The Reagan Memo: Some sage economic advice from 1980 for the next President.

WSJ Editorial

Nearby today readers will notice excerpts from a memo written to Ronald Reagan by his economic advisers between his November 1980 election and inauguration. We share the memo because it shines a historical perspective on our own economic dilemmas as the Presidential race hits its Memorial Day turn.

The memo was sent to us by George Shultz, who later became the Gipper’s Secretary of State but had served previous stints at Treasury, Labor and the White House budget office. The signers include some of the last century’s most consequential economic figures, notably the great Milton Friedman, tax-cut evangelist Jack Kemp and former Treasury Secretary William Simon.

One lesson is how similar current economic problems are to those Reagan faced when he took office. The late-1970s were also a time of great economic anxiety fed by runaway government. Spending was out of control, taxes were too high, regulation too burdensome and energy too expensive. The big difference is that inflation today is lower, though food and energy prices have climbed fast until recently.

But the cause for optimism is that if the problems are similar, the solutions can also be similar. The memo is a tacit rebuttal of the White House talking point that today’s Republicans are more radical than Reagan. Today’s policy debates are remarkably similar to those 32 years ago. The Gipper’s advisers wanted to reduce the cost of capital by cutting capital-gains taxes, for example, while Jimmy Carter thought like Mr. Obama that taxes don’t much matter to economic growth.

A second lesson is the imperative for consistent policy that focuses on the long term: “The need for a long-term point of view is essential to allow for the time, the coherence, and the predictability so necessary for success.”

An economy recovering from recession or other turmoil needs a steady, consistent hand. This gives business and entrepreneurs the confidence to invest and take risks, and it helps to build a durable recovery as Americans conclude a President isn’t going to change policy every month for political reasons.

Reagan took his advisers’ advice and focused on implementing his reforms his first year, then rode out various storms confident his policies would work in the long run. They resulted in a boom that added an economy the size of Germany’s to U.S. GDP.

This is the opposite of President Obama’s approach, which has been marked by the helter-skelter of temporary tax cuts, stimulus after stimulus, housing bailout upon housing rescue, favoritism for some industries over others, and arbitrary regulation that may or may not be mitigated if the White House feels enough political pressure. This is one reason in our view that the current recovery has been so lackluster.

The same lesson applies to monetary policy, even if inflation today isn’t running at 13%. The Federal Reserve’s policy fits and starts since 2008 have also contributed to economic uncertainty, as markets have had to absorb quantitative easing, Operation Twist and an unprecedented cacophony of Fed voices preaching greater ease or not. The next Fed Chairman would do well to heed the memo’s advice of “conducting monetary policy in a steady manner” with the principal goal of price stability.

Perhaps the best reason to read the memo is as a reminder that, however large and insoluble today’s problems seem, we have seen worse and solved them. The key is the right leadership with the right policies.

you cna read the full Reagan Memo here

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