From: pjm@anegada.sps.mot.com (Patrick J. McGuinness)
Subject: Re: Boom Boom Boom Boom :)
Organization: Motorola Inc., Austin TX
Date: Wed, 26 Aug 1992 21:20:03 GMT

garrett@Ingres.COM (QUOTE OF THE YEAR) writes:
> demon@desire.wright.edu (Stupend writes...
>> pjm@anegada.sps.mot.com (Patrick J. McGuinness) writes:
>>> demon@desire.wright.edu (Stupendous Man) writes:
>>>>	In the last 100 years we've have four "boom" periods.  Each and every
>>>>one resulted from (in part) taxes being lowered.
>>> 
>>> We got 1920's (1924-1929, Coolidge tax cut) 1960's (1964-1969, Kennedy
>>> tax cut) and 1980's (1983-1989, Reagan tax cut).
>>> So what's the 4th boom period?
>>> 
>>	1890s.  (Thus "100 years" instead of this century.)  Sorry about that. 
>>I thought I had put in the dates.                          
>> 
>>Brett                                                      
>
>This isn't meant as a flame, but I seem to remember that after everyone
>one these "boom" periods there was a severe recession. 
>
>1920's	followed by the 30's.
>64-69   followed by stagflation in the 70's (I remember a bad recession
>					in 73-74, but I think there was 
>					also one before then)
>83-89	followed by the present recession.
>I'm not sure of the exact date, but there was a depression in the
>1890's as well.
>
>Does anyone have a theory on this?

Well, there are business cycles, but I suspect that what
happened in all three cases was that political institutions
were not sufficiently aware of economic reality to
consistently hit on the correct policy. 

The tax cuts and reduced tax burden do provide growth, but growth
in any dynamic economy is always unsteady. When growth stumbles,
the political leaders, not knowing better, turn to methods other
than the ones which succeeded in creating the growth (after all, if they
were so great, why the current recession?) that do more harm than
good, to "cure" the problem. So, when the business cycle turned, the
policy makers do the *exact* opposite of what they should do to cure
what starts as a small problem, but due to policy blunders, becomes a
large problem. 

In the 1930's there was a failure to understand the dangers of
protectionism, and an obsession with budget deficits (at the
expense of economic growth).
In the 1970's Keynesianism became a false idol, as economic policy tried
to fiscally tinker with demand and macroeconomic issues, while structural
problems were left untended (creating stagflation).
In the 1990's, our failure to control govt spending, with a budget
that is about 70% "entitlements", has paralyzed our ability to
effectively make wise decisions, such as enact pro-growth tax cuts,
or even create Govt "infrastructure".

More details on 20's/30's, 60's/70's and 80's/90's:

20's/30's: 

1924 Coolidge tax cut => 6 years of growth

1929 Hawley-Smoot tariff
1930 tax increase
1932 tax increase (retroactive!) credit crunch
1932-36 Some trade loosening, but also "New Deal" programs,
which increased regulation of the economy.
1937 tax decrease => finally got out of depression in 1939,
as WWII in Europe increased demand and trade. 

60's/ 70's- 
1964 Kennedy tax cut => 5 years of growth

1968 Keynesian advisors claim economy is "overheating", get tax hike.
1971 Inflation at 4% prompts Nixon's wage/price freeze;
	"We are all Keynesians now" claims Nixon.
Bretton Woods breakdown. Gold parity broken. Inflation continues.
Thanks to inflation, there are hidden tax increases during the 70's.
(Also, the late 60's through 1980 was a time of increased regulation.)

80's/90's
1981-83 Reagan tax cut takes effect => 7 years of growth

1986 TEFRA enacted ; income tax rates cut, some loopholes closed,
	 capital gains tax exclusion ends
1989 FIRRA passed in response to problems in S&L sector - credit tightened
1990 Budget summit deal - taxes increased, Govt spending and
	borrowing also increases
(1988-1992 was a time of increased regulation.)

Notice that in *all* cases, there was an intervening situation of
increased taxes, tariffs, regulation, or combinations of these.

>-Garrett


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