What really happened in the Thatcher-Reagan years and after.
Economonitor — Great Leap Forward
The End of an Era: The Reagan-Thatcher Years, Goodbye and Good Riddance
L. Randall Wray | Professor of Economics, UMKC
Randy's post contains this post by Warren:
The Center of the Universe
My story of the Thatcher era
Warren Mosler
16 comments:
I am always amazed at how the 1980s can evoke such contrasting perceptions among well informed people, which I guess speaks more toward ideological orientation than anything else.
I came of age during the turbulent 1960s and started working for a living in the 1970s. Most of what I can remember from that period was the Vietnam War, inflation, high taxes, high unemployment, high interest rates, a chronically weak dollar, gas shortages and of course the ever present threat of nuclear war with the Soviet Union always hovered in the background.
I became a believer in Ronald Reagan during his presidential campaign and I was proud to call myself a Ronald Reagan Republican throughout the 1980s.
Why? Because during Reagan’s two terms in office, taxes were cut, inflation came down, oil and gas prices fell, interest rates came down, the dollar became strong again, US GDP doubled from $3 trillion to $6 trillion amid a booming economy as 18 million new jobs were created. Moreover, shortly after Reagan left office the Soviet Union collapsed without the US having to fire a shot. For this legacy we owe Ronald Reagan a debt of gratitude.
Reagan's success can be attributed to a massive increase in spending.
Tax cuts for the rich do little more than enable excess saving at the top end.
His administration marked the beginning of the great hollowing-out of the middle class. Let's not forget that after his big initial tax cuts he had to raise taxes something like nine times because of fear over mounting deficits.
Full disclosure...I was a Republican back then, so I helped enable those misguided policies.
Because during Reagan’s two terms in office, taxes were cut, inflation came down, oil and gas prices fell, interest rates came down, the dollar became strong again, US GDP doubled from $3 trillion to $6 trillion amid a booming economy as 18 million new jobs were created. Moreover, shortly after Reagan left office the Soviet Union collapsed without the US having to fire a shot. For this legacy we owe Ronald Reagan a debt of gratitude.
Post hoc ergo propter hoc fallacy that the right makes. The left makes a similar error regarding the Clinton surpluses.
Much of the political debate since has been clouded by these two logical errors.
"Reagan's success can be attributed to a massive increase in spending."
True in the sense that it was big time defense spending as Reagan sought to outspend the Soviets, who in the fullness of time raised the white flag. That was money well spent in my opinion.
I am somewhat surprised though at the anti-Reagan sentiment coming from MMT circles. Reagan ran large budget deficits in the 1980s, most of which were a consequence of the deep recession in 1982, while tax cuts and defense spending accounted for the rest of the deficit. It is kind of ironic don't you think, that the harsh criticism of Reagan by MMT is only matched by the Austrians who curse him for running big deficits in the 1980s.
Regarding taxes, it is true that taxes were also raise under Reagan, but that was due to a Democratic majority in Congress that pushed him into repealing some of the earlier taxes. In aggregate though, taxes were cut more than raised.
Gigantic con trick as Wynne Godley said.
True in the sense that it was big time defense spending as Reagan sought to outspend the Soviets, who in the fullness of time raised the white flag. That was money well spent in my opinion.
That's been debunked as the cause of the fall of the USSR. There are numerous ressources on this. Here is one in which Gorbachev disses the idea and says it was the result of his reforms (perestroika).
The Soviet Union's defense spending did not rise or fall in response to American military expenditures. Revised estimates by the Central Intelligence Agency indicate that Soviet expenditures on defense remained more or less constant throughout the 1980s. Neither the military buildup under Jimmy Carter and Reagan nor SDI had any real impact on gross spending levels in the USSR. At most SDI shifted the marginal allocation of defense rubles as some funds were allotted for developing countermeasures to ballistic defense.
I am somewhat surprised though at the anti-Reagan sentiment coming from MMT circles.
Carter began the move away from liberalism toward conservatism. I see it more as a swinging of the political pendulum depending the context of the times. The US has been in a predominantly conservative period since Carter, the record of which has been rising inequality of income and wealth.
This conservative bias has been masked somewhat owing to a liberalizing of the culture, not in the least because there was a lot of money to made in doing it. This provoked push back on the part of social conservatives called "the culture wars."
"The US has been in a predominantly conservative period since Carter, the record of which has been rising inequality of income and wealth."
Bill Clinton would agree with you although apparently for different reasons.
http://www.youtube.com/watch?v=nlDwqLOOwJk&feature=player_embedded
Gets interesting about 1 minute into the video...
In retrospect, I agree with Warren Mosler's recent quote:
"... they are all destroying our civilization with their abject ignorance of the monetary system."
http://moslereconomics.com/2013/04/10/my-story-of-the-thatcher-era/
"That's been debunked as the cause of the fall of the USSR. There are numerous ressources on this. Here is one in which Gorbachev disses the idea and says it was the result of his reforms (perestroika)."
Well, OK but that's just Gorbachev's account, and while he is arguably the best authority on the subject, he might not be the most objective. I think the following passage from the article.......
"Gorbachev was not intimidated by the military programs of the Reagan Administration. "These were unnecessary and wasteful expenditures that we were not going to match," he told us."
lends support to my earlier comment below. I don't think they are inconsistent.
"True in the sense that it was big time defense spending as Reagan sought to outspend the Soviets, who in the fullness of time raised the white flag. That was money well spent in my opinion."
"In aggregate though, taxes were cut more than raised."
That's a fact and I'm not disputing it.
The tax cuts were done in a way that most of the cuts accrued to savings and did little to boost the economy.
It was the beginning of the profits from increased productivity accruing to capital rather than labor...leading to the massive inequality we have now.
We are entering an era of the NBA/NFL economy...if one can make the team the spoils are magnificent. If not, well...
So Reagan proved that demand side Keynesianism still works, but everybody who extolls the Reagan legacy thinks he did whatever it is that they're pushing now.
He pushed a lot of ugly wedge issue politics, but everyone remembers him as a lovable, affable gent who meant no harm.
He was the hero of Grenada.
Got a pass on Beirut.
Couldn't remember shit about Iran-Contra. Those are some of my memories.
Yes, it was a bad idea for Reagan get the US involved in the Lebanese Civil War, but at least he came to his senses and asked himself: "WTF are we doing in Beirut?" He had the good judgement to cut his losses and bring the Marines home rather than get dragged into a protracted war in Middle East hot zone. I think there is a quote of him somewhere saying that he considered the Lebanon debacle to be one of his biggest mistakes.
"True in the sense that it was big time defense spending as Reagan sought to outspend the Soviets, who in the fullness of time raised the white flag. That was money well spent in my opinion."
'The myth is that Reagan's military spending was a causal factor in the break up of the USSR. Gorbachev contradicts that on one hand, and on the other the evidence shows that the USSR did not increase military spending during that time.
The thrust of the "Reagan defeated the USSR by outspending it militarily" is based on the assumption that the USSR disadvantaged itself economically by competing against the US build up. both Gorbie's account and their budget show this to be a myth.
"attributed to a massive increase in spending.
Tax cuts for the rich do little more than enable excess saving at the top end."
great stuff Paul... the only "tax cut" that could really work would be a "tax rebate" where govt sends out checks to people or does an EFT or an increased EITC maybe second place...
You cant cut someones taxes if they dont pay much taxes in the first place... and the non-govt sector needs continuous POSITIVE flow of $NFA or the whole system can shut down...
rsp,
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