Reaganomics vs. the New Deal
“The difference between Reaganomics and the New Deal is as fundamental as the old proverb ‘Give a man a fish and you will feed him for a day; teach him how to fish and you will feed him for a lifetime.’” – Roger Thoney.
Our economy is in the midst of a downward spiral in employment. This downward spiral will end when job loss in private-sector businesses ends and workers no longer fear losing their jobs. Consumer spending will increase once the threat of job loss is gone.
To end the downward spiral, we must stop the loss of jobs in the private sector. Growing businesses hire workers not lay them off, so we should focus our economic stimulus efforts on stimulating investment by private-sector businesses. We can do this by providing low-cost investment capital and reducing the cost of doing business to reduce the risk of creating more jobs.
Eliminating the taxes on business profit and capital gain will provide low-cost capital to private-sector businesses. Reducing the cost of healthcare, the price of oil, and the cost impact of government taxation, regulation, and litigation on the economy will reduce the cost of doing business in the U.S.
This will provide a broad-based stimulus that will put us on a path of robust economic growth. The way out of any economic downturn is to invest, invest, and invest some more. In addition, we can provide low-cost loans to individuals so that they can pay their bills until they find new, or better, jobs.
Ronald Reagan’s Reaganomics worked in the 1980s because he provided a broad-based stimulus to investment by businesses by reducing the tax on business profits and capital gain. This accelerated job creation and the expansion of the supply side of the economy which is what reduced the inflation. Reducing the tax on business profits also includes reducing the income tax “on the rich” because partnerships, sole proprietors, S-corporations, and now limited liability companies report their profits on individual income tax returns.
FDR’s New Deal did not bring the U.S. economy out of the Great Depression because his make-work projects were temporary in nature and they did not stimulate the broader economy. For example, spending on infrastructure will stimulate only the road and bridge construction industry and their suppliers until the projects are completed.
World War II, however, did bring us out of the Great Depression because it stimulated the entire economy, particularly the manufacturing base. Manufacturing facilities were converted to war-time production and increased output to supply the war effort. Manufacturing facilities are particularly important to job creation because a manufacturing plant will cause from 5-9 additional jobs to be created in the surrounding community for each job at the plant to support the plant’s operation.
Reaganomics and World War II provided a broad-based stimulus to the economy that created permanent jobs; whereas, the New Deal provided a narrow stimulus that created temporary jobs. The difference is as fundamental as the old proverb “Give a man a fish and you will feed him for a day; teach him how to fish and you will feed him for a lifetime.”