Nothing to weep about. Reagan supported Volcker's actions at the time, even if he didn't keep him on. Actually, we do have a theory about how Reagan achieved growth without inflation. It is called Supply Side Economics. Demand driven recoveries tend to be inflationary, because the increase in demand bids up the cost of goods and services. A supply driven economy increases production, and has producers chasing after consumers, trying to create demand. Thus, it may actually be, in certain circumstances, deflationary. In the context of the 80s, one saw a general trend to decelerate the rate of inflation, as the supply side effects ameliorated the effects of suppressed demand being unleashed after the recession.
Kinsley misses the point about Supply Side tax policy. It was actually predicted that revenues would increase, as the economy heated up, and loopholes were closed. What was important was the lowering of marginal tax rates, which constituted a disincentive to productivity, not the aggregate amount of taxes. Similarly, although Reagan was thwarted from reducing the extent of spending and size of government, the important issue was mainly deregulation, which proceeded apace, thus easing the burden on business, freeing markets for competition, and increasing economic activity.
A Keynesian recovery would have increased inflation, not eased it, by increasing aggregate demand. That was not the motor driving the economy in the 80s. As for the observations about Bradley, he mischaracterizes the tenor of the bill in question, which was, indeed, bipartisan, and ignores the fact that marginal rates became the issue because of Supply Side theories in the first place.
Since Kinsley left off, I will too...... |
