Ending regulations invites bad deals

In an April 30 letter, I argued that supply- side economics — the theory that cutting taxes leads to investment, economic growth and jobs — does not work. I noted that infrastructure and other job creation programs advocated by President Barack Obama would have worked if Congress had supported them.

In his letter last Wednesday, U.S. Rep. Pat Tiberi suggested that “when President Ronald Reagan slashed tax rates and eased burdensome regulations, the economy flourished.” Let’s look at the facts.

Reagan cut federal income taxes 23 percent over three years, reducing the top marginal rate on individuals from 70 percent to 50 percent.

The result: From 1980 to 1989, the national debt tripled from $ 914 billion to $ 2.7 trillion, making the United States the world’s largest debtor nation.

The Treasury borrowed heavily to service the debt, paying high interest rates. High interest rates, in turn, absorbed private investment funds, which were put into bonds rather than economic growth.

In addition, Reagan abolished many economic regulations.

And, in 1982, he signed the Garn-St. Germain Depository Institutions Act, which increased the federal insurance that savings and loan depositors had available from $40,000 to $100,000. Savings and loan associations were authorized to engage in a wide range of loans and investments, including junk bonds and other high- risk securities.

By the late 1980s, bad deals and even theft of company funds brought the collapse of many S&Ls. Depositors were wiped out. The resulting government bailouts amounted to $ 161 billion.

In 2009, economist Paul Krugman noted that the Reagan-era end to Franklin D. Roosevelt’s regulations on mortgage lending, and other loosened lending standards led to an “explosion of debt,” leading to the Great Recession.

Corinne Lyman Delaware