Reagan’s Legacy

The Reagan Legacy
George Gilder

Ronald Reagan’s legacy is a new epoch of American leadership in liberty and strength. Through his economic policies, Reagan brought the United States to world leadership among major industrial nations in all the key dimensions of economic growth: investment (51 per cent growth), industrial production (30 per cent growth), manufacturing productivity (26 per cent growth), job creation (15 million new jobs), real per-capita income (18 per cent increase), and technological innovation (a rising U.S. market share in information technologies).

Defying a worldwide siege of economic stagnation, the Reagan boom was unique in the postwar era. By contrast, the U.S. economic recoveries of the 1950s, 1960s, and 1970s all fed on faster growth abroad. During all these prior upturns, the U.S. lagged behind Europe and Japan in all the key indices of expansion. During the Reagan era, the U.S. surpassed Europe by a wide margin and caught up with Japan in rates of economic growth, and led the world in growth of investment and employment. Since Reagan assumed office, the U.S. has been the only major industrial nation to increase investment as a share of GNP or to reduce unemployment.

Unlike the last U.S. surge in job creation, in the 1970s, when productivity and real incomes declined, Reagan’s world-beating employment boom was accompanied by a record six-year surge in manufacturing-productivity growth, a steady rise in per-capita income, and a striking increase in the quality of jobs.

Reagan fostered an entrepreneurial resurgence that has restored the U.S. edge in innovation. Over the last several years U.S. firms have been expanding their global lead in the key technologies of the information age. Contrary to many false claims, U.S. firms still produce half the world’s microchips. The U.S. share of global computer-software production has been increasing since 1982. At a time when value-added in information technology is moving toward software, microcomputers, and networks, U.S. production of computer software, telecom products, and personal computers is between four and five times Japan’s. With scores of new firms in microchips, bioengineering, superconductivity, and supercomputing, Reagan is leaving a legacy of the largest and most rapidly growing generation of high-technology business start-ups in history.

Under Reagan, leading investors around the globe renewed their commitment to the U.S. economy. U.S. investors happily ended their feckless role as “net lenders” to the world, stopped pouring their money into Third World and Communist ratholes, and repatriated funds to the United States. Foreign investors also spurned their own economies and focused investment on America.

This capital flight from abroad and capital repatriation by Americans allowed the U.S. to become the world’s leading importer of advanced goods and equipment. Much decried by misinformed mercantilists and xenophobes, this influx of imports and investments was a thoroughly positive reflection of U.S. success in integrating the world economy in the interests of Americans. More than a decade ago, supply-side pioneer Robert Mundell predicted that one necessary and benign effect of tax cuts would be a trade gap. With the U.S. market growing twice as fast as foreign markets, exporters to the U.S. naturally outperformed U.S. exporters to the rest of the world.

On the government side, the Reagan Administration decisively improved the federal debt position. In one of the least-reported transformations of the century, a restructuring of Social Security under Reagan reduced the actual burden of national debt (the real net liabilities of the government) by some $2 trillion. Under Reagan the governmental budget deficit remained lower than the average in other industrial countries; in 1988 it was projected by the OECD to be smaller even than West Germany’s as a share of GNP.

Under Reagan’s tax-cutting regime, real federal revenues in 1982 dollars followed the Laffer curve, growing nearly twice as fast during the 1980s as during the 1970s, and far faster than the revenues of tax-hiking and bracket-creeping European nations. The overall balance sheet of the U.S. economy improved decisively; with the stock market doubling in real terms, bond values increasing by about $2 trillion, and a general rise in real-estate values all dwarfing the deficit, national assets climbed faster than liabilities after declining during the 1970s.

Through his inspiring speeches and cogent example, Reagan has launched a global revival of capitalism. From Margaret Thatcher in Britain to Edward Seaga in Jamaica, a long list of political leaders have cited low U.S. tax rates as a key reason for their own tax reductions. After long delay, Mrs. Thatcher has now unleashed a surge of investment, job growth, and trade deficits that soon may prove comparable to Reagan’s.

Taking the argument to the USSR in his historic address to the students at Moscow University, Reagan has carried his global crusade for freedom into the teeth of the Kremlin. Supply-side arguments now resound at the Politburo. All over the Third World, from Ghana to the Philippines, national leaders are sloughing off the coils of socialism and emancipating their workers and entrepreneurs.

Finally, a key Reagan legacy is a defense program based on a recognition that our national peril may rise apace with our national prosperity. Reagan’s economic and philosophical defeat of socialism will remain in jeopardy without the complement of new national military strength. Rattling sabers and tin cups, the mendicant militarists of the evil empire–impotent to create wealth–still can wreak havoc. Whatever happens in the Soviet Union, moreover, the United States will have to continue an arms race for the next century with international terrorists and military criminals of socialism lashing out from their caves and covens against the triumph of freedom. In launching the strategic defense initiative, Ronald Reagan left perhaps his most indispensable legacy: a commitment to use the on-going ten-thousandfold ascent in the efficacy of the new information technologies to bring the arms race under control at last–under American control, the only kind of control that matters.

National Review

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