Reagan Deficits Jude Wanniski November 13, 2000

From: "Angell, Wayne (Exchange)" <wangell@* * * * *.com>
To: "'Jude Wanniski'" <jwanniski@polyconomics.com>
Subject: RE: "Reagan deficits"
Date: Mon, 13 Nov 2000 07:53:18 -0500

Bob, I agree with Jude that without the transparency of a gold price target the Volcker slamming on the brakes had to be sufficient to break the back of expectations that the President and the Congress would overwhelm the Federal Reserves resolve.  Consequently inflation expectations did not fall as fast as inflation fell and that contractionary effect adversely lowered the growth rate of Federal tax receipts. 

-----Original Message-----
From: Jude Wanniski [SMTP:jwanniski@polyconomics.com]
Sent: Saturday, November 11, 2000 11:54 AM
To: bob.bartley@edit.wsj.com
Subject: "Reagan deficits"

Republicans continue to argue that the big deficits were caused by Democratic Congresses which overspent. Democrats say they were caused by the Reagan tax cuts. Here is a cogent summary of what really happened, which I posted in my website TalkShop today. Do you see any flaws in it?

 * * * * *

The spending went up as dramatically as it did under Reagan because prices were catching up with the gold inflation that occurred under Nixon, Ford and Carter.... When prices rose by a factor of ten, entitlement programs and the costs of maintaining (not to mention beefing up) the military had to follow. There had to be a dramatic increase in the deficit or the tax increases necessary to offset them would have sent the economy into a deep Depression. The inflation impulses ended when the Reagan Fed wrestled down the price of gold, fairly easy to do when the RR tax cuts were boosting the demand for liquidity. When RR took office, gold was at $620 or so, as I recall. As gold came down to $350 by 1985 and stabilized there, economic growth responded to the RR tax cuts and monetary stability to usher in an era of budget surpluses, which Clinton took credit for. The Democrats blamed the deficits on Reagan when it was Carter's economists who actively pushed for monetary ease and dollar devaluation, increasing gold to $620 from $140. The Democrats then took credit for the surpluses that Reagan's policies made possible.


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