16
Oct
2014
Reagan Recovery Blows Obama’s Out of the Water
Writing this reminded me of when I was a junior high right-winger who loved National Review. Anyway, the Obama apologists have been out in force lately, absurdly arguing that the recovery under him was better than under Reagan. Riiiiight. Purists, fear not; I included my caveats in both the beginning and ending of the article.
For the record, word amongst Reagan’s economics advisers is that none of them believed tax cuts would increase revenue (relative to what?) and neither did Reagan himself, who hoped instead to lower tax revenue to “starve the beast” and force cuts in spending.
Obviously this failed to work. Because revenue was not decreased in absolute terms (the assertion that they lost revenue is based on the assumption that without the lower tax rates, revenue would have increased more-which might be true, but I’m not sure why people act as though this is something you can prove)
This suggests that, if Reagan could have governed however he liked, he would in fact have financed his defense build up by cutting spending elsewhere. But that’s the inherent problem: he couldn’t govern as he liked. Republicans, even on the off chance that at the time most of them would have embraced the idea of actually cutting spending, did not control the House of Representatives, had not for decades, and would not again until the 1990’s, and even when they gained a majority in the senate, they lacked a filibuster proof majority. Effectively, we were Governed by divided Government. And contrary to the common assertion that divided Government restrains the growth of Government, Government exploded-which might make you wonder where the assertion comes from. It’s called the 1990s.
It’s not fair to blame Reagan for the things you don’t like about the Reagan years, if a Congress controlled partly or wholly (depending on the years) by an opposing party (with even the same party containing many people ideologically opposed to Reagan) shares the blame, especially if Reagan’s own position was closer to your own than the policy of Government when he was President.
There are a lot worse Republicans than Reagan from a Libertarian point of view, even just speaking of Reagan the President rather than Reagan the man.
All that being said, while I think you’re actually being somewhat unfair here, I am glad to see you’re willing to defend someone you don’t like from totally bogus criticism. I don’t think I doubted you would, but it’s nice to see.
Also it would have been nice if you noted that the Stock Market crash of 1987 illustrates your point that it is not an indicator of economic performance, by pointing out that despite the size of the crash, it had essentially no larger macroeconomic implications (that is, there was not, subsequently, a recession).
Was government really divided, though?:
The Return of Supply Side
http://archive.lewrockwell.com/archives/fm/10-96.html
Us Right-Wingers only *think* we’re pro free market.
I mean, check out Paul Ryan and Rick Santorum, who a lot of us supported:
Paul Ryan BEGS Congress to Pass TARP ( PATHETIC )
[www]http://www.youtube.com/watch?v=RyJBZYz858M
Santorum – Republicans no longer the party of Goldwater and small government
[www]http://www.youtube.com/watch?v=y-WezrKqUBQ
Neither of those things have any bearing on the 1980s.
During which time we had a man who campaigned for Goldwater as President, and Republicans and Democrats who hated Goldwater and everything he stood for in Congress. That’s what I call divided Government.
And again, neither Reagan nor his economic advisers were “Supply siders” in the since of revenue maximizers. They believed they would reduce the revenue the Government took in by cutting tax rates. They subscribed to a “starve the beast” theory.
I’m as frustrated and disappointed at the people who call themselves Republicans as you are, though.
As far as presidents go, Reagan and his deteriorating brain inspired far more confidence than all of the bell-ends that have followed him. I can’t help thinking that I might look back on him with greater fondness had friends of George’s kids not been shooting him.
What evidence do you have for the defamatory accusation that Reagan’s Alzheimers was at any significant stage of advancement during his Presidency?
None! But even if it was my point was,so what he was still better than those who came after. Relax Francis
Fair enough, I suppose.
Yes, Reagan’s economic record was better than Obama’s, and progressive apologists for Obama are wrong. Credit where credit is due.
Of course, you fail to mention that after 1981, Reagan’s economic policy was Keynesian.
First, in 1981 the “Economic Recovery Tax Act” provided a tax cut and fiscal policy became strongly countercyclical as Reagan increased discretionary spending mainly on defence, and a wide budget deficit opened up and continued for years afterwards:
http://socialdemocracy21stcentury.blogspot.com/2011/02/reaganomics-analysis.html
http://socialdemocracy21stcentury.blogspot.com/2011/09/reaganomics-as-keynesianism.html
This utterly contradicts your other claims on this blog that Keynesian stimulus cannot work, but note how you just sweep this under the carpet.
LK,
I really think that you are generally an honest guy (as far as I can tell) just very convinced that you are right, yet you are rather quick in denouncing others as dishonest for being equally convinced of their opinion..
A difference of opinion is not a sign of being dishonest.
“Of course, you fail to mention that after 1981, Reagan’s economic policy was Keynesian. … This utterly contradicts your other claims on this blog that Keynesian stimulus cannot work, but note how you just sweep this under the carpet.”
Maybe that just wasn’t the point of this article at all. A little more generosity or call it professionalism wouldn’t hurt on your side too (I am not saying people discussing with you might not make the same mistakes..)
Or maybe Bob is aware (as you apparently are not) that under Reagan much more was changed than the size of the deficit, or the fact that the tax cuts didn’t decrease the absolutely level of revenue and were therefore not Keynesian.
Note I did not say they did not decrease it relative to some baseline. I said in absolute terms.
Their primary impact was on incentives, not on spending..
LK you make a point that is understandable, but you have to keep in mind that the purpose of Murphy’s article was not to personally sanction GDP as a growth metric, or to personally sanction the growth under Reagan as desirable. Remember, in Murphy’s article he said that the “growth” under Reagan was largely due to the Fed’s easy money, which culminated in the crash of ’87.
If you ask Murphy point blank, “was policy under Reagan desirable?” he would then compare it with a free market and say “No.” But, if we compare two bad presidencies, and merely basing it off of the kinds of statistics that the author of the Forbes article uses, then on the author’s own terms, not Murphy’s!, did the economy perform better under Reagan.
One final note, the events that took place during Reagan’s presidency does not confirm Keynesianism as true. For it could have been the case that there would have been better, higher quality employment, and better, higher quality output (higher quality meaning more in line with individual sovereign consumption needs and desires) without the budget deficits sopping up valuable savings and redirecting those savings to wasteful, destructive government programs. This is an argument that is in the same a priori family as your a priori belief that the economy would have otherwise peformed worse without the government deficits.
The main difference between the two episodes was that Volcker induced a significant “liquidation” and re-pricing event. I don’t think most Austrians question whether a subsequent episode of deficits, funny money growth and tax cuts can induce an artificial boom. I would agree that the Reaganauts fail to recognize the subsequent boom as Keynesian.
Since Keynesian policy involves violent intervention, they have the burden of proof to demonstrate that things would have been worse than they were in the USA post-1980 with much lower military and domestic spending, no deficits or government debt, more significant tax cuts and sound money. They cannot make that case.
“the burden of proof to demonstrate that things would have been worse than they were in the USA post-1980 with much lower military and domestic spending, no deficits or government debt,”
The case is easily made. It can be done by inductive argument by analogy. We have many cases where fiscal contraction generally leads to recession and serious economic problems. On analogy with these instances, we can argue that it is highly probable that extreme fiscal contraction in the 1980s would have induced an extreme depression.
The evidence? Just look at what happened in Greece or Ireland, or the Baltic states when strong fiscal contraction happened after 2008. Or when in strong fiscal contraction happened in South Korea, Indonesia, and Thailand in 1997-1998. Or when Roosevelt engaged in fiscal contraction in 1937.
“The case is easily made. It can be done by inductive argument….”
Uh huh…
“Certain types of phenomena in our universe are what mathematicians call non-ergodic stochastic systems. The concept of radical uncertainty applies to such systems, like medium term weather events, financial markets, and economies, and other natural systems studied in physics.”
“In these systems, past data is not a useful tool for predicting the future state of the system and the problem of induction is particularly acute.”
Yes, you still cannot predict future outcomes with **objective, numeric probability scores** as you can in, say, a fair game of dice. I use “predict” in that quotation in this sense only.
That does not stop you from making inductive arguments whose conclusions have a qualitative, non-objectively quantifiable or epistemic probability, where uncertainty also comes in qualitative degrees from very low to total/radial uncertainty, just as in many domains in the social sciences, natural sciences and everyday life.
As for my comment about the problem of induction there, I would now repudiate that as too extreme.
OK, too extreme.
But…I would still say that analogies between biological systems and physical/chemical systems on the one side, and intersubjective, i.e. social systems, on the other, has never been adequately established.
And, I would also say that from an experience of many years of philosophical introspection, studying the greats, and more of the not so greats but unfortunately overlooked, I am convinced that the analogy is categorically unwarranted.
In none of those cases were there the required components of the test I would propose:
1. Spending slashed by ¾;
2. Sound money and no FRB;
3. No deficit and absolutely nothing that could be considered Keynesian stimulus;
4. No business subsidies or bailouts. Zero, zilch.
5. All tax rates slashed to at least 10%.
6. Secure and enforceable private property and contract rights.
ALL of those components must be present for the appropriate “test case”.
So pretty strong spending cuts and deficit reductions and fiscal contractions generally induce recession, but you think extreme spending cuts and total deficit elimination will mysteriously lead to .. prosperity? Also, since eliminating FRB will cause modern credit systems to collapse and a massive contraction of consumer and business credit, your system would — by another inductive argument by analogy — most probably lead to further massive economic collapse.
In your “no theory/all empirical world”, you really don’t have any empirical evidence, now do you?
Wait, you asking if I have empirical evidence of what happens when fiscal contraction and credit contraction occurs?? hahaha
No. You are distorting the issues, as always. Austrian theory states over and over that artificial “stimulus” often does stimulate economic activity and that when the artificial “stimulus” ends, there is a painful readjustment and bust. See 1937.
Regarding the subject at hand, you lack an empirical example of what happens when a big government/big deficit/funny money economy slashes government intrusion and establishes a regime of low taxes, spending and sound money because it has never happened. Lacking an empirical example and lacking any theory of human action, you have nothing.
And I have never seen a human being fall into the sun either, but that does not stop us from saying — with a VERY high degree of probability — what would happen in that case through inductive argument by analogy.
One can observe very predictable and measurable laws of physics and know exactly what would happen if a human being were to fall into the sun. You have no evidentiary or theoretical reason to propose that a sound money private property society would suffer from your Keynesian-style crises.
Yes, we do have plenty of empirical evidence to provide the basis for inductive argument by analogy: the fundamental role of credit via FR banks in modern economies, the instability of investment via expectations, the unreliable nature of interest rates to stimulate investment when expectations are shocked, the existence of degrees of unquantifiable uncertainty, etc, etc., etc.
I think a widespread impoverishment to the extent of a drastic reduction in production of what the government’s demand brings about, both direct (e.g. customized end products like weapons of war) and indirect (i.e. lands labored to be used for swat team training grounds), and a drastic reduction in employment in those same lines of production, is not ipso facto the same problem as an equivalent reduction in employment in only civilian goods businesses.
I think it is a mistake to consider employment and output geared towards government ends as equally worthy of support and compassion as employment and output geared towards civilian ends.
I cannot with a clear conscience feel as bad when sexual perverts at the airport and agents at spying institutions lose their jobs, as I would with every other worker losing their job.
In a sentence, not all GDP is good GDP and not all employment is good employment.
Eliminating fascist and communist oriented output and labor need not answer for unemployment in what could plausibly be considered “collateral damage”.
Eliminating exploitation is in itself a worthy goal regardless if the people don’t immediately know what to do with themselves and thus aren’t employing people or are being employed at that time.
When slavery was abolished in the 1860s, many slaves in the short run did not have jobs. Unemployment rose. But the ending of slavery was itself worthy.
Same thing with less pronounced forms of exploitation like social democracy.
“… not all employment is good employment.”
Nice.
Same with “output”.
Only when employment and output are undertaken for the purpose of satisfying individual preferences does employment and output produce wealth, since what constitutes wealth is always subjective to each individual.
Greece increased the personal tax rate from 40% in 2009 to 49% in 2010. They also increased government spending at the same time (big spending spike Jan 2010), and this was when the number of employed people in Greece started a long downward slide.
http://www.tradingeconomics.com/greece/employed-persons
You can see that the employed persons was rising modestly from 2006 to 2008 then held steady until January 2010 and then took a nosedive after that.
So the Keynesian theory is that this sudden tax rise killed jobs because “austerity”, right?
Here’s the tax revenue as % of GDP from World Bank:
Year : Greece / Ireland
1999 : 22.5 / 26.2
2000 : 23.5 / 25.8
2001 : 22.0 / 24.0
2002 : 21.6 / 23.1
2003 : 20.0 / 23.5
2004 : 19.8 / 24.6
2005 : 20.3 / 25.0
2006 : 20.5 / 26.4
2007 : 20.8 / 25.5
2008 : 20.4 / 23.2
2009 : 19.6 / 21.2
2010 : 20.0 / 21.1
2011 : 21.3 / 22.2
2012 : 22.5 / 23.2
Here’s the comparison employment situation in those two countries…
http://www.tradingeconomics.com/charts/greece-employed-persons.png?s=greeceempper&d1=20020101&d2=20141231&URL2=/ireland/employed-persons&type=line
Unfortunately some of the Greek data is missing. Ireland was showing steady employment growth up to 2008 and then rapidly dropped off. Around the same time the Irish also significantly reduced their tax percentage. After about 4 years the Irish employment situation turned around and have been improving recently. So they are now pulling out of recession. We can also see signs they are pulling in more tax although not as much as they were getting before 2008.
In comparison, Greece managed to keep the employment figures up for an extra two years, until 2010 but then they fell much worse than Ireland (they lost about 1/4 of all employment!) and probably they are turning around after about 4 years of falling employment, but still too early to say for sure. Looking at the Greek tax collection over that time, it didn’t really change at all, and is lower than Ireland every year. Lower taxes didn’t seem to help Greece at all.
Maybe we could say that the ability of Irish tax to drop at the time when the economy cannot support a high tax burden was useful to them, but both economies went through the same 4 years of downturn, Greece merely started later.
LK, you know full well that 1920 is an infinitely better analogy to 1982 than the Great Depression or Greek, 1997, and Irish crises. Your argument here is just disingenuous.
“higher quality meaning more in line with individual sovereign consumption needs and desires” I don’t see where needs come into it. It would be in line only with desires.
It would be needs as well because improving the quality of goods (including capital goods) can satisfy previously unmet needs.
It seems there were two articles on Mises.ca in reference to that Forbes piece:
http://mises.ca/posts/articles/the-truth-of-the-decreasing-labor-participation-rate/
Always a good time to revisit the old classic.
http://www.independent.co.uk/environment/snowfalls-are-now-just-a-thing-of-the-past-724017.html
Reagan cut taxes and ran large deficits putting more net financial assets (currency) into the hands of the private sector, which is stimulative. We also can’t forget that the S&L fraud/credit expansion happened under his administration, it was also hugely stimulative. It was a trainwreck when it came apart, but things were coming up roses for years before that occurred.