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Geoffrey Carliner discusses the connection between economic policy and the broader political climate of the 1980s.

Image courtesy of interviewee. March 11, 2024

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This video video discusses a book motivated by the conclusion of the 1980s, analyzing the political and economic landscape after a decade of Republican leadership in the U.S. It emphasizes two central motivations: reflecting on the past ten years under Republican presidents and fostering collaboration between political scientists and economists.

The narrative recounts how the economic challenges of the 1970s, particularly related to oil shocks, high inflation, and ineffective monetary and fiscal policies, set the stage for Ronald Reagan’s election. Upon taking office, Reagan supported Federal Reserve Chairman Paul Volcker’s aggressive measures to eliminate inflation through tight monetary policy.

Reagan's administration led to significant economic policies, including tax cuts for the wealthy and reduced welfare spending, arguing that these approaches drove growth while ignoring budget deficits. This video video also highlights the long-term implications of monetary policy independence established in this era, contrasting it with politically influenced fiscal policies.

The author draws parallels between economic policy under Reagan and more recent Republican administrations, suggesting that Republican leaders often prioritize tax cuts over deficit concerns, particularly when in office.

The discussion also touches on international economics, noting the rise of countries like China and India following their embrace of capitalism and deregulation, which has resulted in increased competition and job losses in America, contributing to a backlash against free trade.

Overall, the text reflects on how political motivations significantly shape U.S. economic policy, particularly fiscal policy, while the Federal Reserve largely operates independently in its governance of monetary policy.

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The book was motivated by the decade

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of the 1980s coming to an end.

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It had been, eight year, 10 years

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of Republican presidents,

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and part of the time Republicans controlled

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both houses of Congress.

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And, it seemed like an appropriate moment to look back.

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Another motivation of the book was

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to bring together political scientists and economists,

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and this was a very important

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and unusual thing to do at the time.

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Alberto Sena, my co-editor,

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played a very big role over the next 30 years

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of leading economists into fields, into questions

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that political scientists had focused on.

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And it's also true that political scientists have adopted a

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lot of the tools that economists used before.

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So now there's much more economics in political science

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questions, and a lot more political science using economists

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tools to answer traditional questions as well.

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So that was the motivation.

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Two motivations for the book retrospective of the eighties,

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but also to bring together economists

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and political scientists.

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There were oil, big oil shocks in the 1970s, in 1973

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and the 1979.

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And the Fed handled the shocks very badly,

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and fiscal policy also was not appropriate.

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And there was high inflation and recessions.

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Macro policy was not very successful in the seventies,

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and the backlash to that was that Volcker

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was the head of the Fed.

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And when Reagan got elected, he gave assurances to Volcker

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that Volcker should go ahead

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and squeeze inflation out of the economy.

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So Volcker had extremely tight monetary policy

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supported by the president.

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He would've had a hard time engineering such a deep

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recession, the deepest recession since, since the 1930s

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if he hadn't had some support from the White House.

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So Reagan got elected because Carter

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and the Fed had done such a bad job of regulating of,

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running the economy.

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In the seventies, he gave support to the Fed.

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Volcker did a great job of squeezing

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inflation out of the economy.

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And for the rest of the eighties, nineties

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and aughts inflation was very low.

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Uh, so once the Republicans got into power,

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Reagan got into power.

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They also implemented a bunch of other policies, which was

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to decrease, welfare spending, transfer programs

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for the poor, decreased tax rates for the rich, decrease

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regulation of the workplace,

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regulation of the environment.

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Uh, but the big reaction, the reason

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that Reagan got into power

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and that the Republicans won the election in Congress

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in 1980 was bad macro policy.

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In the seventies, markets began

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to get attention under the Carter administration,

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Carter in the late seventies, deregulated trucking

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and, telecommunications

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and railroads, other industries

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that had been very tightly regulated by their government.

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And the increased competition brought down prices

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substantially in these industries.

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So there was already under Carter a lot of deregulation,

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economic deregulation.

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The deregulation under the Reagan administration was

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to decrease environmental protection, decrease enforcement

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of osha, which regulates workplace safety,

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hostility to labor unions.

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So the regulation of, union elections

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and things like that was much more pro employer.

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But already in the end of the seventies, there was a lot of

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economic deregulation,

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but, what the Reagan administration did was

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to oppose environmental regulation and things like that.

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The, monetary policy in the 1970s was incompetent.

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And since the 1980s,

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the Fed has done a really fantastic job

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at stabilizing the American economy.

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And this began with Volker

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and the big recession that got rid

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of inflation in the early eighties.

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It continued under Greenspan,

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and Bernanke was brilliant at introducing new tools

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during the financial crisis of 2008 and nine.

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And, later on we'll talk about

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how Pol politics influences decisions.

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But since the early 1980s,

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since Reagan supported Volcker, the Fed has had

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VA great deal of independence.

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The Fed has decided

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what monetary policy would be appropriate for the economy

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and has not, run monetary policy

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to benefit whoever was in the White House.

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And that's not true for any other aspect

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of economic policy in the United States.

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The Fed has independence

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and every other kind of economic policy

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is very much affected by politics.

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Trump criticized Powell, the Fed

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for raising interest rates.

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If Trump wins the election in November

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of 2024, who knows what could happen.

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The Fed could be under serious assault if it does things

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that Trump doesn't like.

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Here we are February, 2024.

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It's hard to say who's gonna win the election.

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It's hard to predict what's gonna happen if it's Trump

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or if it's Biden or somebody else.

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But the Fed has been extremely successful

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with its monetary policy for the past 40 plus years.

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Independent, much more independent than any other aspect

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of economic policy.

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Will that continue. So when Reagan was elected,

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he was very eager to cut taxes

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and especially to cut marginal tax rates,

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especially on the rich.

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And he cared much more about cutting taxes than he did

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about budget deficits.

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The result was huge budget deficits in the early eighties.

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Now, this is also what's happened under

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the Trump administration.

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Republicans were very eager to cut taxes in 2017,

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and there was a big tax cut concentrated at the top,

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and they didn't really care about budget deficits

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when Obama was president.

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And now to some extent, when Biden is president,

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Republicans did complain about the deficit,

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not too much under Biden, but a lot under Obama.

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But when the one of their own as president,

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then deficits don't matter.

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They did under previous Republican presidents before Reagan.

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But Reagan led the way for Trump.

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The deficits don't matter as long

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as it's a Republican who's in the White House.

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So there's tax policy, big tax cuts for the rich deficit,

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policy deficits not as important

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as tax cuts under Reagan and under Trump.

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And presumably that'll be true under Trump too if there is

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such a outcome.

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I should also say that deficits got huge

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during the Covid epidemic in the United States

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and also in lots of other countries.

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And, then they've come down substantially,

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but they're still very high compared to history.

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And is that a good or bad thing? Probably it's a bad thing.

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There doesn't seem to be any appetite for raising taxes.

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There doesn't seem to be a lot of appetite,

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except in the extreme right

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of cutting a lot of government spending.

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Maybe the rest of the world will help America finance

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its budget deficits.

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Politics has an enormous influence on economic policy,

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except as I've been saying, monetary policy.

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Uh, politics determines how big tax rates are gonna be,

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whether tax rates are gonna be cut,

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whether they're gonna be raised, that it determines

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what kind of welfare spending transfer programs there are.

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It determines whether there's, regulation,

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environmental protection, efforts

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to cut greenhouse gases or not.

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That's the issue today.

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40 years ago, that wasn't an issue,

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but there were similar things about clean

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air and clean water.

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Uh, to some extent it affects trade policy, though

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trade policy in the eighties was not very protectionist.

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Reagan was essentially a free trader.

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Republicans were in those days,

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but there was huge political pressure to protect the auto

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and steel industries, for instance,

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that suffered a lot in the recession of the early eighties

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because of the big downturn, but also because of imports.

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And so Reagan gave into political pressure

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and gave protection to autos and steel.

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It's less true today that Democrats

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and Republicans are in favor of free trade.

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There's much more opposition to

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making partnerships like NAFTA

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and extending, benefits

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to developing countries the way both parties supported

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in the eighties, nineties

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and oughts much more opposition to the kind of free trade

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that the US supported up until the last five or 10 years.

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What happened in the US also happened in the uk.

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Reagan got elected and Thatcher got elected

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and both, both of them cut taxes on the rich

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and cut back transfer programs to the middle and bottom.

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But this did not happen in other rich countries.

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But it did happen in a really big way in China,

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starting in the end of the seventies when Deng Xing

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abandoned Maoist communism

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and began China's opening to capitalism

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and to the rest of the world.

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And then in 1991, it also happened in India,

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and the result has been incredible growth

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of these two big countries over the last 30 and 40 years.

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Why did this happen? Not

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because of things going on in the US or Europe.

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It happened because of the, enormous accomplishments

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of the four tigers.

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South Korea, Taiwan, Hong Kong,

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and Singapore showed

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what East Asian countries can do

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when they open up to markets.

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And that's what convinced China

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and then eventually India, to open up

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and to become much more capitalist,

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much less government intervention.

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And the result has been this incredible growth in

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China and now in India.

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Huge increases in their share of world GDP,

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huge increases in their share of world trade.

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And one of the results has been that China now competes

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with the US in lots of industries,

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and a lot of American workers have lost their jobs

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because of competition from developing countries, China,

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Vietnam, Mexico, lots and lots of other countries.

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And the result is a backlash against free trade.

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Now, most of the jobs that have disappeared have disappeared

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because of productivity increases and technology changes.

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But it's also true that this huge growth in China and India

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and elsewhere has displaced a lot of American workers

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and greatly decreased, decreased support

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for free trade in the United States.

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The Fed is the only important

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Government agency that is free of politics.

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And I've already said maybe that'll last

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and maybe it won't last.

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All the other parts of the government tax policy,

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fiscal policy and environmental workplace regulation

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transfer, transfer programs,

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trade policy are all dominated by politics.

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And on a lot of these issues,

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there's substantial differences between Biden

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and Trump, between Democrats and Republicans.

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And so if Trump wins, there's gonna be more tax cuts,

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fewer transfer programs to the poor, more

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interventions in free trade,

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less environmental regulation to be sure.

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So what we'll see is what happened in Trump won,

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but much more so.

Reflections on 1980s Economics and Politics

00:00:00 - The book was motivated by the decade of the 1980s coming to an end. It had been, eight year, 10 years of Republican presidents, and part of the time Republicans controlled both houses of Congress. And, it seemed like an appropriate moment to look back. Another motivation of the book was to bring together political scientists and economists, and this was a very important and unusual thing to do at the time. Alberto Sena, my co-editor,
00:00:37 - of leading economists into fields, into questions that political scientists had focused on. And it's also true that political scientists have adopted a lot of the tools that economists used before. So now there's much more economics in political science questions, and a lot more political science using economists tools to answer traditional questions as well. So that was the motivation. Two motivations for the book retrospective of the eighties,
00:01:06 - and political scientists. There were oil, big oil shocks in the 1970s, in 1973 and the 1979. And the Fed handled the shocks very badly, and fiscal policy also was not appropriate. And there was high inflation and recessions. Macro policy was not very successful in the seventies, and the backlash to that was that Volcker
00:01:37 - And when Reagan got elected, he gave assurances to Volcker that Volcker should go ahead and squeeze inflation out of the economy. So Volcker had extremely tight monetary policy supported by the president. He would've had a hard time engineering such a deep recession, the deepest recession since, since the 1930s if he hadn't had some support from the White House. So Reagan got elected because Carter and the Fed had done such a bad job of regulating of,
00:02:09 - In the seventies, he gave support to the Fed. Volcker did a great job of squeezing inflation out of the economy. And for the rest of the eighties, nineties and aughts inflation was very low. so once the Republicans got into power, Reagan got into power. They also implemented a bunch of other policies, which was to decrease, welfare spending, transfer programs for the poor, decreased tax rates for the rich, decrease
00:02:42 - regulation of the environment. but the big reaction, the reason that Reagan got into power and that the Republicans won the election in Congress in 1980 was bad macro policy. In the seventies, markets began to get attention under the Carter administration, Carter in the late seventies, deregulated trucking and, telecommunications and railroads, other industries

Deregulation and Economic Policy Shifts in the 1980s

00:03:13 - And the increased competition brought down prices substantially in these industries. So there was already under Carter a lot of deregulation, economic deregulation. The deregulation under the Reagan administration was to decrease environmental protection, decrease enforcement of osha, which regulates workplace safety, hostility to labor unions.
00:03:45 - and things like that was much more pro employer. But already in the end of the seventies, there was a lot of economic deregulation, but, what the Reagan administration did was to oppose environmental regulation and things like that. The, monetary policy in the 1970s was incompetent. And since the 1980s,
00:04:16 - at stabilizing the American economy. And this began with Volker and the big recession that got rid of inflation in the early eighties. It continued under Greenspan, and Bernanke was brilliant at introducing new tools during the financial crisis of 2008 and nine. And, later on we'll talk about how Pol politics influences decisions. But since the early 1980s,
00:04:48 - VA great deal of independence. The Fed has decided what monetary policy would be appropriate for the economy and has not, run monetary policy to benefit whoever was in the White House. And that's not true for any other aspect of economic policy in the United States. The Fed has independence and every other kind of economic policy is very much affected by politics.
00:05:18 - for raising interest rates. If Trump wins the election in November of 2024, who knows what could happen. The Fed could be under serious assault if it does things that Trump doesn't like. Here we are February, 2024. It's hard to say who's gonna win the election. It's hard to predict what's gonna happen if it's Trump or if it's Biden or somebody else. But the Fed has been extremely successful with its monetary policy for the past 40 plus years.
00:05:52 - of economic policy. Will that continue. So when Reagan was elected, he was very eager to cut taxes and especially to cut marginal tax rates, especially on the rich. And he cared much more about cutting taxes than he did about budget deficits. The result was huge budget deficits in the early eighties. Now, this is also what's happened under the Trump administration.

Political Impact on Tax and Deficit Policies

00:06:24 - and there was a big tax cut concentrated at the top, and they didn't really care about budget deficits when Obama was president. And now to some extent, when Biden is president, Republicans did complain about the deficit, not too much under Biden, but a lot under Obama. But when the one of their own as president, then deficits don't matter. They did under previous Republican presidents before Reagan.
00:06:57 - The deficits don't matter as long as it's a Republican who's in the White House. So there's tax policy, big tax cuts for the rich deficit, policy deficits not as important as tax cuts under Reagan and under Trump. And presumably that'll be true under Trump too if there is such a outcome. I should also say that deficits got huge during the Covid epidemic in the United States and also in lots of other countries.
00:07:29 - but they're still very high compared to history. And is that a good or bad thing? Probably it's a bad thing. There doesn't seem to be any appetite for raising taxes. There doesn't seem to be a lot of appetite, except in the extreme right of cutting a lot of government spending. Maybe the rest of the world will help America finance its budget deficits. Politics has an enormous influence on economic policy,
00:08:01 - politics determines how big tax rates are gonna be, whether tax rates are gonna be cut, whether they're gonna be raised, that it determines what kind of welfare spending transfer programs there are. It determines whether there's, regulation, environmental protection, efforts to cut greenhouse gases or not. That's the issue today. 40 years ago, that wasn't an issue,
00:08:29 - air and clean water. to some extent it affects trade policy, though trade policy in the eighties was not very protectionist. Reagan was essentially a free trader. Republicans were in those days, but there was huge political pressure to protect the auto and steel industries, for instance, that suffered a lot in the recession of the early eighties because of the big downturn, but also because of imports.
00:09:01 - and gave protection to autos and steel. It's less true today that Democrats and Republicans are in favor of free trade. There's much more opposition to making partnerships like NAFTA and extending, benefits to developing countries the way both parties supported in the eighties, nineties and oughts much more opposition to the kind of free trade

Global Economic Shifts and Political Influence

00:09:35 - What happened in the US also happened in the uk. Reagan got elected and Thatcher got elected and both, both of them cut taxes on the rich and cut back transfer programs to the middle and bottom. But this did not happen in other rich countries. But it did happen in a really big way in China, starting in the end of the seventies when Deng Xing abandoned Maoist communism
00:10:05 - and to the rest of the world. And then in 1991, it also happened in India, and the result has been incredible growth of these two big countries over the last 30 and 40 years. Why did this happen? Not because of things going on in the US or Europe. It happened because of the, enormous accomplishments of the four tigers. South Korea, Taiwan, Hong Kong,
00:10:37 - what East Asian countries can do when they open up to markets. And that's what convinced China and then eventually India, to open up and to become much more capitalist, much less government intervention. And the result has been this incredible growth in China and now in India. Huge increases in their share of world GDP, huge increases in their share of world trade.
00:11:09 - with the US in lots of industries, and a lot of American workers have lost their jobs because of competition from developing countries, China, Vietnam, Mexico, lots and lots of other countries. And the result is a backlash against free trade. Now, most of the jobs that have disappeared have disappeared because of productivity increases and technology changes.
00:11:40 - and elsewhere has displaced a lot of American workers and greatly decreased, decreased support for free trade in the United States. The Fed is the only important Government agency that is free of politics. And I've already said maybe that'll last and maybe it won't last. All the other parts of the government tax policy, fiscal policy and environmental workplace regulation
00:12:10 - trade policy are all dominated by politics. And on a lot of these issues, there's substantial differences between Biden and Trump, between Democrats and Republicans. And so if Trump wins, there's gonna be more tax cuts, fewer transfer programs to the poor, more interventions in free trade, less environmental regulation to be sure. So what we'll see is what happened in Trump won,