WI: A world without Reganomics

[Analytical Engine]

Any ideas on how the western world might be without Reganomics?

(I'm not making any value judgements one way or the other on either the man himself, or his economic ideas.)

Thoughts?

 

[Corbell Mark IV]

Well, before this ends up in chat, I'll put my two cents in.

HIgher taxes in the US. Somewhat smaller deficit and debt. But not by much, if you look at Europes example.

More government spending. Not sure where it would go.

Slower economic growth. The US has generally had somewhat better growth than the EU, although I have seen some arguments that this difference is a result of higher population growth, not policy.

Less confident and aggressive US during the 80s and 90s.

Longer surviving USSR?

Today? Picture much the same.

Mmm, less US growth impacts export economies, such as China.

 

[amphibulous]

Well, before this ends up in chat, I'll put my two cents in.

HIgher taxes in the US. Somewhat smaller deficit and debt. But not by much, if you look at Europes example.

Bad logic. You can't compare an average European country with the US - economies of scale alone dictate that, not to mention the US's enormous natural resources. If you want to work out the likely effects of no Reaganomics then you have to look at somewhat comparable countries that come closer and nearer to applying it.

In fact the main effect of Reaganomics - other than increased public debt - is an increasingly unequal distribution of wealth. This correlates with reduced economic performance - so a non-Reaganomic US would be likely to be more successful economically rather than less.

 

[commanderkai]

Bad logic. You can't compare an average European country with the US - economies of scale alone dictate that, not to mention the US's enormous natural resources. If you want to work out the likely effects of no Reaganomics then you have to look at somewhat comparable countries that come closer and nearer to applying it.

Which are? The only country that might come close to the United States in population, economic wealth, and development level is either Japan, or a united Europe. Looking at either of them, non-Reaganomic policies led to higher debt loads compared to the United States, with a generally worse economic performance. Currently, Japan's public debt is about 225% of its GDP with the United States only now approaching 100%. Europe's debt crisis isn't a positive sign either.

 

[The Marauder]

Longer surviving USSR?

U.S. spending had little effect on the Soviet collapse, and the Reagan administration had an even smaller effect. But longer is a possibility, perhaps a year longer.

The U.S. economy will be somewhat healthier, but I would argue the mechanisms for a resurgence of the wealthy were in place before Reagan. If he is defeated in 1980 by a Democrat (depending on what the PoD), I would expect something reganomic-esque by the 1990s, especially is someone close to Bill Clinton gets elected.

 

[Kalvan]

Which are? The only country that might come close to the United States in population, economic wealth, and development level is either Japan, or a united Europe. Looking at either of them, non-Reaganomic policies led to higher debt loads compared to the United States, with a generally worse economic performance. Currently, Japan's public debt is about 225% of its GDP with the United States only now approaching 100%. Europe's debt crisis isn't a positive sign either.

Most of that is due to population demographics involving age distribution.

 

[Alexpira]

Which are? The only country that might come close to the United States in population, economic wealth, and development level is either Japan, or a united Europe. Looking at either of them, non-Reaganomic policies led to higher debt loads compared to the United States, with a generally worse economic performance. Currently, Japan's public debt is about 225% of its GDP with the United States only now approaching 100%. Europe's debt crisis isn't a positive sign either.

Japan's debt were mostly created during the attempts to revitalize the deflationary Japanese economy after 1990....before that Japan generally had surpluses or small deficits....it is not possible to say that non-Reaganomics policies generated the current Japanese deficit

 

[Julius Vogel]

It would be interesting to see this - but I suspect that unless you wave the underlying ideology away, other countries may pick up on similar programs soon enough. IOTL NZ had a similar program from 84 - called Rogernomics (Minister of Finance was called Roger).

 

[Arachnid]

Thatcherism?

By the 1980's America and the world was going to change direction, stagflation had killed Keynesian demand management and there were effectively three options open:

"continue with Keynesian demand management even though it's pretty obviously not working."

"Proper full bore socialism as advocated by Michael Foot and Tony Benn"

"Thatcherism, Rogernomics, Monetarism" slightly different names for slightly different policies but all shared a core of taming inflation though use of interests rates and control of the money supply, supply side reforms (deregulation) and privatisation.

 

[amphibulous]

Originally Posted by amphibulous
Bad logic. You can't compare an average European country with the US - economies of scale alone dictate that, not to mention the US's enormous natural resources. If you want to work out the likely effects of no Reaganomics then you have to look at somewhat comparable countries that come closer and nearer to applying it.

Which are? The only country that might come close to the United States in population, economic wealth, and development level is either Japan, or a united Europe.

"Somewhat comparable" means "somewhat comparable to each other." This is a pretty basic technique that I assumed that everyone would be exposed to in high school or get from intuition.

I.e. rather than taking the average of France, the UK and Germany, and comparing that with the US, you compare them to each other to determine the effect of more or less nearly reaganomic policies...

 

[amphibulous]

"Thatcherism, Rogernomics, Monetarism" slightly different names for slightly different policies but all shared a core of taming inflation though use of interests rates and control of the money supply, supply side reforms (deregulation) and privatisation.

But none of these were Reaganomics, which assumed that cutting tax rates would produce sufficient economic boost so that ABSOLUTE tax revenue would remain the same. When this didn't happen, Reaganomics took on the meaning of borrowing to pay for these tax breaks - which acted as a transfer mechanism to the wealthiest part of society who benefited disproportionately from them.

 

[Unconsensual]

Japan's debt were mostly created during the attempts to revitalize the deflationary Japanese economy after 1990....before that Japan generally had surpluses or small deficits....it is not possible to say that non-Reaganomics policies generated the current Japanese deficit

And an other thing, 225% debt doesn't mean much when it's owed to domestic sources at extremely low interest rates around 1%. That aside Japan enjoys one of the highest living standards in the world, not poor economic performance by any case.

 

[eaglesfan101]

More Keynesian programs wouldn't have helped.

 

[Unconsensual]

More Keynesian programs wouldn't have helped.

The best thing to do during stagflation is simply nothing and let the market adjust. Neither economic theory accounted for stagflation.

That aside Keynesian programs do work, except not in the corrupted version used in the world where governments spend when times are bad and when times are good.

 

[Arachnid]

But none of these were Reaganomics, which assumed that cutting tax rates would produce sufficient economic boost so that ABSOLUTE tax revenue would remain the same. When this didn't happen, Reaganomics took on the meaning of borrowing to pay for these tax breaks - which acted as a transfer mechanism to the wealthiest part of society who benefited disproportionately from them.

No that's part of Reaganomics, in fact that's one of the four pillars, the others were: reduce government spending increases, reduce government regulation of economy and control of the money supply to reduce inflation*. Now a three pillar Reaganomics (i.e. all the good stuff but none of the deficits) would have been fantastic.



*source

 

[Electric Monk]

But none of these were Reaganomics, which assumed that cutting tax rates would produce sufficient economic boost so that ABSOLUTE tax revenue would remain the same. -

Laffer and his merry band of dolts, really. Supply side doesn't work. Shock.

Kill and/or marginalize Laffer and friends and Reagan goes with a standard conservative cut spending program. (As a reminder, Reagan raised taxes a dozen times in-between cutting them once in a while.)

It's somewhat harder to run/win an election where you're cutting stuff and not running on "lower taxes on the rich = everybody wins!" program but it's not that big of a problem in '84.

In terms of the future just look at Nixon/Ford with extra spending cuts. It leaves the USA in a rather better fiscal position overall and retains the standard Republican brand as regards handling finances better (it's not true, but whatever).

One of the many traps and impediments facing a Journal editorialist writing about debt is that up until 2009, the US debt burden rose most under the two presidents the Journal most ardently supported: Ronald Reagan and George W. Bush. The debt burden declined most under the presidents the Journal most despises – Dwight Eisenhower, Bill Clinton and Jimmy Carter.

If ATL Reagan matches Eisenhower, that's pretty good for Republicans.

 

[Arachnid]

ElectricMonk either you don't know what supply side economics are or you don't care for starters there is a lot more to it than the Laffer curve, including the very important work that Reagan did lowering barriers to entry and cutting red-tape, Laffer=/=the totality of Supply-side economics. As to the Laffer curve the debate isn't whether it exists, everyone to the right of Karl Marx accepts that a 50% tax rate raises more than a 100% tax rate in the long run, the question is where the top of the tax curve is. In the case of the UK the Thatcher tax cuts undoubtedly raised revenues, in the case of the US which started off with lower rates the evidence is less clear.

As to the OP no Reaganomics and a continuation of 1960's style Keynesian demand management results in a much poorer US with high structural inflation, a debased dollar and internationally a much weaker China and a comparatively stronger Europe, though everyone would be poorer. As for Reaganomics with a dash of Keating style budget discipline then a much better world, and a richer US in the long run. It would be poorer than OTL in 1990 without that debt fuelled boom but richer by 2010 without the debt burden slowing growth.

 

[Know Nothing]

But none of these were Reaganomics, which assumed that cutting tax rates would produce sufficient economic boost so that ABSOLUTE tax revenue would remain the same. When this didn't happen, Reaganomics took on the meaning of borrowing to pay for these tax breaks - which acted as a transfer mechanism to the wealthiest part of society who benefited disproportionately from them.

Yep. Whoever wins in 1980 is going to stroll to re-election in 1984 as monetary policy is finally done correctly, ending the period of inflation.

 

[John Fredrick Parker]

"Thatcherism, Rogernomics, Monetarism" slightly different names for slightly different policies but all shared a core of taming inflation though use of interests rates and control of the money supply, supply side reforms (deregulation) and privatisation.

But none of these were Reaganomics, which assumed that cutting tax rates would produce sufficient economic boost so that ABSOLUTE tax revenue would remain the same. When this didn't happen, Reaganomics took on the meaning of borrowing to pay for these tax breaks - which acted as a transfer mechanism to the wealthiest part of society who benefited disproportionately from them.

No that's part of Reaganomics, in fact that's one of the four pillars, the others were: reduce government spending increases, reduce government regulation of economy and control of the money supply to reduce inflation*. Now a three pillar Reaganomics (i.e. all the good stuff but none of the deficits) would have been fantastic.

Would it help if we settled on the key elements to "Reagonomics" and how they might be avoided? On this, I tend to agree with amphibious above -- the chief feature of Reagonomics is Laffler's idea that reducing taxes on the wealthiest would stimulate the economy such that more tax revenue would be raised. Take that element out, and it becomes something else entirely (more akin to Thatcherism).

I think it fair to say that without President Reagan, it's unlikely the government would try raising revenue through tax cuts, seeing Kennedy's last attempt as evidence enough. If they're not expecting more revenue as a result, I'd say it's unlikely then that we'd see any massive tax cuts for the top earners; the top federal income tax bracket wouldn't fall that far below 70%, for example...

 

[Arachnid]

Lets be clear Thatcher believed in the Laffer curve and followed through by slashing the top rate. What separates Reagan from "Reform" (in Australia), Thatcherism and I think Rogernomics is an increased tolerance for debt and less of a focus on balancing budgets. That may be it's point of difference but it's not the totality.