I was hesitant to make this post because it comes awfully close to raising the evil specter of "politics" that I and others have crusaded to keep off of this board. But this post is mainly about debts, deficits, and the economy. This post started off as a reply to Mish in a previous thread. Mish, I hope you didn't take my question about your age as some kind of insult. It was a sincere question, based on the belief that someone who lived as an adult through, say 1975-1990, and particularly someone as knowledgeable and intelligent as yourself would not "remember" that "Reagan did not give in to the extreme right," for instance. However, I could easily believe that someone who was not an adult during those years could have been misled by the subsequent enormous effort to rewrite the history of the Reagan Administration and of Reagonomics. Therefore, I submit these notes in hope of shedding some light on some issues that many would prefer to keep in the shadows of demagoguery. First, let's talk about the national debt. As can be seen from the table below, the national debt went from a large but potentially manageable $828 B, to an unimaginable $4 trillion during the 12 Reagan/BushI years. An increase of almost 500%. Reagan left his protégé Bush in such deep economic doo-doo that Bush was forced to institute the largest tax increases in history and still the national debt increased another $1.5 trillion during his four years.Year Deficit Debt %GDP 1979 -$40,183 -$828,923 34%1980 -73,835 -908,503 341981 -78,976 -994,298 341982 -127,989 -1,136,798 361983 -207,818 -1,371,164 411984 -185,388 -1,564,110 421985 -212,334 -1,816,974 461986 -221,245 -2,120,082 501987 -149,769 -2,345,578 531988 -155,187 -2,600,760 541989 -152,481 -2,867,538 551990 -221,384 -3,206,207 591991 -269,521 -3,598,303 631992 -290,403 -4,001,941 67So what does this mean for you and me? It is a little difficult to get an exact reading on the percent of the budget that interest payments on the debt represent. You want find too many politicians advertising this number, since they know they are to blame. I think Ross Perot said about 25%. 25% of a $1 trillion budget = $250 billion/yr. Of course, that number is increasing hourly. I like this chart that shows you how much of your tax dollars goes into paying interest on the Reagan's debt PER HOUR - currently running at $38,000,000 PER HOUR (that's millions folks). I am sure some of you accounting gurus are calculating what that would equal since 1980 on a compounded basis - astronomical: http://www.geocities.com/cmcofer/interest.html#int How did this happen? First let's look at the promises Reagan which along with a hostage crisis in Iran allowed Reagan to be elected by a thin margin in 1980: 1. He PROMISED to cut taxes. 2. He PROMISED an ENORMOUS increase in defense spending. 3. He PROMISED to balance the budget. 4. He PROMISED us smaller government. 5. He PROMISED NOT to touch the "safety net" (his words) of medicare and social security and a whole bunch of other programs, which he said were "off limits" (his words). And for those of you (Mish <ggg>) who "remember" that Reagan was moderate on social issues:6. He PROMISED a constitutional amendment outlawing abortion.7. He PROMISED a constitutional amendment allowing school sponsored prayer.In 1979, even most members of Reagan's own party scoffed at the idea that the government could lower revenues and increase spending and not cut social programs and somehow balance the budget. George Bush the Elder, who was running against Reagan in the primaries of 1979 referred to Reagan's economic plans as "voodoo economics." Bush continued his attacks on Reagan's economic "plan" until he was silenced by making him the Vice Presidential candidate. Suddenly he saw the light. (Man, did he have to pay for that a decade later -:) The rationale that Reagan and his whiz-kid OMB Director David Stockman cooked up for just how this seemingly irrational formula of Increased Spending + Lower Revenue = Balanced Budget, required an enormous act of faith on the part of the participants and the public. But Reagan came off as sincere on TV and that was all that mattered.Reagan's "trickle-down" theory fantasized that if you cut taxes for corporations and upper income individuals that the economy would be so stimulated that all this good stuff would just "trickle down" to the great unwashed masses and that tax revenues would actually increase enormously. I know. It seems laughable now. In fact, the fantasy revenue increases were just one of the "projections" made by Stockman that showed how they were going to magically balance the budget. Later Stockman would refer to those budget projections as the "Rosy Scenario" (his words). More appropriately he might have referred to those "projections" as FANTASY NUMBERS that he inserted into the budget proposals to make it seem that they were going to produce a balanced budget. We all know what actually happened. The biggest budget deficits in history happened. Reaganomics produced no real (broad) economic growth that I can detect, but what it did do, IMO, is concentrate the country's wealth into far fewer hands. The final results make it impossible to believe that a balanced budget or smaller government or anything resembling fiscal responsibility were EVER real objectives of the Reaganites. Stockman actually came to realize just how wrong all of this was and after some bitter public disputes with Reagan, he resigned in 1985.Today, one can only chuckle that so many were fooled by what, in hindsight, is such obvious idiocy. But I do not find it at all funny (but a tribute to the revisionist) that so many people continue to be fooled.The main argument of those that would try to make us believe that black is white and hot is cold and there was a "Reagan Economic Miracle", is that the deficits were not Reagan's fault. I know, pretty weak, but their only hope of salvaging Reagan's legacy is to try to convince enough people that Ronnie didn't have anything to do with those nasty old deficits - it was all Congresses fault. They would have us believe that the previous 39 Presidents somehow maintained some control over Congress, but that suddenly during the Reagan administration Congress went absolutely totally completely stark raving berserk and created the enormous deficits all on their own despite Ronnie's pleas with them to stop. To facility this suspension of disbelief, the propagandist have created the table below, which one mindless ditto-head recently posted on this board:The National Debt During Reagan/BushIFiscal Year Proposed Actual % Difference (Cumulative)1982 695.3 745.8 7.31983 773.3 808.4 4.5 (12.1)1984 862.5 851.8 -1.2 (10.8)1985 940.3 946.4 0.7 (11.6)1986 973.7 990.3 1.7 (13.5)1987 994.0 1003.9 1.0 (14.6)1988 1024.3 1064.1 3.9 (19.1)1989 1094.2 1144.2 4.6 (24.5)Totals/Avg $7,357.6 $7,554.9 2.8 (3.1) Like any good propaganda, the above table has some basis in fact. The factual numbers in this table are those in the "Actual" column. The numbers in the "Proposed" column are phony...but even those numbers have some basis in fact. Also, and most importantly, for this table to have the desired misinformation effect depends on most of us not having a good understanding of how the federal budget process works: When a federal budget is proposed there are many "flexible" items, like the amount to be paid for unemployment compensation which depends on the unemployment rate, like the amount to be collected in revenue which depends on economic growth rates, like the interest on the debt (NOW a MAJOR item), which depends on interest rates, etc, etc, etc. For instance, the current administration could propose a budget that spends x amount for unemployment compensation and x amount for interest on Reagan's debt, but if the actual unemployment rate and interest rates are both a whole percentage point higher than projected, then the actual budget will be much higher than projected, NOT because congress spent more but because the projections were wrong, or in the case of the Reagan Administration, the projections were complete fantasy. We talked about Stockman's "Rosy Scenario" - well, the numbers in the "Proposed" column are what the budget would have been if all of Stockman's "Rosy Scenario" numbers had come to pass. Again, Congress DID NOT appropriate more than Reagan asked for. Congress merely appropriated what Reagan asked for based on the REAL values. In fact, the House Appropriations Committee reported that Congress actually spent 29.4 Billion LESS than Reagan proposed during his 8 years.But watch out, the revisionist go even farther. You might also find some phony charts and tables out there that show that tax revenues actually did grow at some remarkable rate under Reagan. Here is a table that shows the actual growth in revenues by the U.S. since Roosevelt:Year over year Growth in Revenues President Rev-GrowthRoosevelt 121.3%Truman 3.7%Eisenhower 2.4%Kennedy 4.8%Johnson 6.9%Nixon 0.3%Ford 6.4%Carter 3.0%Reagan 2.4%Bush -0.0%You see, there was nothing remarkable about revenue growth under Reagan any small additional growth that might have appeared for a year or two under Reagan was more than given back during the ReaganII (BushI) administration when not only the largest deficits but the largest tax increases in history were produced.You will even hear some demagogues go so far as to talk about the "Reagan Economic Miracle". Uhhh, where is that miracle exactly? If there really had been an "economic miracle" that we could look at some historical economic numbers and find some kind of blip or something that would illuminate this so-called miracle. But look as we might, no sign of a miracle is anywhere to be found. Let's look at yearly growth in GDP:Real Growth of GDP1973 5.21974 -0.51975 -1.31976 4.91977 4.71978 5.31979 2.5 1980 -0.51981 1.81982 -2.21983 3.91984 6.21985 3.21986 2.91987 3.11988 3.91989 2.51990 1.21991 -0.61992 2.31993 3.11994 4.1Nope, no sign of an economic miracle there. Not even on par with the Carter administration. 1984 is notable however. Most notable about 1984 was that because the U.S. did experience better than expected growth that year, that Stockman's "projections" actually almost came true. This should be making you say, "Hmmmm, I wonder what that did to Proposed vs. Actual budget that year. So look back up to that table and you will see, that yes, it was a miracle - that year, for some odd reason, the wicked old Congress did not spend more than Ronnie proposed, i.e. the "Rosy Scenario" almost happened in 1984...only.For those of us old enough to be aware of what was going on at the time, certainly there was some positive signs for the economy. The oil crisis of the 70's had given us runaway inflation. But Carter had begun an inflation fighting effort that had included the appointment of Paul Volker as Fed Chairman. Volkers monetary policy had finally began to work - inflation came down - this was the only thing that prevented Reaganomics from being as much of an immediate disaster as it has turned out to be a long term disaster.And I don't know about you, but the economy sure didn't feel good where I was in the 80's. I owned a retail business and some real estate in Dallas and I remember that unemployment was high, interest rates were high, and business failures were epidemic. I know that some parts of the Northeast experienced some great growth and low unemployment during this time but in the Rio Grande Valley unemployment was close to 20% and deregulation of the Savings and Loan industry had led to $50 Billion in failures and a closely related massive real estate glut. Before you accept the notion that the 80's were great economic times, take a look at business failures. Business Failuresyear number per/10,0001970 10,748 441975 11,432 431980 11,742 421981 16,794 611982 24,908 881983 31,334 1101984 52,078 1071985 57,078 1151986 61,616 1201987 61,111 1021988 57,098 981989 50,361 651990 60,747 741991 88,140 1071992 97,069 110I don't know what the economy was doing during the 80's where you were, but it was pretty damn sick where I was. There has been a lot of talk lately about the Current Account Deficit. Ronald Reagan took office with an $8 Billion Current Account SURPLUS. He left office with a $126 Billion Current Account Deficit leading MIT Professor Lester Thurow to make the now famous quote: "When Ronald Reagan became President, the United States was the largest creditor nation. When he left the presidency, we were the world's largest debtor nation."Current Account Deficit 1981 +8.21982 -7.01983 -44.31984 -104.21985 -112.71986 -133.21987 -143.71988 -126.5How about jobs? This seems like it should be a pretty good indicator of whether the windfall handed out by Reagan to the Military/Industrial Complex and the upper class actually did ever filter down to the great unwashed masses. I'm sure that most of you have heard, at one time or another, that jobs were created by Reaganomics. I think 18 Million Jobs Created During the 80's is the headline. And again, like any good propaganda, there is an element of truth here - in fact, there WERE 18 million jobs created during the 80's. But the propagandist would like to draw your attention away from the fact that there were 24 million jobs created during the 70's. Unemployment was horrendous under Reagan folks. Here is an unemployment rate chart:Unemployment Rates 1960 5.5% 1965 4.5 1970 5.0 1975 8.5 1976 7.7 1977 7.1 1978 6.1 1979 5.9 1980 7.2 1981 7.6 1982 9.7 1983 9.61984 7.5 1985 7.2 1986 7.0 1987 6.2 1988 5.5 1989 5.3 1990 5.5 1991 6.7 1992 7.4Under Reagan we had a couple of years of nearly 10% unemployment. In fact, as the chart below indicates, fewer jobs were created under Reagan/Bush than in ANY recent administrations. Job Growth Per Year Under Recent PresidentsJohnson 3.8%Carter 3.1Clinton 2.4Kennedy 2.3Nixon 2.3Reagan 2.1Bush 0.6Ok, the stock market ended an eight year bear in 1982, and had a pretty good run into the big 1987 sell-off. But participation in equities markets in the 80's was much narrower than it is today so participation in any "wealth effect" as a result of the rise in equities was limited, besides who had money to put into equities? J6P was unemployed. Oh yeah, the people that benefited from the Reagan tax cuts had money to put into equities, so they did. Anyway, the discussion about the rise in equities and the rise in valuations and the debate over whether much of the "growth" reported by businesses over the last 15 years has been REAL is a topic for another thread. Suffice to say that the last bear did end during Reagan's watch, or more relevantly, during Volker's watch.My guess that what happened during the 80's in a nutshell was: Tax cuts for corporations and wealthy individuals along with deregulation enabled the largest companies, which received the largest benefits under Reaganomics, to take a competitive advantage over smaller ones, forcing many of them out of business and forcing many mergers and acquisitions. For those of you who are keeping count at home, a greater part of the total wealth of the country was concentrated into far fewer hands, eh Plunger? Much of the tax cut extra capital now in the hands of corporations and wealthy individuals, did not trickle down at all, much of it went into equities. Ok, that's a small nutshell, but try as I might, I cannot find any trace of a silver lining in Ronald Reagan's massive deficit cloud.
Year Deficit Debt %GDP 1979 -$40,183 -$828,923 34%1980 -73,835 -908,503 341981 -78,976 -994,298 341982 -127,989 -1,136,798 361983 -207,818 -1,371,164 411984 -185,388 -1,564,110 421985 -212,334 -1,816,974 461986 -221,245 -2,120,082 501987 -149,769 -2,345,578 531988 -155,187 -2,600,760 541989 -152,481 -2,867,538 551990 -221,384 -3,206,207 591991 -269,521 -3,598,303 631992 -290,403 -4,001,941 67
Fiscal Year Proposed Actual % Difference (Cumulative)1982 695.3 745.8 7.31983 773.3 808.4 4.5 (12.1)1984 862.5 851.8 -1.2 (10.8)1985 940.3 946.4 0.7 (11.6)1986 973.7 990.3 1.7 (13.5)1987 994.0 1003.9 1.0 (14.6)1988 1024.3 1064.1 3.9 (19.1)1989 1094.2 1144.2 4.6 (24.5)Totals/Avg $7,357.6 $7,554.9 2.8 (3.1)
President Rev-GrowthRoosevelt 121.3%Truman 3.7%Eisenhower 2.4%Kennedy 4.8%Johnson 6.9%Nixon 0.3%Ford 6.4%Carter 3.0%Reagan 2.4%Bush -0.0%
1973 5.21974 -0.51975 -1.31976 4.91977 4.71978 5.31979 2.5 1980 -0.51981 1.81982 -2.21983 3.91984 6.21985 3.21986 2.91987 3.11988 3.91989 2.51990 1.21991 -0.61992 2.31993 3.11994 4.1
year number per/10,0001970 10,748 441975 11,432 431980 11,742 421981 16,794 611982 24,908 881983 31,334 1101984 52,078 1071985 57,078 1151986 61,616 1201987 61,111 1021988 57,098 981989 50,361 651990 60,747 741991 88,140 1071992 97,069 110
1981 +8.21982 -7.01983 -44.31984 -104.21985 -112.71986 -133.21987 -143.71988 -126.5
1960 5.5% 1965 4.5 1970 5.0 1975 8.5 1976 7.7 1977 7.1 1978 6.1 1979 5.9 1980 7.2 1981 7.6 1982 9.7 1983 9.61984 7.5 1985 7.2 1986 7.0 1987 6.2 1988 5.5 1989 5.3 1990 5.5 1991 6.7 1992 7.4
Johnson 3.8%Carter 3.1Clinton 2.4Kennedy 2.3Nixon 2.3Reagan 2.1Bush 0.6
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