301. A Monetary and Fiscal History of the United States (5)
2 (53m 60s):
And we were sort of coming to him with the numbers and say, you know, you do a middle class tax cut, these are the consequences. You're not gonna get the budget deficit down. And so he swallowed that, but he ran on a middle class tax cut and Reagan of course ran on tax cuts and George Bush ran on the second. George Bush
1 (54m 23s):
W
2 (54m 23s):
Ran on tax cut. Right? And Donald Trump, to the extent he ran on anything, ran on tax cuts for the rich. Well he didn't put it that way. But then when he became president, we was clear who was getting the tax cuts.
1 (54m 37s):
I'm fine of quoting the economist Thomas soul. There are no solutions. There's just compromises. And that sounds like what you're describing. You want this, but you can't. If you do, then you're not gonna get this other thing that you also want. You gotta make a decision.
2 (54m 49s):
Yeah. Economics is all about tradeoffs. You wanna learn more of this. You have have a little less of that.
1 (54m 55s):
Right. So the narrative we often hear is, you know, the indulgence of stagflation in the seventies and gas prices were way up. This is when I came online and got my first car and I remember sitting in those gas lines, you know, around the block waiting to get my gas. We
2 (55m 10s):
All remember that not fondly,
1 (55m 12s):
Right? So then Reagan runs, you know, we're gonna make America great again, which was in his line, not Trumps. Right? And it's morning in America with the farmers going back to work and all that stuff. So, so then America becomes, you know, booming again. The economy's growing, everything's great, Reaganomics works. And then, you know, and then, and then George HW Bush, you know, hits that recession and then Clinton plays on that. You know, it's the economy stupid and it, but it's all that just kind of background stuff that's happening anyway, regardless of the president's policies. And it's not fair to blame Carter for stagflation. It's not fair to credit Reagan for, you know, the booming eighties
2 (55m 56s):
More, more yes than no. There are some of the things that some events, good or bad, that you can find the fingers of presidential or congressional fingerprints of presidential or congressional, sorry, you could find presidential or congressional fingerprints on some. But a lot of things out their control, a lot of things are outta their control. So you mentioned Jimmy Carter, OPEC struck hard OPEC two when the Sharan fell and oil prices skyrocketed.
2 (56m 38s):
And we went into another episode, very serious episode of Stagflation. Was that Jimmy Carter's fault? I don't think so. I mean, I guess if you're a rabbit enough Republican, you're gonna blame Jimmy Carter for the fall of the Sharan and the rise of the ITO or something. But I don't think we can really pin that on, on Carter. I think he got a bad rap. And if, if presidents are sitting in the White House, when bad things happen, they pay the price. And if they're sitting in the White House, when good things happen, they get the benefit from it.
1 (57m 21s):
Right? So I remember hearing his speech by live, by Bill Clinton when he came to Caltech. And this is right when the internet boom, you know, the.com boom was happening. And to his credit, he said, You know, people wanna credit me for this, but you know, I don't give any credit for this. This is just happening. It's fantastic, It's great. And I, and as lucky me that I got to be the president when this is happening,
2 (57m 44s):
Right? Correct. He was right. But he, he was only wrong in one slight respect, but that's not what he meant. He did get credit for it. He was lauded for the great economy. So by the way, were the Clinton, you know, some of that rubbed off on those of us who were Clinton economists. We look great. It's hard to imagine that now cuz the way economists get treated. But back in the day we were treated much better by members of Congress and by the public. Cause things were going great.
1 (58m 17s):
Mm. So what's wrong with Reaganomics trickle down economics, the laugher curve and all that stuff?
2 (58m 24s):
Well, there's a famous quote by Charlie Schultz who was Jimmy Carter's chief economic advisor that I quote in the book, cuz I want it remembered through history. And she said in 1980, there's nothing wrong with supply side economics that division by 10 couldn't cure. So the answer to the question is one word, exaggeration. It is true that if you cut taxes, certain kinds of taxes, you improve the incentive, say, to invest or to save or even to work. But the, the economists have studied the magnitude of those responses for decades.
2 (59m 5s):
And they had before Reaganomics, and they were small, so the supply siders got the direction right, But they exaggerated the magnitude hugely. And in particular, just as one example of that, because of the exaggerated magnitudes, we didn't get this colossal boom that the first Reagan budget predict predicted. And instead we got huge budget deficits. People here, here's something you probably forgot. The first Reagan budget predicted a balanced budget by 1984. Think about that.
1 (59m 43s):
That didn't happen.
2 (59m 45s):
It certainly didn't happen. That was one of the biggest deficits to that point of the postwar period because of the tax cuts. But the claim was we would actually get the budget balanced both through growth and through these cuts in spending programs. That didn't happen much. There were some, but they didn't happen much. Hmm.
1 (1h 0m 12s):
What do you think of GDP as a reliable measure of an economy's health? You know, you'll often see these comparisons. I like to make comparison between North Korea and South Korea. The per capita GDP is like $1,100 a year for North Koreans and, I don't know, $22,000 a year for South Koreans. Yeah. What a, what a great measure of difference that is. Yeah. What does that really mean?
2 (1h 0m 36s):
GDP is that large, they're carrying a big message when they're smaller. You need to remember, as I remind my students every year in economics 1 0 1 that the P in GDP stands for production. It's a measure of production. There are other things in societies like how healthier people, how long are they living? Are they happy? Are they spoiling the environment? And I could go on and on that are relevant to people's wellbeing, even their economic wellbeing that are not measured in gdp.
2 (1h 1m 18s):
And so it was never meant to be a measure of happiness or wellbeing, it was always meant to be a measurable production. And as a measure of production, it's pretty good. It's not perfect. It's a very big economy and the data collectors are not collecting everything with a hundred percent accuracy. But it's pretty good for that purpose.
1 (1h 1m 41s):
Right. Well, so this, since you mentioned happiness, you know, you'll, you often see that, you know, these northern European countries have robust economies and a tight social safety net and universal healthcare and they're happier, you know, the self-reported data and you know, so there does seem to be a relationship between economic growth and health, along with the happiness of the people, the citizens.
2 (1h 2m 3s):
Yeah, I think so. I think so. And you know, there have been attempts now and then over the decades to get often outside the government to make more robust measures that would include happiness, health and net out ecological costs and things like that. But all these, many of these things are very difficult to measure.
1 (1h 2m 27s):
Right. So, you know, and then there was that, I wanted to ask you about that Easterbrook paradox in which it looks like making more money makes people, you know, healthier and happier and especially happier up to a certain point. But then after that doesn't matter how much money you make, but then that that didn't really survive the replication crisis in the last decade or so. And it seems like there's new evidence showing that the more money people make in a country, the happier they are. I don't know what your thoughts are on that, but, but what the causal mechanism would be, you could just, you know, if you have more money, you can buy better car, better health, better food, better education for your kids, more travel, more free time. I don't know what,
2 (1h 3m 4s):
Yes. And also you can see that you're doing better say than your neighbors. Mm. Or other people that you hear about or read about in your society. So I think, I'm not an expert on this field, but I think the weight of the evidence is that in a society, as you say, up to a limit, we don't have to, you know, have Elon Musk's wealth to be happy up to a limit. More income, makes people happier. What fails is cross country comparisons. So you were just talking about, well you didn't mention Denmark, but there's a country, Denmark, the Danes are not richer than the Americans measured by gdp, but they look to be happier.
2 (1h 3m 56s):
And that's probably due to other things. And when you or I or our neighbors compare our standards of living to other people, it's not the Danish people or German people or Indonesian people or African people, it's to people in our communities.
1 (1h 4m 19s):
Right? We make those, those
2 (1h 4m 21s):
Direct comparisons or local revenue global.
1 (1h 4m 24s):
Right. Do you, do you worry like Robert Frank does about the hedonic treadmill of, you know, like the constant growth of the size of a house and you know, how much more do you really need? And it'll never end because the guy next to you has a little bit more,
2 (1h 4m 39s):
I don't worry about it much. And I'll tell you why. That's a concern for the, I was gonna say the rich, that word gets abused. The prosperous, let's put it that way. And the average American is not prosperous. Not to mention the below average in terms of income Americans, of which there are many, for those people, more and better goods and services are much more important than they are for me. Say, I mean, I have what I want. I save a lot of money because I don't, I don't wanna spend it all.
2 (1h 5m 19s):
I don't know what I would spend it on, but I, I always tell my economist friends, never generalize from yourself. We are not typical. And there are plenty of people in our, even in our rich country that are barely scraping by. And another group, plenty of people that are not scraping by, they're barely making it. And that's why I don't worry about this sort of race for more and more goods and services. That's not a problem. Let's just say for the lower 75% of the population.
2 (1h 6m 3s):
And I think I'm probably being too low when I say 75.
1 (1h 6m 7s):
Right? It's like that line is not my line. I forget who said it, but you know, I have something Jeff Bezos or Elon Musk or Bill Gates or whatever doesn't have, What's that? Enough enough.
2 (1h 6m 18s):
Exactly. Exactly.
1 (1h 6m 20s):
And maybe there,
2 (1h 6m 22s):
I think that was Joseph Hiller by the way, the Oh,
1 (1h 6m 25s):
Oh, right. Catch 22. Yes.
