Reaganonmics: a Defense...

[Ben]

A Proud Father Looks Back

Reaganonmics: a Defense

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.
In his recent article “Reaganomics Redux”, 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.
The Reagan tax rate reduction was modeled on the John F. Kennedy tax rate reduction, which was strongly supported by Reich’s Keynesian colleagues in Kennedy’s time. Both the Kennedy and Reagan tax rate reductions cut marginal tax rates (the rate of tax on additional income) proportionally across the board. Everyone got roughly the same percentage cut in tax rates.
Both the Kennedy and Reagan tax rate reductions raised distributional issues. As the higher incomes are taxed at higher rates, those with higher incomes pay far larger dollar amounts. Thus, when rates are reduced, those with higher incomes get more dollars back. But proportionally both tax rate reductions were equal for everyone. Progressives have focused on who got the most dollars back without acknowledging that lower income people were suffering the most from stagflation.
The Reagan tax rate reductions on earned income were proposed as 30% across the board phased in over three years. If memory serves, when enacted, they were a bit less. Using the 30% figure, the top tax rate on wages and salaries was reduced from 50%--the tax rate on a 19th century American slave--to 35%--a higher tax rate than that imposed on medieval serfs.
In 1980 the top tax rate on investment income (“unearned income”) was 70%. It was not Reagan, but the Michigan Democrat William M. Brodhead who put the amendment on the Reagan tax rate reduction bill to reduce immediately the top tax rate on investment income from 70% to 50%.
Reagan had rejected the Treasury’s proposal to reduce the tax rate on investment income. At 4:27 p.m.on February 13, 1981, the Dow Jones wire service reported: “The White House said President Reagan had rejected the Treasury proposal to reduce the maximum tax on unearned income.”
Supply-side economics did not originate with Reagan. Supply-side economics grew out of the policy process in the US Congress. During the 1970s, I was a member of the congressional staff, both House and Senate and personal staffs and committee staffs. My best Republican allies were Jack Kemp and Marjorie Holt in the House and Orrin Hatch in the Senate. My Democratic allies were far more powerful--Russell Long, chairman of the Senate Finance Committee, Lloyd Bentsen, chairman of the Joint Economic Committee, and Sam Nunn on the Senate Armed Services Committee.
Everyone forgets, but House Speaker Tip O’Neill, a Democrat, had an alternative tax cut bill to Reagan’s. O’Neill’s bill cut personal income tax rates by 15%, but had expensing--one year write-offs for business investments--in contrast to Reagan’s accelerated depreciation for business investment. My effort to have the Reagan administration compromise with Tip O’Neill in order to gain expensing was blocked by White House chief of staff Jim Baker.
There were more supporters among Democrats in Congress for the supply-side solution to stagflation than there were on Wall Street. Indeed, Wall Street was the greatest problem that the Treasury team faced. Wall Street believed that the Reagan tax rate reductions would cause the double-digit inflation from stagflation to go even higher and destroy the values of their stock and bond portfolios. Wall Street’s two prestige economists, known as Dr. Gloom and Dr. Doom, along with Dow Jones’ Barrons, regularly beat me up in print as a “Keynesian inflationist.”
The reason for Reagan’s military buildup was to bring the Soviets, with their broken economy, to the negotiating table to end the cold war. That was Reagan’s second great achievement. The military/security complex was opposed to ending the cold war because of the implied cut in the vast military budget. It was Reagan’s chief-of-staff Don Regan who got the deal done during Reagan’s second term.
It was later administrations that reneged on the deal Reagan struck with Gorbachev and created a new war against “Muslim terrorists” and courted former Soviet republics as members of NATO.
I did not support the Bush tax cuts, because they have nothing to do with the economy’s problems since the collapse of the Soviet empire two decades ago. Reich does not acknowledge the devastating impact on American incomes and employment of the offshoring of middle class jobs in manufacturing and professional services. The Soviet collapse caused socialist India and communist China to decide to get on the winning side of “the end of history.” Consequently, for the first time US corporations had access to the massive supplies of Indian and Chinese labor. The large excess supplies of labor in those countries meant that US corporations could hire workers at wages far below their productivity. Thus the savings from replacing American workers with Chinese and Indians translated into higher stock prices, higher shareholder earnings, and large bonuses for managements, thus worsening the income distribution.
It is the before-tax incomes of corporate CEOs that have exploded from 30 times the average wage to 300 times. Annual Wall Street bonuses from extreme debt leverage now exceed the lifetime earnings of workers. To blame the worsening income distribution on tax rate reductions is to ignore the facts.
Jobs offshoring has resulted in both manufacturing jobs and professional service jobs, such as software engineering and IT, being sent to India and China with a corresponding decline in US employment, income and consumer demand.
Reagan’s supply-side economic policy has nothing whatsoever to do with the post-1991 offshoring of American manufacturing jobs and tradable professional services.
None of us in the Reagan administration had any inkling that the Bill Clinton and George W. Bush regimes would deregulate the financial sector and unleash greed and debt leverage to levels that the world has never before experienced.
No one in the Reagan administration realized that the demise of the Soviet Empire would result in an American Empire whose annual trillion dollar military budgets would be financed by cutting Social Security, Medicare, and income support programs for the poor.
None of us in the Reagan administration, with the exception of the neoconservatives whom Reagan fired, would have supported the policies of the George W. Bush administration or the Clinton administration, which launched a war against Serbia on false premises just as Bush did against Afghanistan and Iraq,
Reagan was not perfect--especially Ed Meese’s war on drugs and the neocon’s plots--but the Reagan administration had no intention of establishing American hegemony over the world. Empire is a neoconservative goal, not a conservative one.
Supply-side economics is a necessary modification to Keynesian demand management, not a conspiracy to enrich the rich.

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.

[Ben]

Voodoo Economics Revisited

Simon Johnson (http://www.project-syndicate.org/contributor/1060)

2010-12-15

WASHINGTON, DC – Democratic and Republican leaders in Washington are suddenly falling over themselves to agree on the need for major tax cuts – affecting not just middle-class Americans, but also very rich people (both living and when they die). Does this sudden outbreak of the long-desired bipartisan consensus indicate that a new, stronger America is just around the corner?
Unfortunately, the opposite is true. What we are seeing is agreement across the aisle on a very dangerous approach to public finance: a continuation and extension of what President George H.W. Bush memorably called “voodoo economics.” Its consequences are about to catch up with America, and the world.
Bush was competing with Ronald Reagan for the Republican nomination in 1980. Reagan suggested that tax cuts would pay for themselves, i.e., actually raise revenue – a notion that became known as “supply side” economics. There’s nothing wrong with worrying about the disincentive effect of higher taxes, but the extreme version put forward by Reagan did not really apply to the United States. When you cut taxes, you get lower revenue, which means a bigger budget deficit.
To be sure, no serious people are claiming the full Reagan effect today – partly because the Congressional Budget Office has kept everyone honest by showing in detail that the tax cuts will increase the deficit by close to $900 billion. But there is a broader Reagan-type reasoning at work here: unemployment is high, the economy is not growing fast enough, and we “need a fiscal stimulus.” For those who generally like lower taxes, of course, this, too, is wishful thinking.
Experience with fiscal policy over the past few decades is clear. It is worth stimulating the economy with discretionary fiscal policy only occasionally – specifically, when not doing so would be calamitous. Thus, it made sense to pursue a fiscal stimulus of some kind in early 2009.
More generally, fiscal stimulus is unlikely to have much lasting effect, as is the case now. There may be some temporary positive impact on demand, or higher interest rates could offset the entire fiscal push – rates on the benchmark 10-year Treasury bond are up significantly from a month ago (from 3.21% to 4.16%), when the discussion of tax cuts began in earnest.
The market is nervous – mostly about the prospect of large fiscal deficits as far as the eye can see. Some commentators dismiss this as irrational, but, again, that is wishful thinking. The path-breaking work over many years of Carmen Reinhart (http://www.project-syndicate.org/commentary/shiller73/English), my colleague at the Peterson Institute in Washington, makes this very clear – no country, including the US, escapes the deleterious consequences of persistent large fiscal deficits. (Indeed, her book with Ken Rogoff (http://www.project-syndicate.org/series/the_unbound_economy/description), This Time Is Different, should be required reading for US policymakers.)
In this environment, a further fiscal stimulus may prove counterproductive, with the extra spending counterbalanced by the negative effect on the housing market of higher interest rates. The US Federal Reserve promised to hold down longer-term rates, but its commitments in that direction now seem ineffective.
But that is not the real danger here. Most American politicians like to think and talk only about the US. But longer-term US interest rates are very much affected by what happens in the rest of the world – and how private-sector investors view US government debt relative to other countries’ sovereign debt.
The eurozone’s problems certainly help the US sell more debt at lower prices – for now. But the chances are high that the eurozone will sort out its difficulties in a year or so (most likely after another round or two of crisis), in part through the judicious use of fiscal austerity. It would make complete sense if a German-led core emerged stronger and more politically integrated than before – within a eurozone that has a different composition, a different structure, and very different rules. This presumably more fiscally unified political entity would be highly attractive to investors.
A year from now, what kind of economy will the US have? Any short-term “fiscal stimulus” effect will have worn off, unemployment will still be high, and there will no doubt be politicians clamoring for more tax cuts. The budget deficit will likely be in the range of 8-10% of GDP, even if growth comes back to some extent. And the bond markets will be much more nervous, meaning higher interest payments, which will widen the deficit further. We might also be looking at a potential ratings downgrade for US government debt – implying the prospect of even higher interest rates.
Some people expected Paul Ryan, a rising star within the Republican Party who will become Chairman of the House budget committee in the next Congress, to provide a fiscally responsible anchor to the next round of the deficit debate in the US. Writing in The Financial Times in early November, Ryan suggested, “America is eager for an adult conversation on the threat of debt.” But all indications are that he is just as childishly reckless on fiscal policy as most of his Republican colleagues since Ronald Reagan.
Unfortunately, there is no sign yet that the Democratic leadership is ready for a mature conversation about fiscal consolidation, either. Both parties’ leaders will get there – but only when dragged, kicking and screaming, by the financial markets.


Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org (http://www.project-syndicate.org)

[onmyknees]

Voodoo Economics Revisited

Simon Johnson (http://www.project-syndicate.org/contributor/1060)

2010-12-15

WASHINGTON, DC – Democratic and Republican leaders in Washington are suddenly falling over themselves to agree on the need for major tax cuts – affecting not just middle-class Americans, but also very rich people (both living and when they die). Does this sudden outbreak of the long-desired bipartisan consensus indicate that a new, stronger America is just around the corner?
Unfortunately, the opposite is true. What we are seeing is agreement across the aisle on a very dangerous approach to public finance: a continuation and extension of what President George H.W. Bush memorably called “voodoo economics.” Its consequences are about to catch up with America, and the world.
Bush was competing with Ronald Reagan for the Republican nomination in 1980. Reagan suggested that tax cuts would pay for themselves, i.e., actually raise revenue – a notion that became known as “supply side” economics. There’s nothing wrong with worrying about the disincentive effect of higher taxes, but the extreme version put forward by Reagan did not really apply to the United States. When you cut taxes, you get lower revenue, which means a bigger budget deficit.
To be sure, no serious people are claiming the full Reagan effect today – partly because the Congressional Budget Office has kept everyone honest by showing in detail that the tax cuts will increase the deficit by close to $900 billion. But there is a broader Reagan-type reasoning at work here: unemployment is high, the economy is not growing fast enough, and we “need a fiscal stimulus.” For those who generally like lower taxes, of course, this, too, is wishful thinking.
Experience with fiscal policy over the past few decades is clear. It is worth stimulating the economy with discretionary fiscal policy only occasionally – specifically, when not doing so would be calamitous. Thus, it made sense to pursue a fiscal stimulus of some kind in early 2009.
More generally, fiscal stimulus is unlikely to have much lasting effect, as is the case now. There may be some temporary positive impact on demand, or higher interest rates could offset the entire fiscal push – rates on the benchmark 10-year Treasury bond are up significantly from a month ago (from 3.21% to 4.16%), when the discussion of tax cuts began in earnest.
The market is nervous – mostly about the prospect of large fiscal deficits as far as the eye can see. Some commentators dismiss this as irrational, but, again, that is wishful thinking. The path-breaking work over many years of Carmen Reinhart (http://www.project-syndicate.org/commentary/shiller73/English), my colleague at the Peterson Institute in Washington, makes this very clear – no country, including the US, escapes the deleterious consequences of persistent large fiscal deficits. (Indeed, her book with Ken Rogoff (http://www.project-syndicate.org/series/the_unbound_economy/description), This Time Is Different, should be required reading for US policymakers.)
In this environment, a further fiscal stimulus may prove counterproductive, with the extra spending counterbalanced by the negative effect on the housing market of higher interest rates. The US Federal Reserve promised to hold down longer-term rates, but its commitments in that direction now seem ineffective.
But that is not the real danger here. Most American politicians like to think and talk only about the US. But longer-term US interest rates are very much affected by what happens in the rest of the world – and how private-sector investors view US government debt relative to other countries’ sovereign debt.
The eurozone’s problems certainly help the US sell more debt at lower prices – for now. But the chances are high that the eurozone will sort out its difficulties in a year or so (most likely after another round or two of crisis), in part through the judicious use of fiscal austerity. It would make complete sense if a German-led core emerged stronger and more politically integrated than before – within a eurozone that has a different composition, a different structure, and very different rules. This presumably more fiscally unified political entity would be highly attractive to investors.
A year from now, what kind of economy will the US have? Any short-term “fiscal stimulus” effect will have worn off, unemployment will still be high, and there will no doubt be politicians clamoring for more tax cuts. The budget deficit will likely be in the range of 8-10% of GDP, even if growth comes back to some extent. And the bond markets will be much more nervous, meaning higher interest payments, which will widen the deficit further. We might also be looking at a potential ratings downgrade for US government debt – implying the prospect of even higher interest rates.
Some people expected Paul Ryan, a rising star within the Republican Party who will become Chairman of the House budget committee in the next Congress, to provide a fiscally responsible anchor to the next round of the deficit debate in the US. Writing in The Financial Times in early November, Ryan suggested, “America is eager for an adult conversation on the threat of debt.” But all indications are that he is just as childishly reckless on fiscal policy as most of his Republican colleagues since Ronald Reagan.
Unfortunately, there is no sign yet that the Democratic leadership is ready for a mature conversation about fiscal consolidation, either. Both parties’ leaders will get there – but only when dragged, kicking and screaming, by the financial markets.


Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org (http://www.project-syndicate.org)


Ahhhhhhhh Peace, Love and Understanding !! Your best post ever Ben. Merry Christmas !! LMAO

[Ben]

When Zombies Win

By PAUL KRUGMAN (http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per)

Published: December 19, 2010

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?
For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.
It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.
The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared (http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article733821.ece) George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.
And in his new position, he’s setting out to emulate the austerity policies Ireland implemented after its bubble burst. After all, conservatives on both sides of the Atlantic spent much of the past year hailing Irish austerity as a resounding success. “The Irish approach worked in 1987-89 — and it’s working now,” declared (http://www.cato.org/pub_display.php?pub_id=11881) Alan Reynolds of the Cato Institute last June. Whoops, again.
But such failures don’t seem to matter. To borrow the title of a recent book (http://press.princeton.edu/titles/9270.html) by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?
Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.
People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.
President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.
None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.

[Ben]

I, actually, like conservative Paul Craig Roberts. (Noam Chomsky, too, is a conservative.
You've gotta go back a hundred years for real conservatives.
Conservatism is based on morality and traditional values. And most people who call themselves conservatives are social democrats. The majority of Americans are social democrats.
And, of course, conservatism stems from classical liberalism....
And one of the leading conservatives was Adam Smith... who was pre-capitalist in his thinking; and, too anti-capitalist.
And markets are supposed to work like this: informed consumers making rational choices. But what we get is uninformed consumers making irrational choices. Therefore markets are: inefficient.)

YouTube - Paul Craig Roberts on US crumbling economic power (http://www.youtube.com/watch?v=eNs6dhU75Zs)

YouTube - Chomsky refutes "libertarian" "anarcho"- capitalism (http://www.youtube.com/watch?v=RxPUvQZ3rcQ)

[onmyknees]

When Zombies Win

By PAUL KRUGMAN (http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per)

Published: December 19, 2010

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?
For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.
It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.
The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared (http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article733821.ece) George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.
And in his new position, he’s setting out to emulate the austerity policies Ireland implemented after its bubble burst. After all, conservatives on both sides of the Atlantic spent much of the past year hailing Irish austerity as a resounding success. “The Irish approach worked in 1987-89 — and it’s working now,” declared (http://www.cato.org/pub_display.php?pub_id=11881) Alan Reynolds of the Cato Institute last June. Whoops, again.
But such failures don’t seem to matter. To borrow the title of a recent book (http://press.princeton.edu/titles/9270.html) by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?
Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.
People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.
President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.
None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.


See...you blew it. You should have stopped while you were ahead. Now you went and fucked it all up with Krugman and Chomsky. Paul Krugman can take his Nobel prize and stick it where the sun don't shine. He's become an irrelevent whinner. Econmic Theory has turned into political cheerleading. He has ZERO credibility. He's wrong far more than he's right. He's rarely the "go to guy" anymore....even for progressives. Hell.. George Will isn't even an econmist and he body slams Krugman every week.

[Ben]

Monday, Apr 25, 2011 Reaganomics will bring our cities to ruin

By David Sirota (http://www.salon.com/author/david_sirota/index.html)
http://www.salon.com/news/politics/war_room/2011/04/25/chicago_colorado_springs/md_horiz.jpg

If America circa 2011 were a movie, there's little doubt it would fall into the "sci-fi/horror" genre. We've got a government that emulates Big Brother (http://gizmodo.com/#%215138271/obama-supports-warrantless-wiretapping-just-like-bush), wars that are prosecuted by Terminators (http://www.commondreams.org/headline/2011/04/22-1), and leading politicians who seem fit for the cover of Fangoria magazine -- and that's just at the federal level. Down at the local level, deindustrialization and recession have left more and more cities looking like the set from "Twelve Monkeys." Even more troubling, the two archetypal models for supposed "success" in the future are Colorado Springs and Chicago, two enclaves that have been pioneering a sub-genre of policymaking we might call "Municipal Dystopia."
The Springs, as we call it here in the square state, has made national headlines (http://articles.cnn.com/2010-02-25/us/spellman.colorado.springs_1_trash-cans-trash-bags-million-budget-gap?_s=PM:US) as a Republican bastion with an unwavering commitment to the old tax-cuts-and-budget-cuts theory of growth. During the recession, that has resulted in both comparatively low property tax rates and in darkened street lights, cuts to police and firefighting forces, and an end to basic municipal services (http://www.denverpost.com/news/ci_14303473).
The more Democratic Chicago, on the other hand, has gone in a slightly different -- but equally radical -- direction. Instead of offending its liberal voters by overtly terminating municipal services à la The Springs, Chicago has instead cloaked its Municipal Dystopia agenda in complex corporate transactions, raising short-term money by selling off huge chunks of public infrastructure to private investors, often at scandalously low prices. In the process, the city has become "the most aggressive city in the United States in the privatization of public infrastructure," according to the Illinois Public Interest Research Group (http://www.illinoispirg.org/edfund/reports/stop-taxpayer-giveaways-reports/privatization-and-the-public-interest) -- and other cities like New York (http://theexpiredmeter.com/2010/10/nyc-may-follow-chicagos-meter-privatization-example/) and Pittsburgh (http://www.post-gazette.com/pg/10073/1042702-53.stm) have been looking to follow its lead.

Such schemes as the Skyway privatization plan (http://www.tollroadsnews.com/node/988) and the selling off of parking meters (http://www.chicagoreader.com/TheBlog/archives/2010/02/09/spreading-the-privatization-gospel) provided a relatively small amount of money up front to momentarily fill public budget shortfalls. But that cash came in exchange for guaranteeing huge future profits for private investors -- profits that will be financed by the ever-increasing fees those backers are already forcing Chicago residents to pay (http://www.tollroadsnews.com/node/5014).
This has been the tale of twin cities hurtling down two lanes of the same Reagan-paved road -- perhaps until now.
A few weeks ago, the Springs hit the brakes, as anti-tax forces were decidedly crushed in municipal elections (http://www.gazette.com/news/column-115487-noreen-barry.html) at the same time Democrat Richard Skorman swept into front-runner position in the city's May mayoral runoff. The stunning results appear to be a direct repudiation of the Springs' previous commitment to the Municipal Dystopia agenda, in part because one of the electoral casualties was Douglas Bruce, the well-known architect of Colorado's anti-tax ballot initiatives (and good thing he was defeated -- his tenure on the council would have been interrupted by his recent federal indictment (http://www.bizjournals.com/denver/news/2011/04/08/douglas-bruce-indicted-on-tax-charges.html)).
By contrast, Chicago may be hitting the accelerator in the face of foreboding news.
The Medill News Service (http://www.nwitimes.com/news/local/illinois/0a7f7fef-102b-5ef0-bf76-c0fb5c46e654.html) reports that the one-time money the city raised from privatization schemes is now running out, as the city is quickly "burning its way through millions of dollars [from the] deals, threatening to leave the long-term financial health in ashes." Meanwhile, a new lawsuit (http://www.businessweek.com/news/2010-09-17/william-blair-sued-over-chicago-meter-privatization.html) cites the city's own data in alleging that taxpayers were fleeced by a collaboration of politicians and corporate consultants who sold public infrastructure at deliberately below-market prices. Nonetheless, Chicago's incoming mayor, former investment banker Rahm Emanuel, is now loading up his new administration with privatizers.
Specifically, Emanuel's top economic advisor will be private equity investor Mark Angelson (for more on the private equity industry and the looting of public infrastructure, see this report in Businessweek (http://www.businessweek.com/magazine/content/07_19/b4033001.htm?chan=top+news_top+news+index_top+stor y)). And as the New York Times (http://www.nytimes.com/2011/04/24/us/24cncgreising.html) reported this weekend, Angelson will head an economic team chock-full of consultants who specialize in privatizing public infrastructure:
During the campaign, Mr. Emanuel advocated a go-slow approach to any future privatization deals, but there seems little doubt what sort of advice his economic advisers will be offering. Lois Scott, the chief financial officer, runs a consulting firm specializing in privatization deals that has put together more than $35 billion in bond sales over the years. The budget director, Alexandra Holt, is a Baker & McKenzie lawyer who worked for clients trying, unsuccessfully, to privatize Midway airport.
Chicago, of course, is still a few privatizing steps behind smaller towns like Maywood, Calif., (http://www.nytimes.com/2010/07/20/business/20maywood.html) and Sandy Springs, Ga (http://www.huffingtonpost.com/2011/04/22/sandy-springs-georgia-privatize-outsource_n_852466.html). And its commitment to the Municipal Dystopia agenda hasn't yet delivered the same painful budgetary consequences that may now push the Springs off that course. But if the numbers from Chicago's past privatization deals predict the future, then it and other cities following the same path will indeed face those consequences -- the only question is whether, like the Springs, those cities must bear that pain before voters finally demand a true change of direction.



David Sirota is a best-selling author of the new book "Back to Our Future: How the 1980s Explain the World We Live In Now." He hosts the morning show on AM760 in Colorado.

[trish]

The trickle down analogy in Reaganomics tempts people into making two unquestioned, and yet very bizarre assumptions. First: there is a something like a downhill gradient at work in every economic system. When left to itself (presumably without Government interference) money flows downhill with respect to this gradient. Second: it is assumed the direction of flow is from the well-off to the less well-off. These coupled assumptions are known as the trickle down theory.

The trickle down theory likens economics to classical gravity. Trickle down uses gravity as a metaphor. So let’s press the analogy. In gravitational theory massive bodies attrack. Matter is attracted to matter. In economics money and money should therefore attract money and power. Okay, that seems reasonable. So money and power, when there no other forces at work, should flow from the pockets of the less-well-off into the pockets of those better-off. That seems right too, except it runs counter to the prediction of the trickle down theory. Why? Because Reaganomics doesn’t know its hind quarters from its front; it doesn’t know which end is up! The gravitational metaphor requires that money and power flow from the have-nots and accrete onto the wealthier haves. The wealthiest haves are like supermassive black holes. All you have to do is walk past them and the money leaps out of your pocket and falls into the singularity never to be seen again.

Money and power attracts money and power. The most powerful and wealthy naturally accrete more wealth and power. The down hill direction is toward the wealthy and the powerful. The natural downhill flow is toward the wealthy and the powerful. Trickle down is change that out of your pockets at the gas station, or the box store that is in excess of the cost of the gas or item you bought; i.e. the profit. The profit accretes with the stock holders, and the greater portion of power and wealth accretes with the ceos and those who hold the majority shares.

[Stavros]

I, actually, like conservative Paul Craig Roberts. (Noam Chomsky, too, is a conservative.
You've gotta go back a hundred years for real conservatives.
Conservatism is based on morality and traditional values. And most people who call themselves conservatives are social democrats. The majority of Americans are social democrats. And, of course, conservatism stems from classical liberalism....
And one of the leading conservatives was Adam Smith... who was pre-capitalist in his thinking; and, too anti-capitalist.

Ben, even though the meaning of conservative and liberal is sometimes different in the US from the UK, in both cases one party does not believe the government or the state should play a major role in the economy, the other believes it sometimes must. It is the liberals who, as the name implies, want less government, and conservatives who are more likely to use government as an instrument. It is complicated because in the UK it was the conservatives who were more closely associated with the pillars of the state: Monarchy-Church-Military and thus CONserving a hierarchical social structure that favoured property-owning Christians many of whom were entitled by the crown (as in Lord and Lady this, Sir this and that etc etc). The liberals, who emerged in the wake of the civil war, and whose champion John Locke had some influence on the ideas that led to the American Revolution, believed that markets were the driving force of society, and that government should not restrain economic activity, but regulate social and political interaction to encourage fairness and thus endow capitalism with a sense of justice. Adam Smith was a liberal, he believe the only purpose government served was to defend the territory and take up those economic activities which are not commercially viable for individual capitalists. It is further complicated in the UK because of the restoration of the monarchy in 1688 and the 'constitutional settlement' that followed. When political parties emerged after the 1832 reform act, none were opposed to the monarchy, indeed, the Labour Party has never been opposed to it either, but over time, the liberal party declined as the Labour Party rose, and the Conservative party absorbed a lot of the liberals who thought Labour was bad for capitalism, while Labour, to win elections, sold its supporters short by merely 'taking over' some parts of the economy, allegedly to 'better manage' it than traditional capitalists.
Thus, in the USA, you also have parties whose ideologies in practice morph into versions of each other -the critical difference thus becomes the extent of state intervention in the economy and its impact on things like taxes, regulation and so on.

Someone once said 'we are all Keynesians now' because of JMK's profound impact on economic policy in the 1940s -I see no reason to retire the quote.

[Faldur]

If you can sell Chomsky as a conservative I've got a job and a healthy salary for you. Chomsky is a socialist.

[onmyknees]

The trickle down analogy in Reaganomics tempts people into making two unquestioned, and yet very bizarre assumptions. First: there is a something like a downhill gradient at work in every economic system. When left to itself (presumably without Government interference) money flows downhill with respect to this gradient. Second: it is assumed the direction of flow is from the well-off to the less well-off. These coupled assumptions are known as the trickle down theory.

The trickle down theory likens economics to classical gravity. Trickle down uses gravity as a metaphor. So let’s press the analogy. In gravitational theory massive bodies attrack. Matter is attracted to matter. In economics money and money should therefore attract money and power. Okay, that seems reasonable. So money and power, when there no other forces at work, should flow from the pockets of the less-well-off into the pockets of those better-off. That seems right too, except it runs counter to the prediction of the trickle down theory. Why? Because Reaganomics doesn’t know its hind quarters from its front; it doesn’t know which end is up! The gravitational metaphor requires that money and power flow from the have-nots and accrete onto the wealthier haves. The wealthiest haves are like supermassive black holes. All you have to do is walk past them and the money leaps out of your pocket and falls into the singularity never to be seen again.

Money and power attracts money and power. The most powerful and wealthy naturally accrete more wealth and power. The down hill direction is toward the wealthy and the powerful. The natural downhill flow is toward the wealthy and the powerful. Trickle down is change that out of your pockets at the gas station, or the box store that is in excess of the cost of the gas or item you bought; i.e. the profit. The profit accretes with the stock holders, and the greater portion of power and wealth accretes with the ceos and those who hold the majority shares.


Interesting in the abstract....now for some facts....

>Inflation averaged 12.5 percent when Reagan entered office, was reduced to 4.4 percent when he left.

>Eight million new jobs were created as unemployment fell.

>When Reagan took office in 1981, the unemployment rate was 7.6 percent. In the recession of 1981-82, that rate peaked at 9.7 percent, but it fell continuously for the next seven years. When Reagan left office, the unemployment rate was 5.5 percent.

>Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.

If you are a left-winger committed to the belief ... that the United States does not have a unique system of freedom, committed to the belief that free markets are phony and everything is manipulated and rigged, the Hollywood model of business, committed to the idea that conservative values can't really have any core rationality to them, then you have to find a new explanation for Reagan. On the other hand, if you look at the evidence, the Soviet empire in 1980 was on our fence. By 1989 it was collapsing. The United States economy in 1980 had 13 percent inflation, 22 percent interest rates, and was going into the worst recession since the Great Depression. By 1988 we were in early stages of what has now been almost 20 years of economic growth. In 1980 Jimmy Carter could talk about malaise, the weakness of the American people, gasoline rationing, and the Iranians holding us helpless with hostages. By 1988 we were the dominant power on the planet. Now maybe Reagan was just this nice goofy guy who pleasantly presided over all this, but if so he may be the luckiest single leader in the history of the human race.

Was Reaganomics a panacea for everyone? Not everyone but the vast majority did marketably better under Reagan that perhaps any pre or post war period. We are lectured by liberals that the poor fell further into poverty during that period, but that is certainly an arguable point, and this question must be asked. If the underprivileged can't pull themselves out of poverty with a booming economy in all sectors and a 3-5% unemployment rate...when will they ever? So if the Reagan economy was not the answer...explain what 8 year period in recent American history yielded more growth for more Americans. He knew what he believed and was committed to it and did not waiver. Refreshing in light of today's leaders who voted for the war before they voted against it, and who oppose tax cuts, but capitulate when pressured.

[hippifried]

So if the Reagan economy was not the answer...explain what 8 year period in recent American history yielded more growth for more Americans.

The Clinton years. Only time in my adult life where unemployment dropped enough to empower average working people to demand higher wages without a union & the threat of strikes. I lived through the Reagan years, & I don't know what planet you found these so called "facts" on.But then again, accountants & statisticians can make numbers dance all over the place & have people believing all kinds of shit. I was there during the Nixon years too. I remember hearing about the shiock on my way to work one afternoon. (swing shift) It took everybody a few days to figure out what happened, & what would happen with a debased currency. I remember the double digit inflation & unemployment at the same time, & the coining of the term "stagflation". I remember the draconian wage & price controls that failed to stop it & just made things worse. I remember the oil embargo a couple of years later that added insult to injury. I remember the long lines & the still empty tank because I lost my ass betting gasoline on the bowl games & had to siphon it out. I rememger that ending the war in VietNam had no effect on the inflation or unemployment rates. I remember the Humpfrey/Hawkins act of '78 giving the Federal Reserve a mandate to stop the spiral. I remember the Fed tripling interest rates overnight in '79 to "tighten the money supply". I remember the ensuing recession that pretty much lasted through the '80s. I remember hearing "there's not really a recession, but recovery is just around the corner..." over & over again for 12 years. The inflation rate is basically an averaging of the rise in prices & the rise in wages. In a recession, with high unemployment or the threat of it, wages are stifled. That tweaks the average. So yeah, I remember the lies about that too. I remember taxes going up (another lie about "Reaganomics") & lots of deductions being eliminated. I remember the housing & credit bubbles that started bursting by '88, the ensuing bank panic, collapse of the S&L industry, & all the insanity of the RTC so that the FDIC could protect the deposits. Yeah, I remember the Reagan years. I imagine it was a great time if you were a stock broker O an inventor of the plethora of fuzzy financial schemes that cropped up. Gotta love those "facts" that get embellished with each telling.

[trish]

Thank you, hippiefried. Moreover, since the Bush tax cuts for the wealthy, inspired by trickle down theory, were instituted we have seen the largest disparity between the well-off and the not-so-well-off ever. The wealthiest 1% of the population possesses nearly 40% of the nation's wealth. Corporations pay little or no royalties for the natural resources they plunder and pay little to no taxes. As the nations wealth accretes around the wealthiest 1% so does political power.

[Stavros]

First apologies for such a long post; but this is a fascinating subject.

I dont normally paste long articles but the one below is, I think, a fair if purely economic assessment of Reaganomics, and one that acknowledges those parts of the policy programme that were in fact inherited from the Carter Presidency (whether or not you share Chomsky's view that the Democrats and Republicans are effectively one party with two different factions...).

Reagan's impact on the cold war has, I think, been exaggerated -the momentous events that began in Poland in 1980 pre-dated the Reagan presidency, and were part of an accumulation of structural problems for the Warsaw Pact that 'Moscow centre' could not resolve in the long term -the communist economies were fundamentally rotten and Martial Law in Poland merely delayed the inevitable. Demonstrations and sit-ins had taken place almost every decade in Poland since the 1950s, finally in 1980 the ruling party ran out of answers, and in recognising Solidarity abdicated its own responsibility for the economy, but in doing so shattered the image of the invincible one-party state. I see this happening again, this time in the Middle East.

The Cold War ended in a whimper, rather than a bang, thanks to Gorbachev, who took the boldest steps through 'Glasnost' and 'Perestroika' -encouraging open debate on policy, and re-structuring industry. But even Gorbachev in 1985 didn't know what % of the Soviet economy was soaked up by the military, some argue it was between 30-50%. And, in his second term when Reagan warmed to Gorbachev and was keen to marry Gorbachev's sincere reforms to real, and credible arms reduction, his lieutenants in the White House (notably Richard Pearle and Donald Rumsfeld) were appalled.

Second, it was on Reagan's watch that the US deepened its support for Pakistan, initially as a counter-balance to the 'pro-Soviet' govt of India, but crucially as Pakistan became the gateway to Afghanistan. Again, for a Carter presidency inheritance, and if you believe Brzezinski (who does come across as a man who wants his own special place in history), the USSR was deliberately lured into Afghanistan in 1979 as part of an 'entanglement' strategy designed to bog the soviets down in an expensive military adventure. Whatever the truth of that nugget, the full legacy of the US-Pakistan relationship has yet to be assessed, it doesn't look good so far.

Here is the article, by William Niskanen.

"Reaganomics" was the most serious attempt to change the course of U.S. economic policy of any administration since the New Deal. "Only by reducing the growth of government," said Ronald Reagan, "can we increase the growth of the economy." Reagan's 1981 Program for Economic Recovery had four major policy objectives: (1) reduce the growth of government spending, (2) reduce the marginal tax rates on income from both labor and capital, (3) reduce regulation, and (4) reduce inflation by controlling the growth of the money supply. These major policy changes, in turn, were expected to increase saving and investment, increase economic growth, balance the budget, restore healthy financial markets, and reduce inflation and interest rates.
Any evaluation of the Reagan economic program should thus address two general questions: How much of the proposed policy changes were approved? And how much of the expected economic effects were realized? Reaganomics continues to be a controversial issue. For those who do not view Reaganomics through an ideological lens, however, one's evaluation of this major change in economic policy will depend on the balance of the realized economic effects.
President Reagan delivered on each of his four major policy objectives, although not to the extent that he and his supporters had hoped. The annual increase in real (inflation-adjusted) federal spending declined from 4.0 percent during the Carter administration to 2.5 percent during the Reagan administration, despite a record peacetime increase in real defense spending. This part of Reagan's fiscal record, however, reflected only a moderation, not a reversal, of prior fiscal trends. Reagan made no significant changes to the major transfer payment programs (such as Social Security and Medicare), and he proposed no substantial reductions in other domestic programs after his first budget.
Moreover, the growth of defense spending during his first term was higher than Reagan had proposed during the 1980 campaign, and since economic growth was somewhat slower than expected, Reagan did not achieve a significant reduction in federal spending as a percent of national output. Federal spending was 22.9 percent of gross domestic product (GDP) in fiscal 1981, increased somewhat during the middle years of his administration, and declined to 22.1 percent of GDP in fiscal 1989. This part of the Reagan record was probably the greatest disappointment to his supporters.
The changes to the federal tax code were much more substantial. The top marginal tax rate on individual income was reduced from 70 percent to 28 percent. The corporate income tax rate was reduced from 48 percent to 34 percent. The individual tax brackets were indexed for inflation. And most of the poor were exempted from the individual income tax. These measures were somewhat offset by several tax increases. An increase in Social Security tax rates legislated in 1977 but scheduled for the eighties was accelerated slightly. Some excise tax rates were increased, and some deductions were reduced or eliminated.
More important, there was a major reversal in the tax treatment of business income. A complex package of investment incentives was approved in 1981 only to be gradually reduced in each subsequent year through 1985. And in 1986 the base for the taxation of business income was substantially broadened, reducing the tax bias among types of investment but increasing the average effective tax rate on new investment. It is not clear whether this measure was a net improvement in the tax code. Overall, the combination of lower tax rates and a broader tax base for both individuals and business reduced the federal revenue share of GDP from 20.2 percent in fiscal 1981 to 19.2 percent in fiscal 1989.
The reduction in economic regulation that started in the Carter administration continued, but at a slower rate. Reagan eased or eliminated price controls on oil and natural gas, cable TV, long-distance telephone service, interstate bus service, and ocean shipping. Banks were allowed to invest in a somewhat broader set of assets, and the scope of the antitrust laws was reduced. The major exception to this pattern was a substantial increase in import barriers. The Reagan administration did not propose changes in the legislation affecting health, safety, and the environment, but it reduced the number of new regulations under the existing laws. Deregulation was clearly the lowest priority among the major elements of the Reagan economic program.
Monetary policy was somewhat erratic but, on net, quite successful. Reagan endorsed the reduction in money growth initiated by the Federal Reserve in late 1979, a policy that led to both the severe 1982 recession and a large reduction in inflation and interest rates. The administration reversed its position on one dimension of monetary policy: during the first term, the administration did not intervene in the markets for foreign exchange but, beginning in 1985, occasionally intervened with the objective to reduce and then stabilize the foreign-exchange value of the dollar.
Most of the effects of these policies were favorable, even if somewhat disappointing compared to what the administration predicted. Economic growth increased from a 2.8 percent annual rate in the Carter administration, but this is misleading because the growth of the working-age population was much slower in the Reagan years. Real GDP per working-age adult, which had increased at only a 0.8 annual rate during the Carter administration, increased at a 1.8 percent rate during the Reagan administration. The increase in productivity growth was even higher: output per hour in the business sector, which had been roughly constant in the Carter years, increased at a 1.4 percent rate in the Reagan years. Productivity in the manufacturing sector increased at a 3.8 percent annual rate, a record for peacetime.
Most other economic conditions also improved. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988. The combination of conditions proved that there is no long-run trade-off between the unemployment rate and the inflation rate (see Phillips Curve (http://www.econlib.org/library/Enc1/PhillipsCurve.html)). Other conditions were more mixed. The rate of new business formation increased sharply, but the rate of bank failures was the highest since the thirties. Real interest rates increased sharply, but inflation-adjusted prices of common stocks more than doubled.
The U.S. economy experienced substantial turbulence during the Reagan years despite favorable general economic conditions. This was the "creative destruction" that is characteristic of a healthy economy. At the end of the Reagan administration, the U.S. economy had experienced the longest peacetime expansion ever. The "stagflation" and "malaise" that plagued the U.S. economy from 1973 through 1980 were transformed by the Reagan economic program into a sustained period of higher growth and lower inflation.
In retrospect the major achievements of Reaganomics were the sharp reductions in marginal tax rates and in inflation. Moreover, these changes were achieved at a much lower cost than was previously expected. Despite the large decline in marginal tax rates, for example, the federal revenue share of GDP declined only slightly. Similarly, the large reduction in the inflation rate was achieved without any long-term effect on the unemployment rate. One reason for these achievements was the broad bipartisan support for these measures beginning in the later years of the Carter administration. Reagan's first tax proposal, for example, had previously been endorsed by the Democratic Congress beginning in 1978, and the general structure of the Tax Reform Act of 1986 was first proposed by two junior Democratic members of Congress in 1982. Similarly, the "monetarist experiment" to control inflation was initiated in October 1979, following Carter's appointment of Paul Volcker as chairman of the Federal Reserve Board. The bipartisan support of these policies permitted Reagan to implement more radical changes than in other areas of economic policy.
Reagan failed to achieve some of the initial goals of his initial program. The federal budget was substantially reallocated—from discretionary domestic spending to defense, entitlements, and interest payments—but the federal budget share of national output declined only slightly. Both the administration and Congress were responsible for this outcome. Reagan supported the large increase in defense spending and was unwilling to reform the basic entitlement programs, and Congress was unwilling to make further cuts in the discretionary domestic programs. Similarly, neither the administration nor Congress was willing to sustain the momentum for deregulation or to reform the regulation of health, safety, and the environment.
Reagan left three major adverse legacies at the end of his second term. First, the privately held federal debt increased from 22.3 percent of GDP to 38.1 percent and, despite the record peacetime expansion, the federal deficit in Reagan's last budget was still 2.9 percent of GDP. Second, the failure to address the savings and loan problem early led to an additional debt of about $125 billion. Third, the administration added more trade barriers than any administration since Hoover. The share of U.S. imports subject to some form of trade restraint increased from 12 percent in 1980 to 23 percent in 1988.
There was more than enough blame to go around for each of these problems. Reagan resisted tax increases, and Congress resisted cuts in domestic spending. The administration was slow to acknowledge the savings and loan problem, and Congress urged forbearance on closing the failing banks. Reagan's rhetoric strongly supported free trade, but pressure from threatened industries and Congress led to a substantial increase in new trade restraints. The future of Reaganomics will depend largely on how each of these three adverse legacies is resolved. Restraints on spending and regulation would sustain Reaganomics. But increased taxes and a reregulation of domestic and foreign trade would limit Reaganomics to an interesting but temporary experiment in economic policy.
The Reagan economic program led to a substantial improvement in economic conditions, but there was no "Reagan revolution." No major federal programs (other than revenue sharing) and no agencies were abolished. The political process continues to generate demands for new or expanded programs, but American voters continue to resist higher taxes to pay for these programs. A broader popular consensus on the appropriate roles of the federal government, one or more constitutional amendments, and a new generation of political leaders may be necessary to resolve this inherent conflict in contemporary American politics.
About the Author
William A. Niskanen is chairman of the Cato Institute and was a member of President Reagan's Council of Economic Advisers from 1981 to 1985. Washington Post columnist Lou Cannon, in his book, President Reagan: The Role of a Lifetime, called Niskanen's book, Reaganomics, "a definitive and notably objective account of administration economic policies."
http://www.econlib.org/library/Enc1/Reaganomics.html

[Ben]

YouTube - Reaganomics Ruining US Cities (http://www.youtube.com/watch?v=uAl5yIOO9vc)

[yodajazz]

The trickle down analogy in Reaganomics tempts people into making two unquestioned, and yet very bizarre assumptions. First: there is a something like a downhill gradient at work in every economic system. When left to itself (presumably without Government interference) money flows downhill with respect to this gradient. Second: it is assumed the direction of flow is from the well-off to the less well-off. These coupled assumptions are known as the trickle down theory.

The trickle down theory likens economics to classical gravity. Trickle down uses gravity as a metaphor. So let’s press the analogy. In gravitational theory massive bodies attrack. Matter is attracted to matter. In economics money and money should therefore attract money and power. Okay, that seems reasonable. So money and power, when there no other forces at work, should flow from the pockets of the less-well-off into the pockets of those better-off. That seems right too, except it runs counter to the prediction of the trickle down theory. Why? Because Reaganomics doesn’t know its hind quarters from its front; it doesn’t know which end is up! The gravitational metaphor requires that money and power flow from the have-nots and accrete onto the wealthier haves. The wealthiest haves are like supermassive black holes. All you have to do is walk past them and the money leaps out of your pocket and falls into the singularity never to be seen again.

Money and power attracts money and power. The most powerful and wealthy naturally accrete more wealth and power. The down hill direction is toward the wealthy and the powerful. The natural downhill flow is toward the wealthy and the powerful. Trickle down is change that out of your pockets at the gas station, or the box store that is in excess of the cost of the gas or item you bought; i.e. the profit. The profit accretes with the stock holders, and the greater portion of power and wealth accretes with the ceos and those who hold the majority shares.

I think you have a very valid point here, Trish. What we have is a flow from the poorer to the wealthier. I think there is some flow towards the less wealthy, but wealth has the option of investing in foreign markets, also trading financial goods with other big money entities, and things like commodities. So the wealthiest, wealth does not have to trickle back to the community.

One factor I think is very important is government. Government can regulate some business practices, that promote greater circulation through the community. An example would be declaring that monopolies can create unfair business practices, and thus should be illegal. I see the current attacks on government and regulation, to be very beneficial to the wealthiest. This includes the un-proven theory that private business is always more efficient than government, and also that tax cuts for the wealthy create jobs.

Looking at the video posted above one can see that government selling off assets to private ownership, will accelerate to flow of money to the wealthy. Thanks for the theory Trish, it make sense, and seems to reflect current realities.

[TJ347]

Was Reaganomics a panacea for everyone? Not everyone but the vast majority did marketably better under Reagan that perhaps any pre or post war period. We are lectured by liberals that the poor fell further into poverty during that period, but that is certainly an arguable point, and this question must be asked. If the underprivileged can't pull themselves out of poverty with a booming economy in all sectors and a 3-5% unemployment rate...when will they ever?

It seems that most liberals hold the years of the Clinton administration up as the greatest opportunity the poor and middle class have had in recent decades to advance their position financially, despite the fact that we're told people have continuously seen their financial power diminish over that same periof of time. True, it was during the Clinton years that I began to put money into the markets with the goal of improving my financial position, and I'm sure others could say the same, but I doubt most could even today claim to have any significant holdings in any corporation. They then turn around and bash corporations as being evil, but having seen my investments pay off, I'm of a different opinion on the matter.

Simply put, if you're not playing the markets, you can't win, owning a business or inheriting a substantial sum from a deceased relative not withstanding. I'm not interested in how the economy theoretically did during any presidency; the question is how you did as an individual, and if you simply sit on your ass, then regardless of who is in office you're going to end up in the same position you were to begin with. This is why when Obama is gone, the same people praising him now will be just as broke, if not more so, than they were when he came into office. There's no free lunch.

[trish]

Congratulations on being a "winner."
Simply put, if you're not playing the markets, you can't win,...Only if you have money left over after making ends meet, can you "play the markets." Simply put, the poor can't win.

But winning doesn't produce goods, workers do. Unfortunately most workers will never be able to afford to gamble in the stock market, but they will continue to produce the goods and services that constitute the winnings.

[TJ347]

Often it's the same people who cry about the rich getting richer who put all of their money into buying fancy goods to impress each other. I have no sympathy for a guy leasing an Escalade for $800 a month and living in a $800 a month apartment when he bitches about how he can't save money for retirement. If only by virtue of the fact you can afford to pay for your internet connection, you can play the markets. And I know quite a few "poor" people who pay upwards of $30 a month to make sure they have an internet connection, how about you?

It's about priorities. A guy crying poverty can buy a $6 pack of smokes every other day, but can't play the markets? Please! Most workers don't invest (notice I didn't say "gamble") in the stock market not because they can't afford to, but because they either don't feel it's anywhere near as important as getting new rims or they simply can't be bothered to take the time to understand the concept of investing. This is unfortunate, but it's not the fault of those who do invest. The middle class is as guilty as the poor in this area.

[Stavros]

Unfortunately most workers will never be able to afford to gamble in the stock market

Trish, you are right, but isn't that because to invest/gamble the sums needed are more than the lottery ticket or the alcohol that even the poorest manage to buy? Also, in the UK there is a supermarket chain called Asda (which is now owned by Wal-Mart) where even a check-out person can join the company share scheme. It won't amount to much on a month-by-month basis, but if, say the company adds one extra share for free, and an employee works for say 10 years and acquires 2,000 shares, if those shares are worth $5 on the market that is $10,000 dollars -the dividend isn't much but as a source of capital, if the check-out person needs, say $2,000 dollars they can sell that volume of shares, they have 8,000 left and more to come. The down side, obviously, is that something happens and the share value goes right down, but the point is that corporations, however wicked they might be to some people, have options for improving relations with their own employees, and the latter would be crazy not to take up the offer.

[trish]

And I know quite a few "poor" people who pay upwards of $30 a month to make sure they have an internet connection, how about you? I'm not poor by any means, thank you. But that's neither here, nor there. Bringing up a family of two to four kids in the U.S. when you make $25,000 and your wife makes $17,000 (which is very typical of a U.S. family who would not consider themselves poor) doesn't leave a lot of room to buy stocks and bonds regardless of whether you regularly rent cable or buy smokes or booze.

[hippifried]

It seems that most liberals hold the years of the Clinton administration up as the greatest opportunity the poor and middle class have had in recent decades to advance their position financially, despite the fact that we're told people have continuously seen their financial power diminish over that same periof of time.

Told by whom? Did it happen to you? Who ya gonna believe, some pundit or your own lying eyes? C'mon dude... Go back & reread the rest of this post of yours that I just quoted from.

I think everybody has the wrong idea of what really happened in the years following the shock. The economic memes took a hard right turn as stagflation settled in. It was a situation that nobody had ever seen before. There was no template. Still isn't as far as I can tell. Stagflation flies in the face of everything we ever thought we learned about "free market capitalism", & the number magicians have been trying to explain (unsuccessfully) how it works ever since. But that's pretty much what they always do, isn't it? Try to explain & spin what's already going on despite their previous prognostications that didn't quite work out?

Inflation is kind of a misnomer. There's actually an explanation for the term, but it's kinda roundabout. The reality is that it's a loss of purchasing power of a currency. Wages & prices aren't going up really. Just the numbers. It's the money that's losing value. It's compounding too. Kinda like a mortgage rate, only backwards. Right now, a dollar is worth about 7 or 8 cents pre-shock. Maybe less. It's murkey without any kind of comparables or a reserve currency. All currencies are falling, & the FOREX is just pari-mutual wagering on the relative rate of decline. Current common economic theology says inflation is cased by too much money chasing too few goods. Yeah, & I have a bridge to Brooklyn I'd like to unload. It sounds plausible, & might even be plausible, if the money was in the hands of those who are chasing goods. It's not. It's getting created out of thin air & passed between financial institutions in a never ending cycle of revolving credit. All it takes is a little hiccup to start a cascade. You think government debt & deficits are unstable? Take a look at the private sector.

From what I can tell, none of the economists can agree on anything because they all use the same precepts, & they don't work anymore. There hasn't been an original thought in economics in nearly a century. We're still arguing over which 18th & 19th century economic theories we like the best. As far as I'm concerned, we need a total rethink.

[TJ347]

I'm not poor by any means, thank you. But that's neither here, nor there. Bringing up a family of two to four kids in the U.S. when you make $25,000 and your wife makes $17,000 (which is very typical of a U.S. family who would not consider themselves poor) doesn't leave a lot of room to buy stocks and bonds regardless of whether you regularly rent cable or buy smokes or booze.

I wasn't saying you were poor. I was implying that you probably know someone who claims to be unable to get ahead financially, yet sees having an internet connection as enough of a priority that they're never without it. Anyway, if a couple making the type of money you mention has two to four kids and this prevents them from getting ahead, then they should have thought about that ahead of having those kids. Again, it's about priorities, but I'm sure you and I both could still go through their monthly expenses and find frivolous expenses that they would view as necessities. A carton of Marlboros, or $40 in Walmart stock? It's their choice and they have to live with it.

[TJ347]

Told by whom? Did it happen to you? Who ya gonna believe, some pundit or your own lying eyes? C'mon dude... Go back & reread the rest of this post of yours that I just quoted from.

I was talking about the loss of purchasing power you mention when I spoke about diminishing purchasing power. If you acknowledge a dollar isn't what it used to be, you're saying the same thing I am.

[Ben]

The Consequences of Reaganomics - YouTube (http://www.youtube.com/watch?v=MF62RfxBwXs)

[fivekatz]

From the standpoint of making the wealthy more wealthy Reagan's policies worked. In part because he never had a majority in the Congress and in part because deficits were never a huge priority for him where he'd spend political capital his policies created greater deficits. And the theory that the 1% would put the increased income from tax cuts back into the economy proved to be false.

Aside from his ascendancy marking a notable loss of power by labor and what has become an unabated increase in income inequity in the US, little about the Reagan legacy is true. Most of all IMHO is that across the board tax cuts that favor the wealthiest Americans and taxes income produced from actually work at over twice the rate that investment does would self fund via financial growth.

While too much stock is put into the radical growth that took place in the 90's thanks to the internet bubble, the bubble happened in the face of higher taxation and reduced the deficit.

Where I think Clinton and Obama are correct in their thinking and have run into obstruction by the GOP, is that targeted tax breaks for corporations and the 1% are solid policy. They create behaviors that move the society forward, whether it is creating jobs or moving away from fossil fuels and the doom of Climate Change.

The Laffer Curve has been completely debunked over the course of history, though that will not stop the 1% from continuing to sell it, combined with a package of fear, disinformation and wedge issues to serve their largest contributors. Those contributors also control Democrats but not completely enough to earn equal contributions from the plutocrats.

Overall the Reagan Revolution has made our country a society that cares less about the weakest and most vulnerable Americans and made it possible for Bush-Cheney to gain power and irrevocably end the American Empire.

[Ben]

Time to Roll Back Reaganomics! - YouTube (http://www.youtube.com/watch?v=luNDWlbM_rY)

[Ben]

30 Years of reaganomics: What do we Have to Show? - YouTube (http://www.youtube.com/watch?v=VUoNw-2YQ-M)

The Oligarchs are Sucking us Dry! - YouTube (http://www.youtube.com/watch?v=MIpNyqDPTio)

[Ben]

Reaganomics Sucked Wealth Up, Did Not Trickle It Down

https://www.youtube.com/watch?v=ZBZdpYdEmgY

[fivekatz]

Well on a day when Reagan's policy and emotion partner in the UK, Margaret Thatcher passed away I thought bumping up this thread was not such a bad idea.

What one has to give to Mr reagan and Mrs Thatcher is that their beliefs were untested and therefore could be considered to be done with the conviction that their policies will help all. While their personal hubris at moments made folks think that deep inside they only cared about the elite and their personal convictions, on balance they deserve some shadow of a doubt.

Those today who believe that austerity that puts more money into the hands of plutocrats, that deregulation that endangers the environment/public health to the benefit of enterprise will some how flow down to average citizens and that we limits to our obligations to protect our fellow citizens from want and disease but no limits to our military obligations to protect the interests of our businesses, they are really hypocrites, because the history of the actual achievements of Reagan and Thatcher are the sad reality of historic income inequity, economies built on shadow finance that manufacture far too little and deficits built on under taxation because trickle down does not trickle down, it flows out to the Caymans, Switzerland, Ireland and China.

[Ben]

Kinda grim but...

Suicide: The Consequences of Reaganomics! - YouTube (http://www.youtube.com/watch?v=-3U3OD4J4Eg)

[danthepoetman]

And after, the Bushonomics?? ...and the Buccopolitics...

[Ben]

The Reagonomics Doctrine of Privatized Government:

The Reagonomics Doctrine of Privatized Government - YouTube (http://www.youtube.com/watch?v=bJn0rlx3gM4)

[yodajazz]

The Reagonomics Doctrine of Privatized Government:




I think Hartman is entirely right. I once heard a Republican argue that private industry was ALWAYS more efficient than government, thus it good for the public to privatize government as much as possible. However, in the case of criminal justice, for one example, one would have profits taking priority over rehabilitation, or even influencing the public to make tougher penalties on crime, to insure their bottom line. One article I read, claimed that the for-profit prison industry was behind the Arizona plan to lock up illegal immigrants. And think about it; you have a low risk population, since they are not violent criminals, that could be locked up at a higher profit margin. I still question how truck drivers could be paid hundreds of thousands of dollars to drive trucks in Iraq, when US soldiers would have been paid much less to perform the same duties, and you have to add the cost of dual administration.

I find it ironic that that same forces that argue for letting the market dictate solutions for public issues, argue against the market in such matters as liability lawsuits; while they argue that the poor, should accept more responsibility for their lives. And some of the same people that argue against government regulations are actually, meeting directly with government officials to promote regulations favorable to themselves. In some cases corporations are keeping the money they deduct from employees for state taxes, and the state justifies this as tax credits for business development. The same state, like here in Ohio, may try to cut back finding on public education. They also argue against unions, who as one of their main purposes, is to give labor a fair market value for their services.

As corporation's profit margins grow, they can use more of their money to directly attempt to influence favorable legislation, and public opinion.

[danthepoetman]

Right wing political economic line...

[danthepoetman]

Another nice meme on the subject...

[danthepoetman]

.............:)

[danthepoetman]

And yet a couple more...

[danthepoetman]

Also this, of course...
http://www.trevorloudon.com/wp-content/uploads/2013/01/thirdparty.jpg