BAD SPENDING VS. GOOD SPENDING
When talking to the GOP elite inside the beltway, President Reagan holds almost god-like status. He was the architect of the great economic boom in the 80s and 90s. He alone dismantled the iron curtain. He was the great communicator and was somehow able to reach across the aisle and broach ideological barriers and simply get things done.
Reagan was not the captain of fiscal responsibility that many of his worshippers think that he was. On page 57 of his book, “The Great Deformation,”, Stockman wrote, “The Reaganite legend begins with the false proposition that the Reagan Administration stopped the march of “Big Government” and brought a new fiscal restraint to Washington.” Reagan’s federal outlays average 21.7% of GDP, compared to 21.1% of GDP during the big spending Carter years.
Looking this, one might scratch their head and think; maybe Reagan wasn’t that great after all and agrees with Stockman. This made me think further and ask the questions: Is all spending bad? Is all debt bad? Let’s consider these questions.
Under Reagan, lower taxes, reducing the growth of government spending, a stable currency and less regulation created 9.6 million jobs and increased the economy by 18.5 percent.
Obama’s policies of more taxes, more spending, more regulation and loose monetary policies have led to 5.7 million fewer jobs than Reagan created and an economy with growth nearly 50 percent smaller than it could have been.
According to usgovernmentspending.com, in 1985, the beginning of Reagan’s second term Reagan spent $356 billion of the $734 billion budget on entitlements and mandatory payments (social security, welfare, Medicare, Medicaid, food stamps). That is 48% of federal receipts (revenue). Compare this to President Obama, where 82% of federal receipts (revenue) go towards mandatory payments and entitlements was recently looking over some notes from a dinner meeting I had way back on May 30, 2013 with Stockman’s predecessor, James Miller who was OMB director under Reagan from 1985-1988. Mr. Miller, unlike Stockman, had nothing but the highest praise for Reagan and his policies, as the growth of the economy for a couple decades are resultant from his policies.
How could two very intelligent people, who held the same position for the same President, have such different viewpoints? We may never know. But when I look at the numbers, when I look at the resulting economies that are products of spending policies, it brings up some talking points. These are education moments that we can have with our clients, with our kids, and practice in our own lives. The points are: NOT ALL SPENDING IS BAD and NOT ALL DEBT IS BAD. If debt is acquired in order to build revenue-generating assets, then over time this will be beneficial. (I.e. potentially adding debt to finance the purchase of a rental property).
Reagan did not do everything correctly, and as Stockman points out, he did spend a lot of money and didn’t really practice much fiscal restraint. But, what he did do was an attempt to spend money the right way. It appears the policies of President Trump are very similar to what Reagan did. Not everything is perfect, but nobody is. The good thing is that we are finally moving in the right direction with our economy. I think it all boils down to the old adage, “give someone a fish and feed them for a day. Teach someone how to fish and feed them for a lifetime.”