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Author: PeterRabit Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1977321  
Subject: JFK Tax Cut (not good says Samuelson) Date: 3/4/2013 10:04 AM
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Fifty years ago, President Kennedy made a decision that, with hindsight, ranks as the biggest mistake of domestic policy since World War II. In many ways, it led directly to today’s “sequester” debacle.

What Kennedy did was this: In early 1963, he proposed a $13.6 billion tax cut (today: about $320 billion) even though the economy was not in recession and the tax cut would enlarge the budget deficit. Kennedy adopted the theory that government could, by manipulating its budgets, increase economic growth, reach “full employment” (then a 4 percent unemployment rate) and reduce — or eliminate — recessions.

It was a disaster.

High inflation was the first shock. An initial boom (by 1969, unemployment was 3.5 percent) spawned a wage-price spiral. With government seeming to guarantee 4 percent unemployment, workers and businesses had little reason to restrain wages and prices. In 1960, inflation was 1 percent; by 1980, it was 13 percent. The economy became less stable. From 1969 to 1982, there were four recessions, as the Federal Reserve alternated between trying to push unemployment down and prevent inflation from going up. Only in the early 1980s did the Fed, under Paul Volcker and with Ronald Reagan’s support, crush inflationary psychology.

We are now suffering from — and have for decades — the second defect of JFK’s decision: the loss of budgetary discipline.

http://www.washingtonpost.com/opinions/robert-samuelson-how-...

Righties love to praise President Kennedy and his tax cut (which he claimed was intended to increase demand not supply). It is interesting to hear that perhaps it did not work well on the balance at all.

Note that in listing the ill-effects from 1964 to 1980, Samuelson never mentions the Vietnam War.

Peter
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