The Death of Reaganomics

Posted by Joe Rivett on 02.11.2008

How come with a looming recession, Congress along with the president want to give a stimulus that will primarily benefit the middle class? How come Conservatives want to nominate the two most economically liberal candidates?

One of the core values of conservatism that I seem to agree with is the idea of personal responsibility. When someone owes too much in credit card debt, I don't feel sorry for them. When someone finances a house that they cannot afford and when the interest rate goes up, I don't feel sorry for them at all. I don't believe in the concept of predatory lenders; so long as there is full disclosure, it is your own fault for loaning something you can't afford or not factoring in the instability of life itself.

A year ago I became a homeowner for the first time. At the time, my wife and I made about 70,000 a year (before deductions) combined. We were told we could finance a six figure house. However, I believe in the concept that "shit happens" so I wanted a cheaper house in case circumstance that are out of my control happen.

In the last year, here are some costs that I had not budgeted for to happen to me.

1. My car's transmission would break down again. I bought a used car and warranty which added $244 to my debt total that I did not plan on.

2. My daughter entered my life. While she has not hurt us yet, she starts daycare at the end of February which is $190 a week. Other things add up like formula and diapers that I won't even count.

3. I joined a church, that's $10 a week.

4. Now I would not have heat included so my utilities rose to $100 a month.

5. I injured my back in a car accident. Thus, I had to buy a new car $290 a month and throw $1,000 to finish paying off the old car.

So if you take what I pay a year that I didn't have to pay the year before it adds up to $12,380 a year, (Thank God my wife teaches and we don't have to pay for daycare over the summer).

If I were to have a huge mortgage, there would be no way I could make payments. Luckily my mortgage payments are only 700 a month which give me the ability to withstand this increase in bills. It also helps that my wife and I both received nice raises. Yet, for some people that isn't happening in this economy.

Congress wants to give us a rebate. I'm not going to complain. I'll probably spend it on either home investments, vacation, or just stick it in my savings account to use on a debt that is almost paid off. The twenty million dollar question is: will the rebates stop the recession? I'm not sure but it shows the flaw of Reaganomics.

Reaganomics is where tax cuts spur economic growth. Reagan was partially right as taxes were far too high on the rich back in the 80s. However, the taxes were lowered too much and deficits soared. This caused HW Bush to raise taxes and still the deficit was no where near paid off. This caused Clinton to raise taxes again and finally, the budget, was balanced. George W Bush came to power and the taxes were lowered again to spur economic growth after the dot com bubble burst. Now we need more economic growth because there is a second recession in Bush's term so what does he encourage Congress to do... Give tax breaks to the middle and working class?


Basically, GW along with many Congressional Members are acknowledging that the best way to spur economic growth is to give it to people that will spend it right away. This is the opposite of Reaganomics which believes that when the rich get rich, everyone benefits. The opposite is occurring where the poor spend money and make the rich people richer. This is why Wal-Mart wanted a minimum wage increase, when wages increase, people can afford to buy more stuff which makes quarterly profits rise which makes rich people richer. Everyone benefits in Keynesian Economics (When recession happens, have the government go into deficit by giving large rebates or spending projects).

This is what John McCain has argued for years, that tax cuts should go to those who can spend it and need it; until he became the front-runner for the presidential nomination. Now he wants to keep permanent the tax cuts for those that don't need it when we are at war with a huge budget deficit. McCain does not want to end the war anytime soon and has stated that there will be more wars. Cutting pork is not going to solve the problem of trillion dollar deficits.

I'm glad the President and the Congress acknowledged that the economy works best when people spend money. Poor and working class people don't make enough money to save so it makes sense to give the rebates to them.

This won't solve the economic problem completely. After the rebate check is spent, then what? The housing market is still in shambles. Instead of giving me money to blow at Wal-Mart on foreign goods, why not give me a rebate to buy energy efficient windows. I would have to pay an American to install them. Or maybe give me a rebate on solar panels. Why not try to keep the money in the country?

Reaganomics is dead for three reasons. The first reason is that the rich aren't overly taxed like they were in the 70s paying 70% of their income. The second reason that Reaganomics is dead is that the least conservative economic Republicans are doing the best (McCain and Huckabee). The final reason Reaganomics is dead because Clintonomics proved that giving money to those who can spend it right away leads to economic growth and a deficit that can never get out of control. By not vetoing this economic stimulus bill or the minimum wage bill from last year, Bush whether he wants to admit it or not is hammering the nail in the coffin of Reaganomics.