From Idiosyncratic Whisk:
And, look at what happened when the Reagan era supply side policies replaced the demand side policies of the 1970s. I think most people would be surprised to learn that nonfinancial corporate profits didn't top the 1979 level until 1992, after 12 years of the Reagan and Bush presidencies, during a decade when Democrats sponsored tax cuts and the New York Times was against the minimum wage. And, these are nominal figures while inflation was still high during this period.
Inflation was still high during the 1979-1992 period. That's not the point of Kevin Erdman's post. It's more like deep background. But I focus on those words because this is the second time I've seen that thought expressed in less than a week. JW Mason writes
(inflation was still quite high in the early '80s)
Quite high is not a quantitative statement. (Or maybe it is, but you cannot divide something by "quite high".) So it's tough to argue with Mason. It's a little easier to argue with Erdman, who says inflation was "still high". To me, inflation was still high before the 1982 recession, but not after:
|Graph #1: Three Measures of Inflation. The Big Drop is Obvious|
Inflation was way lower after 1983 than before 1983. Using annual numbers, figuring price-level changes for 20-year periods for all three series and averaging the three, prices rose 204% during the 1963-1983 period, compared to 71% during the 1983-2003 period.
(71% is too much, yeah, but it is way less than 204%.)
Figuring 10-year periods, prices rose 112% during the 1973-1983 period, versus 40% during the 1983-1993 period. Again, way less after 1983.
Prices rose less after 1983 than before. A lot less. If you want to say inflation was "still high" (or even "quite high") after 1983, fine, whatever, but inflation was way less after 1983 than before.
Oh, and inflation came down a lot quicker than the Federal Funds rate:
|Graph #2: Three Measures of Inflation (again) and the Federal Funds Rate (black)|
Well, I thought I was done revising this post, but then I found a bonus quote. JW Mason commented on The Myth of Reagan's Debt at his old blog:
If we are comparing the 1980s to the 1960s and 1970s, the denominator does not make much difference -- nominal GDP growth was roughly equal in all these decades. For more recent periods, the denominator has a bigger effect.
That's phrased in a way that I can check the numbers. That's what I like.
Nominal GDP. Annual. Percent change from ten years earlier:
Well, NGDP growth in the 1980s (109%) was more than it was in the 1960s (98%). "Roughly equal" is a crude approximation, but I take Mason's point. Okay. And yes, growth drops off in recent years. So I have to accept this quote from JW Mason. But I don't have to like it.
The breakdown of data by decade is convenient, but it smothers key facts. For example, it combines the low inflation of the early 1960s with the high inflation of the late 1960s. It combines the falling-from-peak inflation of the early 1980s with the already-having-fallen inflation of the mid and later 1980s. These facts are key, because high inflation is at times a huge part of nominal GDP growth, and Mason is evaluating the growth of nominal GDP. Talking about data in terms of decades rather than in terms of trend paths lets generalizations arise that are more tidy than precise.
All of this matters to me because I have focused on inflation, and I think I have a good feel for how inflation affects the debt-to-growth ratio. But I have not considered the level of interest rates. Mason considers both, and finds the level of interest rates the more significant factor.
It's interesting to me because if Mason is right, then maybe I'm wrong. That's always an interesting thing to find out.