To: Ilaine who wrote (57361 ) 10/6/1999 6:46:00 PM From: nihil Read Replies (1) | Respond to
For almost two decades the dominant emotion controlling saving and investment has been fear of inflation. Before this, most politicians were able to engage in inflationary activities without punishment because economic ignorance was widespread. Thus the initial taxcutting in the Reagan administration (with the resulting deficits) was highly inflationary, and had to be offset by even stricter monetary policy (higher interest). You can still see the hysteria of inflation hawks (like AG) who fire at the mention of inflation. Despite the fact that almost everyone hates taxes, all competent economists recognize that there is a trade-off between monetary policy (interest rates) and fiscal policy (budget deficit or surplus.) With fiscal deficits (owing to taxes being too low, given the minimum level of spending attainable) the necessary offsetting interest rates will be so high as to "draw money from the moon," strengthen the dollar, kill off exports, and reduce domestic real investment. The Baker led Plaza Accords led to the disastrous '87 crash.
