Theory 2 Action Podcast
Theory 2 Action Podcast
MM#394--How to Grow the U.S. Economy?
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Reagan would be horrified by today's $36 trillion national debt—36 times the figure he found alarming in 1981. Yet history offers powerful lessons for growing our economy under this crushing weight through the success stories of three administrations that sparked extraordinary economic booms.
The Coolidge administration of the 1920s provides our first blueprint. Treasury Secretary Andrew Mellon implemented a remarkably effective strategy: slashing top tax rates from 73% to 25%, cutting federal spending from $5.1 billion to $3.1 billion, and reducing national debt by one-third. The results? A sustained 4% annual GDP growth, 70% surge in industrial output, and unemployment below 4%—the "Roaring Twenties" weren't just cultural, but economic dynamism unleashed through deliberate policy.
Kennedy later bucked Democratic orthodoxy by cutting the top tax rate from 91% to 70% in 1963. Though his rhetoric emphasized employment goals, the mechanics mirrored Mellon's approach. The economy responded dramatically with growth hitting 5.8% in 1964 and 6.6% by 1966. Reagan made these connections explicit, implementing tax cuts that slashed rates from 70% to 28%. Despite criticisms about defense spending, the economy soared—4.6% growth in 1983, an astonishing 7.2% in 1984, followed by years of consistent 3.5-4.2% expansion.
What's sobering is our current economic anemia. America hasn't experienced consecutive years of 3%+ growth since before 2005. The prescription for prosperity remains remarkably consistent across a century: slash taxes to stimulate investment, cut spending to shrink deficits, and pay down debt to free up capital. The blueprint exists—we need only the wisdom to follow it.
Key Points from the Episode:
• Coolidge and Treasury Secretary Mellon cut tax rates from 73% to 25% in the 1920s
• Their formula: slash taxes, cut federal spending, pay down debt to free up capital
• Result was 4% annual GDP growth and the "Roaring 20s" economic boom
• Kennedy bucked Democratic orthodoxy with tax cuts from 91% to 70%
• Economy responded with growth rates of 5.8% in 1964 and 6.6% in 1966
• Reagan's tax cuts led to 4.6% growth in 1983 and 7.2% in 1984
• America hasn't seen consecutive years of 3%+ growth since before 2005
• Today's prescription remains the same: tax cuts, spending restraint, debt reduction
Join us for our next episode where we'll explore how the American economy functions like a race car, breaking down the mechanics of sustainable growth in more detail.
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Welcome to the Theory to Action podcast, where we examine the timeless treasures of wisdom from the great books in less time, to help you take action immediately and ultimately to create and lead a flourishing life. Now here's your host, david Kaiser flourishing life.
Speaker 2:Now here's your host, david Kaiser. Hello, I'm David, and welcome back to another Mojo Minute, as is our custom. Let's begin with a quote. I'm speaking to you tonight to give you a report on the state of our nation's economy. I regret to say that we are in the worst economic mess since the Great Depression. A few days ago, I was presented with a report. I had asked for a comprehensive audit, if you will, of our economic condition. You won't like it, I didn't like it, but we have to face the truth and then go to work on how to turn things around and, make no mistake about it, we can turn them around. I'm not going to subject you to a jumble of charts, figures and economic jargon of that audit, but rather we'll try to explain where we are, how we got there and how we can get back.
Speaker 2:First, however, let me give you a few attention getters from the audit. The federal budget is out of control and we face runaway deficits of almost $80 billion for this budget year that ends September 30th. That deficit is larger than the entire federal budget in 1957, and so is the almost $80 billion we will pay in interest this year on the national debt. 20 years ago, in 1960, our federal government payroll was less than $13 billion. Today it is $75 billion. During these 20 years, our population has only increased by 23.3%. The federal budget has gone up 528%.
Speaker 2:And that, my friends, was President Ronald Reagan, in February of 1981, giving us his first televised Oval Office address. Giving us his first televised Oval Office address, he did it with sobriety, with a cleared-eye explanation of the economic crisis before us, and that speech was remarkable for his plain spokenness. The speech was dubbed the we Are Out of Time speech. It was Reagan's attempt to tell the country where we were, how we got there and how we were going to get out of the mess we were in. Ronald Reagan back then warned the United States was out of time to address the national debt approaching $1 trillion, framing it as a critical moment to curb deficit spending and inflation, which he saw as the threats to economic vitality and prosperity. Now fast forward to 2025, and the national debt has ballooned to $36 trillion, a figure 36 times larger than the one Reagan found incomprehensible, times larger than the one Reagan found incomprehensible. So the question is how do we grow the economy under this weight? Well, reagan offers us a historical lens, because if you and I were in the position of the president back in 1981, or we were in the position today, in 2025, if we had good head on our shoulders, we would keep things simple and ask the simple, direct question If we want to grow the American economy, how in the past has the American economy grown? When were the best times? When were the worst? What factors or policies contributed to each? That's what Reagan did in the 1980s no-transcript.
Speaker 2:But Reagan looked back at other times too, in fact the 1960s. He saw where President Kennedy bucked his party's longtime orthodoxy on government spending. He grabbed a little of this and a little of that and in fact he used those policies that were a little bit closer to a growing segment of Republicans. At the time they were called supply-side economics. At the time they were called supply-side economics. The economy was jump-started back in 1963, and it grew fast. Unfortunately, president Kennedy wasn't around to see it.
Speaker 2:Now, if you're interested in this story, be sure to check out Larry Kudlow's wonderful book, the JFK and Reagan Revolution A Secret History of American Prosperity. And here's the dirty little secret, though Both Kennedy and Reagan were humble enough to look back in history and found that Calvin Coolidge in the 1920s, under his Treasury Secretary, andrew Mellon, in fact had a blueprint. And what was that blueprint? In fact had a blueprint. And what was that blueprint? Because those are the nuggets of wisdom we have to latch onto and preach from our rooftops nowadays. Well, here we are.
Speaker 2:Coolidge took office in 1923 with the US reeling from the World War I debt of $25 billion, from the World War I debt of $25 billion, or 31% of GDP. We were in a post-war recession. Mellon, his Treasury Secretary, pushed a simple formula Slash taxes to stimulate investment, cut federal spending to shrink deficits and pay down debt to then free up capital. So the top marginal tax rates dropped from 73% in 1921 to 25% in 1925. Federal spending fell from $5.1 billion in 1920 to $3.1 billion by 1929. Real restraint, not just slower growth. And debt was cut by a third to $16.9 billion.
Speaker 2:The result GDP grew 4% annually listen to this from 1922 to 1929. Indeed, it was the roaring 20s. Industrial output soared to 70%, unemployment stayed below 4%. Mellon argued that high taxes stifled enterprise. His cuts unleashed a boom in autos, radios and construction, and it was classic supply-side logic. So there you go, a simple blueprint Again slash taxes to stimulate investment, cut federal spending to shrink deficits and pay down debt, to free up capital. I mean they got 4% annual growth, year after year after year. Holy smokes, if we could get 4% annual growth for just three to four years consecutively, we would be in a whole different world and we would be able to begin to dig ourselves out of this horrific mess.
Speaker 2:We find ourselves in Two more examples of how to grow an economy. Fast forward to 1961, jfk inherited a sluggish economy coming out of the Eisenhower years. Growth was at 2.2% in 1960. Unemployment 6.7%. As an aside, just for some context, of how slow our growth rates have been over the last 25 years, across both Republican and Democrat administrations we have not had back-to-back years of 3% growth or higher since before the year 2005. Let me repeat that again we have not had back-to-back years of 3% growth or higher since before the year 2005.
Speaker 2:So Kennedy in 1963, gets his tax cut passed. It was actually passed psalmously in 1964, where they slashed the tax top rate, the top tax rate from 91% to 70% and corporate tax rates from 52% to 47%. Not significant, but still it's on the supply side of the equation. Now, kennedy didn't cite Coolidge or Mellon directly. He really couldn't. His rhetoric, his words, that is leaned on Keynesian full employment goals. That is leaned on Keynesian full employment goals, but the mechanics, if you dug into it, which Larry Kudlow does in his book, the mechanics mirrored Andrew Mellon's tax relief of the 1920s.
Speaker 2:Kennedy was correct when he said a rising tide lifts all boats, betting against his own party's orthodoxy that lower rates would actually spur investment. In fact it did work. Gdp growth hit 5.8% in 1964 and consecutively 6.6% in 1966, and unemployment dropped to 3.8% by 1966. Now, federal spending rose. During that time Vietnam and Great Society were on the march, so debt didn't shrink like coolages, but the tax cut engine was straight out of the 1920s. Historians like Robert Bartley, who would go on later to lead the Wall Street Journal editorial page and would be a champion of supply-side economics, later noted that Kennedy's team had in fact studied Andrew Mellon and his era to understand how to grow the economy. Okay, so now back to Reagan and how to grow that economy.
Speaker 2:Reagan was way more explicit than Kennedy. Reagan had to buck his own GOP party members, especially Bob Dole, and some dovish economic folks, senators and House members. But in 1981, reagan faced 13.5% inflation and 7.6% unemployment and he zeroed in on Coolidge directly saying in a 1981 speech government's first duty is to protect the people, not run their lives. This was an echo of Coolidge's. The Business of America is Business. Reagan's economic tax cut cut the top rate from 70% to 50% and again later to 28%. He cut business taxes too.
Speaker 2:Reagan's advisors, like economist Art Laffer, who we cite here, often openly tied their ideas to Mellon's tax philosophy. The Laffer curve was Mellon's quote trickle-down economic theory reborn. And so how did we do? What were the results? Did we in fact grow the economy? Well, as the worst president in modern era, joe Biden, used to say all the time Well, sob, it worked. I had to clean up the language because Joe Biden was just that awful and would actually say the SOB part out loud, but it did work.
Speaker 2:Reagan's tax cuts and deregulation policy helped kick off one of the greatest economic booms this country has ever seen. Growth kicked in at 4.5% in 1983, 7.2% in 1984, 7.2% in 1984, and it kept going and going and going. The tax cut-driven surge was a clear homage to Coolidge and the JFK tax cuts. Reagan's team revered the 1920s as proof markets, not government, drives prosperity. And that's the important point.
Speaker 2:Now everyone wants to talk about Reagan's spending cuts that didn't match Coolidge's. The defense budgets ballooned. They tripled the debt to $2.85 trillion. But at the time Democrats held the House and they kept spending recklessly. Think of Ted Kennedy in his prime.
Speaker 2:Now Reagan was always presented with he wanted to have another tax cut in 86, and the Democrats just kept offering, year after year, all the way up to 86, no spending cuts. So they constantly presented him with spending cuts or with tax cuts, and then they would have huge amounts of spending on the back end. And then they would have huge amounts of spending on the back end. Reagan chose to sign the tax cuts. By doing so he would also be signing the spending increases because the economy was growing so fast he thought in the end it would be able to outgrow the ballooning deficit. Probably got that wrong, but I understand his methodology and unless Republicans could win back the House, they were never going to be able to get that corrected. So he bet correctly. And how do we know Well what's the results? And how do we know Well what's the results?
Speaker 2:Let's go year by year on GDP growth percentage. 1980, the economy was in recession prior to Reagan taking office. This is Paul Volcker's rate hikes of the late 1970s. Paul Volcker is the Fed chairman. So the GDP percentage growth in 1980 was 0.2%, in a recession.
Speaker 2:1981, reagan's recovery, just by his speeches alone tax cuts hadn't been enacted yet is 2.5%. They get the tax cut passed late in 81, just as an aside. They get the tax cut passed late in 81. I think it's August of 81. They don't make it retroactive, it doesn't kick in until 1982. So all of 82, the economy drifts back into a recession, a deep recession In fact. We have negative growth, 1.8% for the whole year. Terrible, but that's why you don't get a tax cut passed and then not make it retroactive.
Speaker 2:But what happens in 1983? Regonomics, supply-side economics takes hold, 4.6% growth, 4.6% growth, 4.6% growth. The economy is on a rebound and the economic engine is going fast. What happens in 84? Even better 7.2%. This is Reagan's peak growth Wins. A landslide election in November of 84. 1985, sustained expansion, 4.2%. 86, 3.5%, steady, consistent growth. 87, still 3.5%, consistent growth. He gets the tax cut passed, like I said in 86, to keep the economy going. 88, 4.2% growth. This is just late 1980s strength. And in 1989, we're still at 3.7% growth and we know there's a slowdown in 1990. Different administration took office in 89. Did not follow supply side economics.
Speaker 2:So in today's Mojo Minute, let us understand how to grow an economy. Let's look back in the past where we have grown before. Let's keep it simple. Go back and read Coolidge and Andrew Mellon stuff, the 1920s. Go back and read about Kennedy and the Reagan Revolution and economic policies and keep things simple. How do we grow an economy? Three things we slash taxes to stimulate investment, we cut spending to shrink deficits and we pay down debt to free up capital. So for today's 2025 GOP leadership, the president wants the tax cut passed by Memorial Day we're at the latest by July 4th and make it retroactive. Let's learn from history and get it done. As always, folks keep fighting the good fight and let's pray for passage to make the 2017 tax cuts permanent and PS. In our next podcast episode, we'll dig further into how the economy the American economy is like a race car. So be sure to come back on Wednesday for our next installment of how to Grow the Economy.
Speaker 1:Thank you for joining us. We hope you enjoyed this Theory to Action podcast. Be sure to check out our show page at teammojoacademycom, where we have everything we discussed in this podcast, as well as other great resources. Until next time, keep getting your mojo on.