From: MEDELMA@cms.cc.wayne.edu (Michael Edelman)
Subject: Re: Republicans bad for Economy?
Organization: Wayne State University, C&IT
Date: Tue, 18 Aug 1992 18:26:29 GMT

In article <92231.103814ZEITLIN@SLACVM.SLAC.STANFORD.EDU>
ZEITLIN@SLACVM.SLAC.STANFORD.EDU (Cary Zeitlin) writes:
 
      (I said:)
>>If you graphthe ratio of military spending to GNP, you see that military
>>spending as a % of GNP has been steadily falling since WWII. There was
>>a rather large blip during Johnson's reign (Vietnam) and a much, much
>>smaller blip during the early Reagan era, which later fell back to the
>>general trend line.
>
(He says:)
 
>I think a better measure would be the fraction of the federal budget
>that military spending constitutes. Remember, it is not just DoD spending
>that needs to be considered; a substantial fraction of the DoE budget
>goes for defense, not to mention funding for the various branches of
>the national security bureaucracy. Does anybody have these figures handy?
 
If military spending as a % of GNP has been steadily decreasing, and
entitlements steadily increasing, doesn't that suggest that the same
trends should be true when the numbers are expressed as %GNP as when
expressed as % budget? It would be very surprising for the ratios to
reverse! ;-)
>
>>At the same time, entitlements have consumed an increasingly large part of
>>budget since WWII, and have again exploded under Carter. I mean Bush.
>>
>
>I would have guessed that entitlements were steadily increasing, rather
>than undergoing periodic explosions. Still, if there are such explosions,
>perhaps they can be best understood by looking at the underlying state
>of the economy. Some part of entitlements must be gradually increasing,
>just because of demographics (the aging U.S. population); probably
>other parts of this spending are stronlgy anti-correlated with the
>strength of the economy. Again, I'd like to hear some numbers here,
>if anyone can present them in a reasonably objective way.
 
No, there were tremendous accelerations in spending at certain times,
noteably during the Carter and Bush eras. In both cases the explosion
in spending and taxes preceeded an huge downturn. The pattern has been
repeated enough to establish causality over the past century ;-)
>
>>>You know, what Reagan did was essentially a Keynsian policy: lower
>>>taxes, spend lots of money (in defense, not social/infrastructure
>>>expenditures).
>>>
>>Not true. As we see, the military fraction was overall quite low. And
>>during his second term Reagan did manage to get spending more under
>>control, particularly in 87-88.
>
>Mike, I disagree. The classic Keynsian idea was to pump up the economy
>by means of federal deficit spending. Now, point to whatever you want
>as the cause of the deficit, but the fact remains that there was deficit
>spending on a huge scale. The Keynsian idea was that the government's
 
I think you're overlooking something- government spending increased
tremendously during the Carter adminsistration while the economy was
going to hell on a sled. The overall trend during the Reagan administration
was a decrease in the trend, while cutting taxes. It was tax policy that
fuel recovery, combined with a monetary policy that kept inflation down.
 
For further evicence we only need look at the European countries that
cut taxes in the 80s and were rewarded with similar boom times. If
Keynsian spending of the sort Clinton endorses were the answer, we
should have seen a further boom in the 90s as spending under Bush
took off similarly. This was obviously not what happened!
 
>role in the economy was to moderate the swings of the business cycle --
>pile up a reserve during good times (this never happened!) and spend
 
Right. The notion of the business cycle took a hit during the Reagan
years. Those who believed the cycle was independant of policy were
somewhat disconcerned.
 
>more during bad times to prime the economic pump. What Reagan et al.
>(and I include the Congress in this too) did was deficit spending
>during a boom time. Not surprisingly, this exaggerated the upswing
>in the business cycle that was coming anyway, hence the good times rolled
 
No, I can't buy this in the least. You don't need a mythical business
cycle when you have striking differences in policy that repeatedly correlate
with economic performance.
 
>on and on. But it couldn't last forever, and now we have to pay the piper.
>It should not be surprising if the downswing now is as protracted as the
>upswing was in the 80's. (Yes, I know by some measures the economy is
 
Nonsense. It was the "compromise" on spending and taxes that killed
an 8-year boom.
 
>growing. But it is weak growth at best, and in the longer run we may
>well look back on this time as part of an extended recession. I'd like
>nothing better than for that prediction to be wrong.)
>
>>It's interesting how many flat-out lies about the economy are repeated
>>uncritically. by the media. But then, they're not hired because they're
>>economic geniuses.
>>
>>       --mike
>
>The media are certainly not economic genuises. They repeat the conventional
>wisdom ad nauseum. But I'd like to hear some specific examples of the
>'flat-out lies' you complain about.
>
 
Sure. The idea that there is this mythical "business cycle" is one. Actually,
the economics behind the business cycle are well-known; it's not a mysterious
force underlying cyclic boom and bust, but the actions of rational consumers
and investors and cyclic *policy* decisions based on short-term economic
goals.
 
Another is, of course, the "largest historical defict" which is nonsense, as
I've pointed out. You can't compare a $7T economy with one half that size.
Reagan gave us a debt 40% of GNP, about 1/3rd the all-time high. Bush and
the Congress have of yet only boosted it to about 1/2. Of course, a Clinton
presidency might help us make the great leap forward.
 
Another favorite is the citing of how wealth is concentrated in this
country, and that's one I've been thinking about. The media have noted that
a greater % of wealth was concentrated in the upper 10% during the Reagan
era than during the Carter era. This makes Carter sound better, right?
Well...
 
The fraction of wealth held by the top 10% (or 1%) fell continuously
from the 18th century until the 1920s- why is that? Simple. Immigration.
Immigration kept refilling the lowest SES as people moved up. That kept
the distribution artificially low. With the 1920s came the first really
big restrictions on immigration, and hence the fraction changed.
 
During the Carter era we had tremendous inflation that wiped out a lot
of wealth that was in long term bonds. Fortunes were destroyed by inflation.
That made the stats look "better". The Reagan era simply allowed much of
that wealth to be recovered, tilting the curve again.
 
SO were we better off under Carter becasue wealth was more "equitibly"
distributed?
 
>------------------------------------------------------------------------------
>Cary Zeitlin                                ZEITLIN@SLACVM.SLAC.Stanford.Edu
>
>Standard Disclaimers Apply                      This Space Available
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