Newsgroups: talk.politics.misc,alt.activism,misc.headlines,sci.econ
Subject: Derailing the Reagan Revolution, part 2: Seven more years?
From: demon@desire.wright.edu (Stupendous Man)
Date: 20 Aug 92 02:13:05 EST
Organization: Demonic Possesions, Inc.


	In part I, we saw how President Bush has, in effect, practiced "reverse
Reaganism".  In part II we see that whether or not Mr. Bush is re-elected, the
US economy will not recover until we return to the Reagan style economic
policies of the 1980s.  Mr. Clinton is unlikely to be a bureaucracy cutter or
spending reducer.  Barring an improbable win by a third party, we'll have to
watch as Mexico rises in the south.  It's too bad no candidate had the slogan
"Seven more years"--referring to the seven years of economic expansion under
Reagan.

	[The following interview is a continuation of an interview from part I,
and is taken from _Forbes_.]

	Forbes: How do you explain Bush?  Because it's not as if the Reagan
policies were unsuccessful.

	Friedman: They _were_ successful.  My answer to that is that principles
matter a great deal even in politics.  Mr. Reagan had very strong principles. 
Mr. Bush has some strong principles, but not about the domestic economy.
	People don't change.  What is Bush?  He is a product of East Coast
country club Republicanism.  As such he views his role as administering a
governmental system, not leading it....
	In domestic policy, all of his natural instincts came to the fore, that
what you try to do as a proper eastern Republican gentleman is conciliate,
cooperate, compromise.
	During the Reagan administration, I was a member of the President's
Economic Policy Advisory Board, which was composed of people on the outside of
the government who were willing to say "no".  We met with Reagan, it must have
been half a dozen times a year on average.  Mr. Bush attended every such
meeting.  I never heard him say a word except "Hello," "Goodbye" or some
pleasantry.  At various times there were vigorous discussions.  He never
entered into any of them.

	Was he awake?

	Yes. I think it was just that he had decided his role as the Vice
President was to listen and not speak.
	[Or he just doesn't know thing 1 about economics--Brett]
	Look at his economic advisors.  Not a single member of the group who
advised Mr. Reagan has been approached by the White House.

	Will Bush be re-elected?

	I think it is very dubious.

	Do you care?

	There is only one important reason I really care, and that is I have
more confidence in whom Bush will choose for the courts.  As between the two, I
undoubtably will vote for Bush, but without any great enthusiasm.
	Don't misunderstand me, Bush's nominations have not been the best.  But
I'm not sure I would like to see Laurence Tribe on the Supreme Court.
	[Or Mario Cuomo? --Brett]
	Although, at least he and Scalia could have a decent argument!

	But you don't expect much difference in economic policy?

	No.  In fact, in some ways I think you might have better economic
policy with Clinton.  If I look around the world and ask what characterizes the
places where you have had free market reforms, most came from the left-wing
governments.  The exceptions are Britain and the US, Thatcher and Reagan, who
were sports, very unusual people in politics.
	That was true in Australia, it was true most extremely in New Zealand,
in France where Mitterrand made a 180-degree U-turn, Spain....  On the other
hand, in Germany, which is under supposedly right-wing control, the movement is
toward more statism and a bigger role for government.
	With a Democratic candidate, the people to the left of him have no
place else to go.  If he wants to broaden his appeal, he's got to move to the
right.

	[Seems to be a bit of "only Nixon could go to China". --Brett]

	Unless there's a Great Society wave of legislation--the same faction
will control both branches of government, as after the Goldwater debacle.

	With more than $300 billion deficit, it's not going to be easy to move
in a Great Society direction.
	See, you were able to get the Great Society because of the tax dividend
that resulted from "bracket creep"--inflation was forcing people into higher
tax brackets without increasing their spending power.  Tax receipts were going 
up sharply without any increase in tax rates.  Today the large-scale indexing
of the tax system has taken that possibility away.

	But now Congress passes laws mandating benefits and compelling business
to absorb the cost.

	It's true.  Yes.  But business is starting to react.  And it's much
harder than to spend money directly.

	You finished your first degree in the Depression--

	In 1932, when I was 19.

	Your life's work, to some extent, has been demonstrating that
Roosevelt's economic policies were actually perverse in that they probably
exacerbated the Depression.  But politically, Roosevelt's policies were
immensely successful.

	I agree.  The government's failure in managing the economy from 1929 to
1933 produced, ironically, the public perception that only the government could
manage the economy.  The long-run political effects of the Depression were far
more severe than the economic effects.

	So could the Eighties go down as an era of failure despite its success?

	In the public memory, there's no doubt [helped by a compliant
media--Brett], it will be--unless Bob Bartley's new book, _The Seven Fat Years_
(The Free Press), is more successful than I expect.  It's a very good book,
although I don't agree with his support for fixed exchange rates.
	It's a question of the perception of the economic facts.  You've got a
third party involved here that you didn't have at an earlier date: the media. 
I don't understand why media people were so universally adverse to Reagan.
	[Probably because he was proof that someone besides the media could
influence popular opinion. --Brett]
	What bothers me is not so much the historical debate, but what's ahead. 
The combination of political and technological change opens up a vast amount of
low-cost labor.  There may be half a billion to a billion potential workers in
China, Eastern Europe and Latin America.  And that constitutes a real
revolution in possible cooperation between capital-rich countries and
labor-rich countries.  It could give us another industrial revolution....
	There are two possible explanations [for the high long-term interest
rates].  One is that inflation is going to speed up in the future, which is
very possible.  And the other is that an ephocal change like this is bound to
raise world real interest rates.  Labor has become more plentiful relative to
capital, which would tend to raise the rate of return on capital.  And many
capital-rich countries are running deficits, reducing the supply of capital.
	But what bothers me is this: Not only the US but other countries seem
to be missing this enormous opportunity.  The capital-rich countries are going
in a protectionist direction, building walls around their blocs.  Fortress
Europe.  The US with Canada and Mexico.
	Don't misunderstand me.  I'm not opposed to the US-Mexico-Canada Free
Trade Agreement.  But I think what's called bloc free trade is often managed
trade.  I would prefer unilateral, multilateral free trade....


	Here ends the interview with Mr. Friedman.  Friedman has pointed out
that Bush has failed to continue the policies that Reagan used to bring about
economic expansion in the Eighties.  Far from doing his own version, Mr. Bush
has acted as mere caretaker to the presidency.
	Neither Bush nor Clinton seem willing to do what has to be done to get
the economy back on track.  People like Marrou and Tsongas know what to do, but
will have little real effect on this year's election.
	More taxes are definately not the answer, yet both parties seem to be
indicating that they will be mandatory.  Here's a peek at what we can expect in
the next four years of higher taxes:

	[Taken from "California's Experiment with the Laffer Curve", Wall
Street Journal, Thursday, July 9th, 1992.  By Arthur Laffer.]

	Nothing seems able to make politicians understand that higher tax rates
do not automatically translate into more money.
	They do, however, translate into higher unemployment.  Americans in
the other 49 states owe California a bit of gratitude for its grim
demonstration of this law.


		"California Dreaming: General Fund Revenues"
		(Projected and Actual, in Billions of Dollars)

	$50    Projected Levels of Revenues:
                 1 from 1990
                 2 from 1991
                 3 from 1992 (Jan)                       2
	 45      4 from 1992 (May)                               3

                                                 1       3
                                                         4
	 40                              1	 2               4
                                        
                                        XXXX
                                XXXX    XXXX    XXXX
	 35                     XXXX    XXXX    XXXX
                                XXXX    XXXX    XXXX
                XXXX    XXXX    XXXX    XXXX    XXXX
                XXXX    XXXX    XXXX    XXXX    XXXX
	 30     XXXX    XXXX    XXXX    XXXX    XXXX
	   __________________________________________________________________

		1987	1988	1989	1990	1991	1992	1993

	Since June 1990, California has imposed staggering tax increases. 
According to the Office of the Governor, California, the 21st-most heavily
taxed state in 1990, will be the 12th-most heavily taxed in 1992.  Even that
does not tell the half of it.  By the governor's own numbers, California would
qualify as the seventh-most taxed state save for the assumption that other
states are going to raise their taxes enough to leave California in 12th
place....
	But here's where the warning comes: Tax rate increases are a far cry
from tax revenue increases, because people's actions can never be held
constant.  For some reason unknown to politicians, people don't work to pay
taxes, and if necessary will stop working to avoid taxes....
	[Or funnel more money into tax-free investments--Brett]
	The situation isn't likely to improve any time soon.  But perhaps after
the 1994 elections, someone in Sacramento will figure out how to increase tax
revenues--by cutting tax rates.


	As Arthur Laffer demonstrates above, when you are near the peak of the
Laffer curve, raising tax rates will cause revenues to decrease.  We've seen it
many times, and apparently elected officials need to see it many more times
before they'll admit the truth.

	It makes one yearn for the early Reagan years.  When talk of not
whether to cut taxes, but "how much" was rampant.  As succeeding tax rate
increases have shown, the economy likes tax cuts far more than tax hikes.

	The US worker is not stupid.  When faced with taxes that are too high,
they will shunt money into tax free investments.  They will work for cash and
bypass the tax man.  When rates are lowered, people pull their money out of the
shelters and invest it in stocks and other taxed securities.

	Indeed, as the chart for revenues from capital gains taxes shows
[posted in another article], raising the capital gains tax caused revenues to
decrease.  Every preceding tax cut for capital gains had caused a rise in
revenues.  It makes you wonder about those opposing new cuts in the capital
gains tax rate.


	In part III, we will examine a latter-day supply side boom.  Mexico is
a rising star on America's border.  The chant south of us seems to be "seven
more years".



Brett                                                      
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