OMICS 
OCTOBER 20, 1998
OMICS "I speak truth, not my belly-full, but
as much as I dare; and I dare the more the more I grow into years."Michel
de Montaigne (1533-92), French essayist, moralist. Essays, bk. 3, ch. 2,
"Of Repenting" (1580-8; tr. by John Florio).The Columbia Dictionary
of Quotations is licensed from Columbia University Press. Copyright ©
1993, 1995, 1997, 1998 by Columbia University Press. All rights reserved.
For a prior writing on Ronald Reagan go here: FOX.
| 1. Preamble | 5.The hidden agenda? |
| 2.The concept. | 6.The Reagan economic legacy. |
| 3.Reagans' personal theory. | 7.CONCLUSION. |
| 4. Predecessors of Reagan. |
It was 1980. I received a phone call from one John Sears, campaign manager for the Ronald Reagan drive for the Presidency. John Sears had managed the Presidential campaigns of Richard Nixon. He asked me to come to California to meet Ronald Reagan since "We need new ideas and you always have them". I told him I was not particularly taken with Ronald Reagan but he said "Do me a favor as an old friend, come anyway" I said I would go to California.
I went to California on a very early plane at my own expense and went directly to the designated offices of the campaign. I spent more than 2 1/2 hours with Ronald Reagan and Martin Anderson. Martin Anderson had been a White House aide to Richard Nixon and I knew him somewhat but not much. He had a superb reputation as an economist.
Ronald Reagan and I got into an enormous battle, argument, call it what you will, about the program called "Reaganomics". It even got to the screaming stage at one point. Martin Anderson never once joined in the battle.
This article reflects the meeting with Ronald Reagan. It is the end result of being asked frequently about my opinion regarding Reaganomics.
More
has been written about so-called
Reaganomics than almost any other subject I know of in economics:
The so-called basic ECONOMIC concept of Ronald Reagan was that if you cut taxes you would increase Federal Revenues since economic activity would increase. The increase in economic activity would bring with it increased Federal tax revenues.
In other words the tax cut would be self liquidating and self paying since any lost revenues for the moment would almost immediately be made up by increased revenues in the future. It didn't cost anything, therefore, to lower taxes and the economy would be stimulated to new heights.
The new tax revenues would then permit the Federal government to increase defense spending from the revenue windfall.
It was a painless way to stimulate the economy, increase defense (and other) spending and it was all without REVENUE costs to the Federal Government.
Lower taxes without pain or costs were the ultimate Economic Utopia. I think it is fair to say that this was one of the key platforms which got Ronald Reagan twice elected as President.
He never stopped pounding away at his theory in each and every speech he gave and it became the cornerstone of Reagan domestic policy.
Ronald Reagan will be remembered for many things as President of the United States. but, for some reason, "Reaganomics" seems the dominant remembrance!
My fight with him in Los Angeles was over so-called Reaganomics.
I took the position that his position made no sense at all and that it would create the biggest deficits in the entire history of the United States. I argued that he could not obtain increased revenues by cutting taxes particularly if he wanted to have it all with humongous increases in defense spending.
He argued that a tax cut would more than increase Federal revenues enough to pay for both the tax cut and increased defense spending.
I asked Martin Anderson if he had prepared any memos for Reagan regarding his tax and spend proposals (Reaganomics) and he said that he had not! I asked Martin Anderson if Reagan had received any memos from a professional economist supporting his position? He said to ask Reagan. I asked Reagan if he had any memos from anyone on his economic staff supporting his position?
Reaganomics, then, was the personal economic position, beliefs, assumptions of Ronald Reagan and not of any of his professional economists!
Laffer had nothing to do with it as I found out ( in 2 1/2 hours of debate, argument, on the Reagan tax proposals the name was never even mentioned, although revisionist historians both give him credit and blame). For some information on Arthur Laffer go here:
The most fascinating thing about the few books that have been written about Ronald Reagan give little attention and practically no analysis of Reaganomics!
AND, in my constant search for economic material supporting the thesis of Ronald Reagan I never once read nor heard professional support from those around him!
There is an incredible mythology that Ronald Reagan and Arthur B. Laffer invented the concept that lower taxes were self paying because of the increase in tax revenues from increased economic activity.
This is a scan of a report that was issued by my company (Lionel D. Edie & Co. Incorporated) as written by me on January 22, 1963. It speaks for itself as you will note from the title of the report which is "More From Less"! For a larger screen version of the report touch the page.
What the report refers to is that in 1954 the Excess Profit Tax (put on for the Korean war) was removed at the initiative of President Eisenhower and to the shock and delight of observers the removal of that tax increased Federal revenues! I wrote this report in support of the proposals put forward for a tax cut in 1962 by President Jack Kennedy. From day one he had always taken the position that in order for the American economy to get moving taxes had to be lowered! At that time I was very close to Walter Heller and Arthur Okun, who were the key members of the Kennedy Council of Economic Advisors.
The position of President Kennedy was pounded and pounded by the Chairman, Walter W. Heller and a member of the Council, Arthur Okun. After Walter W. Heller left the Council of Economic Advisors he gave a series of lectures at Harvard in 1966 called "The Goodkin Lectures".
Those lectures were summarized and expounded in a most fascinating and perceptive book entitled "New Dimensions of Political Economy" which was published by Harvard University Press in 1966. Here is a scan of one of his points regarding the tax cut of 1964 fostered, aided and abetted by then President Lyndon Baines Johnson. It was in the Johnson Administration that the tax cut proposed by President Kennedy in 1961 was finally enacted.
This scan is at the bottom of page 72 of the Heller book. Note that the tax cut was set on the basis of an expansion in the economy and a return of revenues to the Federal Government. See the phrase "the proposed cut would multiply itself..."
Who then invented the concept that lower taxes could stimulate economic growth and , therefore, increase Federal tax revenues?
Not Ronald Reagan nor Laffer but Jack Kennedy, Walter Heller and Arthur Okun some 16 years earlier!
Ronald Reagan, then, stole the idea from the Democrats and the funny thing is that no Democrat ever figured it out or made a point of it during the 1981/1982 Presidential campaign!
I had a small advantage over many economic observers of Ronald Reagan: the fight, argument, in the west coast offices of his campaign from which I gleaned a basic insight into the thinking of Reagan.Footnote 1.
I walked out of those offices shaking my head and thinking "this guy can't believe that stuff. He has to have a hidden agenda." but at the moment I could not figure out the hidden agenda and that agenda is still not understood by most observers of Ronald Reagan.
Since Ronald Reagan has left the Presidency I have spoken to both Martin Anderson and to George Shultz about the Reagan years. I think the following will interest you:
RR was a great deal smarter and more savvy than anyone seemed to realize.
The following charts are taken from "The Statistical Abstract of the United States, 1996 Edition", page 329 (as you can see in the upper right hand corner).
By now they should be obvious!
1.Reagan asked Martin Anderson to invite me on the campaign staff. I refused on the basis that Reaganomics was nuts and I wanted nothing to do with it. RETURN TO TEXT.
2.I sent George Shultz
a copy of my report about creating a revolution in the Soviet Union at his
request. This is a miniature scan of his response to me. The full sized
letter can be viewed by touching the miniature. 
RETURN
TO TEXT.
3.The theory being, of course, that they would try to match the U.S. and break the back of their economy in trying to do so.
