Great Experiments in American Economic Policy: From Kennedy to Reagan

By Thomas Karier | Go to book overview
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Camelot and Trojan Horses

In September 1979, the new chairman of the Federal Reserve Bank, Paul Volcker, announced that the central bank of the United States was adopting an experimental policy for managing the nation's money supply. By radically altering its monetary policy, the Federal Reserve intended to reduce the high rate of inflation without sinking the entire economy into a deep recession. For the next three years the Fed stuck by this experiment as it regulated the growth of the nation's $1.5 trillion stock of money.

In May 1981, a high-ranking Treasury official announced that the United States would not, for the first time in its history, actively buy and sell foreign currencies. The U.S. Treasury began its own experiment by adopting a self-imposed prohibition on intervention in international money markets. If successful, the dollar and other currencies would enjoy a spell of stability that they had never experienced before.

In August 1981, President Reagan signed a $750 billion tax cut dedicated to reducing the tax obligations of corporations and wealthy individuals. Never before had taxes been cut so much for so few. If all went as planned, the nation would undergo an economic renaissance and budget deficits would soon vanish. This marked the beginning of yet another experiment in economic policy.

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