As or more important, in my opinion, to the recovery was the reduction of burdensome regulations. Also, Keynes is generally associated more narrowly with pump priming, whereas integral to Lafferism was the reduction of marginal rates, not just a "stimulus cut", but one to alter the structure of incentives. Plus, one of the odd things that no one so far has quite explained is that as the economy heated up, inflation continued to go down and stay down. It tends, however, to vindicate monetarism, since the Fed continued tight money policies, and therefore to undercut the conventional Keynesian understanding. One of the things that is supposed to happen in Keynesianism is that once the stimulus has taken hold, one edges back, because if the stimulus continues, it will be inflationary, and also encourage over- speculation and cause a bust. In other words, an important aspect of Keynesianism is that it be countercyclical. In this case, there was no inflation to speak of, and the 92 recession was mild, and mainly a consequence of the tax hike (which should have been good under Keynesian theory) coupled with the relative builddown of the Armed Forces.
Mainly, though, I am referring to the fact that none of the Democratic economists saw that there would be a boom in the first place, and when they had rationalized that, predicted that the chickens would come home to roost in the '90s. Well, Reagan got the last laugh........ |
