The Failure of Supply-Side Economics

The failure of Reaganomics is not evidence that it has yet to be tried.

Two from My Budget 360

I want to point out that this graph, from the post American middle class slowly disappearing under mounds of debt...

I want to point out that if you follow along the 62% line, it looks like Personal Consumption Expenditures are stable at that level from around 1950 until 1979 or 1981 or so. And that the dramatic rise probably starts then, not around 1967 as it may appear at first. And the increase is steep when you see it starting around 1980, much steeper than it appears if you think the increase started back in '67.

And I want to point out that this graph -- Grandfather Hodges' graph, also from the My Budget 360 post -- shows pretty much the same turning point, around 1979 or 1981. The dotted red line on the graph (not my red line, this time!) has the peak a little earlier, mid-1970s or so. But that's too early, I think.

To see this trend-line work backwards. Start on the right, with the newest numbers, and picture a straight line up to the high point right around 1983. That's the kink. From there, go left to the early years of the graph with another straight line that goes down below the "8" there.

Both graphs show a turning point around 1980.

Just two more graphs that display the Keynes/ Reagan Shift.

The Keynes/Reagan Shift

Recently I showed Emmanuel Saez's graph (above) and pointed out the policy change that occurred right around 1978. I called it a policy change from Keynesian economics to Reaganomics. The change actually started before Reagan became president, but people generally associate the changes with his name.

For the record, the change also occurred 30-odd years after the death of Keynes. So the use of both names is something of a metaphor. But names are the least important aspect of this; it's the change itself that is significant.

Here's a short list of changes from Paul Krugman for what it's worth:

• slashing taxes on the rich
• breaking the unions
• letting inflation erode the minimum wage

Here's an excerpt from The Agonist that chops up history the same way I do:

MMT is a macroeconomic theory which tries to explain the operation, structure, and behavior of national economies (as all macroeconomic theories do). This puts it in the same league as Keynesianism and Monetarism.... Roughly speaking, US economic policy from the New Deal until the early 1980s was mostly Keynesian, while policy from the early 1980s until today has been roughly Monetarist.

I like this guy. He's looking at the same policy-shift I am, and his dates and time-spans are close to mine. The Agonist calls it a shift from Keynes to Monetarism, I call it Keynes/Reagan. There's a lot more to what's been happening for the last 30 years than just Monetarism, in my view. But we're in the same ballpark. The labels are of little importance, and the dates are close.

Finally, here is a little more evidence, another graph that shows a change that occurred around that time:

Chart 1 here is from a PDF titled The Inflation Question, a "Market Insights" report from J.P.Morgan Asset Management.