct the trickle to the most deserving people.
Reagan replaced that fatal conceit with the efficiency of the market.
In November 1982, 10 months after passage of the Reagan tax cuts, the first of 92 months of economic expansion began. The stock market was climbing. During Reagan's eight years, the S&P 500 increased by about 120%. By June 1988, unemployment had hit a 14-year low.
Meanwhile, Reagan's greatest accomplishment in foreign policy was avoiding military messes and correcting mistakes promptly.
Reagan's approach was similar to President Eisenhower's posture.
"If you look at Eisenhower, he got us out of Korea in six months and he didn't get us into Vietnam," said Korb, who nowadays is a senior fellow at the Center for American Progress. The French asked for U.S. help in Indochina. Ike refused.
Reagan faced similar pressure. Neoconservatives pushed for him to police the world. In September 1983, Reagan sent U.S. troops into Lebanon as part of a multinational force to protect refugees who were being massacred.
Defense Secretary Caspar Weinberger had argued against the deployment. "The military was not happy because the mission was not clear," Korb said.
Other aides convinced Reagan that this was a good idea.
Then came disaster.
In October 1983, two truck-bomb attacks on a compound at Beirut International Airport left 241 U.S. troops dead.
"I begged the president at least to pull them back and put them back on their transports as a more defensible position," Weinberger said of the troops in a 2002 interview for the University of Virginia's oral history program.
Some in the administration called for even more troops in Lebanon.
Reagan convened a commission to study the bombing. The report criticized the administration. The president responded by accepting responsibility and the need to act.
He redeployed the troops to ships in the Mediterranean Sea.
Reagan knew he would get heat for the decision. But he also knew the critics were dead wrong.
"If we had stayed in Lebanon, we'd still be there," Korb said.
Conservatism to Reagan meant limited government, and that meant not overreaching in foreign affairs.
"At the time, many attacked Reagan for 'cutting and running,' but Reagan's decision saved the United States from becoming further entangled in a raging civil and regional war," Korb and Max Bergmann wrote in a 2006 article for the Center for American Progress.
The Long View
Like a wise investor, Reagan understood that sometimes you have to cut your losses rather than let them turn into greater losses because of your inability to admit a mistake. (that's something our current occupant should embrace - Tex)
Later in Reagan's administration, some advisers urged him to commit U.S. troops to Nicaragua. "He wouldn't do it," Korb said.
When Reagan deployed U.S. troops, he insisted that the mission be clear and achievable, such as the Grenada invasion in October 1983.
On the Cold War front, Reagan agreed to negotiate an arms deal with Gorbachev.
Even then, some bashed the move. One newspaper, the Orange Country Register, editorialized in September 1988 that "Ronald Reagan has become the Neville Chamberlain of the 1980s."
But in the end, Reagan won. The Berlin Wall and Soviet Union crumbled soon after he left office. Today his critics look more than unlucky — they look silly. His presidency was a success. He left the country better off than it was before he came.
TexasBlue
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