Tomorrow afternoon and evening, on Wednesday, October 28, the fourteen Republican candidates will be debating at CU’s Coors Events center. A number of students shall be in attendance – I am bringing four. CNBC-TV is the broadcaster, and my co-author, CNBC anchor Larry Kudlow, is arriving in Boulder just now for a series of events with us and with the debate tomorrow evening.
Larry and I are completing a book on the great John F. Kennedy tax cut of 1964—the tax cut that not only gave us the boom of the 1960s, but inspired Ronald Reagan to emulation. In the Republican primary debates of 1980, it was the major issue that separated Reagan and his opponent, George Bush.
Bush won the Pennsylvania primary that April, much on the strength of a new line. He called Reagan’s economic plan “voodoo economics” in the primary’s stretch run. What has been forgotten is why Bush called Reagan’s plan voodoo economics. Bush believed that Reagan’s across-the-board income tax rate cut of 30 percent (modeled off the Kennedy cut) would result in a consumer price inflation of an equal magnitude—of “30 to 32 percent,” in Bush’s words. That was why Reagan’s plan was voodoo: it would cause inflation.
The following clip is from the content-heavy debate Reagan and Bush had in Texas that April, shortly after Bush’s big Pennsylvania win. At 5:40, Bush specifies his belief that Reagan’s tax cut will cause a 30-32 percent inflation. Shortly thereafter, he speaks of the concerns about Reagan’s plan from “our creditors abroad.”
The debate was content-rich: perhaps unlike what prevails in political discourse today. But the facts certainly did bear out Reagan’s position—wiping out the legitimacy of the “voodoo” charge. Once Reagan’s 25 percent tax cut passed in August 1981, inflation (which had been running in the double-digit rates), collapsed almost immediately to 3 percent per year. In addition, the interest rate on the 30-year long-bond (the preferred vehicle of America’s creditors abroad), peaked in 1980 and marched relentlessly downward as Reagan’s tax cut came in—so much so that the bond actually had to be retired for a time in 2002.
Here is the central clip of the powerful Republican primary debate in 1980:
And here are the graphs of the historical inflation and long-bond rates:
https://research.stlouisfed.org/fred2/series/FPCPITOTLZGUSA
https://research.stlouisfed.org/fred2/series/GS30