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Blame the Fed for Reagan’s Spending
Posted By Bradley Jansen On April 24, 2014 @ 5:11 pm In Money & Politics | 5 Comments
A nice debate has started brewing about the records of Presidents Jimmy Carter versus Ronald Reagan on spending–thanks to US Sen. Rand Paul who again seems to be setting the terms of the debate.
Mother Jones has published a video of Rand taking issue of spending rising faster under Reagan that it did under Carter.
MSNBC has publicized the video through an interesting story here saying, in part:
For those still reading along, thanks, and you might be asking, what if anything does this have to do with free banking? Well, I would like to posit that it is at least tangentially related in that from what I remember from the early days of the Reagan Administration, he cut a deal with Congress on spending that would have had nominal growth but real cuts based on then projected inflation. The blame then goes to Federal Reserve Chairman Volcker for slaying the inflation dragon much faster than anticipated so that the projected real spending cuts became real spending increases.
The St. Louis Fed published a paper by Keith W. Carlson in January/February 1989 entitled “Federal Budget Trends and the 1981 Reagan Economic Plan” (pdf) explaining that “prices were generally increasing at double digit rates.” The paper goes on to illuminate my point:
The 1981 administration forecast for inflation for the 1980—86 period was a 7.1 per-cent annual rate; the actual inflation rate during this period was 5.1 percent.
So, in conclusion, yes, Rand Paul is right to raise spending as an important economic issue and take sacred cows out for fair examination–but let’s not forget that the Federal Reserve deserves its share of blame both for confusing economic planners as well as monetizing budget deficits.
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