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From Professor Mathew Forstater of the University of Missouri at Kansas City, a first-generation member of the Modern Monetary Theory school, and a member of the MMT Deficit Owl USA Committee
, which I administer on Facebook. Membership is open to all, questions are welcome, but trolling will result in your removal from the group.
"Ronald Reagan ran unprecedented deficits and increased enormously the national debt, fueled by tax cuts and sky-high interest rates from tight monetary policy (that made a big part of the annual deficit interest payment on the debt). Reagan Director of OMB David Stockman coined the phrase "strategic deficit" to describe the strategy of intentionally creating huge deficits for the purpose of undercutting political support for governmental spending (and just government, period). Remember, the 25% tax cuts over three years were not matched by spending cuts under Reagan, and the cuts in social programs were offset by increased military expenditure, with no net reduction in government spending. As Stockman privately told Sen. Daniel Patrick Moynihan in 1981 (and also William Greider and later in his 1985 memoir), accruing large deficits "gives you an argument for cutting back programs that really weren't desired and giving you an argument against establishing new programs you don't really want." Moreover, strategic deficits can enable opponents of public investments to sound compassionate -- "We can't steal from our children to pay for our short-term desires." So, was the 'Reagan Recovery' a supply-side recovery or a demand-side recovery? There is some initial evidence we can examine to look for a hint to the answer. If the recovery was supply-side (so due to productivity increasing in response to supply-side incentives), prices would be steady or falling; if demand-side (so due to the higher spending from higher disposable income), prices would be rising. So, was there any inflation during this period? Yes. This same game came under Dubya, with Cheney pronouncing to Treasury Sec Paul O'Neill, "Reagan proved that deficits don't matter." Unless you are a Democrat."
Warren Mosler adds: "Don't forget the role of the expansion leg of the s and l fraud in the Reagan boom. Maybe 1trillion of borrowing to spend back when that was a lot of money!"