Obama’s second term economic policy is based on the Beatles song, Taxman:

Let me tell you how it will be. It’s one for you, nineteen for me.

CSMonitor.com has the story:

An impasse over the shape of the federal budget keeps boiling down to this basic plotline: Democrats say the solution to high deficits must include more tax revenue, while Republicans say the fundamental problem is spending.

Failure to reach a middle ground has prompted automatic spending cuts known as the “sequester” to go into effect. This wasn’t Plan A, or even Plan B, for either side.

As the politicians look for a way forward, conservative lawmakers say that new budget projections make their case for them. Federal tax revenue is forecast to hit a record $2.7 trillion this year, according to the Congressional Budget Office (CBO).

“Spending is the problem, which means cutting spending is the solution. It’s that simple,” said Rep. Cathy McMorris Rodgers of Washington State on Saturday, as she gave congressional Republicans’ weekly address to the nation. She cited the CBO forecast of record revenues.

Case closed?

Not so fast. The budget numbers tell a more complicated story – one that makes fiscal politics difficult for both parties.Yes, if $2.7 trillion in revenue materializes this year, that would set a record. It would surpass the prior peak of $2.6 trillion, set back in fiscal year 2007 before the recession began.

But that doesn’t mean federal tax receipts are fully back to normal.

Economists generally compare taxes and spending to the size of overall economy. That’s because demands on government often increase as the economy grows and population rises. And the value of tax receipts needs to be adjusted for inflation, to give a real sense of purchasing power.

Tax revenue will total 16.9 percent of gross domestic product this year, the CBO predicts, compared with 18.5 percent of GDP in 2007. It looks as if it will take another year, until 2014, for tax revenue to get back to 18 percent of GDP, which has been the average level since 1973.

But here’s the big issue: There’s no level of tax revenue or federal spending that’s automatically the “right” level. Yesterday’s averages don’t tell us what tomorrow’s should be.

And most signs point toward difficult choices ahead. Entitlement programs including Medicare, Medicaid, and Social Security are taking up an ever larger share of federal spending.

Is spending “the problem”? Yes, in one sense. If federal outlays could be steered permanently back to their 35-year average of 21 percent of GDP, much of the national-debt problem would be solved.

But the answer is no in another sense. In polls, Americans are generally reluctant to see cuts in those major entitlement programs. They don’t call Social Security or Medicare “the problem”.

That is because Baby Boomers, like myself, understand how a great president can turn around this nation’s economy. We lived through it and we told our children how it happened.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -digit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax rates to restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

3. Anti-inflation monetary policy restraining money supply growth compared to demand, to maintain a stronger, more stable dollar value.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

For all of you Liberal idiots who dared tried to compare the Manchurian President to the Gipper:  Y’all need to quit smoking the Hopium.

Obama failed efforts toward “fixing” our economy, remind me of Rosanne Barr singing the National Anthem: tone-deaf, flat, and extremely painful.

Until He Comes, 

KJ