"I’ve been asked if I have any regrets. Well, I do. The deficit is one.” — Ronald Reagan’s farewell address.
When Ronald Reagan was elected president the Dow Jones Industrial Average hovered around 1,000 (less than 2,800 inflation adjusted) — and had dipped, under President Carter, as low as 759. Unemployment stood at an unacceptable 7+%. The Soviet Union was aggressive, bellicose, and, in the eyes of the Western policy elite, could be but contained, not challenged. At the end of Reagan’s eight years in office, the Dow had tripled in value, on its way much higher. Job growth was vibrant. The USSR was well on its way to dissolution.
How did this happen? Rep. Jack Kemp and his team of visionary economists and policy advocates inspired what became known as “the Supply-Side Revolution”. The “cabal,” as it was then known, pressed for a fundamental policy transformation away from high tax rates (70%) and easy money (13+% inflation) to low marginal tax rates and good money. They faced enormous ridicule by the policy elites, being mocked by, among others, Reagan’s foremost rival for the presidency, George H.W. Bush, who derided the modern Classical economic thinkers as practitioners of “voodoo economics.”
Ronald Reagan, adopting the Kemp formula, had a lot on his plate. While restoring economic growth and confronting the expansion-minded totalitarian Soviets, something got left behind: cutting federal spending and thereby balancing the budget. It is this unfinished business which Rep. Paul Ryan, rising to Congressional Budget Committee chairman and now Vice Presidential nominee-designate, took on as his Quest.
The fundamental things don’t change as time goes by. The great anti-federal-profligacy hawk within the original group of Kemp advisers was Lewis Lehrman. According to Evans and Novak’s book on this era, The Reagan Revolution (Dutton, 1981, p. 118), “Lewis Lehrman… disagreed fundamentally with his friends Laffer and Wanniski on the budgetary question. Lehrman believed dramatic and drastic expenditures reduction was no less imperative than tax reduction, rejecting Kemp’s notion of greater priority for the latter.”
Lehrman, described by Kemp adviser and author of The Way the World Works Jude Wanniski, as a 42-year old “financial wizard”, wrote a key transition memo for president-elect Reagan and his team: