Larry Kudlow, who served as a top economist in the Reagan White House, said there are some crucial steps the 40th president took to bring down inflation in the early 1980s that would work again now.
The consumer price index, used to measure inflation, hit 9.1 percent in June, the highest annual jump since November 1981 — during the first year of Ronald Reagan’s presidency.
Inflation had been a major problem when Reagan took office, having peaked at over 13 percent in 1979, and it remained nearly that high in 1980 during the last year of Jimmy Carter’s presidency.
By 1982, two years into Reagan’s first term, inflation was down to 3.8 percent, and it remained relatively low for the rest of his time in office.
On Thursday, Fox News host Martha MacCallum said to Kudlow, “We know what Reagan would do. Right? We know that there would be lowering of regulations, lowering of taxes trying to increase growth across the base.”
Kudlow, who also served as a top White House economic adviser to former President Donald Trump, agreed.
“What would Reagan do? Good question,” he said.
“He cut tax rates. That creates incentives to produce more goods. That would reduce inflation.
“He deregulated. By the way, he decontrolled energy so oil prices fell. That would help a lot now. Get rid of all these anti-fossil fuel regulations. That would help now. We need to produce more oil and gas,” Kudlow explained.
Should we follow the Reagan plan to address inflation?
Another ingredient in bringing down prices in the early 1980s was the Federal Reserve raising interest rates. This made borrowing money more expensive and thereby lowered the overall demand for goods and services.
Kudlow called for the Fed to continue to raise interest rates, which it has done three times already this year. He advocated for a full percentage point increase next month and another 0.75 to 1 percent in September.
The current prime lending rate banks charge borrowers is 4.75 percent.
“This is no time for a $1 trillion spending and tax hike package. That would be the worst thing in the world,” Kudlow added.
Congressional Democrats have reportedly been in negotiations for a new $1.5 trillion version of Build Back Better, which failed to pass in the fall. The proposal involves more government spending and raising taxes on businesses and high-income Americans.
Kudlow advised a federal government spending freeze instead.
He argued that Democrats helped launch the inflation spike when they passed the $1.9 trillion American Rescue Plan in March 2021. The legislation flooded the country with money, while at the same time creating a disincentive to return to the labor force.
In May, Kudlow elaborated on this point, explaining that there is currently an imbalance between supply and demand in the American economy.
The answer is implementing Reagan-style supply-side economics.
“The tax hikes and the environmental restrictions [under Biden] are suppressing the supply side of the economy — not enough goods. And the spending increases the demand side of the economy — too much cash,” Kudlow said.
“If you are going to spend more than you can produce, well, prices have to go up. And the obvious solution is to spend less and produce more.”
A version of this article originally appeared on Patriot Project.
