Reaganomics, RIP?

A (possibly premature) obituary for the idiotic notion that the best thing to do when inflation is high is to cut taxes.

Before Prime Minister Liz Truss resigned, Robert Kaiser, former managing editor of the Washington Post, questioned “the plausibility of a program combining sharply reduced taxes … as a way to control inflation.” Kaiser predicted voters will ask repeatedly “what government programs” to cut “to compensate for the lost revenue, or how big a budget deficit” the nation will have to endure.

Kaiser wrote all this in June 1980, when Truss was just shy of her fifth birthday. He was writing, of course, not about the future shortest-termed British prime minister in history, whose tenure was outlived by a 60-pence head of lettuce (see above), but rather about Republican presidential candidate Ronald Reagan. The tax cuts Reagan went on to enact as president in 1981 were arguably more reckless than Truss’s, because inflation was not 10.1 percent, as it is in the UK today, but 14.3 percent, and much more entrenched. Just as Truss required the Bank of England to clean up after her mess, Reagan required Paul Volcker, the Carter-appointed chairman of the Federal Reserve Board, to clean up after his by bringing on the worst recession since the Great Depression. Reagan had to hike some taxes in 1982 to contain the damage, but, unlike Truss, he got to keep his initial tax cut.

The main difference between 1980 and 2022 was that the markets were tickled by Reagan’s recklessness but deeply distressed by Truss’s. In my latest New Republic piece, I put this fact together with the GOP’s striking reticence on the eve of the midterms on the subject of tax cuts. I speculate whether, at long last, we are seeing Reaganomics die, if not as a policy (the GOP will surely go on cutting rich people’s taxes) then perhaps as a campaign issue. You can read it here.