Re: Reganomics and the effects of big deficits
Reaganomics resulted in $250 billion worth of tax cuts which did stimulate the economy. It took some stimulating because interest rates were at record highs of 20 1/2% due to double digit inflation. The ironic thing is that as the deficits hit records highs($290 billion in 1992), interest rates actually came down. Perhaps what really got the economy going was we were coming out of a negative supply shock, due to oil and food shortages. Perhaps the beneficial supply shock of the early 80(with oil falling from $40 dollars per 44 gallon barrel to $10 per barrel and the world-wide food shortage being over) is really got the economy going.
Although economic texts say that government borrowing results in higher interest rates, interest rates actually fell in the 80s. Also, in 2003, we ran a record $345 billion deficit but interest rates were at a 45 year low at 1%.
|
|
|
