Why not "demand-side economics"?

Great Debates
81

Reagan cut taxes for the wealthy in 1981 then raised taxes on low/middle earners every year after that including the biggest single peacetime tax increase in history. Here’s his former chief economic advisor :

http://old.nationalreview.com/nrof_bartlett/bartlett200310290853.asp

By the time the 1988 election came along GOP voters were so furious about all their increased taxes that candidate George Bush 41 had to say his famous “read my lips, no new taxes” thing. But because the GOP back then was led by non-ideological nutjobs who actually looked at the numbers to work out what economic policy should be Bush 41 increased taxes after he won in 88 and lost the next election because of it, the GOP voters realising that they’d been shafted on their taxes. But with the passing of the years and the Reagan mythology industry this kinda thing gets forgotten and the GOP are still somehow the guys who cut taxes for Joe Sixpack.

82

The reason Reagan any economic growth ( his average GDP increase beiing exactly the same as Carter/Clinton) was twofold. Firstly, the price of oil fell from historical all-time highs in the early eighties. The US economy was much more highly geared to the price of oil back then and the Arab-Israeli/OPEC crisis in the mid-seventies and the Iranian revolution in 79 caused two spectacular price shocks which screwed the global economy big time (Britain had to go for an IMF loan for instance). That’s how Keynesians explain stagflation btw.

The oil price fell due to Carter negotiating with the Saudis secretly after the OPEC blowup and then openly after Khomeini’s revolution to ramp up production and flood the world market with oil. This took a few years but really got going when the Saudis atarted shitting themselves over Iran and we got the benefit in the early 80s.

Also. Carter gave NY Fed chair Paul Volcker, a reknowned hard money guy, the Fed head job in 1978 with a brief to crush inflation, then running out of hand due to the oil price. Volcker cranked up interest rates to 18% which induced a massive recession. The falling price of oil meant that Volcker could slash rates in the early eighties which led to a massive economic boom as all the pent-up demand of people wanting to but new houses, cars etc. exploded when they could afford the interest rates. That’s how Reagan got any growth at all, how inflation/unemployment fell etc. etc. Again, Reagan’s economic performance created zero extra GDP growth and (then) record deficits.

83

Also Sam, explain this :

ERTA being Reagan’s 1981 tax cut and TEFRA being the largest peacetime tax increase in history.

84

Yes, but the tax increases were not tax increases on individual earned income. Reagan kept decreasing federal income taxes throughout his administration. To be fair this was the beginning of supply side economics when people still remembered the theoretical underpinnings of how it was supposed to work. By the time baby bush was in office, supply side economics=tax cuts.

I think its more than Keynesians that attribute stagflation to oil shock.

85

Payroll tax is a tax on eaned income. Income tax is just one of dozens of federal taxes and one which falls mainly on high income earners. Payroll tax is regressive and only levied on the first 100 or so K of income, so falls disproportionately on low/middle income earners. Reagan raised taxes which fall disproportionately on low/middle income earners to try and cover for the huge hole in revenue caused by his 1981 income/capital gains tax cuts, payroll tax being the best example of this.

86

I understand all that but I didn’t think we were talking about anything other than the federal income tax. If you want to include all taxes, Reagan still lowered taxes from 70 to 50 then to 35 then to 28. He shifted some of those taxes to the middle class but the skyrocketing deficit did not come from a net tax increase.

87

Nobel Prize Leaureate Economist Paul Krugman addresses this today in the NY Times. It does require registration. To cherry pick a quote:
**
the real news here is the confirmation that Republicans remain committed to deep voodoo, the claim that cutting taxes actually increases revenues.

It’s not true, of course. Ronald Reagan said that his tax cuts would reduce deficits, then presided over a near-tripling of federal debt. When Bill Clinton raised taxes on top incomes, conservatives predicted economic disaster; what actually followed was an economic boom and a remarkable swing from budget deficit to surplus. Then the Bush tax cuts came along, helping turn that surplus into a persistent deficit, even before the crash.

But we’re talking about voodoo economics here, so perhaps it’s not surprising that belief in the magical powers of tax cuts is a zombie doctrine: no matter how many times you kill it with facts, it just keeps coming back. And despite repeated failure in practice, it is, more than ever, the official view of the G.O.P.**

88

Alan Greenspan also chimes in during a bloomberg interview with:

WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do?

GREENSPAN: I should say they should follow the law and let them lapse.

89

He is trying to make up for his part in helping pass those ridiculous tax cuts. I still remember when he testified that tax cuts would be good for the economy and only after they passed the bill did he mention that this would only be the case if those tax cuts were accompanied by spending cuts. What did we ever see in that guy?

90

I dunno. I kinda liked Greenspan up until the “irrational exuberence” speech and no follow through. Greenie clearly saw the train wreck that was coming but didn’t do anything to stop it. Then after the Asian Crisis, he didn’t want the Russian default to torpedo the economy and went loose money, then doubled down in the dot com aftermath by allowing Americans to completely mortgage their future for a soft landing via “refinancing” aka exploding personal debt levels.

91

Actually, I think Greenspan is saying that right now, the market needs stability. It’s already discounted the tax increase because everyone has known it was coming for ten years now. Don’t make unnecessary changes.

The other thing he could be saying is that the fear of deficits is causing more damage than the tax increase would cause.

The least likely scenario is that he’s doing this to ‘make up’ for his past decisions.

92

Yeah this is probably right. I just have a grudge against him for facilitating the Bush tax cuts and I have a conspiracy theory that his policies were influenced by ideological and political beliefs.

93

… because that was a heck of a “Joke of the Day” …

94

Hey! Nice usename! :smiley:

95

“I think it is your faith in unfettered markets that is misguided.”

Repeat after me: FIRST WELFARE THEOREM. Not Second, not Third.

Lots of people think they are smarter than markets. Or pretend they are, a toxic mix of hubris and corruption…

96

“Can a bunch of us get together and jointly negotiate for contract provisions? That called a union, or should we force every employee to negotiate with their employer alone?”

Only if you force them to have one, and only one, choice of employers for whom to work.

If not, pound some sand…

97

Employers have the advantage of controlling the property of the business. Unions exist to counterbalance that advantage.

98

You rarely hear a peep because “supply side” benefits the owners of the media venues you’re consuming news from.

In addition, there are countless mindless morons with their car up on blocks in their back yard for the past year, that want to worship the rich in the hope that they may become rich themselves… some day… and have a chance to exploit others too.

That’s why you hear so much about “supply side” garbage.

99

He did not see it coming? He caused it with his stupid libertarian concepts. He finally admitted his blind faith in the markets was wrong and destructive. Can you imagine someone in his position believing deregulation was the way to run the markets? He believer markets were self correcting. Why wasn’t that fool fired when he said that? Instead we let him prove the ignorance by letting the bankers screw up the world economy.
Now the idiots are sitting on billions of tax care money and digging up more and more ways to screw their depositors.
They are violently opposed to any regulation. They are doing everything in their power to stop Elizabeth warren from setting up a small amount of oversight which would force them to do terrible things like give readable contracts to customers.

100

BS. Ford was selling an expensive product. By paying more he helped invent the middle class. People who could afford cars , gas , vacations and nicer homes. They became not only car buyers, but the consumers who made all the enormous production in America possible. He was thinking long range.
Todays execs think of now. Cutting wages makes a huge bonus for them. That is all they care about. They wont be running the place in 10 or 20 years. They are not committed to the company in the future. They sure as hell don’t care about the health of our economy when screwing it up makes them rich.