Supply-Side Economics

• Lower Taxes
• Spending Cuts
• Deregulation
• Restrain Money Supply

Supply-side economics also known as Reaganomics is an economic theory that has been debated for years since its implementation. 

When Ronald Reagan took office, the nation was spiraling into economic despair and into an aura of defeat.  While Reagan ran on the notion of ‘morning in America,’ his policies coupled with tough love from Paul Volcker and the Federal Reserve sparked a resurgence that turned the nation around.  Some economists think that Reaganomics threaded throughout the economy from 1981 to 2007, which resulted in the creation of an additional $40.0 trillion in wealth that lifted households and businesses wealth up to $60.0 trillion.

There’s no arguing Reagan’s economy turned things around and had an infectious impact that spurred the nation.   If you allow that the first two years of his presidency was committed to getting his plan off the ground, while the next six years saw an average annual Gross Domestic Product (GDP) rate of 4.6%.

Annual Average  GDP
Reagan	Clinton	Bush W	Obama
3.5%	3.9%	2.0%	1.5%

There were knocks against Reaganomics, including his own admission of disappointment in the doubling of the national debt. Politically, Democrats made the point that the rich got a whole lot richer and the trickle-down theory was a fallacy.

It should be noted that the GDP has been in a sequential slide since Ronald Reagan, as each president has experienced a lower GDP growth than their predecessor. This is because there are some structural issues, including mounting debt and a bloated government.  

Fraud, Waste, and Abuse…and Loopholes

The biggest surprise from Donald Trump’s speech yesterday was the three tax brackets as opposed to the four brackets that had been touted.

• 12%
• 28%
• 33%

Actually, I think these brackets are more realistic than the range of 0% to 25%; however, considering that there isn’t going to be a lot of cuts in programs but rather closing loopholes and redacting regulations, the American public will have to be sold on the idea that the plan works without adding to the national debt.

Donald Trump hammered away at his disdain for current trade deals, but also he assuaged conservatives by saying that he was pro-trade and ‘isolation is not an option.’  But some are worried that he’ll have to back up his tough talk, especially the notion of walking away from the North American Free Trade Agreement (NAFTA) if the plan is not revised.

The biggest cheers were reserved for removing demonstrators (the official count-14), but we all should scream in delight at the thought of a moratorium on regulations and removal of the most onerous.   (I actually like the idea of gutting them all across the board.)  Some are saying that it’s too late to stop the Dodd-Frank Act, and that many regulations are proposed and implemented without White House involvement.

The 10% repatriation tax is a good idea; why not dump it completely?

The low-hanging fruit these days are child care (too big an issue to overlook, especially with respect to working and college-educated women) and infrastructure.

Conclusion

Donald Trump promises more updates to his plan; later this week, we’ll hear from Hillary Clinton and her economic plan. I think Trump is moving in the right direction, although I am concerned about spending.  I know supply-side principles will spark the economy; it’s the elixir that the economy needs. 

Ultimately, it comes down to a philosophy of allowing people that earn money the ability to spend and invest rather than have the government take the majority of those earnings to fund a Big brother government, and punish success.

One problem for any plan is the growing obligations and mounting debt, and how to grow the economy beyond its entitlements.

The Market

Talk about anti-climactic after Friday’s jobs report; with earnings season coming to a conclusion, there was little to move the stock market needle.  These kinds of pauses aren’t unusual – the market came into the week at an all-time high with a huge session on Friday. 

There are fewer economy reports coming up; the key is that they have to lend credulity to the jobs report.

Meanwhile, crude oil was hot on Monday, spiking more than 2% on a scuttlebutt of a potential output freeze.  Of course, we’ve heard this all before and nothing happened; but let’s face it- Russia and Saudi Arabia are hurting.  Russia’s GDP has been negative in each of the last five quarters.

Saudi Arabia’s economy hasn’t gone into the red; it’s slowed dramatically.

The market needs more than oil to rebound for traction this week, and there aren’t many data points that could move the needle; however, make no mistake when it comes to fear, the shift moves from worries that the market is ready to drop to a concern that investors are missing the train leaving the station.

Today’s Session

The curious case of productivity in reverse has many economists scratching their collective heads.  This morning, for the third consecutive quarter, US productivity moved in the wrong direction just as the street was looking for a +0.3% increase.

This is an area where the Federal Reserve’s magic money printing doesn’t help, and even Janet Yellen has pleaded with Congress to help the process along. 

Comments

I was a young hourly worker when Ronald Reagan took office. I still remember the day that his tax cut hit my little paycheck. It wasn't much money back then, but I felt like I had hit the jackpot! It made a big difference to me. Patricia Hampton on 8/9/2016 10:18:23 AM

That's good stuff for the financial heart. thomas allen on 8/9/2016 10:37:05 AM

My wife and I were 30/27 when Reagan took over and we were thrilled. One of my concerns is the drop in productivity. I think this has to do with a drop in capital investments and we need to see this reversed. Thoughts? Bob Aubry on 8/9/2016 10:42:07 AM

I am mystified at how Trump insists on stepping on his manliness with his ridiculous comments. Time is running out and we need solutions presented not rhetoric. Jim on 8/9/2016 10:49:51 AM

We have a choice: Enslaving socialism or liberating capitalism. One requires hard work, the other rewards laziness. Make your choice. z on 8/9/2016 10:54:16 AM

Great commentary on Reagan and the rest! Unfortunately, many forget that for Reagan to get his tax cuts through, he had to work with Tip O'Neal and the Democratically controlled House and Senate and agree to expanding the welfare state dramatically. While Government revenue doubled, spending quadrupled. They were not the Reagan deficits, but the Democrats Deficits. The Republicans are communication challenged and have never responded to this criticism and so it has become accepted as fact! We have two choices, "government investment" or "business investment." Government investment increases debt and shrinks the economy raising taxes and choking our system as we have seen with Obama and over a Trillion never moving above 2% GDP growth. And they lament that it wasn't enough! Reagan proposed an investment in that initially tax revenue will drop and the deficit increase with tax cuts. However, as business expands revenue increases even though the rates are lower. THAT is dynamic tax scoring and an "investment" that has the best return, because we all win. Except the Democrats because they lose the ability to control people. Ray Weldon on 8/9/2016 11:24:50 AM

In addition, I wish Trump would adopt Fiorina's zero-based budgeting concept, at least in spirit, and review every department's budget from the bottom up. Ron Gaviati on 8/9/2016 12:11:59 PM

I like Gary Johnson's plan better than all of the others...Check it out. TOM SCOTT on 8/13/2016 10:20:39 PM

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