For release: 03/13/25
The economy: We’ve been here before
By Cal Thomas
Tribune Content Agency
When I began investing in balanced mutual funds in 1983, the Dow Jones Industrial Average stood at 1,190. Last Monday, despite the drop of more than 1,000 points, the DJI closed at 41,911. It’s the difference between looking at short-term vs. long-term investing.
I called my financial adviser who told me not to worry about the latest decline because I am diversified. Besides, she said, “it’s only paper.” That may not sound reassuring until one considers we’ve been here before.
The year was 1981 and the country was struggling with double-digit inflation (13.5 percent at the end of the Carter presidency), high unemployment (8 percent), high interest rates (mortgage rates soared to 16.64 percent) and sinking public confidence.
It took Ronald Reagan nearly two years to turn the economy around, beginning with the 1981 Economic and Recovery Tax Act, which substantially reduced taxes and eventually led to strong economic growth.
Bruce Bartlett, who wrote the draft of an earlier version of the bill, defended it in an article for The Washington Post: “Keynesian economics, which was the dominant theory at the time, said that higher taxes would curb inflation by reducing people’s disposable income and spending, and that any tax cut would exacerbate inflation. Our thinking, by contrast, was that lower taxes would increase the incentive to work, save and invest; if that led to an increase in the supply of goods and services, then the impact would be anti-inflationary.”
So it was, and so it did.
Reagan’s approval rating sank to 35 percent in 1983, but as the economy began to recover, it soared to 61 percent by November 1984, leading to his landslide re-election.
President Trump has expressed a “wait and you’ll see” attitude about his economic policies. He promises a great economic boom and a new “Golden Age.” We’ll see if that replicates the Reagan pattern. Trump didn’t help consumer confidence when he punted after being asked twice whether a recession might be coming.
Writing in The New York Post, Fox Business commentator Charles Gasparino advises to ignore the stock market because Wall Street is dealing with “painful detox from (its) government spending addiction.”
“Think of the current US economy as a junkie weaning himself off heroin, which is never easy,” Gasparino writes. “It’s been addicted to the heroin of government spending — both monetary and fiscal — for so long that we are running $2 trillion deficits when the economy is growing near 3% with low unemployment as sleepy Joe Biden spent money we didn’t have.”
As with President Reagan, Trump is still having to deal with the fallout from his predecessor’s economic policies, including Biden’s “Inflation Reduction Act,” which caused inflation and produced the high prices and other negative consequences Democrats are claiming are Trump’s fault. Really? After only six weeks in office and with his last cabinet officer confirmed by the Senate just this week?
Detox is painful, but the result is worth the effort. Our problem is that too many Americans have become over-reliant on government to take care of them, while ignoring the old Puritan ethic of self-reliance. Politicians have been fine with this because it contributes to their careers and power. That attitude has contributed to our $36 trillion national debt and inflation which the administration, with the help of Elon Musk and his DOGE squad, are trying to reduce.
Economic roller coasters can be scary, but like the rides at the fair, the end produces satisfaction, relief and even a thrill. So, hang on.
Readers may email Cal Thomas at [email protected]. Look for Cal Thomas’ latest book “A Watchman in the Night: What I’ve Seen Over 50 Years Reporting on America” (HumanixBooks).
(C) 2024 TRIBUNE CONTENT AGENCY, LLC.Economic Deja Vu
