Increasingly, there has been a recognition that President Reagan was a
Keynesian. In addition to Paul Davidson, we can cite books by Kenneth
Galbraith, Martin Walker, and most recently Michael Moynihan (See review in The
New York Times, August 5, 1996, p. C-18) that come to this conclusion.
The real questionhowever, is what KIND of Keynesian he was. In a recent
book, Bastard Keynesianism, I have argued that the two most similar economic
policies in the postwar period (in terms of thrust) were conducted by
Presidents Kennedy, Johnson and Reagan. In both cases, they combined
military Keynesianism with supply-side economics.
It is not generally recognized (certainly not by Paul Krugman in his
Peddling Prosperity) that Walter Heller, JFJ's mentor, admitted before his
death in 1987, that he was the first practicing supply-sider, even though he
didn't have the genius to think up Wanniski's catchy label. Heller was rewarded
by the Reagan Administration be being called upon to join a high-level
policy-making group, according to Martin Anderson's Revolution.
In my view, the term "commercial Keynesianism" -- coined by the la te
Robert Lekachman in his Age of Keynes -- would be a better label than
supply-side economics to describe both the Kennedy and Reagan policies since
they both promoted investment and the expansion of the private sector.
Lawrence Lindsey's The Growth Experiment (1990) also studied the impact
of the Kennedy-Johnson tax cuts in the early 60s, which was the model for the
early supply-siders. Lindsey concludes (p. 39) that "if the battle between
supply-siders and demand-siders over the effectiveness of tax cuts were limit
ed to the Kennedy experiment, the dat a show that the supply-siders win hands
down."
It is important to distinguish between rhetoric and practice. Although
Reagan attempted to claim credit for the military program that produced
Gorbachev's surrender, Carter's four-year plan for military spending announced
as he left office called for greater spending (min money terms) than that
actually spent by the Reagan Administration in these years.
The reason for the Carter overestimate was the sudden decline in oil
prices and its effect on the rat e of inflation in the Reagan years. Just as
OPEC's cartel had been responsible for supply-side inflation in the seventies,
its breakdown (engineered by CIA head, William Casey) produced supply-side
disinflation in the eighties.
Nevertheless, Carter cannot be considered a a Military Keynesian since
he called for a balanced budget in 1980 before he would consider a reduction in
tax rates. The supply-siders or commercial Keynesians recognized that the tax
cut by Johnson (and proposed by JFK) almost produced a balanced budget by 1965.
I once heard Arthur Laffer admit at Hofstra that this Democratic experience in
1964-65 motivated Reagan's supply-siders in general and led them to predict a
balanced budget by 1984.
The real question becomes one of explaining why the early experiment
almost produced a balanced budget in 1965, while the Reagan tax cuts and
spending increases produced the largest postwar deficits. Here we most look at
monetary policy in the two periods. In the Kennedy-Johnson years, the Fed was
relatively passive (under William McChesney Martin) with real interests rates
of no more than 2 percent. In the Reagan years, the real interest rate
sky-rocketed to an average of 6 percent.
The nominal interest rates sky-rocketed under President Cart er and
Paul Volcker'sFed that believed in biting the bullet to control inflation once
and for all. As Volcker admits, he was egged on by the Bundesbank. Thus when
the ra te of inflation fell dramatically in the Reagan recession, nominal
interest rates were "sticky" on the down-side, thereby slowing down overall
growth and increasing the servicing costs on the rising national debt.
Lynn
ockRV's cartel had been responsible
in
[PEN-L:5831] What Kind of Keynesian was Reagan? (long)
LYNN TURGEON, PROFESSOR EMERITUS OF ECONOMICS, HOFSTRA UNIVERSITY, [EMAIL PROTECTED] Sat, 24 Aug 1996 08:09:40 -0700 (PDT)
