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Author Topic: Cheney allegedly declared, "Reagan proved deficits don't matter  (Read 1802 times)

Offline Bison 4 Life

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Reagan Policies Gave Green Light to Red Ink

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, June 9, 2004;


The line is not likely to make this week's eulogies to Ronald Reagan, but when Vice President Cheney allegedly declared, "Reagan proved deficits don't matter," he summed up an enduring argument from the former president's economic legacy.

In late 2002, Cheney had summoned the Bush administration's economic team to his office to discuss another round of tax cuts to stimulate the economy. Then-Treasury Secretary Paul H. O'Neill pleaded that the government -- already running a $158 billion deficit -- was careering toward a fiscal crisis. But by O'Neill's account of the meeting, Cheney silenced him by invoking his take on Reagan's legacy.

 

 
   
 
 
It wasn't that Reagan's policies proved that government borrowing had no impact on the economy. But his administration's record -- particularly with some years of hindsight -- did give reason to question traditional thinking and provided a new context for future arguments about deficit spending.

"The lesson we should have learned [from those years] is that deficits have little or no short-term economic impacts," said William A. Niskanen, a member of Reagan's Council of Economic Advisers.

As important, they appeared to have no impact politically, said Stephen Moore, a conservative economist at the Club for Growth who worked in Reagan's budget office.

"Voters and politicians became anesthetized to big deficits," Moore recalled. "Reagan was running these big deficits, and liberals argued it was going to be Armageddon. We were going to ruin the economy. Interest rates were going to go through the roof. And none of these things happened."

The fiscal shift in the Reagan years was staggering. In January 1981, when Reagan declared the federal budget to be "out of control," the deficit had reached almost $74 billion, the federal debt $930 billion. Within two years, the deficit was $208 billion. The debt by 1988 totaled $2.6 trillion. In those eight years, the United States moved from being the world's largest international creditor to the largest debtor nation.

To some economists, the impact was clear. Interest rates rose in the late 1980s and early 1990s, the economy slowed, then slipped into recession, and productivity barely advanced. Americans feared their nation had slipped into the shadows of Japan and Germany.

Reagan's "economic policy . . . was a disaster," University of California at Berkeley economic historian J. Bradford DeLong wrote this past weekend on his Web site. "The tax cuts made America a more unequal place, and the deficits slowed economic growth in the 1980s significantly."

But after the boom years of the 1990s, and the steady economic slides of those international rivals, some economists are reevaluating that version of history. The argument against deficits is more about self-righteous moralism than economics, they say.

The Reagan "experience changed the debate dramatically," said Kevin A. Hassett, an economist at the American Enterprise Institute. "Back then, it seems that everybody believed Reagan must be some kind of kook and the people who agreed with these views were flimflam artists. Not so anymore."

Indeed, since the Reagan years, the argument over the deficit has been turned on its head. In the 1980s, prominent liberal economists dismissed the significance of government red ink to head off the slashing of social welfare spending. Now, many liberal economists have become the fiercest deficit hawks to head off still more tax cuts.

But the shifts go beyond politics. For nearly a century, economic orthodoxy has held that federal borrowing harms the economy by driving up interest rates, diminishing investment and productivity, and placing an unfair burden on future generations, who will finance the spending and tax cuts of the present.

Traditional economists argue that as the government enters private capital markets to finance its deficits, it competes with private borrowers. A deficit equal to 1 percent of the size of the economy -- about $110 billion today -- would slap as much as a full percentage point on the interest rates consumers pay to finance a new home or new car. By that measure, today's deficit would account for nearly 4 percentage points of a 6 percent mortgage.

But the new argument holds that interest rates are set on a vastly larger global marketplace. With rising global prosperity, even a federal deficit as large as the United States' would present little competition for would-be investors. A soon-to-be-published paper by American Enterprise Institute economist Eric M. Engen and Columbia University economist R. Glenn Hubbard, the first chairman of Bush's Council of Economic Advisers, concluded that the record budget deficit of 2004 should raise interest rates by 0.12 percent.

"The world's capital markets are lot more sophisticated and flexible than they were then," said N. Gregory Mankiw, the current chairman of Bush's economic council. "That probably means that other things being equal, changes in domestic fiscal situations have less impact."

Indeed, this school of thought is becoming something of a consensus, Engen said. Deficits equal to 1 percent of the size of the economy should raise interest rates by 0.3 percent, he said. That is the low end of the 0.3 to 0.6 percent range postulated by Brookings Institution economists William G. Gale and Peter R. Orszag when they argued deficits are economically significant.

Benjamin M. Friedman, a Harvard University economist who lamented Reagan's fiscal policies in his 1988 book "Day of Reckoning," said the expansion of foreign credit has tempered the feared hikes in long-term interest rates that he thought would cripple the economy. But, he said, "that doesn't let deficits off the hook."

http://www.washingtonpost.com/ac2/wp-dyn/A26402-2004Jun8?language=printer

Offline y04185

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #1 on: June 05, 2010, 06:58:45 AM »
Whether this is true or not.  Considering the source and the lateness of the article, it is apparent the current administration has a 'deficits don't matter' policy.
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Offline Bison66

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #2 on: June 05, 2010, 04:34:03 PM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0

Offline y04185

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #3 on: June 05, 2010, 09:06:16 PM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0

Ask me that question in 20 years.
Fayetteville State by choice. Bronco by the Grace of GOD.

Offline Bison66

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #4 on: June 06, 2010, 01:03:59 AM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0

Ask me that question in 20 years.

Cute.
 O0

Offline Cholly

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #5 on: June 06, 2010, 01:38:04 AM »
THIS is why I keep saying that these damn neo-cons don't know what the HELL real conservatism is all about. ::)


^^^SPEAKS FOR ITSELF!!!

Offline Oldschoolram

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #6 on: June 07, 2010, 04:29:20 PM »
Fake assassination attempts don't matter either.

What did Maddow say the other day?  "IOIYAR!"

Offline uchighlander

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #7 on: June 07, 2010, 05:04:57 PM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0
I would if the economy was as robust now as it was then.......however we all know it isn't and never will be under the present administration. GO VIKINGS!!!

Offline Cats4ever

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #8 on: July 16, 2011, 10:56:58 PM »
Whether this is true or not.  Considering the source and the lateness of the article, it is apparent the current administration has a 'deficits don't matter' policy.
y, it is true because I remember Reagan saying  that. It seems that the GOP wants to have it both ways which I lost trust in the party. I see them as power hungry fools that will say anything to get the white house, instead of looking out for the country long term best interest. The biggest lie ever told by this party is the gov't can create jobs.

Have you ever heard of the National Interstate and Defense Highways Act of 1956?  Well this was a prt project of Dwight Eisenhower who taxed  fuel, automobiles, trucks, and tires to raised the funds to pay for it. That pet project has created many private sector jobs circulating close to half trillion dollar through the USA. Most of the contractor have to buy heavy duty equipment, rocks, concrete, steel, etc. How many business are need to supply the equipment and supplies to support the effort to build and maintain our highway system?

The most famous of all gov't project was the Defense Advanced Research Projects Agency (DARPA) of the United States Department of Defense for use by its projects at universities and research laboratories in the US.  This project would lay the foundation for what would become the INTERNET. Need I say more about the countless of private sector jobs that project created. Who was the first people to test microwave. If it was not for microwave, your behind would not have a cell phone. How many job were created behind the gov't laying the ground work.

CLASS DISMISS
Your treatment of others give them control of your soul
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Offline Cats4ever

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #9 on: July 16, 2011, 11:01:52 PM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0
I would if the economy was as robust now as it was then.......however we all know it isn't and never will be under the present administration. GO VIKINGS!!!
If these power hungry fools get out of the POTUS way, it will be. He want to build a rail system, and have nationwide fiber network that will reach in some of the most remote areas. Read my previous post about how gov't spending can lay the foundation for a more robust future. Then do your homework by studying the impact the gov;t investing shaped our future.
Your treatment of others give them control of your soul
Matthew 5:25-26

Offline Blackcaesar2k5

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #10 on: July 17, 2011, 02:16:37 AM »
Amen!!!!!!!!! 

Offline EB

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #11 on: July 17, 2011, 05:52:32 AM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0
I would if the economy was as robust now as it was then.......however we all know it isn't and never will be under the present administration. GO VIKINGS!!!

The economy then had problems, a lot of problems.  We are suffering from the results of trickle down/supply side economics.  That type of economic policy has never worked, and it never will.  Look at the Great Depression and the panics during the 1800s.

Whether this is true or not.  Considering the source and the lateness of the article, it is apparent the current administration has a 'deficits don't matter' policy.
y, it is true because I remember Reagan saying  that. It seems that the GOP wants to have it both ways which I lost trust in the party. I see them as power hungry fools that will say anything to get the white house, instead of looking out for the country long term best interest. The biggest lie ever told by this party is the gov't can create jobs.

Have you ever heard of the National Interstate and Defense Highways Act of 1956?  Well this was a prt project of Dwight Eisenhower who taxed  fuel, automobiles, trucks, and tires to raised the funds to pay for it. That pet project has created many private sector jobs circulating close to half trillion dollar through the USA. Most of the contractor have to buy heavy duty equipment, rocks, concrete, steel, etc. How many business are need to supply the equipment and supplies to support the effort to build and maintain our highway system?

The most famous of all gov't project was the Defense Advanced Research Projects Agency (DARPA) of the United States Department of Defense for use by its projects at universities and research laboratories in the US.  This project would lay the foundation for what would become the INTERNET. Need I say more about the countless of private sector jobs that project created. Who was the first people to test microwave. If it was not for microwave, your behind would not have a cell phone. How many job were created behind the gov't laying the ground work.

CLASS DISMISS

Let the church say AMEN.  Government sure can work.  Think of the taxpayers that are created and the revenue that is generated.

Let's not forget about the agency known as NASA.  Think about the jobs and industries that have come from that government spending.  Look at the public works' projects during the Franklin D. Roosevelt years.
« Last Edit: July 17, 2011, 05:54:24 AM by EB »

Offline EB

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Re: Cheney allegedly declared, "Reagan proved deficits don't matter
« Reply #12 on: July 17, 2011, 05:55:44 AM »
Could be, but are you willing to apply the same standard to the previous administration and draw the same conclusion?
 O0
I would if the economy was as robust now as it was then.......however we all know it isn't and never will be under the present administration. GO VIKINGS!!!
If these power hungry fools get out of the POTUS way, it will be. He want to build a rail system, and have nationwide fiber network that will reach in some of the most remote areas. Read my previous post about how gov't spending can lay the foundation for a more robust future. Then do your homework by studying the impact the gov;t investing shaped our future.

The president needs to quit playing nice and call them out more often.  The conservatives opposition to some of these projects makes no sense to me.

 

 

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