Reaganomics: How’s It Going?

WHEN Ronald Reagan came to Washington, he brought with him a conservative school of economics. This school emphasized, much more thoroughly and systematically than those associated with previous presidents of either party, the advantages of private markets, the disadvantages of government spending and regulation, and the role of private economic incentives in advancing or undermining government policies. As we pass the 25th anniversary of the August 1981 tax cuts, it is appropriate to assess Reagan’s economic record. My scorecard shows two wins, one draw, and two losses.

The first win was monetary policy. In the late 1970s, liberal economists such as James Tobin and Robert Solow argued that monetary policy should aim primarily to achieve low unemployment; this, they said, would inevitably generate some inflation, but we would have to live with it as the price of strong employment. Conservative economists like Milton Friedman and Allan Meltzer argued that monetary policy should aim for price stability; this, they said, would provide the framework for efficient investment and productivity growth, thereby raising employment.

CD

About the Author

Christopher DeMuth Sr.

Mr. DeMuth is a distinguished fellow at the Hudson Institute. He was president of the American Enterprise Institute from 1986 to 2008.

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WHEN Ronald Reagan came to Washington, he brought with him a conservative school of economics. This school emphasized, much more thoroughly and systematically than those associated with previous presidents of either party, the advantages of private markets, the disadvantages of government spending and regulation, and the role of private economic incentives in advancing or undermining government policies. As we pass the 25th anniversary of the August 1981 tax cuts, it is appropriate to assess Reagan’s economic record. My scorecard shows two wins, one draw, and two losses.

The first win was monetary policy. In the late 1970s, liberal economists such as James Tobin and Robert Solow argued that monetary policy should aim primarily to achieve low unemployment; this, they said, would inevitably generate some inflation, but we would have to live with it as the price of strong employment. Conservative economists like Milton Friedman and Allan Meltzer argued that monetary policy should aim for price stability; this, they said, would provide the framework for efficient investment and productivity growth, thereby raising employment.