Reflecting on the days of Reaganomics: Pres. Ronald Reagan brought financial greatness back to America by reducing regulation, government spending, marginal tax rates, and inflation

WHEN THE NAME Ronald Reagan is uttered, a multitude of images and impressions of one of the most popular presidents of all time immediately come to mind. Though some may not choose to remember Reagan as the greatest president ever to grace the While House. none can deny that his love for American ideals and his passion for the miracle of self-government remain unmatched in modern times.

Reagan brought financial greatness back to America and ended the Cold War--giving the U.S. back its dignity alter Vietnam and the humiliation of Iron taking American citizens hostage.

His political, economic, and moral contributions to our country and the world will be felt for many generations to come. He truly was a man of the people, by the people, and for the people.

Reagan defeated communism, stopped runaway inflation, cut government spending, and called a Presidential Commission to study returning to the gold standard. "Reaganomics" was the most serious attempt to change the course of U.S. economic policy of any Administration since Franklin Roosevelt's New Deal. "Only by reducing the growth of government," Reagan maintained, "can we increase the growth of the economy."

Reagan's 1981 Program for Economic Recovery had four major policy objectives. It sought to reduce: regulation, government spending, marginal lax rates, and inflation. These changes, in turn, were expected to increase saving and investment, spur economic growth, balance the budget, restore healthy financial markets, and reduce inflation and interest rates. Reagan delivered on all counts, although not to the extent that he and his supporters had hoped.

Reaganomics set the stage for major expansion in the 1990s--the so-called Goldilocks Economy--but not without a fair amount of pain along the way. The fruit of trickle-down, or supply side economics that Reagan established brought the U.S. out of its 1982 recession and set the stage for the greatest growth the world ever has seen, before or since.

* Tax rates were cut by more than two-thirds to 28%, creating 19,000,000 jobs.

* The inflation rate dipped from 13.5% to 4.8%.

* Interest rates dropped from 22% to 11%.

* Unemployment went from 7.5% to 5.4%.

* The Dow jumped from 860 to 2,753. Prior to Reagan taking office, the highest the Dow had seen was 1,020. Reaganomics was responsible for doubling the Dow from the old high--tripling it from the time he became president.

* Gross domestic product doubled from 2.7 to 5.4 trillion dollars.

Reaganomics appears to be the economic model that George W. Bush is following with his massive tax cuts and defense spending boosts. However, unlike Reagan, Pres. Bush does not appear interested in major spending cuts or trimming government regulations.

The primary difference between Reagan and Bush is their commitment to cut the Federal government down to size. Reagan was willing to make hard choices, which required Americans to sacrifice. Bush, however, realizes that today's citizenry is so spoiled with cheap money that a return to the discipline of Reaganomics easily could cost him reelection.

A look back

Inflation was rampant during the early years of Vietnam and Pres. Johnson did nothing to stop it. Then LBJ's successor, Richard Nixon, took the country completely off the gold standard and implemented wage and price controls. All that did was cause long lines at the gas station. After Jimmy Carter assumed office, there was the infamous Iranian hostage crisis and the invasion of Afghanistan by the Soviet Union. Luckily for the nation, Reagan subsequently whipped Carter in a landslide and moved into the Oval Office in January, 1981. The hostages renamed home the day after Reagan was sworn in.

On the economic front, Reaganomics rode a decade-long wave before fading. The bursting of the dot.com bubble, coupled with the 9/11 attacks and the inevitable--these things go in cycles--return of recession signaled an end to this unprecedented period of prosperity.

Reagan also understood that gold should be a part of the foundation of a sound monetary system. As he remarked at a question-and-answer session at a breakfast for newspaper and television editors on Feb. 19, 1981: "One economist pointed out a couple of years ago ... when we started buying the oil [from] the OPEC nations, 10 barrels of oil were sold for the price of an ounce of gold. And the price was pegged to the American dollar. And we were about the only country left that still [was] on a gold standard. And then a few years went by, and we left the gold standard. And as this man suggested, if you looked at the recurrent price rises, were the OPEC nations raising the price of oil or were they simply following the same pattern of an ounce of gold, that as gold in this inflationary age kept going up, they weren't going to follow our paper money downhill?"

Although Reagan failed to reimplement the gold standard, this issue is not going away, especially now that there are radical Islamic terrorists who are determined to destroy the dollar and bring down the U.S. economy.

Presidents who accomplish great things are not afraid of risk. On the contrary, they welcome it. They realize that popularity is not to be hoarded like poker chips. Rather, it is to be expended in pursuit of accomplishments that make the U.S. more prosperous and secure in the long term.

Reagan was firm in his belief that the money supply--and only the money supply--fundamentally determined the inflation rate. However, he also knew that other policies could ease the transition to a low-inflation economy. Toward this end, he cut tax rates and reduced business regulation to increase the production of goods and services; deregulated the price of oil, which broke the OPEC oil cartel; and fired striking air traffic controllers, which helped get the wage-price spiral under control.

Soviet leader Vladimir Illyich Lenin once said, "The best way to destroy the capitalist system is to debauch the currency. The process of inflation engages all of the hidden forces of economic law on the side of destruction, and it does so in a manner that not one man in a million is able to diagnose."

If tree, Reagan was that one man, and to this day, America is better for his unwavering leadership. Or, as Pres. Theodore Roosevelt made clear: "It is not the critic who counts, not the man who points out how the strong man stumbled.... The credit belongs to the man who is actually in the arena ... who, at worst, if be fails, at least fails while daring greatly; so that his place shall never be with those cold and timid souls who know neither victory nor defeat."

Ronald Reagan met this test. He identified the great challenges facing the free world at the end of the 20th century and then set about to face them with steadiness, determination, and an ability to rally the American people to his side at critical moments.

As it should be, we will give Reagan himself the last word: "I have long believed that the guiding hand of Providence did not create this new nation of America for ourselves alone, but for a higher cause: the preservation and extension of the sacred fire of human liberty. The Declaration of Independence and the Constitution of these United States are covenants we have made not only with ourselves, but with all of mankind. Our founding documents proclaim to the world that freedom is not the sole prerogative of a chosen few; they are the universal right of all God's children."

Craig R. Smith is chief executive Officer of Swiss America Corporation, Phoenix, Ariz., and author of Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush.

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