🚀 go-pugleaf

pjm@anegada.sps.mot.com (Patrick J. McGuinness) writes:

>In the 1930's there was a failure to understand the dangers of
>protectionism, and an obsession with budget deficits (at the
>expense of economic growth).
>In the 1970's Keynesianism became a false idol, as economic policy tried
>to fiscally tinker with demand and macroeconomic issues, while structural
>problems were left untended (creating stagflation).
>In the 1990's, our failure to control govt spending, with a budget
>that is about 70% "entitlements", has paralyzed our ability to
>effectively make wise decisions, such as enact pro-growth tax cuts,
>or even create Govt "infrastructure".

>More details on 20's/30's, 60's/70's and 80's/90's

[deleted]

>Notice that in *all* cases, there was an intervening situation of
>increased taxes, tariffs, regulation, or combinations of these.
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

I am always amazed at how people claim to understand business cycles
so well when most economists are of the opinion that they are among
the most poorly understood of economic phenomena.

Let me point out some possible alternative "explanations."  The
Kennedy and Reagan tax cuts (together with the Vietnam war and War on
Poverty during the 60s) generated large government deficits.  There is
no way to sort out whether or not the resulting "booms" were due to
lower tax rates or due to Keynesian style deficit spending.  Second,
isn't it possible that the inflation in the 70s had something to do
with the enormous run-ups in oil prices by OPEC in '73 and '79 rather
than do to "bad policy" by the U.S. government?  Third, I find it
plausible that both the recession of 1979-81 and the ensuing drop in
inflation and economic recovery were as much due to the radical change
in monetary policy introduced by the Fed in the late 70s as they were
due to changes in fiscal / regulatory policies.

I am _not_ suggesting that my alternative theories are right and
others are wrong.  Instead, I am suggesting that the evidence about
"causality" for business cycles is pretty weak.

--
T. Scott Thompson              email:  thompson@atlas.socsci.umn.edu
Department of Economics        phone:  (612) 625-0119
University of Minnesota        fax:    (612) 624-0209