Reaganomics and the National Debt

[The Duke]

Gus,

The Reagan tax cuts worked.  They killed stagflation.  Inflation has not been a major issue here for the last 20 years, Reagan killed it.  We havben't had double digit unemployment here in 20 years, because he killed unemployment.  Same with interest rates.  Transitioning from a high tax economy (70%) to a low tax on (28% when he left office, peaking at 39.6% in the 1990s, down to 35% now) is what did it.

[The Duke]

The % mentioned was the top marginal income tax rate.





Here is a chart showing interest rates and inflation from 1975 to 1989 (from the second year of Ford to the first year of G.H.W. Bush).  A steady decline under Reagan is discernible.

[The Duke]

A drop in nominal interest rates and a drop in inflation SHOULD correspond.  This is no mirage.  Here is a real interest rate graph.



There does appear to be a spike as the pace of interest rate cuts failed to keep up with the drop in inflation (as the other graph shows, interest rate cuts came only after inflation began dropping), but this should be seen more as a cautious Federal Reserve Board playing it safe than as a sign that tax-cutting is ineffective or that there is a correlation between deficits and interest rates.  After the brief spike, we see things level off to the more normal level we have seen in recent years.