The Left’s Plan: Undoing The ‘Reagan-Gingrich-Bush Legacy’

rgnbdThe upcoming 2016 presidential election is a very big deal.  As the Daily Beast’s Michael Tomasky sums it up — in all its passionate intensity — in Hillary and Liberals: Here’s the Deal.

We haven’t had a liberal Supreme Court majority in this country in 35 years. Such a court would reverse loads of terrible Rehnquist-Roberts era decisions—it would restore voting rights, reverse school re-segregation, revisit the Second Amendment; at the same time it would uphold Roe, defend affirmative action, endorse workplace anti-discrimination policies for LGBT people, and on and on. And those are just the things the Court does that generate the big headlines. Corporate personhood; workers’ rights; campaign finance laws; campaign finance laws (right, I wrote that twice). If you are a liberal and these things aren’t awfully important to you, well, it’s hard to understand exactly what sort of liberal you are.

What I’m talking about here is not just a handful of policies. I’m talking about the bulk of the Reagan-Gingrich-Bush legacy. Obama could not undo it because he had to deal with the Great Recession. But eight more years of a Democratic presidency can do exactly that—undo it, across a whole range of fronts.

Like Martin Luther posting his Theses to the door of All Saints’ Church in Wittenberg, the Left recently put the political world on full notice of its agenda. The Roosevelt Center recently published a 37 point manifesto, by its chief, and Nobel Prize winning, economist Joseph Stiglitz, Rewriting The Rules of the American Economy: an agenda for growth and shared prosperity.

The Atlantic, in an article entitled De Blasio’s America summarizes it as follows:

In his report, Stiglitz dismisses a “minimalist approach” to tackling inequality in favor of a broad overhaul of regulations, spending programs, and tax laws.  “It would be easier, politically, to push for one or two policies on which we have consensus, but that approach would be insufficient to match the severity of the problems posed by rising inequality,” Stiglitz writes.

The two brightest political stars in the Progressive sky, Sen. Elizabeth Warren and NYC Mayor Bill de Blasio, provided their endorsement of Prof. Stiglitz at the unveiling of this manifesto in Washington on May 12th. As described by The Washington Post:

Joseph Stiglitz and a team of his fellow economists have a new plan to reduce inequality, grow the middle class and get the U.S. economy to work better for working people. It is firmly rooted in the conviction that more government can solve most of America’s economic challenges. It is a plan seemingly designed to rally liberals, enrage free-market economists and push a certain presumptive presidential nominee to the left. It is, to borrow a Howard Dean phrase, the plan from the Democratic wing of Democratic economics.

Stiglitz, a Nobel Prize winner, and his co-authors will unveil their report for the Roosevelt Institute at an event today featuring Sen. Elizabeth Warren (D-Mass.) and Mayor Bill de Blasio of New York. Among their 37 policy recommendations are several versions of the term “public option.” There is a public option for health care – opening Medicare to anyone, not just retirees. There is a public option for home mortgages, a public option for expanded retirement savings (on top of the existing Social Security system), even an expanded public option for the financing of political campaigns (in order to counteract the influence of wealthy individual donors).

There is government-provided pre-school for millions more children, subsidized child care and mandated family leave and sick leave. There is talk of nationally funding state research universities. There are additional regulations of the financial sector. There are higher taxes on returns to capital investments, on high-earning individuals and on corporations that do business internationally.

This is being hailed as the left’s “Contract With America.” It deserves to be the center of a national debate. The manifesto’s subtitle hits the nail of what we voters are looking for right on the head, and beautifully: “an agenda for growth and shared prosperity.”

Kudos to the Progressives for stealing the supply side theme, and agenda: across-the-board growth. This propelled the GOP to repeated victories. Now it seems orphaned, a theme rather than an agenda. More kudos to Progressives for pushing “shared” prosperity and for taking seriously the big issue on the voters’ minds: stagnant median family income.

But there’s a weird lacuna inside the left, as nicely demonstrated by Sen. Warren, as reported by Mother Jones:

The spirit of trickle-down politics is to blame, according to Warren. It’s just “magical accounting scams that pretend to cut taxes and raise revenue.” In the 1980s, President Reagan and his economic swami Arthur Laffer pushed the concept that slashing taxes on the rich will actually benefit the poor; the top 1 percent would have more money to spend and would end up revving the entire economy. “Trickle-down was popular with big corporations and their lobbyists,” Warren said, “but it never really made much sense.”

This worldview is curiously blind to the fact that, once President Reagan’s Fed had wrung virulent inflation out of the system the “Misery Index” — of unemployment plus inflation — dropped from a high of almost 22% under President Carter to 7.8% at its low under Reagan.  It wasn’t “trickle-down.”

It was supply side.

The Reagan Revolution was founded on Rep. Jack Kemp’s advocacy of “the Mundell-Laffer Hypothesis” (as it was dubbed by journalist Jude Wanniski). It called for cutting marginal tax rates across-the-board plus stabilizing the dollar. Wanniski:

THE United States has been passing through an economic nightmare. It seems like just the other day-and it was-that American economists of the first rank spoke confidently of “fine-tuning” the economy to assure a predetermined rate of economic growth within acceptable bounds of inflation and unemployment. And even those in the profession who scoffed at the notion of such fine-tuning, those who argued it could not be done in the fashion prescribed by the New Economics, were prepared to assert that other strategies-usually pertaining to the supply of money-could be called into play to keep the United States on the magic path of non-inflationary growth.

Obviously, the profession has been experiencing an intellectual crisis. Over a six-year period, the pragmatic Republicanism of Richard Nixon shot into the twitching patient every antibody the economic doctors of Cambridge and Chicago prepared. And always the vital signs declined. Money was tightened and money was eased. Mr. Nixon became a Keynesian and a “full-employment budget” was installed. Deficits were run on purpose and deficits were run by accident. The Phillips curve, a wondrous device by which politicians supposedly could balance unemployment and inflation along a finely calibrated line, was enshrined in the textbooks. The dollar was devalued and the gold window closed. The Japanese and Germans were reviled as being stubborn, and worse, efficient. The dollar was devalued again, then floated. Wages and prices were controlled through varied stages of stringency, and a jawbone was brandished. At the end of all these exertions, many are beginning to wonder whether the patient was sicker than had been thought or whether the medicine has been making him sicker than he was.

Reagan’s inversion of the high-tax-rate-easy-money policy mix of the Johnson-Nixon-Ford-Carter era was called by his rival for the nomination, George H.W. Bush, “voodoo economics.” Voodoo worked.  America achieved an era of shared prosperity, Reagan got a landslide re-election.

President Clinton, under pressure from Speaker Gingrich, kept in place the core of Reagan’s policies of much-reduced marginal tax rates and high integrity monetary policy, and embellishing his growth agenda further with a capital gains tax cut and welfare reform, presided over a vibrant economy and a budget surplus.

Reagan plus Clinton saw the creation of around 39 million new jobs.

The collapse in job creation — and shared prosperity — came afterward.  It came with the decay of the “invisible” half of the very effective policy mix: monetary policy, Reagan’s and Clinton’s “secret sauce.”   The Stiglitz manifesto barely touches on monetary policy.  Its Thesis 18: “Reform monetary policy to give higher priority to full employment” does not tip its hand as to how to get there. (One can hardly help but infer, though, a prescription for “easy money.”)

Lincoln was right. You can fool some of the people all of the time but you really cannot fool all of the people all of the time. The UK’s Progressives just came a cropper with an aggressive Progressive agenda. Angela Merkel maintains a reasonably solid centrist economic policy agenda and is rewarded by respectable economic growth and towering popular approval ratings (notwithstanding consistently harebrained beratings from dogmatic maniacs like Paul Krugman).

Notwithstanding my authentic kudos for the left’s focus on growth and shared prosperity, airbrushing history to fit doctrine is a poor way to shape policy. The Progressive agenda feels like a “Back to the Future” roadmap to the “economic nightmare” of the 1970s. The agenda the left is foisting on their future nominee is likely to give the Republicans the ability to walk into the White House even if the GOP policy formula for shared prosperity proves underpowered. Pity.

Hey GOP! Want to trump the ill founded Progressive promises for shared prosperity and deliver the real thing?

Remember the Mundell-Laffer Hypothesis. Remember supply side economics.

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