Today Paul Krugman wrote another excellent editorial debunking Republican claims about Reagan and the magic of Tax Cuts.
Republicans claim supremacy based on ignoring Reagan's first 2 years. Sure, Reagan didn't deserve the blame for that, but he didn't deserve credit for the recovery either. Both were caused by actions of the Federal Reserve as Krugman explains. Tax cuts had little or nothing to do with it...and have been worse than useless ever since.
Krugman doesn't mention it here, but then-Fed-chair Volker appointed by Carter was a follower of Milton Friedman's "Monetarism" theory about controlling inflation, which provided a new cookbook for central bankers. It was supposed to be able to control inflation while also maximizing GDP, but it didn't work that way (because the Fed doesn't actually "control" the money supply...as I have long discussed, the money supply is determined by private lending and saving* decisions which at best the Fed can slightly incentivize but not control). So, after destroying the economy for several years, by 1982 Volker finally decided to abandon strict Monetarism and returned to traditional methods that anglo central banks have used for over a century, mostly using Keynesian formulas since the 1930's. And then the economy snapped back to life--because the huge unnecessary interest rates following Monetarist prescriptions were reduced back to normal. So Friedman should be debunked as much as Reagan. Neither tax cuts nor "Monetarism" actually worked.
(*Lending creates money, paying off loans destroys it.)
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