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Getting Past Reagan

The question for the 2020 US election season seems straightforward: Should Americans continue with some version of the Reagan regime, which is likely to deliver consistently mediocre growth and extreme income inequality? But the real question is how to enact policies resisted by the oligarchy that the Reagan Revolution created.

WASHINGTON, DC – Three primary factors determine economic prosperity: human capital (the population’s education and skills); physical capital (the amount and quality of physical infrastructure, including machines, buildings, energy, and transport); and technology (scientific knowledge and its application). From the 1980s, the theory of growth among policymakers in US President Ronald Reagan’s administration and elsewhere was that lowering the rate of taxation on capital – and on high incomes more generally – would lead to more investment and faster adoption of new technology. This, in turn, would boost wages and incomes across the board. After 40 years of such policies in the United States, pursued to varying degrees by Republicans and Democrats alike, the overall outcome can be summed up in one word: disappointing.

In part, the disappointment reflects the relatively low rate of economic growth since the Reagan Revolution began in 1981, particularly over the past two decades. The US economy used to grow by more than 3% per year, but now it is lucky to reach 2.5% – and, if the Congressional Budget Office forecast is right, it will struggle to attain even 2% annual growth during the next decade.

The disappointment becomes even more acute when we consider who has benefited from what growth has occurred. Specifically, there is no evidence of the “trickle down” effect that Reagan’s acolytes were so confident would be unleashed by cutting taxes for those at the top.