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What would Ronald Reagan say about the economy of 2011?

President Ronald Reagan.

TEXT OF STORY

STEVE CHIOTAKIS: Happy belated birthday, President Reagan. If he were still alive, he would've turned 100 over the weekend. So that got us thinking, what would our 40th president have said about the economy of 2011? We can't really answer that question. But we can look at the economic decisions he made to give us clues as to how he'd have reacted to today's fiscal issues.

Fortune magazine's Allan Sloan remembers the Reagan years and is with us now to talk about his economic legacy. Good morning Allan.

ALLAN SLOAN: Good morning Steve.

CHIOTAKIS: So conservatives hold the late President Reagan as sort of the standard-bearer for their economic philosophy -- lower taxes, smaller government spending. Yet budget deficits ballooned year after year during the Reagan Presidency. How did those deficits sort of affect the budgets that are being passed these days?

SLOAN: Well, what they did was they made it permissible to have budget deficits that used to be unthinkable. And because the world did not end, when the government ran enormous budget deficits, everyone figured in Washington, "Well, let's just keep on doing it."

CHIOTAKIS: Now, Reagan is given credit for cutting taxes, but he actually worked very closely, and I can remember this, with then-Speaker Tip O'Neill on budgets and on fixes for the social security program. Why do our current slate of politicians have such difficulties getting together on these big issues?

SLOAN: Reagan and O'Neill were on the same planet. Reagan agreed to increase taxes and O'Neill agreed to cut benefits and raise taxes on social security. After 30 years of everyone demonizing their opponents, the Tea Party people and the Democrats -- they're not on the same planet, they may not even be in the same universe. And it's very hard to talk when you're dealing with an alien.

CHIOTAKIS: Some conservatives believe Reagan's economic philosophy laid the ground work for expansion that took place in the 90s. Do you agree with that?

SLOAN: No, but of course they agree with that because you cut taxes, there was prosperity, ergo a created base. You could make a symbol or argument that Clinton raised taxes and there was prosperity in the 90s. The thing that really happened I think that neither party did was there was this enormous stock boom. It increased tax revenues, it let all sorts of employers not have to fund pension plans, and that was much more a factor in the 90s boom than I think Reagan's tax cuts were in the 80s.

CHIOTAKIS: Fortune magazine's Allan Sloan. Allan thanks.

SLOAN: You're welcome Steve.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

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