Why Reaganomics Couldn't Work Today

Fiscal conservative pundits argue that across-the-board tax cuts, like the kind implemented by JFK and Ronald Reagan, would increase productivity, reduce unemployment, rally the American stock market, and automatically cure the economic ills plaguing our nation.

I beg to differ. The American economy prior to 1988 is ancient history. In the heydays of JFK we were an exporting economy, our manufacturing index was 25 % of GDP, unemployment was holding at a steady 5.7 %, the national debt, which had been declining apace since the end WWII, was
45 % of GDP. And because our creditors were mainly American, principal and interest payments on the debt were plowed back into our national economy. Moreover, the big chips in the stock market—General Motors, General Electric, Caterpillar, IBM, etc.—were located and operating mainly in the U.S.A, the dollar was solid, and our future global competitors had not yet recovered from World War II. For all intent and purposes we were the world’s sole economic power. Given such a robust national economy, it was a given that tax cuts across the board would benefit the nation as whole, Whatever the immediate loss of tax revenues would be offset many times over by the tax revenues generated by profits from new and expanding businesses.

During the Reagan era we started getting some serious competition from Europe and Japan, but the globalization and job exporting trend that would accelerated in the next decade had not yet set in. We were still a low unemployment, strong dollar, manufacturing, “made-in-America,” stock-market dominating nation. Tax cuts across the board, therefore, made good sense.

But fast forward to America's position in today’s 2009 global economy, and the picture changes radically. Our big players on Wall Street have long gone global. The American stock market now is American in name only. We are indebted to our eyeballs to foreign lenders, at a tune of 12+ trillion dollars, nearly 80% of GNP. That’s $40,000 per citizen. Where once we produced durable goods for exports and domestic consumption, our main industry now consists of, marketing and bundling largely nonproductive financial services. Where a sizable number of our labor force once enjoyed steady, remunerative employment in factories and construction work, now most workers have to scrounge about for dead-end hourly-wage jobs, or go back to school to retrain for jobs that might not exist when they graduate.

So there is no reason to expect that the across-the board tax cuts that worked in the days of JFK and Ronald Reagan would work in our weakening national economy. Such cuts no doubt would be a godsend to American corporations operating abroad, to labor, investors, lenders and politicos in emerging-economy countries where these corporations operate, and, to a lesser degree, to some well-connected purveyors of “services” here at home. But the lion’s share of the wealth created by across-the-board tax cuts would invariably be siphoned off to subsidize foreign interests. For the millions of unemployed and underemployed folks here at home, the scant pocket money left over for them could not begin to help them make ends meet or cover their share of the national debt. A resurrection of the JFK-Ronald Reagan tax cuts? Dumb idea.

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