Supply Side Economics v. Progressive Tax Policies

Supply Side Economics v. Progressive Tax Policies

One of the central economic arguments within the corridors of American politics and academia since 1981 has been whether reducing tax rates stimulates economic growth both short and long term. This debate had been going on much longer within academia but came into full national bloom with the advent of the Ronald Reagan presidency.

The Reagan Administration embraced economist Arthur Laffer's "Supply Side" economic theory. This theory argues that sharp tax cuts will increase the supply of money available for private use thus stimulating economic activity and growth. This policy worked very well initially lifting the United States economy out of its doldrums and on to a robust growth path. Unfortunately it also exploded the budget deficit.

Supply side advocates had argued that increased economic growth would increase our tax revenue supply due to larger corporate profits and higher wages to tax. They also argued that this would offset the revenue losses from sharp tax rate cuts. This was never realized nor did it ever come close.

The Bill Clinton Administration in 1993 raised income tax rates to help balance the ballooning budget deficit. Conservative critics predicted economic doom for the American economy. Instead the economy grew steadily throughout the two Clinton terms and the budget ultimately went from a large deficit to a significant surplus.

What do these two contradictory episodes tell us about economic policy if anything? What other factors affected these economic periods and others? Which of these economic theories is correct or are they both effective and under what circumstances? Hopefully I will be able to shed some light on these questions and more during the course of this Hub.

I will examine the underlying circumstances that influenced the Reagan and Clinton eras and show why each policy worked to some degree and why. Then I will take shorter looks at a few other periods in our economic history. Finally I will attempt to meld together these findings to show under what circumstances each policy is more effective and to what degrees.

The American economy grew rapidly and steadily after the conclusion of World War II. The United States had emerged from this war as the only strong economic power so we temporarily had the field to ourselves.

Our maximum income tax rates were 91% between 1946 and 1964 when they were lowered to 77%. They were further lowered to 70% in 1965. These onerous rates worked well when we were the sole economic power in the world. They began to take a toll on our economic growth in the 1970s when other countries began to fully regain their economic strength.

President Ronald Reagan came into office in 1981 with the intention of implementing his policy of tax cutting in line with supply side economics. In 1982 the first cuts took place with Democratic acquiescence. Maximum income tax rates were cut to 50% in 1982 and fell to 28% by the time President Reagan left office in 1989. The U.S. economy did take off. The stifling high tax rates had been putting a severe crimp on the economy and these cuts ignited business investment. Unfortunately this stimulus can only go so far.

Budget deficits ballooned to unprecedented heights. Voices throughout government and across party lines were soon raised in support of sharply cutting the deficit. Many raised the prospect of a balanced budget constitutional amendment. This coupled with a significant economic recession in 1991 brought to the fore the questioning of the efficacy and the size of the Reagan tax cuts.

Presidents George H.W. Bush and Bill Clinton raised taxes to cut these budget deficits. The maximum rates were raised to 31% in 1991 under Bush and raised to 39.6% under Clinton in 1993. Opponents predictably forecasted economic doom. The result was instead a prolonged economic boom throughout the balance of the 1990s and a significant budget surplus by the end of the decade.

The supply siders had predicted that the raising of income tax rates would withdraw needed funds from the economy resulting in the shrinking of business investments that would emasculate the economy. Instead the budget deficit steadily shrank and eventually disappeared. This freed up credit for the private sector because the United States Treasury no longer needed to borrow heavily to cover the deficit.

All strata of society benefited from these higher tax rates. The wealthy and corporate interests benefited from easier credit and wealthier customers. The middle and lower classes benefited from a larger slice of the wealth. This enabled them to increase their spending in a significant and sustained manner. They also were spared social safety net cuts to close the deficit. Social programs were also expanded in some areas due to the surplus.

The economy was running with incredible efficiency and growing stronger as the national debt was being written down. A wider swath of the citizenry was spending a larger part of their incomes. The sky was the limit. What could go wrong?

Politics inevitably raised its ugly head. Presidential candidate George W. Bush used the budget surplus to dangle some economic candy before the eyes of the electorate. This candy was in the form of sharp income tax rate cuts. The budget surplus had become so large that they were successful in selling these cuts to the public over debt paydowns.

Of course these politicians over did it. They cut all rates but the rates on the wealthiest class received the highest drop from 39.6% to 35%. Estate taxes were also slashed. The wealth and income gaps exploded. The budget went almost immediately from substantial surplus into substantial deficit. The 9/11 terrorist attacks and subsequent homeland defense build up sent this new deficit through the roof.

The economy kept rolling along due to both the increased homeland security spending and the decision by Fed Chairman Alan Greenspan to keep interest rates historically low. This was due to his well founded fear that the 9/11 attacks would panic the country and tank our financial markets. A panic actually occurred during the first days of trading after the attacks but these markets steadily corrected themselves.

Unfortunately Greenspan allowed these low interest rates to remain in effect long after the crisis ended. The result was a rush to buy homes at very low rates leading to a housing bubble that burst soon after he finally began to raise these rates. The subsequent financial meltdown has resulted in a vastly enlarged lower class and a much smaller middle class. The wealthy were also hit hard but they regained their wealth fairly quickly.

President George W. Bush's Troubled Assets Relief Program (TARP) and several actions by President Obama to reinforce the financial system have instilled stability and confidence back into the financial markets. The stock market righted itself and has now surpassed record highs. The wealthy are financially whole again and then some. The result is a slowly recovering economy due to the middle and lower classes being vastly poorer now and thus spending much less than in the past. Meanwhile the wealthy have not expanded their spending at all.

The United States began its history as a very egalitarian society. There were some very wealthy merchants and plantation owners but they did not own the vast majority of the country's wealth. This egalitarian aspect of American society began to break down during the late nineteenth century as the Industrial Revolution kicked into high gear.

This "Gilded Age" gradually expanded wealth and income gaps to enormous levels until the Great Depression hit in the 1930s. This unprecedented financial catastrophe not only helped to even the economic playing field but it also spurred the Roosevelt Administration to drastically increase the federal income tax rate.

This higher rate put much more money into the pockets of the newly expanded lower class both through more progressive tax rates and through newly formed social programs. Wealth and income gaps steadily fell until the Reagan era mostly due to the 91% maximum interest rate instituted in 1946.

My analysis of our American economic history shows that all economic classes must be prospering to maintain and nurture a strong economy. Most of our economic recessions and depressions have stemmed from economic bubbles. Huge wealth and income gaps are forms of a structural bubble that always leads to economic stagnation, recession, or worse.

The income interest rate cutting during the Reagan Administration was necessary due to the onerous level of the maximum rates. These rates stifled entrepreneurship which in turn stagnated the economy.

Unfortunately the George W. Bush Administration learned the wrong lesson and put supply side economics on to steroids exacerbating already growing wealth and income gaps. "Trickle down economics" no longer trickles down when the wealthy have so much wealth that they have no need or inclination to spend or invest it. It is eerily reminiscent of the period immediately before the Great Depression.

The point of tax equilibrium that maximizes economic growth has clearly been skewed and is now out of balance. This condition was also true in 1981 when the Reagan Administration took over but it was skewed in the other direction. They initiated sharp tax cuts while rates now are too low especially on the wealthier class. Both conditions cause serious economic problems.

Our anemic economic growth following the 2008 financial meltdown needs to be kick started by strong tax hikes mostly on the wealthy which will put money in the pockets of those who need these funds simply to survive.

The supply side, trickle down, theory of economics is simply not working in this era of tremendous wealth and income gaps. The wealthy have so much wealth that they have no incentive or inclination to spend more. Corporations are fearful of a new financial downturn so they are sitting on hordes of funds. Increased taxes on both will circulate these idle funds into our economy by allowing the middle and lower classes to have more and inevitably spend more. No more cutting vital social safety net programs. Expand them and watch our economy take off.

Supply side economics works when the wealthy and corporations have been overtaxed and stripped of investment incentives and net wealth. We are no longer anywhere near this level. The polar opposite is now true. Let us urge our political leaders to recognize this new and dangerous political and economic situation of rapidly expanding wealth and income gaps.

The only way for our economy to spark itself and finally get into a robust growth phase is to find that optimum tax equilibrium point. That point is clearly not at current levels. Raising maximum income tax rates on the wealthy and corporations should no longer be looked upon as a dirty term. In fact, it is the patriotic thing to do and it will raise all economic boats. The wealthy will see that wealth expanded as the economy booms and the stock market moves into higher and higher record levels. The middle and lower classes will have a significantly larger part of the American wealth pie to spend on essential life necessities and keep them out of economic ruin.

This is a win-win scenario for everyone. Hopefully our political leaders will soon listen and see the wisdom of this policy. That, of course, will only happen when we make our views known to them with our voices, correspondence, articles, and most importantly with our vital votes this November and beyond.

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Comments 38 comments

Mark Lees profile image

Mark Lees 2 years ago

A very insightful hub and many of the points are valid across other neo-liberal economies, such as the UK.

It is worth noting that income inequality has ballooned from around 1:12 for the lowest to highest in 1980 to something on the order of 1:200 by 2008 in the US and it is similar in other countries which attempted to copy the US economic model. A measure of GDP for growth is not in itself a way to see if a country is prospering, because during the boom times most classes of US society did not prosper-they stagnated.

Progressive taxation is one way of ensuring that all citizens can share in the good times.

Voted up.


HSchneider 2 years ago from Parsippany, New Jersey Author

The figures on income inequality are truly frightening. We as a world cannot sustain this trend much longer without some very substantial social upheavals. Economic growth is stagnant in most countries and this is due to such heavy wealth concentration. We need change and we need it now. Thank you for your comments and compliment, Mark.


Ericdierker profile image

Ericdierker 2 years ago from Spring Valley, CA. U.S.A.

Very interesting I learned a great deal. I am convinced that we can do better.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you very much for your comments, Eric. We absolutely can do better but we have to participate by learning and holding our political leaders feet to the fire. I do not agree with most of their views but the Tea Party learned this well.


Mel Carriere profile image

Mel Carriere 2 years ago from San Diego California

The reason why wealth does not trickle down is because the very rich hide it in overseas tax havens. Instead of investing it in the American economy they invest it in third world sweatshop factories. Then the factory owners become a burden on taxpayers when political events in these countries cause the US to intervene militarily. 90 percent tax rates were ridiculous, but something should be done to make sure the tycoons cannot evade their tax obligations. Very well written and thought out hub.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, Mel. You are quite correct that many corporations offshore their profits to avoid U.S. taxes. This is incredibly unpatriotic. Corporate America must step up to the plate and invest in America or we should change our tax laws to force them to be fair and do so.


amillar profile image

amillar 2 years ago from Scotland, UK

Paul Craig Roberts seems to have similar views to yourself. I'm sure you know that he was the Assistant Secretary to the Treasury under Regan's administration - the original Reaganomics/supply side economics chap. I find his essays and videos very interest - as I also appreciate your work, BTW.

He takes the view that any corporation that outsources for cheap, vulnerable labour should pay a sort of import duty. (Don't ask me the details). I'd simply take their passports away and jail all those bribers and blackmailers at the NSA. Surely you have enough resources on the North American continent to realise for all your compatriots their constitutional pursuit of happiness.

All the best.


HSchneider 2 years ago from Parsippany, New Jersey Author

I have read a lot of Paul Craig Roberts and I do agree with him on much of what he writes. I would add that we should do that also for American corporations that incorporate overseas to simply avoid paying taxes while doing the bulk of their business here. It is obnoxious and unpatriotic. Thank you as always for your insightful comments, Amillar.


Warren Curtis profile image

Warren Curtis 2 years ago from Buffalo, New York

Great hub! Solid points.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you very much for your kind words, Warren.


rebelogilbert profile image

rebelogilbert 2 years ago from Hacienda Heights, California

You make a good argument, HSchneider. It seems that I hear less about tax problems on the news these days. The deep problems of the middle east dominate the news as you well know. I haven't heard that much about taxes on the business news programs either. Your outline about rasing taxes, cutting them, and the effects are excellent. Elections are around the corner. Somehow tax problems will get the big spotlight again. Journalist just need to work around ISIS as much as possible.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, Rebelogilbert. The tremendous problems in the Middle East with ISIS has certainly put most stories on the backburner. I hope these economic issues will regain a place in the news because they are vital to our economic health. The wealth and income tax gaps are sapping the strength from our economy.


bradmaster from orange county ca 2 years ago

HSchneider

Tax on income is invasive of privacy, has too many tax devices in the IRC and most of them can only be used by the wealthy.

This tax is enforced with criminal penalties, has its own lack of due process court, and has threatened tax preparers to be conservative.

Although the SCOTUS doesn't hold that progressive income tax brackets is an example of unequal protection, that is the definition of unequal protection. Different tax brackets is unequal.

When you try to compare the presidents and their economic theory, you have to include the variables that make each administration different.

In 1980 the prime interest rate was in the low twenty percent.

The 1970s had two fake but disastrous oil shortages, that heavily impacted many industries especially the America Car Makers.

The Clinton era was during the dot com bubble, and before the bubble burst the economy was doing great. Not from Clinton but from the dot com.

The George H Bush, and George W Bush reigns had expensive wars. Although George W Bush terms were during the sub prime real estate bubble. Things didn't go bad until two years before the bubble burst, and melted the economy.

The removal of restrictions on the financial industry occurred during the Clinton presidency, and it created the ingredients for the sub prime bubble.

We didn't get to this terrible economy from one president or one congress, we got here because all of them failed. In 2007, and 2008, the entire congress was involved in the presidential campaign and when the economy collapsed they were all deer in the headlights.

Mergers and Acquisitions peaked in this century, and this was bad for the consumer because of lack of competition, and for the workers because of redundancies in the merged companies. Also, there was an increasing export of work to cheaper places in the world. Most of the stuff we get today is from China, especially rare elements that we need for technology and national defense.

My point is that without a weighted set of rules, a comparison between presidents doesn't give the correct picture.

Things started to go bad for the US after the oil supply crises of the seventies. Before the oil crisis, the US produced enough oil for our country, but then we started using more than we produced, and the trend deepened. This put us on the wrong end of the oil cartels.

Fortunately, we are now producing enough oil to not need importing it anymore. This is the result of oil production in the US, and the use of higher MPG vehicles. This should have been done starting in the 1980s, but nothing was really done until recently.

Thanks

bradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, BradmasterOC. I agree that there are different variables at work in comparing different administrations. I was comparing tax policies and how they affected the economy and wealth disparities. The Reagan Administration proved correct in lowering rates on the wealthy because of the onerously high rates choking investment. Unfortunately the prediction that this would eventually lower the budget deficit proved wildly optimistic. Rates during the Bush 43 Administration were too low. Wealth gaps are huge and have affected our recovery. Corporations and the wealthy are sitting on these funds while the middle and lower classes have none to invest. They would spend this money instantly if they had it. I agree that higher MPG has helped this country enormously as well as higher oil production. We need to diversify our energy sources now because climate change is real and we need to stay ahead in these new industries. Finally I agree that the Clinton Administration in concert with Senator Phil Gramm led the way for the 2008 financial meltdown with the gutting of Glass-Steagall. I wrote a Hub regarding this which listed all the factors starting with this unfortunate event by Clinton. Our views on the legality of the income tax are diametrically opposed and I doubt we can reconcile those. As you wrote, the Supreme Court has ruled on this and it is the law of the land. Needless to say, I believe in the progressive side of income tax to benefit the nation as a whole. We will have to disagree on this.


bradmaster from orange county ca 2 years ago

HSchneider

Thanks for you response.

However, I am not clear on how you view the several issues that mentioned but you didn't comment on.

The effect of the dot com and subprime bubbles.

The effect of the wars, Desert Storm, and after 911.

The effect of the 1986 Tax Reform Act, taking deductions away from the less than wealthy, on the premise of lowering tax brackets. If the average person had those tax deductions over the years, it would offset, the legal but usurious credit card bills. People don't have the cash, so they use credit. Most of their credit card bill is interest, and fees.

The SCOTUS once again in financial matters becomes illogical, in the case of credit cards, they allowed a state like SD to pimp themselves out to credit card companies. They set their usury laws very high, and the credit card companies in a quid pro quo relocated their headquarters in that state.

Then they applied that state's very high legal interest rates to cardholders across the nation. The SCOTUS held that it was legal for the credit card companies to be valid nationally.

.......he answer lies in a 1978 Supreme Court ruling, Marquette National Bank of Minneapolis vs. First of Omaha Service Corp. The case not only changed the law, but also became a light-bulb moment for the industry, setting it on a 30-year path that deeply affected state economies and Americans' debt levels.

.......

The credit card act of 2009 did nothing to change this issue.

My opinion is that the use of credit generates a false economy, people are going into very deep debt.

--------

The other issue is the IRC which is only useful to the wealthy.

Finally, the post 911 economy is a subprime bubble, coexisting with an extended war, and an erratic money and oil market imploding the economy. This created a huge US debt under President George W Bush, and under President Barack Obama it is continuing to go even deeper.

Over 16 trillion today, and predicted to go to 20 trillion by the end of his term.

None of the presidents since FDR had to deal with this kind of an economy.

BTW, I suspect that the reason for the removal of interest deductions by the 1986 TRA was that the congress realized how much these deductions would impact their tax revenues.

Thanks

bradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

The dotcom bubble collapse and subprime collapse certainly hurt the economy in horrible ways. The wars and 9/11 ballooned spending costs and all of these things had bad effects on the economy. Some horrific. My contention is that our current environment with huge wealth gaps is certainly slowing the growth of our economy. The wealthy regained their wealth relatively quickly. The poorest class has expanded greatly while the middle class has shrunk. These classes are the ones that have to spend their income to survive. The wealthy and corporations are hoarding it. That is their right but government has been empowered over the years to tweak this. I wish they would in a bigger way. The 1986 tax reform did not last very long. Over the years Congressional activity has added many of these deductions and credits back to the code and added many more. I agree that the SCOTUS ruling for South Dakota and the credit card companies was an abominable decision and has allowed these companies to become loansharks. It certainly has hurt the economy. A lot of the housing bubble which we are still dealing with can be laid at Alan Greenspan's door. Not all but a lot of it. He lowered rates tremendously after 9/11 and kept them there for way too long. This created the environment where the financial institutions went mad with their lending practices creating the bubble. The resulting recession, I agree, was the worst since the Great Depression. Hopefully I have dealt with most of your issues. Thanks again for your comments, Bradmaster.


bradmaster from orange county ca 2 years ago

HScheneider

I agree with everything you said, with the exception of the 1986 TRA interest deductions, and travel to work deductions have not been restored, nor have they been offset by any new deductions.

In addition, the 7.5% threshold for the medical deduction is set to high in the high cost of medical insurance and costs.

These, I believe that the middle class and below are the big drain on their income. I would like to know what deductions you are talking about here.

Thanks

bradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

Most deductions that the 1986 law cut out were restored. I do not know all that remained and I defer to you that these are still in effect. Most likely the ones that aid the wealthy are back in effect because they are the ones that have enough money to affect the election campaigns of politicians of all stripes. I wholeheartedly agree that the medical expenses itemized deductions limit threshold is skewed horribly against the middle and lower class and hurts them greatly. Thank you for your further detailed comments, Bradmaster.


bradmaster from orange county ca 2 years ago

HSchneider

The important ones that I referred to are the interest deduction, and the travel to work deduction.

I tied them in with the high credit card interest, and the high cost of gas. These two affect the working class the most.

Thanks

bradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

I agree with you that they have hurt the working class heavily. Business interests have the money and wherewithal to have their deductions reinstated and block the ones they feel are unnecessary or harmful to them. I would have no problem reinstating them and eliminate farm and oil subsidies. These deductions you have cited have certainly exacerbated the wealth gap. Thank you for your further comments, Bradmaster.


bradmaster from orange county ca 2 years ago

HSchneider

Thank you for being a generous host.

bradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments and being a very engaging and determined writer. I appreciate your civil and reasoned opinion, Bradmaster.


bradmasterOC 2 years ago

HSchneider

Thanks, likewise.

My goal is to either understand the opposing views, or change to follow it.

So I ask a lot of questions.

Have a great weekend.

BradmasterOC


HSchneider 2 years ago from Parsippany, New Jersey Author

I like your exploratory way of thinking and I appreciate our give and take. You have a great weekend also. Unfortunately I have to work very, very early tomorrow morning to open the store so I am off to bed way too early. I will be answering your comments on my freedom and control Hub tomorrow afternoon when I have more time to give your comments their proper due. Enjoy your evening, Bradmaster.


Shyron E Shenko profile image

Shyron E Shenko 2 years ago

HSchneider, I have to come back to read this to read all the comments.

for from the little I have read so far. it is very interesting.

I will be back.


Kathleen Cochran profile image

Kathleen Cochran 2 years ago from Atlanta, Georgia

This hub and its subsequent comments is ECON 101 or higher for a reader like me. It was easy to follow and understand.

"The Bill Clinton Administration in 1993 raised income tax rates to help balance the ballooning budget deficit. Conservative critics predicted economic doom for the American economy. Instead the economy grew steadily throughout the two Clinton terms and the budget ultimately went from a large deficit to a significant surplus." This is not rocket science. Why can't we simply take these steps again? Don't we have the political will to fix our economy? Why wouldn't we?


HSchneider 2 years ago from Parsippany, New Jersey Author

I look forward to you coming back and reading more. It is indeed very interesting with some vigorous debate. Thank you for your comments, Shyron.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you very much for your comments and compliment, Kathleen. You are right. This is not rocket science and it should be obvious to all. Unfortunately not raising taxes or cutting them has become a religious mantra for Republicans, I wish President Obama had not blinked and allowed all of the Bush tax cuts to expire.


Kathleen Cochran profile image

Kathleen Cochran 2 years ago from Atlanta, Georgia

Folks go on an on about the national debt, but nobody notices when the country's revenue stream is basically cut off. What did they think would happen? And blaming Democrats for spending? Does anyone else remember the $600 refund we got in the first year of Bush II's term? That is spending too, and poof, there went the surplus with nothing to show for it. Do you remember what you spent that $600 on?


Credence2 profile image

Credence2 2 years ago from Florida (Space Coast)

A great and timely article HS. I see that you are still in great form. It is interesting that I have not seen any comment from the right that would challenge your presentation with which I agree in total. What do you think they would say to counter your argument as to why supply side did not work? Could it be that government spending was not cut enough? I would say that what to cut was highly politically motivated and neither side was prepared to make the large sacrifices necessary. Therefore, to presume that the draconian cuts would follow 'supply side' was unrealistic and irresponsible.


HSchneider 2 years ago from Parsippany, New Jersey Author

I do not know what I spent the $600 refund on but I probably put it in my savings account. You are absolutely correct about revenues and the deficit. Just look at Kansas right now. Sam Brownback came into office promising sharp tax cuts and he did. The books went from balanced to severe deficits. So what did they do? Sharply cut spending including draconian education cuts. The children pay the price for the rich getting richer. It's a crime and somehow they re-elected him though it was close in a very Red state. Thank you for your further comments, Kathleen.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments and compliment, Credence. I have received comments from one conservative, BradmasterOC. He argues that the Bush deficits were more a result of the wars and homeland security than tax cuts. I argue that both are true but the cuts were what first put us back into deficit. The 9/11 responses put the deficit into overdrive. Conservatives will most often say that you need to give tax cuts time to work. I consider this bunk. They also say that spending that is eliminated is beneficial to the country. Unfortunately the wealthy are never cut. Oil and farm subsidies are still there. Our social safety net gets continually cut time after time. That is inhumane and unwise. The rich have enough to spend now. The poor and middle class need these programs and any extra money in their pockets is almost always spent and quickly.


russinserra profile image

russinserra 2 years ago from Indianapolis, In

Supply side economics was first put into practice by Calvin Coolidge and the government of the 20s. Coolidge has become the new darling of the political right as demonstrated by Michelle Bachmann's statement that Cal should be on Mt Rushmore. This is really an extension of the Reagan cult. When Reagan moved into the White House, he replaced Truman's portrait with Coolidge's in the oval office.

Though the supply siders overlook the facts, it is obvious that the economic policies of low taxes and small government of the 20s contributed heavily, if not directly led to, the great depression.

Also being overlooked here, as far as I can see, is the role of monetary policy in the economic recovery of the 80s. It was a tighter money supply that brought down the extremely high interest rates of the previous decade. Lower interest rates led to more purchasing power which led to a vibrant economy.

Thanks for your article. I love this stuff.


HSchneider 2 years ago from Parsippany, New Jersey Author

You are right, Russinserra, that the Coolidge economic policy and the Reagan economic policy were quite similar. I believe that the lack of any financial regulations also helped heavily to cause the Great Depression. Reagan's taking up of the supply side mantle has contributed immensely to our huge wealth gaps and it is stifling this economy. You are also correct about the monetary policy of the 80's helping to fuel the economy. Interestingly, Greenspan's policies in the early 2000s led to the 2008 meltdown and Bernanke's polices helped to keep it from falling into a major depression. Thank you for your insightful comments.


russinserra profile image

russinserra 2 years ago from Indianapolis, In

Yes the lack of financial regulations did contribute heavily to the Depression. Reagan would have done away with these, too, if he could have gotten away with it. The difference between Reagan era and Coolidge presidency was that there were safeguards in place in 1980 that were put there by demand siders (a term rarely used, but the logical opposite of supply side). The income gap also grew by a huge amount during the Harding/Coolidge years, so the effect of supply side economics is clear and consistent.


HSchneider 2 years ago from Parsippany, New Jersey Author

The income and wealth gaps most certainly skyrocketed during the Harding/Coolidge era when there were no real limits on business at all. We can see similarities with the Reagan era and also during the Bush II era with the financial meltdown. The Reagan era of cutting regulations and tax rates began us on the course of the 2008 financial meltdown. Bush II continued this course and put it into overdrive. The Bush tax cuts widened the gaps and no one was minding our financial markets. It did not help that Clinton pushed through the gutting of Glass-Steagall during the latter years of his terms. I truly wish we would go back to Demand side economics as you so aptly state. More money would be in the hands of those who need it and must spend it. This economy would explode. Thank you for your further comments, Russinserra.


russinserra profile image

russinserra 2 years ago from Indianapolis, In

Good discussion.


HSchneider 2 years ago from Parsippany, New Jersey Author

Absolutely Russinserra. I enjoyed it.

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