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Date: Thu, 29 Aug 1996 11:50:48 -0500
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>>> Item number 8413, dated 96/08/27 14:51:10—ALL
Date: Tue, 27 Aug 1996 14:51:10 CDT
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From: Vigdor Schreibman—FINS <fins@access.digex.net>
Subject: Capitalism vs Democracy

The triumph of politics

By David Stockman, 27 August 1996

[The supply side economic theory and Rosy Scenario, of 1981, called for a $400 billion tax cut benefitting wealthy Americans, which fueled the so-called Reagan Revolution. The chief architects of this strategy, were (among others) David Stockman, then director of the White House Office of Management and Budget, Rep. Jack Kemp, and Conservative Publisher, Irving Kristal. The latter two are now on the Dole for President team, responsible for Robert Dole’s economic plan, which calls for a $500 billion tax cut. Ironically, Dole was one of the most outspoken critics of supply side theory in 1982, when he served as Chairman of the Senate Finance Committee. An excerpt from Stockman’s book, which describes the fiscal catastrophe that resulted from the political machinations of the supply side cabal, is included below.]

Vigdor Schreibman—FINS <fins@access.digex.net>

Looking back, the only thing that can be said to have been innocent about the Reagan Revolution was the objective of improving upon what we inherited. The inflation-battered American economy of 1980 was no more sustainable or viable than is the deficit-burdened economy of 1986. Likewise, the bloated American welfare state budget of 1980 was not very defensible; it merited at least a strong and principled challenge.

But the Reagan Revolution’s abortive effort to rectify these inherited conditions cannot be simply exonerated as a good try that failed. The magnitude of the fiscal wreckage and the severity of the economic dangers that resulted are too great to permit such an easy verdict. In the larger scheme of democratic fact an economic reality there lies a harsher judgment. In fact, it was the basic assumptions and fiscal architecture of the Reagan Revolution itself which first introduced the folly that now envelops our economic governance.

The Reagan Revolution was radical, imprudent, and arrogant. It defied the settled consensus of professional politicians and economists on its two central assumptions. It mistakenly presumed that a handful of ideologue were right and all the politicians were wrong about what the American people wanted from government. And it erroneously assumed that the damaged, disabled, inflation- swollen US economy inherited from the Carter Administration could be instantly healed when history and most professional economist said it couldn’t be.

By the time of the White House debate of early November 1981, it had become overwhelmingly clear that the Reagan Revolution’s original political and economic assumptions were wrong by a country mile. By then the veil of the future has already parted and we were viewing reality from the other side. What we saw invalidated the whole plan—right there and then.

The ensuing years only amplified what we had already learned by the eleventh month.... We were not headed toward a brave new world, as I had thought in February. We were not headed toward a vindication of the President’s half-revolution, as Don Regan and the supply siders fatuously insisted in November. Where we were headed was toward a fiscal catastrophe.

The final reckoning is seen in the below table disclosing the $2 trillion error between the Rosy Scenario and the actual economy!

Rosy Scenario and Money GNP: The $2 Trillion Error (Money GNP in Billions)

YearRosy ScenarioActual EconomyError
1982$ 3,192$ 3,054$ 138
Total 1982-86$20,000$17,855$2,145