Saturday, December 27, 2014

Monetary Policy During the 1974 and 1982 Recessions

Mark Thoma calls the latest from Stephen Moore a joke. First – some of the choice Laughers from this idiotic if not dishonest oped:
It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government’s 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl ... Critics such as economist Paul Krugman object that rapid growth during the Reagan years was driven more by conventional Keynesian deficit spending than by reductions in tax rates.
I’ll simply repeat my gut reaction which I posted as a comment over at Mark’s place:
Mark Thoma calls Stephen Moore's defense of the Laugher Curve a joke. I call this line a lie: "Critics such as economist Paul Krugman object that rapid growth during the Reagan years was driven more by conventional Keynesian deficit spending than by reductions in tax rates." More blatant misrepresentations of what Krugman has written. Krugman blamed the 1982 recession (something Moore failed to mention) on tight money and the recovery from it on easy money. Growth under Reagan-Bush41 was only 3.0% per year as opposed to 3.5% before and after this era. Did Moore admit this? No. But what struck me was that 1974 dinner conversation with Cheney and Rumsfeld - who I guess Moore thinks are Nobel Prize winning economists or something. The 1974 recession was a deliberate monetary contraction to WIN (whip inflation now) as Gerald Ford's little buttons described policy. Interest rate went from 7% to 10%. Now when the FED decided to lower interest rates, the economy recovered. Stephen. Your own account properly done shows it was monetary policy and not your vaunted tax cuts that drove the macroeconomy during both of these periods. It is hard to tell. Is Moore too stupid to know this? Or is his doing his usual lying hoping his readers are that stupid?
Forgive me if I have been consumed with the role of monetary policy during notable business cycles from the last century. But it does seem that the right wing pretend economists are doing a lot of misrepresentations of our economic history.

3 comments: said...

Yep, pretty much.

It should also be noted that Moore completely avoids what was the original claim by Laffer, that deficits would be reduced with tax cuts when tax rates were above a certain level. That did not come to pass, althhough he did vaunt tax revenue increases from the pit of the Reagan recession to the end of his term, which has its obvious problems..

ProGrowthLiberal said...

It was early when I posted this so I was a bit lazy knowing that there was much more to say. Paul Krugman deserves a big thanks for taking the time to say what I left out backing it with actual information:

doncastro said...

It's Moore, AEI, and the WSJ. Who in their right mind would expect anything other than obfuscation? The blatantly dishonest attempt to make the reader believe that US corporations pay a 40 percent tax rate, when the effective rate is half that, is all you need to know about the intellectual integrity of Moore...and AEI.