Reaganomics

[Raz]

I found this to be an interesting read and I'm sure that "interesting" will mean very different things to various iTulipers depending upon their location on the political spectrum.

Dr. Roberts is a very intelligent fellow and I'll admit that his political viewpoint is very close to my own.
(An "easier-on-the-eyes" version is attached.)

December 19, 2010
Reaganomics

By Paul Craig Roberts
I admire Robert Reich, because he has a social conscience. However, if I were writing about the current Republican/Obama tax cut, I would not help the Republicans put Ronald Reagan’s name on it. Outside of progressive circles, which reflexively blame Reagan, the 40th president is still popular, because the 1980s were the last of the good times. Who prefers 21st century America to the Reagan 1980s?

In his recent article "Reaganomics Redux" in Reader Supported News (17 December), Reich writes that "Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense." As Reagan’s first Assistant Secretary of the Treasury for Economic Policy, often labeled both in praise and derision "the father of Reaganomics," I would like to offer a different perspective.

Reagan came to Washington to put an end to stagflation and the Cold War. Keynesian demand management had the wrong policy mix. Easy money pumped up aggregate demand, but high tax rates reduced the response of supply to demand. Consequently, prices rose. The problem was reflected in worsening "Phillips curve" tradeoffs between inflation and employment. As time passed, higher rates of unemployment were required to bring down inflation, and higher rates of inflation were required to boost employment.

Washington was concerned, including Democrats in Congress, because stagflation threatened every category in the budget.
The supply-side policy, which some label Reaganomics, reversed the policy mix. Monetary policy was tightened to lower aggregate demand, and marginal tax rates were reduced in order to boost the response of supply.

The policy worked. The economy ceased to experience worsening tradeoffs between
inflation and unemployment. I described the policy change in my book, The Supply-Side Revolution, published after exacting peer review by Harvard University Press in 1984. ...

http://www.vdare.com/roberts/101219_reaganomics.htm

[Master Shake]

Re: Reaganomics

I can hear the knives being sharpened.

[Starving Steve]

Re: Reaganomics

Not long after Reagan became President, interest rates went lower, and lower, and lower, and lower, and lower. That was courtesy of Alan Greenspan who was appointed to the Fed by President Reagan............ Let's just keep the historical-record clear and accurate here.

My kind of supply-side economics is a bit different than yours. My kind of supply-side economics is government creating public works projects and EVERYONE will have work. The jobs will be to build hydro-electric dams EVERYWHERE. " Bigger would be better."

If one atomic-power plant or one hydro-electric dam would work, Stalin had two or three EXTRA built. There was no muddle-thru policy. And the government took command of the economy when people were starving, or when the Nazis were burning people in Poland, etc.

Supply-side economics is suppose to be government driving-down the price of everything in order to FLOOD THE MARKETS with everything.

The Nelson River Project in Manitoba drove electric power rates in Manitoba how low????????????? 2-cents per kwh? 1-cent per kwh? It can be done, and it will be done!

The California Water Project gave Southern California water........... Get it? --- not a pipe of water, a river of water that flowed up-hill. Get it?

And there will be atomic-power plants built everywhere in our own time. Let's call it an issue in the Defence of North America.

[jiimbergin]

Re: Reaganomics

Not long after Reagan became President, interest rates went lower, and lower, and lower, and lower, and lower. That was courtesy of Alan Greenspan who was appointed to the Fed by President Reagan............ Let's just keep the historical-record clear and accurate here.

.

Alan Greenspan was not appointed until June 1987, about 19 months before the end of President Reagan's Presidency and almost 2.5 years into his second term.

[thriftyandboringinohio]

Re: Reaganomics

Thanks, Raz. David Stockman is also recently on record with some similar sentiments.

[Master Shake]

Re: Reaganomics

Don't let the facts stand in the way of a good rant.

[Raz]

Re: Reaganomics

Not long after Reagan became President, interest rates went lower, and lower, and lower, and lower, and lower. That was courtesy of Alan Greenspan who was appointed to the Fed by President Reagan............ Let's just keep the historical-record clear and accurate here.

Your history is rather fuzzy - to say the least.

Volcker was in charge of the Fed for six (6) years of Reagan's presidency. (Appointed by Jimmy Carter in 1979.)
Reagan appointed Greenspan in August of 1987; by then interest rates had been falling for more than five years.
Interest rates peaked in 1981 and began a huge decline after the brief upmove of 1984.

I was a stockbroker at the time and remember all of this quite well. Check it out.

[oddlots]

Re: Reaganomics

That was a really rewarding read Raz. Thanks.

[Starving Steve]

Re: Reaganomics

That was a really rewarding read Raz. Thanks.

Let's keep this historical record straight: Jimmy Carter appointed Volcker to the Fed. The year was 1979, I believe? Volcker pushed-up interest rates to the Moon........ or something near it. Then Reagan took office. Then interest rates slowly began to drop. Then the drops kept going. Reagan was President. Then Bush Sr. took-over and the drops in interest rates continued. Then Alan Greenspan was appointed to the Fed. But kiddies, REAGAN AND BUSH were on the same ticket. "REAGAN-BUSH". Bush Sr. was the Vice President under Ronald Reagan. Volcker resigned and Alan Greenspan was appointed to the Fed, either by Reagan or Bush Sr. And the dropping interest rates continued.......... Cheap money only became cheaper. Then came the ZIRP. Bush Junior became President, and Bush Junior appointed Ben Bernanke, the right-hand man of Alan Greenspan. Then came Obama, and to my surprise, Ben Bernanke was retained at the Fed. He was, in fact, re-appointed.

Enjoy the cheapest money in history!

[nero3]

Re: Reaganomics

I read some old newspaper articles from 1993 about the Chinese economy at that time. Those articles seems to be how we could imagine the situation to be maybe a year from now (the boss at their central bank was even fired). I think Obama needs a project. Lower corporate taxes and subsidies in some low debt sector of the economy. His time is running out, but he can still get reelected if he is able to do something about the unemployment.

[Starving Steve]

Re: Reaganomics

The interesting thing about Stalin is that he would ask a question like this: People are starving and unemployed and prices for land and rent and bread and electricity are too high; therefore, why would you oppose building a hydro-electric dam? Why would you oppose wheat growing in the arctic? Why would you oppose dredging a canal? Why would bird-habitat preservation be your energy plan? Why would salmon-habitat preservation be your water plan? Why would you be storing water in a rain-forest? Why would you be telling people that something can not be done? Why would you be telling people that there is a water-shortage in a rain-forest? .... etc.

We will dig-out of this mess.

[c1ue]

Re: Reaganomics

It is quite clear to me - and before this article - what Reagan was attempting to do.

And for the most part, he succeeded.

However, the problem is that his formula - created for a specific time and for a specific purpose, that being deficit spending to hasten the end of the Soviet Union as well as force structural changes in the US economy - was then taken as gospel and an excuse for ever greater deficit spending and lax regulation.

I am more ambivalent now on whether this precedent was worth the ensuring copy cats.

[Raz]

Re: Reaganomics

It is quite clear to me - and before this article - what Reagan was attempting to do.

And for the most part, he succeeded.

However, the problem is that his formula - created for a specific time and for a specific purpose, that being deficit spending to hasten the end of the Soviet Union as well as force structural changes in the US economy - was then taken as gospel and an excuse for ever greater deficit spending and lax regulation.

I am more ambivalent now on whether this precedent was worth the ensuring copy cats.

I agree. Think Dick Cheney and "deficits don't matter".

I don't idealize Reagan or any other politician. (I did when I was much younger and far more ignorant of the "game".)
Hindsight being a perfect 20/20 I now wonder the same thing considering the Bush/Clinton/Bush fiasco.

C1ue, have you read The Fourth Turning? I hate to be fatalistic but if there's any credence to it then we're in far deeper poop than even we think.

[c1ue]

Re: Reaganomics

C1ue, have you read The Fourth Turning? I hate to be fatalistic but if there's any credence to it then we're in far deeper poop than even we think.

I have not, but I have read excerpts.

The book I believe talks about generational behavior - or as I put it, horoscopes combined with numerology.

As you probably know, I'm not a big fan of this kind of thing - my view is that it is a means by which those with some skill in market analysis frame their statements, but that inherently all numerology/wave analysis/horoscopes are worthless.

This is because the beauty of numbers/ graph is that you can get anything you want by varying scales, times, and so forth - hence the 'framing' point.

Unfortunately it also means all those without any skill whatsoever can spout crap endlessly. Divining who is in what category is really a lot of work.

Anyway I highly disagree with any such 'human wave' type analysis - though not completely; there are certainly some relationships but these aren't set in stone (i.e. not all overbearing parents yield hard driving children) nor are human beings so predictable as all that.

The focus right now is on the demographics of aging - but the corollary is opportunity and desire (not lust!).

IMO in a real sense the demographic aging we see now is another function of FIRE - the stress of 2 income families necessary to maintain standards of living is the factor which has cut down reproduction rates hence created the high senior/worker ratio, in combination with post WW II 'rational exuberance'.

A return to prosperity once the present debt overhang is resolved - one way or another - will in turn change the equation.

[Raz]

Re: Reaganomics

I have not, but I have read excerpts.

The book I believe talks about generational behavior - or as I put it, horoscopes combined with numerology.

As you probably know, I'm not a big fan of this kind of thing - my view is that it is a means by which those with some skill in market analysis frame their statements, but that inherently all numerology/wave analysis/horoscopes are worthless.

This is because the beauty of numbers/ graph is that you can get anything you want by varying scales, times, and so forth - hence the 'framing' point.

Unfortunately it also means all those without any skill whatsoever can spout crap endlessly. Divining who is in what category is really a lot of work.

Anyway I highly disagree with any such 'human wave' type analysis - though not completely; there are certainly some relationships but these aren't set in stone (i.e. not all overbearing parents yield hard driving children) nor are human beings so predictable as all that.

The focus right now is on the demographics of aging - but the corollary is opportunity and desire (not lust!).

IMO in a real sense the demographic aging we see now is another function of FIRE - the stress of 2 income families necessary to maintain standards of living is the factor which has cut down reproduction rates hence created the high senior/worker ratio, in combination with post WW II 'rational exuberance'.

A return to prosperity once the present debt overhang is resolved - one way or another - will in turn change the equation.

A perceptive and thoughtful reply.

Thanks, C1ue.