Reagan's income-tax cuts slashed the top 70 percent rate by more than half.
Keep competition high. When companies fiercely compete with one another, the result can be lower prices and more innovative companies, products, and services. "The key to the last 25 years is the opening up of all sorts of sections of the economy to increased competition," says Paul London, a former Clinton policy adviser. Starting in the 1970s, many American industries were deregulated, including transportation, banking, and communications.
Keep inflation low. Along with deregulation, tighter monetary policy under Federal Reserve Chairmen Paul Volcker and Alan Greenspan saw inflation fall from double-digit rates to 2 percent or so today. "It is important to avoid spikes in inflation that have to be reversed by recessions like the one at the start of the 1980s," explains Martin Feldstein, head of the National Bureau of Economic Research. "Inflation is also deadly for financial assets like stocks and bonds."
Keep taxes low. The Reagan tax cuts dropped the top rate from 70 percent to 28 percent and indexed tax brackets for inflation. But don't forget the landmark capital-gains-tax cut of 1978 or the 1997 capital-gains-tax cut, both signed by Democratic presidents. All reduced penalties on working and investing. Indeed, new research from the University of California-Berkeley found that U.S. tax cuts since World War II have had "very large and persistent positive output effects."
And where do we stand today? The American economy is still more than double the size of China's. It's also the world's most competitive, at least according to the highly respected World Economic Forum in Davos, Switzerland, based on America's great higher education, flexible labor markets, and superior innovation.
Admittedly, the long boom is a tough act to follow. "In terms of taxes, regulation, and inflation, we are probably not going to do as well in the next 25 years as we did in the first 25 years," says John Silvia, Wachovia's chief economist. "We've made the big moves [already]."
Perhaps. Yet there is more America can do to ensure the good times keep rolling. But sequels, as any movie buff knows, are rarely as good as the original article. For every Empire Strikes Back, there are plenty more Phantom Menace types. But that doesn't mean "Superboom: The Next Generation" can't be a heckuva ride.
With Luke Mullins
