Reaganomics and the National Debt

[Gustaf]

How does a high debt benefit corporations and not the people?

I agree with Jmfcst that a debt can be tolerated in grave times. However, I think that in Reagan's case it wasn't completely justified the way it might have been in the 30s and 40s. I think George Bush had a point when he called Reaganomics voodo economics.

[Gustaf]

How does a high debt benefit corporations and not the people?

I agree with Jmfcst that a debt can be tolerated in grave times. However, I think that in Reagan's case it wasn't completely justified the way it might have been in the 30s and 40s. I think George Bush had a point when he called Reaganomics voodo economics.

Reagans idea to bring down the Soviets was a stroke of genius. Simply outspend the Soviets and bluff them with SDI until their bank broke. And it did and the terrible scourge of another death regime ended.

That is one issue, but that of his economic policies is another.

[Gustaf]

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.

What are the percentages? On income? Or overall tax burden in pecent of GDP? Or what?

Anyway, I'm not saying that the Reagan tax-cuts didn't work...but I doubt his economic policies were completely sound. Look at the way interest rates behaved, for instance.

[Gustaf]

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.

Not really. That's just b/c the inflation if falling. The real interest rate look a lot higher under Reagan from what I can see than it was previously.

[Gustaf]

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.

I know that they should....that was my point.

Tried to fix theimage. Anyway, there is a correlation between running up a huge deficit and forcing up the interest rate I believe. And it is natural that interest rate changes lag a little, since it's a reaction to inflation. I am not saying Reagan's economic polcies were completely off or anything, but I think part of the theoretical reasoning was a little shady, especially on fiscal issues.