Wednesday, October 30, 2013

The early 1980s recession, a non-apologetic summary

I'm working on another post when I started looking at the 1980s recession. My primary reading is Wikipedia which is pulling from the CBO (since I don't want to spend hours doing this project).

The recession began in January 1980 by GDP growth which was quickly reversed by an expansionary economic policy by President Carter and the Federal Reserve which moved the economy back to above-average economic growth. When President Reagan got into office the unemployment rate had stabilized and the economy was growing until August 1981 when the Reagan administration arrived and the interest rate jumped to record highs. The economy entered recession until late 1982 with this policy unemployment hit its highest post-World War II levels peaking at 10.8% (0.8% higher than October 2009, the peak of the last recession). The short way to put this is they did exactly what Keynes would say not to do and the response was exactly what Keynes said would happen. They then reduced the interest rates and raised taxes in 1982 during the worst point of the recession. and the unemployment rate collapsed and growth was restored, exactly as Keynes predicted.

Shame on the Keynesians who didn't point this out and boast in the early 1980s, but if we are to blame anyone we need to blame the Democrats for not making this failure of policy which really disproved laissez faire and proved the efficacy of Keynesianism in the most effective way (trying both solutions and finding normal results) a major tenant of the 1984 election which both the economists and politicians of the day failed to do.

The 1980s should be seen as the triumph of Keynesianism, but since there were clearly no great economists in that era a golden opportunity to make some amazing papers on what types of policies should be practiced in different times. This needs to be public knowledge, and the policy that Reagan did that really brought the economy to recovery was Keynesian policies. It is unbelievable we took this recession as proof that neoliberal policies work because we should take the exact opposite meaning out of it.

Reagan's tax policies of the era:

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