The Revisionists Are At It Again: Did You Know Reaganomics “Devistated” Our Economy?

Posted on January 5, 2013

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The United States (The Gaslamp Post) – The biggest problem that Communists have with pushing their agenda through is truth.  Where tyranny rises, you can guarantee you will find a propagandist not too far away.

Every authoritarian regime in history has had to rely on at least two things; the ignorance of it’s population and the use of fact-twisting revisionists.  The Nazis had Goebbels, the Soviets had Glavlit and Pravda, and the Communist Chinese had the Xinhua.

Everyone who does evil hates the light, and will not come into the light for fear that their deeds will be exposed.

John 3:20

Knowing these facts and going forward, we should take this into account as we decipher what is given to us daily called the news.  The revisionists are alive and well here in America, and are putting in overtime in order to screw with your minds.

While it would be all too easy to simply point the finger at the left and say, there’s the Socialists and Communists right there, we have to understand that this extends beyond party lines.  The enemies of America lurk on both sides.

One perfect example of this is an article I ran across, published by a so-called “conservative” publication, which had a title that completely threw me for a loop.  The article titled, “Reaganomics Devastated the Economy“, which was put out by Newsmax Media, immediately to me stunk of propaganda.

The article itself is well written but the connections it attempts to make between Reagan’s economic policies and what happened in the market wind up way out in left field.  If you didn’t know any better, you would buy into this crap.

It starts out with facts, sort of.

During the Reagan presidency, the individual income tax rate fell from 70 percent to 28 percent, while the corporate income tax rate fell from 46 percent to 39 percent, according to the Tax Foundation.

According to the Tax Foundation yes, the tax rate did go down from 70% but only on top earners and that rate never went below 50%.  It never went to 28% for them, but that’s alright; we know how revisionists operate right?  Rewrite history in order to make it fit the “fixes” that the new regime is implementing.

The reason that author Barry Elias said that is because he needs to make the Reagan policies seem as though they didn’t work.  For those of us who were alive during that time and remember how things improved after President Carter was booted out of office, we know better.

Mr. Elias goes on:

Since the personal rate was lower than the corporate rate, there was less incentive to invest in businesses and more incentive to accumulate personal income, especially for the proprietors.

As a result, investment as a percentage of gross domestic product fell by a third from 22 percent in 1980 to 15 percent in 2010, according to Trading Economics. Based on data from the Federal Reserve Bank, monetary velocity (additional income per unit of spending) fell 50 percent during this time. This decline in the economic multiplier was due to a greater concentration of consumption relative to investment. Less income is generated when spending occurs at the end of the production cycle (consumption), rather than at the beginning (investment).

So if we’re getting this right, Mr. Elias said that since people’s tax rates went down, they saw no reason to invest.  In other words they’ve made enough money, why bother making any more?  Where have I heard that before?

The article continues:

Since 1980, there has been an extraordinary accumulation of wealth by the top 1 percent, from 20 percent to 35 percent. Emmanuel Saez, an economist at the University of California, Berkeley, estimates the top 1 percent have received 52 percent of the economic growth from 1993 through 2010.

By contrast, real median household income (inflation adjusted) has increased by less than 1/5 of 1 percent since 1980, according to the U.S. Census Bureau.

Based on my previous article, corporate tax rates are currently higher than individual tax rates for all levels of net income.

A healthy economy requires the reverse.

Did you catch that?  The top 1%’s wealth…  the median household’s income.  When it’s the 1%, their money is wealth, but when it’s everyone else, it’s just income.

Those evil rich 1% out there made 52% of the money while everyone else got bupkiss.  Can you say class warfare?

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So because of that, in order for our economy to be healthy, we need to raise the individual tax rate and lower the corporate tax rate.  Otherwise people will see no incentive to invest.

Did you see what just happened there?  The author is on one hand saying that the top 1% made all of this money and then on the other is saying that you the individual need a higher tax rate than a corporation.  So which is it?

Ready for this?  NEITHER!

Income from investments is called capital gains, and is not taxed the same as income earned by a corporation.  Investment income earned by an individual has nothing to do with the corporate tax rate.

People invest their money for a variety of reasons, one major reason is because we all get older and our working years are limited.  People want to have something put aside for later on when they will need it.

Not all businesses are corporations, and most entrepreneurs who don’t form corporations (LLCs, S Corps, etc.) pay their taxes at the individual rate and itemize accordingly.

When corporate tax rates are lower than individual tax rates, investment as a percentage of income will rise. This will enable productive and sustainable business development, thereby enhancing economic growth for society — one that benefits the poor, the middle class and even the upper class, since more consumers will be available to purchase products.

I agree with that statement to a point; yes lowering the corporate tax rate will create investment, and yes it will foster economic growth that will benefit many, but hold on a second.  Here he’s talking about corporations investing.

This can be done by hiring higher skilled employees, purchasing better equipment, investing in technology, etc.  Is this not something that small business owners and entrepreneurs do as well?

Let’s go back to the original premise of the article; Reaganomics devastated the economy.

Here the author tries to connect the dots between President Reagan’s economic policy and declining monetary velocity (the rate at which money as a percentage of the economy grows).  While the former president did enact policy and the speed of the U.S. economy did slow down, there was no correlation.

What is conveniently overlooked is this teeny tiny little thing that happened during the 1980’s that we so lovingly refer to as the Savings and Loan Scandal.  While it would be prudent to look at how executive decisions played a role in economic activity, there are certain things which definitely should not be overlooked.

So what was the Savings and Loan scandal?  Good question, I thought you’d never ask!

From 1979 through 1986, the federal government began lifting many regulations that had been imposed on commercial lenders and investment banks. When that happened, a bunch of crooked wheelers and dealers who had been operating behind the scenes emerged, and leveraged junk bonds and crazy interest on deposits to shuffle money from institution to institution.  The money was never real so lenders and investment banks went under, depositors lost everything, and a few guys at the top became very rich, very very quickly.

Hundreds of millions, if not billions of dollars evaporated, the economy reported huge losses, and that factored directly into our nation’s GDP.  A few guys went to prison, and the guys at the top went on to hold political office.

So how did this happen?  OH, excellent question!

While lifting banking regulations, congress passed 26 U.S.C §469, which eliminated many tax shelters and protections that high earners used when incurring losses, particularly in the real estate market.

People looking to protect their money went to commercial banks and trusts who promised high interest rates on deposits, since their other tax shelters evaporated.  This was able to happen because the restrictions on deposit interest limits had been lifted.

Prior to 1966, commercial lenders, trusts, and banks would compete for your money, and engaged in what was called “rate wars” because the housing market cooled after the baby boom, and banks were having a hard time attracting depositors.  Fearing inflation from high interest rates, the federal government stepped in and clamped down on banks and lenders.

When that happened, banks and lenders tried to create various kinds of products to attract depositors, but that did little to stop the financial slow down.  With smaller pools of liquid funds, fewer mortgages and lines of credit to business were available.

This made mortgages more difficult to obtain and fewer businesses could start-up or expand.  With few assets changing hands, and no ability to generate income but for steadily increasing interest rates on loans (because lending money involves risk), we experienced what was so lovingly referred to as stagflation.

You guys remember that, right?  Inflation of the consumer price index which led to higher prices for just about everything,  and was compounded by a stagnant economy.  What made it worse was the 70’s oil embargo.  That could not have happened at a worse possible time.

This happened because as interest rates would rise for loans, people would move their money around in order to find the best return.  When depositors pulled their money from one institution and place it in another, that first institution would be minus liquidity in order to make loans and would therefore have to raise interest rates on future loans.

This then became a vicious circle.

Finally when President Reagan removed the crippling regulations, deposits came flowing in and interest rates began do fall.  Banks and lenders could then begin extending lines of credit and mortgages more freely, and the economy slowly began recovering.

A few crooked Savings and Loan and lending houses took advantage of the lax regulations, and took their investors and depositors for a ride.  As some lending houses went under with net losses of tens of millions on their books, depositors lost everything.

In all, 747 institutions went under and dragged our economy down with it.  This is what led to the slow velocity of the U.S. economy, not Reaganomics.

Blaming Reaganomics for the apparent slow economic recovery is akin to blaming cars for drunk driving.  Revisionists and the lies they promote only serve to erode our foundations.  This is dangerous to us as a people and as a nation.

“Those who cannot remember the past are condemned to repeat it.” – Edmond Burke