They posited that the only answer to the Keynesian dilemma of simultaneous inflation coupled with recession was to restore sound money and sharply reduced marginal tax rates on both capital and labor. In other words, a hardened dollar, combined with lower taxes, reduced regulation and liberal trade policies would spur economic growth and jobs while combating inflation.
Theses two economists, took me, a GOP Congressional backbencher from Buffalo, N.Y., and turned me from a rather orthodox conservative in the Eisenhower wing of the Party, into a radical tax rate cutter and classical liberal on trade and globalization.
Candidate for President Ronald Reagan in 1980 turned out to be the one (and only) candidate among Republicans who fully (and firmly) bought into this neo-classical school of supply side economics because he'd been educated at Eureka College in the late 1920s at the height of the teachings of the 18th century Adam Smith and David Ricardo.
Most people forget that when Ronald Reagan took office the top tax rate was 70 percent and the capital gains rate was near 50 percent. The soft money policies of the Carter administration had left us with rising unemployment and inflation rate of 16 percent, (i.e. stagflation.) Trade was virtually shut down because of the mercantilist trade policies of "the left" in the U.S. and those of "the right" in Japan and "old Europe".
Despite several exogenous events from Y2K to 9/11, from Hurricane Katrina and the rising defense spending in the war on terror, the U.S. economy is the model for the world as more and more nations from Brazil and India to Russia, China, and Eastern Europe begin to emulate our entrepreneurial pro-growth economic ideas.
As I've said, August 1982 was the real beginning of the lower tax rate, lower interest rate and lower tariff policies that turned out 25 years later to have been the policy prescriptions that brought us this remarkable record. As I write this on Monday, the Dow is at 13,335 - not bad!
So to summarize Santayana, yes, we must learn from our mistakes, but equally important we must remember those decisions that from Reagan to Clinton to Bush have given the world a road map to prosperity.
We've come a long way and we've still got a long way to go in lifting more people out of poverty, creating more minority business owners and to further democratize our capitalistic system. So to both Democratic and Republican candidates for the presidency: let's hear a real debate about growth and prosperity and not redistribution of wealth and soaking the rich.