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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Scumbria who wrote (141878)	5/2/2001 6:01:02 PM
From: Neocon	Respond to of 769667

Strategic relations with the Soviet Union occupied both countries to a great degree. Why should it be strange that in the course of competition, the Politburo should put forth someone who would appeal to Western leaders, in order to derail intensified competition? After all, much more of their budget was dedicated to the military, and they still used conscription..........

To: Scumbria who wrote (141878)	5/2/2001 6:19:32 PM
From: Neocon	Read Replies (2) \| Respond to of 769667

Fable 1: The Reagan Administration Relied on "Pie-in-the-Sky" Predictions That Tax Rate Cuts Would Pay for Themselves Supply-siders predicted their tax cuts would pay for themselves. This was nonsense from day one, because the credible evidence overwhelmingly indicates that revenue feedbacks from tax cuts is 35 cents per dollar, at most. Are we really gullible enough to accept a free dinner while still suffering the indigestion from our "free" lunch? [23] This is one of the great enduring myths of Reaganomics: that the White House relied on wild supply-side assumptions regarding the revenue impact of the tax cuts. The Reagan administration never assumed that the tax cuts would pay for themselves. In fact, "America's New Beginning: A Program for Economic Recovery," the White House budget plan released on February 18, 1981, included a table entitled "Direct Revenue Effects of Proposed Tax Reductions." [24] That table predicted a huge $700 billion revenue loss from the tax cuts through 1986, as shown in Table 4. cato.org

To: Scumbria who wrote (141878)	5/2/2001 6:22:42 PM
From: Neocon	Respond to of 769667

Fable 2: The Reagan Tax Cuts "Caused" the Budget Deficit to Explode in the 1980s Fifteen years ago, marginal tax rates and the progressivity of the tax system were dramatically reduced. Some suggested that these policies would so spur economic growth that tax revenue would actually increase. The outcome of that experiment is now a matter of record: not only did this response not occur, but the national debt quadrupled in the span of a dozen years. [25] This is the most common and overly simplistic interpretation of the budgetary events of the 1980s. Further, it is factually untrue that the Reagan tax cuts were a major cause of the budget deficits of the 1980s and the "quadrupling" of the debt. (In the 1980s the real debt doubled; it did not quadruple.) Real federal revenues grew at a faster pace after the Reagan tax cuts than after the Bush and Clinton tax hikes. From 1982 to 1989, they expanded by 24.1 percent. Over a comparable seven-year period, 1990-97, a period that accounts for both the Bush and the Clinton tax increases, real federal revenues will have grown by 19.3 percent (see Table 5). The lesson of the 1980s and 1990s is consistent with the supply-side theory that there are behavioral and investment responses to changes in tax rates. Figure 8 shows that, as a share of GDP, federal revenues fell from 20.2 percent in 1981 (the peak year for taxes as a share of GDP in the post-World War II period) to a low of 18.0 percent of GDP in 1984, and rose back up to 19.2 percent by 1989. This would suggest that the Reagan tax cuts were a small contributing factor to the increase in the budget deficit over the course of the 1980s. From 1950 to 1995, federal receipts have averaged 18.4 percent of GDP. Hence, throughout most of the Reagan years and clearly by the end, taxes as a share of national output were substantially above the postwar average. If the Reagan tax cut was not the major contributing factor to the increasing deficit in the 1980s, what was? There were two primary explanations: (1) a large and sustained defense build-up; and (2) the unexpected rapid decline in inflation and the recession in the early 1980s. The Defense Buildup and the Deficit. Table 6 shows that the cumulative increase in defense spending from 1981 to 1989 ($806 billion) was larger than the entire cumulative increase in the budget deficit ($779 billion) in those years. That is, if defense spending had been held to the rate of inflation from 1981 to 1989, the total real deficit would have fallen in the 1980s rather than risen. It is also true that the decline in the military budget accounts for almost the entire fall in the deficit from 1988 to 1996. [26] If the entire accumulation of debt in the 1980s went to finance the Reagan defense build-up, the key policy question would shift to whether it was appropriate to borrow for those large military expenditures. Was the Reagan administration justified in paying for this one-time increase in "public investment" spending through debt rather than taxes? Or, put another way, was it appropriate to have asked our children and grandchildren to help defray the cost of defeating the Soviet menace? The answer to that question rests to some extent on the issue of whether the defense build-up materially contributed to the collapse of the Soviet Union and, if so, on the discounted present value to our children and grandchildren of no longer having the "Evil Empire" imperiling the security of the planet. The figure could easily be in the trillions of dollars. In any case, Reagan's critics were proven right when they said that the administration would not be able to cut tax rates, increase the defense budget, and balance the budget all at the same time. The Fall in Inflation and the 1981-82 Recession. The unexpectedly steep decline in inflation in 1981 and 1982 contributed significantly to the rise in the deficit in the early 1980s. [27] When inflation falls sharply and unexpectedly, so too do nominal revenues while real expenditures rise sharply and unexpectedly. Both Reagan and Congress had approved spending increases for 1982-85 on the assumption, mostly due to erroneous inflation forecasts, that nominal GDP would be some $2.5 trillion higher than it was between 1981 and 1986. The abrupt reduction in inflation created an estimated $300-$400 billion spending windfall for defense and domestic programs. cato.org

To: Scumbria who wrote (141878)	5/2/2001 6:25:55 PM
From: Neocon	Read Replies (1) \| Respond to of 769667

Fable 3: The Federal Reserve, Not Ronald Reagan, Deserves the Credit for Ending the 1970s Era of High Inflation One man is more responsible for the political success of the Reagan presidency than any other, and his name is not Ronald Reagan. It is Paul Volcker, the man Jimmy Carter appointed as chairman of the Federal Reserve Board. A relatively stable currency has been the basis . . . for the economic boom of recent years. . . . And Volcker did it. In October 1979 he persuaded his colleagues to starve inflation of the dollars it feeds on. President Reagan did little to help. In fact, his deficits worked against Volcker's efforts. [29] The conquering of inflation in a very short time was primarily a result of tightening monetary policy under Federal Reserve Board chairman Paul Volcker. Volcker deserves high praise for the change in policy. But Reagan clearly warrants a large part of the credit for endorsing the overdue correction in Federal Reserve policy from the high-inflation 1970s. A major element of Reaganomics, in addition to the tax cuts, was sound money--a policy the nation had not followed since the late 1960s. The Federal Reserve's policy of sweating out inflation took place with the explicit approval of the Reagan administration, even though that policy contributed to the deep recession of 1981-82 and the unexpectedly large and immediate fall in inflation was a major factor in the budget deficit explosion in the early 1980s. The Reagan-Volcker anti-inflation policy may seem noncontroversial today, but it is noteworthy that at the time the decisions were made, there was very little consensus about how to defeat inflation. [30] In 1980, for example, economist Paul Samuelson wrote that "two-digit price inflation is a distinct possibility for much of the decade of the 1980s." [31] He predicted an inflation rate from 1982 to 1987 of 9.4 percent a year. The Democratic party was endorsing a host of inflation-fighting measures that were economically wrongheaded and almost certain to fail. During the 1980 Democratic presidential primaries, Jimmy Carter's anti-inflation policy included credit controls and gas rationing while Ted Kennedy, his opponent, endorsed wage and price controls. Most Keynesian economists had predicted that Reaganomics would make inflation worse, not better. Hobart Rowen of the Washington Post stated the conventional wisdom by arguing that the Kemp-Roth tax cuts would be "dangerously inflationary." [32] He added, "There is nothing in the [Reagan] fiscal program--in the view of those not addicted to supply-side theory--that works against inflation." James Tobin, a Nobel prize winner and an informal Clinton administration adviser, also had warned of the inflationary impact of Reagan's tax cuts and had called instead for "a five-year period of gradually declining wage-increase guide-posts." [33] The late Walter Heller, a Keynesian who had served as John Kennedy's chief economic adviser, summarized the conventional wisdom most succinctly in 1980: "The [Reagan] tax cut would simply overwhelm our existing productive capacity with a tidal wave of demand," thus accelerating inflation. [34] Amazingly, even after inflation had fallen by more than half by late 1982, Reagan's skeptics believed the progress on prices was a temporary aberration. Economist Paul Krugman, now of Massachusetts Institute of Technology, and Larry Summers of the Clinton Treasury Department warned in November 1982 of a coming "inflation time bomb." "It is reasonable to expect a significant reacceleration of inflation in the near future," they wrote. "A significant portion of the slowing of consumer price inflation since 1980 does not represent a reduction in the underlying rate." cato.org

To: Scumbria who wrote (141878)	5/2/2001 6:27:23 PM
From: Neocon	Read Replies (2) \| Respond to of 769667

Fable 6: The 1980s Expansion Was a Classic Keynesian Economic Recovery Driven by the Stimulative Effects of High Deficits Reagan's economic program actually amounted to the longest and most successful Keynesian recovery the world has yet seen. [39] If the 1980s expansion had been a classic, demand-driven Keynesian recovery, nominal demand should have grown rapidly in the 1980s. However, as Figure 9 shows, over the course of the 1980s the rate of nominal demand growth fell. The Keynesian explanation of the economic recovery in the 1980s is also fundamentally inconsistent with the sharp fall in inflation throughout that decade. If the recovery had been driven by a hike in the demand for goods and services rather than by a supply-side effect of greater output, inflation would have risen rather than fallen. But it did fall. This is why the near-universal predictions by Reagan's opponents from 1979 to 1981 of higher inflation from tax cuts proved to be entirely misguided. Finally, if budget deficits are highly stimulative, the post-Reagan period of 1990-95 should have produced strong economic growth. The budget deficits of that period were very nearly of the same magnitude as the deficits of 1982-89 (4.2 percent of GDP versus 3.9 percent of GDP); in the 1980s, however, we had rapid growth and in the 1990s we have had anemic growth. The answer seems to be the supply-side effects of tax and regulatory reductions in the 1980s versus the tax hikes and reregulation in the 1990s. cato.org