From: thompson@atlas.socsci.umn.edu (T. Scott Thompson)
Subject: Re: Boom Boom Boom Boom :)
Reply-To: thompson@atlas.socsci.umn.edu
Organization: Economics Department, University of Minnesota
Date: Fri, 28 Aug 1992 22:41:19 GMT

In sci.econ you write:

>In article <thompson.714869497@daphne.socsci.umn.edu>, thompson@atlas.socsci.umn.edu (T. Scott Thompson) writes:

>> Let me point out some possible alternative "explanations."  The
>> Kennedy and Reagan tax cuts (together with the Vietnam war and War on
>> Poverty during the 60s) generated large government deficits.  There is

>	Jesusssss Christ.  You post 500 lines explaining that tax cuts generate
>growth (and more revenues) and someone still comes along trotting out the old
>"tax cuts equals deficits".

My sentence does not say that "tax cuts equal deficits."  It simply
says that the tax cuts in the 60's and 80's were accompanied by
deficits, therefore these episodes can not be used to draw the conclusion
that the "booms" were caused by the former and not by the latter.

>	SPENDING BEYOND REVENUE INTAKE CREATES DEFICITS.  PERIOD.

How did I contradict this?

>	Read "derailing" parts 1,2,3.

>> isn't it possible that the inflation in the 70s had something to do
>> with the enormous run-ups in oil prices by OPEC in '73 and '79 rather
>> than do to "bad policy" by the U.S. government?  Third, I find it

>	No.  Read "The Seven Fat Years".  Inflation came first.

Some inflation came first.  More came later.

>> plausible that both the recession of 1979-81 and the ensuing drop in
>> inflation and economic recovery were as much due to the radical change
>> in monetary policy introduced by the Fed in the late 70s as they were
>> due to changes in fiscal / regulatory policies.

>	The tightening monetary policy helped control inflation.  The recession
>was merely the conclusion of the idiotic policies of the 70s.

The tightening monetary policy may also have been responsible for the
big run up in interest rates and general drop in consumer spending and
investment during the recession of 79-81.  In fact, the timing of the
tight monetary policy and the '79 oil price hike suggest that these
may have been important causes of that recession.  The point of my
post is that the evidence is inconclusive either way.

>> I am _not_ suggesting that my alternative theories are right and
>> others are wrong.  Instead, I am suggesting that the evidence about
>> "causality" for business cycles is pretty weak.

>	Hmmm, well.  The evidence points to the legitimate success of
>supply-side economics.  Growth is spurred by putting more disposable income

What definition of evidence are you using?  Standard scientific
practice would require you to put forth a model capable of
accomodating both your explanation and others, fit it to data, then
show that the alternative mechanisms were inactive during the period
of interest and in all other scenarios of interest.  I have not seen
any econometric studies of this sort that demonstrate "legitimate
success for supply-side economics."  All of the "studies" that I have
seen claiming success for supply-side economics were of an essentially
antecdotal nature.  Can you refer us to any that are not?
--
T. Scott Thompson              email:  thompson@atlas.socsci.umn.edu
Department of Economics        phone:  (612) 625-0119
University of Minnesota        fax:    (612) 624-0209
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