Reagan's economic Legacy

I think this statement by Arnold Kling is fair:

I believe that President Reagan made a positive difference for the economy. However, unlike most analysts, I do not focus on his tax cuts. Instead, I think that Reagan's main contributions were on energy policy, tax reform, and resisting government expansion.

President Reagan's energy policy was to lift price controls and trust the market to take care of OPEC. In doing so, he ignored conventional wisdom at the time. I believe this took even more courage than standing by Paul Volcker, and even today it is difficult to find a politician who appreciates Oil Econ 101.

President Reagan's other big achievement was tax reform -- not the tax cuts of 1981 but the reform of 1986 which flattened the tax structure, eliminated loopholes, and removed some of the disincentive toward saving that plagues our tax system. Unfortunately, the tax system moved in the opposite direction under President Clinton, which is one reason that I believe that Clinton is over-rated on economics.

On the welfare state, President Reagan's record is mixed. He did not touch the "third rail" of Social Security, so he brought about no significant long-term reduction in government's role in the economy. A major examination of Social Security during the Reagan Administration resulted only in a large payroll tax increase that improved the system's financial condition but left its fundamental character unchanged.

However, nearly every other recent President has sought an expansion of the welfare state -- Nixon's enlargement of Social Security, Clinton's attempt at national health care, and George W. Bush's Leave No Educrat Behind and prescription drug benefit programs. So I give Reagan credit for simply holding the line, particularly since unlike George W. Bush, President Reagan had to contend with a Democratic Congress.

I would also add that Reagan's determination to advocate free enterprise went a long way towards making it a credible policy for the long run. Furthermore, while Reagan did not get the overhaul in social security he wanted, he did make the system solvent for a much greater period of time, which gives current and future presidents the opportunity to complete the reforms.