Thread: Reaganomics's Author says Reaganomics Won't Work Today

Bruce Bartlett explains why the solutions to the 1980 crisis can't work today. Basically: inflation is low, federal revenues are lower than average now, and there's no "bracket creep."

When comparing Reagan’s policies with Republican proposals today, several things stand out. Inflation is low now. We are not looking at “bracket creep” or sharply rising taxes, as we were in the late 1970s. The top income tax rate is 35 percent, half the rate Reagan inherited. And federal revenue is at a 60-year low of about 15 percent of GDP, compared with a post-World War II average of about 18.5 percent.

These differences are essential to understanding why Reagan’s policies worked when they did — and why they are not appropriate today.

All of the evidence tells us that the economy’s fundamental problem today is not on the supply side but the demand side. According to a recent study by Credit Suisse, two-thirds of the difference in growth at this point in the business cycle, compared with previous cycles, is due to slower consumer spending. And low inflation — as well as widespread unemployment, vast stocks of unsold houses, empty factories and other indicators — tells us that money is tight, not loose, as was the case in the late 1970s.

Why the GOP should stop invoking Reaganomics - The Washington Post

Originally Posted by Rasselas

Bruce Bartlett explains why the solutions to the 1980 crisis can't work today. Basically: inflation is low, federal revenues are lower than average now, and there's no "bracket creep." Why the GOP should stop invoking Reaganomics - The Washington Post

Inflation skyrockets as soon as there is a growth in demand. Saying that inflation is low under a contracting economy where money is being printed like no other time before is disingenuous. Rate will also skyrocket if the demand for goods improves.

You are kind of lucky, the demand wont grow for a few years yet, and further contraction is the only option.

Originally Posted by michaelr

Inflation skyrockets as soon as there is a growth in demand. Saying that inflation is low under a contracting economy where money is being printed like no other time before is disingenuous. Rate will also skyrocket if the demand for goods improves.

You are kind of lucky, the demand wont grow for a few years yet, and further contraction is the only option.

Keep cheering for inflation Mike. If you say it long enough, eventually you'll be right.

Originally Posted by Cicero

Keep cheering for inflation Mike. If you say it long enough, eventually you'll be right.

Bring on some growth and you have inflation, that is a fact of life. Your economy hasn't produced, therefore the rate of inflation on most items are down. Food and energy on the other hand show strong inflation. The for that is obvious, it is hard to drive demand for those two down.

i have always been told reaganomics didn't work.

Originally Posted by mtm1963

i have always been told reaganomics didn't work.

Honest to goodness, was about to say the same thing......

Originally Posted by Rasselas

Bruce Bartlett explains why the solutions to the 1980 crisis can't work today. Basically: inflation is low, federal revenues are lower than average now, and there's no "bracket creep." Why the GOP should stop invoking Reaganomics - The Washington Post

Bartlett sounds like a smart guy. Suspect the circumstances are a lot different than they were 30 years ago.


Bloomberg was on one of the Sunday morning shows this morning and spoke to the topic at hand. Thought he gave a wise recommendation/proposal:

"Let all of the "Bush tax cuts" expire (not just the ones for the high earners). And then adopt the proposals from Simpson/Bowles." If the White House along with our congresspricks could come to agreement on that approach, the economy may at least have a faint hope of eventual health...

Originally Posted by mtm1963

i have always been told reaganomics didn't work.

You never heard that from me. And I think that across the political spectrum, the basic reforms of Reaganomics are universally accepted as necessary. No one seriously talks about raising top marginal rates above 50% (or even much above 40%) these days.

Originally Posted by Rasselas

quoting Bruce Bartlett: "All of the evidence tells us that the economy’s fundamental problem today is not on the supply side but the demand side.

Well, that is just fundamentally wrong, but let me explain that because his basic premise will still be correct. The problem is that we're consuming more than we're producing, we have a choice, we can either demand less or supply more and at the end of the day that's exactly what is going to happen. The inherent underlying problem on the supply side is the peak oil constraint. We can't grow our way out of it. Even within this economic malaise we can see what happens to oil. Oil peaks, it sucks money out of the economy, the economy flails, the bad news sends oil prices down (the latest trough was at or close to $80 in October), the economy picks back up and at the first sign of good news -- bang -- oil is back up into the mid-90s and as the numbers from March, April, May start to come in we'll find out how much wind that takes out of the recovery's sails.

The only reason the demand side economics hasn't fueled inflation is because our creditors are willing to fill containers of imported products and to ship them here.

Meanwhile, back in China: BBC News - China inflation rate little changed at 4.1% in December

They DO have an inflation issue. How long before they figure out that to kill that problem all they need to do is to stop exporting all the stuff they're making (hyperbole of course, but the basic premise that permitting a yuan appreciation would kill inflation is very valid)

Right now, all we are is a debt bomb waiting for the bond vigilantes to show up. The terms of trade will swing against us, we'll experience a good dose of import inflation. Look at Iceland, Argentina, different sized countries....when the terms of trade swung (because the foreigners wouldn't finance it anymore), the inflation rate went double digit.....

When this happens our mantra will become 'export or die' - literally we export or the oil barges don't show up to keep the cars humming, to keep the fields fertilized, to keep us warm in the winter....and when imports decrease and exports increase....you have the same amount of money chasing fewer goods (inflationary).