Presidential Radio Address - 21 January 1984
My fellow Americans:
It's that time again when we're deluged by a blizzard of economic facts, figures, and predictions. I hope you'll keep in mind that economic forecasting is far from a perfect science. If recent history is any guide, the experts have some explaining to do about what they told us had to happen but never did.
When our economic program first began in late 1981, many of the doom-criers had warned it would push inflation and interest rates through the roof. It hasn't quite worked out that way. We inherited 12.4-percent inflation in 1980; today it's 3.2. And the prime interest rate has dropped from over 21 percent to 11 percent.
Last year, those pessimists were back again. They told us bad times would go on and on and on. One forecaster said we were on the brink of a major collapse. Another one of Wall Street's favorites made headlines when he said the recovery would be "one of the weakest on record."
I'm not trying to belabor a point, but these predictions just aren't panning out. Far from being weak, this recovery has been one of the strongest since the 1960's. More people are on the job than ever before in our history. From solid growth in housing to new frontiers in high technology, from a healthy recovery in real wages to a big improvement in productivity, and from record increases in venture capital to new highs in the stock market, America is moving forward, getting stronger, and confounding everyone who said it can't be done. Well, like "The Little Engine That Could," it is being done.
I only wish this would convince the naysayers to let up a little, but they don't seem willing. This year we're hearing a new variation of their gloomy refrain, not about inflation or interest rates taking off, not about the recovery that won't happen, but about the recovery that can't last. Government deficits, we're told, will kill the recovery by draining capital needed by business to keep the economy expanding.
Well, I happen to believe those who underestimated the strength of this recovery may be wrong about the size of future deficits, too. But let's be clear: The deficits do matter. The problem is they were created by a pattern of overspending that began 50 years ago and that's been hard to break. We must bring deficits down and work toward a balanced budget. The question is: How? By spending cuts and economic growth or by tax increases? I don't think you need to be an economist to understand the evidence. We don't face large deficits because you're not taxed enough; we face those deficits because government spends too much.
Even with our tax reductions now in place, families are still being taxed at near record peacetime levels. Yet, as fast as taxes have gone up, spending has gone up even faster. In the past, raising taxes simply encouraged government to spend more. And since people had less money in their pockets to spend or save, economic growth was hurt. So fewer people were employed and able to pay taxes. Deficits went up, not down.
The World Bank has released a study showing that countries with lower tax burdens have consistently enjoyed higher growth rates. Japan, where I recently visited, has had the lowest tax burden and the highest growth rates of all the developed nations.
We must try harder to reduce spending. Back in 1967, as Governor of California, I asked a group of business executives to survey the State bureaucracy and identify potential savings. They made about 2,000 recommendations, and we implemented most of them. Their work helped return fiscal integrity to a State that had been spending a million dollars a day it didn't have.
Now, we're trying the same approach in Washington, because believe me, there's plenty of fat to cut. The Grace commission, comprised of nearly 2,000 leaders from private industry, has just presented us a blueprint for reducing wasteful spending. The commission recommended that the Federal Government upgrade its computer systems. This could save $4 billion. Tracking certain incorrect pension payments could save $4 billion. These are but two of some 2,500 examples that could save taxpayers billions and billions of dollars. And, as the late Senator Everett Dirksen said, "A billion here, a billion there—pretty soon you're talking about real money."
We should prepare for strong protests from Washington-based representatives of the many special interest groups. They will fear that implementing such management reforms means cuts for their favorite programs. What we're really talking about is doing things more efficiently without hurting people in need and without compromising America's security.
Yes, we have a deficit problem. But let's be sensible about it. When warnings about deficits seem to be hysterical, just remember the lessons of recent history. Predictions are often wrong. Some may be using predictions to mask their favorite pastime-raising your taxes; others may underestimate our ability to cut government down to size over time.
Like death and taxes, the doom-criers will always be with us. And they'll always be wrong about America until they realize progress begins with trusting the people. With your support, we'll make this year's batch of pessimists as wrong as last year's.
Till next week, thanks for listening, and God bless you.