Subject: It's the Reagan economy, stupid
       Date: Wed, 18 Aug 1999 18:10:24 GMT
       From: myared@erols.com
Organization: 
            Deja.com - Share what you know. Learn what you don't.
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            alt.politics.economics


It's the Reagan economy, stupid
By Dinesh D'Souza

     On Aug. 13, 1981, Ronald Reagan sat at a small wooden
table at his Santa Barbara ranch and signed into law the
largest tax cut in American history. The landmark legislation
slashed income taxes by 25 percent across the board over
three years. Although controversial at the time, the Reagan tax
cut is today regarded by many economists as the catalyst that
helped produce the largest and longest economic boom in the
20th century.

     Not surprisingly, President Clinton takes credit for the
peace and prosperity of the 1990s. But Mr. Clinton is no more
responsible for the current boom than Al Gore is responsible
for inventing the Internet. Is it possible to name a single Clinton
policy that plausibly could have generated today's economic
good news? The reality is that Mr. Clinton inherited the low
inflation, technology-driven, post-Cold War economy. His
modest achievement has been to leave it alone. His political
success is entirely due to the fact that, since 1994, when the
Republicans swept Congress, Mr. Clinton has governed as a
born-again Reaganite. If history does not remember him
primarily for his sexual and financial scandals, he is likely to be
recalled as the reluctant custodian of the Reagan revolution.

     Yes, it's true -- the architect of today's era of peace and
prosperity is Ronald Reagan. Many pundits angrily deny this.
The view --which they are energetically promoting in the
textbooks -- is that Mr. Reagan was a lightweight former actor
whose main legacy was to saddle the nation with "$200 billion
deficits as far as the eye can see."

     Yet to understand those deficits and judge Mr. Reagan
fairly it is important to recall the situation he encountered on the
eve of the tax cut, 18-years ago. Double-digit inflation was
driving up prices and eroding savings accounts. At 21 percent,
interest rates were the highest since the Civil War. The energy
crisis had generated long lines at the pump and proposals for
gas rationing. The Soviet bear was on the prowl, having
gobbled up 10 countries between 1974, the year South
Vietnam fell, and 1979, the year the Soviets invaded
Afghanistan.

     Mr. Reagan confronted this bleak landscape with serene
optimism. He sought to revive the economy through a strategy
that combined tax cuts, privatization of government assets, an
easing of the regulatory burden on private companies, and a
tight monetary policy aimed at curbing inflation. At the same
time, Mr. Reagan proposed dramatic increases in defense
spending which he predicted would undermine and perhaps
topple the Soviet empire.

     Many experts dubbed the president's policies
"Reaganomics" and predicted they would prove disastrous.
Not just Mr. Reagan's Democratic opponents but also some of
his own advisers -- including Harvard economist Martin
Feldstein and budget director David Stockman -- warned the
president that if he cut taxes and hiked defense spending
simultaneously the nation would suffer a gargantuan deficit.

     Mr. Reagan went ahead with his tax cuts and his defense
build-up anyway. "I'd like to balance the budget," he said, "but
not at the expense of my tax program or my defense program."
He added that if the budget could not be balanced immediately,
"we'll have to do it later."

     Mr. Reagan's policies were successful in subduing
inflation and reviving economic growth after the stagflation 
of the 1970s. While his critics sulked the president
good-naturedly quipped that the best sign his policies were
working is that "they don't call it Reaganomics anymore." Still,
there were those deficits. Throughout the 1980s many of Mr.
Reagan's adversaries in the academy and the media warned
that the escalating deficits would re-ignite inflation, choke 
the recovery, and wreck the economy. None of this happened.
Indeed in the middle of the 1990s the deficit simply
disappeared and the federal budget is now in surplus.

     Why did this occur? One reason is what columnist James
Glassman terms "the Reagan boom." The Reagan tax cut fueled
an era of economic expansion that began around 1983 and
has, with a few hiccups, continued through the 1990s.
Economic growth also helped to provide much of the venture
capital for the technological revolution that itself accelerated 
the pace of economic growth, creating an upward spiral that has
raised the Dow Jones average from 800 in 1982 to over
11,000 today. This explosion of wealth has generated a
windfall in tax revenue for the treasury.

     The second reason for the disappearance of the deficit is
huge defense savings since the end of the Cold War. Mr.
Reagan's policies contributed to the demise of the regime he
called an "evil empire," and as a consequence America is now
spending $150 billion less every year than before the Berlin
Wall fell. These savings, which are likely to continue indefinitely
into the future, would not have been possible without Mr.
Reagan's determination to win the Cold War.

     These facts give rise to a tremendous irony: the very man
who was blamed for the deficits of the 1980s, Ronald Reagan,
is largely responsible for the budget surpluses of today. Mr.
Reagan is fading into the sunset, but his legacy endures. There
is little doubt that history will recognize the magnitude of his
achievement.

     But on the anniversary of his landmark tax legislation, we
who are enjoying the benefits of today's climate of peace and
prosperity should give Ronald Reagan due credit during his
lifetime.

Dinesh D'Souza is John M. Olin scholar at the American
Enterprise Institute and author of "Ronald Reagan: How
an Ordinary Man Became an Extraordinary Leader."


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Hi,

I got a similar message from the opposite end of the political 
spectrum. 

I attended a talk at the Canterbury Book Store in Madison (just like 
the Little Bookstore Around the Corner in the film "You've Got Mail"),
by economist Robert Meeropol.  You may have heard of his parents?
Well, let's just say that he comes from a Left Wing perspective. He 
is chairman of the economics department at Western New England College
and is the staff economist at the Center for Popular Economics.

He was discussing his new book "SURRENDER: How the Clinton 
Administration Completed the Reagan Revolution." (University of 
Michigan Press, $29.95).

His thesis is, as the title indicates, that Clinton completed the plan,
started by Reagan, to change the nature of  US  society. To reduce the taxes
on the top earners and to end welfare.  Clinton did what the Republicans
could not do. By accepting only minor increases in the top  rate, from
the Reagan 28% to 39% he has established the principle that even the 
"rich" should keep over half of what they earn.  (Recall that the top 
rate was reduced to only 70% by JFK, from its over 90% rate from the 
days of FDR).

And Clinton ended Welfare as a "right".  People would now be expected to
work for a living.  Something that Republicans would never have been able to
establish without his help.  He offers no quarter to Clinton or those
Democrats who would make apologies for him.

Even though he admits that the Reagan era federal deficits have not
harmed the economy, Meeropol is still appalled by this "surrender",  
and he predicted  (when he wrote his book) that it would be a disaster
for the US. We would be in a serious recession by 1999,  and would 
have none of the former "cushions" to protect us. And the rest of the 
world would be much better places because of their Welfare States. 
There should be mass starvation in the streets.  (In the USA, not in 
Ethiopia).

Since the US economy is doing very well now  (and both Europe and Japan are
in serious trouble with high unemployment and recession respectively),
Meeropol recognizes that THUS FAR his predictions have not come to pass (but
we still have over 4 months left in 1999 he pointed out). But he is realist
enough to recognize that the US economy APPEARS to be very good: in fact the
envy of the world. But (according to his ideological bias) it just
cannot last. 

Because if it did, that would justify the reactionary "Reagan Revolution"
that Clinton cemented.

                     ,,,,,,,
_______________ooo___(_O O_)___ooo_______________
                       (_)
jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin
USA. This message was brought to you using biodegradable
     binary bits, and 100% recycled bandwidth.

Subject: Gasp! First Slate, Now the NY Times. Let's start enforcing copyright law.
       Date: 08 Feb 2000 16:41:04 GMT
       From: susupply@aol.com (SUSUPPLY)
Organization: 
            AOL http://www.aol.com
 Newsgroups: 
            sci.econ


<< Reaganomics vs. Clintonomics Is a Central Issue in the Economic Debate

<<By RICHARD W. STEVENSON
WASHINGTON, Feb. 7 -- By the reckoning of the National Bureau of Economic
Research, the independent group that has the final say on these matters, the
current economic expansion -- as of this month the longest on record -- dates
from March 1991. 

<< That was nearly two years before Bill Clinton took office as president. But
since his two terms in the White House have largely overlapped the extended run
of prosperity, Mr. Clinton and his team have not been shy about claiming their
share of credit. 

[snip]

<< But by the reckoning of most Republicans, the current expansion is nothing
more than an extension of a growth surge that began early in the Reagan
administration. With the exception of a short, shallow recession in late 1990
and early 1991 that coincided with the Persian Gulf war, the economy has grown
steadily since November 1982, driven by Reagan-era tax cuts and deregulation,
they say. 

<< To the degree that the country's improved fiscal position has helped, they
say, it was only pressure from Republicans that forced Mr. Clinton to abandon
big spending programs and support aggressive efforts to eliminate the deficit. 

[snip]

<< This current stretch of good times, however framed, clearly has many factors
behind it. There have been dizzying advances in computing power and
breakthroughs in new technologies. Investors have proved eager to finance even
risky new ideas. The nation's work force, strengthened by a huge wave of
capital spending, has become much more productive. The Federal Reserve has
conducted monetary policy with skill and flexibility. The United States has
benefited to some extent from the problems that have plagued much of the rest
of the world. 

But this is an election year, making it hard to avoid putting the economy and
the longevity of this expansion in a political context. 

[snip]

<<...to a remarkable degree, the economic policy debate this year comes down to
the question of the 1980's versus the 1990's -- tax cuts and an emphasis on
reducing the size and influence of federal government versus a belief that
spending more on priorities like health, education and the environment can
coexist with strengthening the national balance sheet. 

<< Economists, never mind politicians, will no doubt argue the merits of both
sides for decades. The importance of Washington in shaping the economy has
faded in recent years. Still, some credit no doubt goes to both sides, as well
as to other players, even some with otherwise poor economic records, like
President Jimmy Carter. 

<< Two things happened in the Carter administration that helped shape what came
later, said William Niskanen, who was an economist in the Reagan administration
and is now chairman of the Cato Institute, a conservative research group. 

<< One was the beginning of a wave of deregulation, starting with the airline
industry, that broke a long spell in which the government had steadily taken a
more active role in the economy. Over the next decade it spread rapidly through
industries including trucking, bus lines, energy and financial services. 

<< The other, Mr. Niskanen said, was President Carter's decision, in 1979, to
appoint Paul A. Volcker to lead the Federal Reserve. Although Mr. Carter turned
on Mr. Volcker in the early 1980's, Mr. Volcker went on to defeat the high
inflation that was crippling the economy, setting the stage for the era of
price stability now being managed by Mr. Volcker's successor, Alan Greenspan. 

<< At the same time there was a growing clamor for tax cuts among Republicans
in Congress, led by Representative Jack Kemp of Buffalo and Senator William V.
Roth Jr. of Delaware. 

<< "The basics were in place for what later became called Reaganomics," Mr.
Niskanen said. "Tax rate reductions, deregulation, tight money." 

<< The biggest change after Ronald Reagan's election was the passage in 1981 of
the Kemp-Roth tax bill, which sharply lowered marginal income tax rates,
cutting the top rate from 70 percent, to 50 percent. 

[Actually the really big change was the 1986 tax reform.  I wonder why Bill
Bradley isn't reminding people of it.]

[snip]

<< There were many other developments in the 1980's that had a positive
influence on the economy, including a drift in both parties toward supporting
free trade and a revolution on Wall Street, which came up with new and
sophisticated ways to raise money for entrepreneurs and big corporations. 

<< But in the view of many Democrats, the economy that Mr. Clinton inherited in
1993 was little more than a shell, its strength hollowed out by the strain that
rapidly growing deficits were creating. While the economy was growing, it was
weak, and another recession did not seem out of the question. 

<< President George Bush and Democrats in Congress had agreed on a
deficit-reduction package in 1990, but the deficits had continued to increase.
Mr. Clinton originally backed a traditional Keynesian stimulus package of new
spending to give the economy a boost...

[To their credit, defeated by Republicans in congress.]

<<...but then went all out to bring down interest rates by persuading Wall
Street that he was serious about debt reduction. 

<< "We may have gotten out of the recession of the late 70's and early 80's
with this massive deficit spending, but to build it structurally into the
economy was a big burden," Mr. Clinton said in the interview last week. "We
decided we would break it structurally." 

<< Helped by a steadily improving economy, the deficits have melted away since
1993, replaced lately by huge surpluses that could well continue for many
years. The national debt is falling, freeing capital for investment in private
industry. Democrats credit the 1993 deficit reduction plan, augmented by the
1997 bipartisan balanced budget act, further moves to tear down trade barriers
and the updating of legislation governing key industries like
telecommunications and financial services. 

<< "All these things, even before they were actually felt, helped to create a
mindset of confidence, which it seems to me is critical for keeping the
recovery going this long," Mr. Clinton said. Democrats also point out that
nearly all Republicans in Congress opposed the 1993 deficit- reduction plan
because it raised rates for upper-income taxpayers. Many Republican leaders
openly predicted it would ruin the economy. 

<< Should Governor Bush win the White House in the fall and push through a
Reagan-sized tax cut, the president added, the country could ultimately be
faced again with painful choices: cutting spending, dipping into the Social
Security surplus or returning to budget deficits. 

<< "The likeliest thing would be a slow return to the deficit," Mr. Clinton
said, "which I think in the world we're living in would be a bad error." >>

Also today, the NY Times reports that Clinton's new budget calls for $ 1.85
TRILLION.  Although I'm sure it pained him to do it.

Patrick


AND:


Subject: Weidenbaum on Reagan
       Date: 24 Aug 1999 16:36:16 GMT
       From: susupply@aol.com (SUSUPPLY)
Organization: 
            AOL http://www.aol.com
 Newsgroups: 
            sci.econ


This is so difficult for me.  And will no doubt surprise many who have come to
expect (a perhaps a too well-developed) modesty in my posts.  However, the
truth will out, as Shakespeare put it (see, I even give credit to others when
due), and now I must bring in that distinguished St. Louis economist Murray
Weidenbaum, and his 1988 book "Rendezvous With Reality", for yet more evidence
that well I told you so!

The first chapter is entitled, "The Reagan Legacy and the Task Ahead", and
while Mr. Weidenbaum proves to be a not too accurate prognosticator; as
Reagan’s first Chairman of the CEA, he has valuable insights into what we shall
call Reaganomics.  He tells us:

"it is helpful to understand that David Stockman was wrong.  The Reagan
program is not a ‘revolution’ that ‘failed’.  Neither is [it] the unalloyed
blessing that the Republican National Committee would have everyone believe."

and

"Contrary to the prevailing notion, the typical working family is now
experiencing a stability in living standards; median family income (in 1985
dollars) actually rose slightly, from $26,481 in 1981 to $27,735 in 1985.  This
modest trend compares favorably with the declines in real earnings during years
when wage rates were rising far more rapidly; median family income (1985
dollars) declined from $29,087 in 1978 to $26,481 in 1981."

and

"it was the tight money policy of the Federal Reserve System that directly
squeezed the bulk of the inflation out of the American economic system during
1981 and 1982.  However, that policy was extremely unpopular at the time, and
the Reagan administration deserves credit for its support of the Fed.  Aside
from a bit of public needling by the Treasury [my note, that would be Paul
Craig Roberts], the Reagan administration deflected many of the political
pressures that were generated by the high interest rates that accompanied the
low growth of the money supply.  As the reader might suspect, that supportive
position was taken only after considerable internal debate."

[No need to fall on your sword, Hummel.  I’m not only modest, but magnanimous.]

Now, under the subheading, "The Failures of Reaganomics":

"To compound the problem, the Congress gave the President only about one-half
of the cuts in civilian spending that he requested.  In his first term, both
houses tended to vote almost all of the proposed increased in the military
budget of course, only after a dazzling display of rhetoric questioning the
desirability of such a rapid buildup."

[my note, that military buildup came in somewhat handy for George Bush in the
Persian Gulf War, but Weidenbaum wouldn’t have known that.]

"The failure to match the 1981 tax cuts with spending cuts put the main burden
of fighting inflation on the Federal Reserve System.  The specter of the rising
tide of red ink and its potential for generating inflationary pressure scared
the Fed chairman at the time,  Paul Volcker, and his colleagues at the Federal
Reserve System into maintaining an extremely tight monetary policy in 1981 and
most of 1982."

[Take note of the word "scared" in the above, Hummel]

and

"The combination of high interest rates and monetary stringency was a major
contributor to the unusual depth and duration of the resulting recession.  But,
like a higher power, the Fed giveth and the Fed taketh away.  The recession
accounted in large part for the swift drop in the inflation rate as well as for
much of the rise in the budget deficit."

[I'm positively blushing, William.  Honest.]

Weidenbaum sums up:

"In important ways, the average American was better off in 1986 (the latest
year for which annual data were available when this book was being written)
than at the end of the Carter administration.  Inflation is much lower (2
percent versus 14 percent), unemployment is a bit less (7.0 percent versus 7.2
percent), real take-home pay is up ($10,778) versus $9,722), and real growth
has moved from a negative position (-0.2 percent) to a positive stance (+2.5
percent).

[Weidenbaum also provides a chart which shows that; "saving by individuals" is
up by 53% over the 6 year period, as well as Industrial Production up by almost
15%, and the prime interest rate down from 15% to 8%.]

"On the other hand, the budget deficit has grown rapidly (from 2 percent of the
GNP to 5 percent)

[Here’s a flaw in Weidenbaum’s analysis, by 1989 it was down to 2.9% of GNP]

"national debt has more than doubled U.S. foreign trade [has moved from slight
surplus to huge deficit], and the United States has shifted from being a net
creditor in the world economy to being a large debtor."

but;

"the domestic agenda is now substantially leaner than when President Reagan
took office.  In effect, he established tougher standards against which to
measure new domestic initiatives.  The burden of proof shifted subtly but
perceptibly from those who would have the government do less to those who
advocate its doing more."

and

"With the wisdom of hindsight, I believe that the costs of the 1981-82
recession would have been lowered if government decision makers had followed
more closely the original design of the Reagan economic program, as presented
in February 18, 1981."

That would have been what the President’s Economic Policy Advisory Board came
up with (the group I’ve already noted in my quotes from Milton and Rose
Friedman’s memoir).

Your humble servant,
Patrick