Monday, February 29, 2016

Bruce Bartlett and James Galbraith — The Battle Over Reagan’s Economic Plan

The spirited debate about the merits of Bernie Sanders's economic plan reminds two prominent economists of one that they were on opposite sides of 35 years ago.…

JKG: "The lesson for today is that we shouldn’t be imprisoned by the conventional wisdom of establishment economists. When the magnitude of our economic problems is great, as it was with inflation in the early 1980s and stagnant growth now, bold policies must be enacted."
Moyers & Co.
The Battle Over Reagan’s Economic Plan
Bruce Bartlett and James Galbraith
In 1981, Galbraith was executive director of the Joint Economic Committee and head of its Democratic staff. Bartlett was deputy director of the Joint Economic Committee and head of its Republican staff.


Dan Lynch said...

"Inflation came down much faster than anyone thought at a much lower economic cost than imaginable. The tax cut deserves credit for this."

Huh? Inflation at that time was due to events in the Middle East, not domestic policy.

But agree that "unwittingly, Reagan’s policies provided a strong Keynesian kick to the economy."

Few mainstreamers seem to have learned anything from the 70's inflation or the 80's deficit spending. :-(

TofuNFiatRGood4U said...

The table in the article shows that No One predicted inflation correctly (it fell faster than expected).

Mosler has explained that oil went from $2 to $20 a barrel from 1970 to 1980, and then fell because of the 1978 Congressional decision to deregulate natural gas. By 1983, electricity producers had switched over and Opec started to drown in excess oil. Both Reagan and Clinton benefited from a persistent fall in the price of oil--they hardly needed to be awake WRT energy policy.

The article misses the most important event in the story.

Dan Lynch said...

Mosler is mistaken about the role of natural gas. Deregulation was phased in slowly and caused the price of natural gas to go up, not down.

OPEC had already been neutered by the 1976 Doha agreement between Kissenger and the Sauds, wherein the Sauds agreed to moderate the price of oil in return for U.S. protection for the Saudi regime. Inflation fell to 5% by the summer of 1976, long before natural gas was deregulated.

When the Shah of Iran was overthrown in 1979 there was another blip in oil prices. It took the Sauds a while to ramp up production to make up for the loss of Iran's oil.

The real turning point was the 1976 Doha agreement. The agreement was secret so most people have never heard of it, and it is still not officially acknowledged even today.

The chart tells the story.

PDF download on the Doha agreement.

TofuNFiatRGood4U said...

I appreciate PDF link and will read it carefully. (Still seems to be the biggest
factor in inflation's decline after 1980.)

It looks like your comments re: natural gas price history are confirmed here: