None of the dire effects of Reagan's policies occurred, and that was not because of tax policies, which mainly stabilized deficits, rather than eliminating them. It is even arguable that the 92 recession wouldn't have occurred had the Democratic Congress not twisted Bush pere's arm to increase taxes.
But let us take something else. The efficacy of supply- side policy was actually proven. In a Keynesian recovery, the increase of demand bids up prices, and the rate of inflation increases. In the Reagan recovery, the rate of inflation decreased, and has remained low throughout the 90s as well. That is because production was the leading factor: by improving productivity and bringing new things to market, the economic boom depended on investment and innovation creating demand. Not only that, but the general point of free- markets, an increase in efficiency in the allocation of resources, was demonstrated through the sustainability of growth without inflation.
If we budgeted like most businesses, we would carry a certain amount of debt, because it makes sense not to raise prices or reduce dividends to shareholders, both of which can have dire effects, in order to pay as you go. Debt is generally incurred for capital expenditures, big ticket items that are likely to improve the efficiency and/or productivity of the enterprise. In the case of government, there are plenty of candidates for debt financing, including new office buildings, the upgrading of computer networks, and some R&D. If we can manage the debt, and "pay as you go" would inhibit overall GDP growth, then there is no reason to obsess over the debt........ |
