Ronald Reagan's America - Vol. 1

By Eric J. Schmertz; Natalie Datlof et al. | Go to book overview

rates demonstrate a policy that fails all tests of equity and fairness.

While it has been estimated that 80 percent of the wealth and income redistributions that occurred during the Reagan era resulted from high interest rates and deregulation, 56 political debate continues to concentrate on fiscal remedies to the top-heavy distribution of wealth and income. This, then, may be the most troubling and least recognized effect of the Carter-Reagan program of financial deregulation and high real interest rates: the vast redistribution of wealth and income from consumers to creditor and rentier groups, which in turn has constituted a drag on the continued expansion of consumer purchasing power and effective aggregate demand.

Ronald Reagan's great political success may have been in convincing so many for so long that their individual speculative fevers were agents of our national progress. If so, his legacy falls far short of his promise. The rate of interest, rising faster than consumer prices, faster than our wages, eats into our aggregate income, leaving us poorer as a nation, a civilization, and a people.


NOTES
1
See William Greider, Secrets of the Temple ( New York: Simon and Schuster, 1989).
2
See John Maynard Keynes, The General Theory of Employment, Interest, and Money ( New York: Harcourt, Brace, 1964 edition), p. 351 ("the rate of interest is not self-adjusting at a level best suited to the social advantage but constantly tends to rise too high, so that a wise Government is concerned to curb it by statute [i.e., usury laws] and custom and even by invoking the sanctions of the moral law").
3
Edward L. Symons Jr., and James J. White, Banking Law, 2nd ed. ( St. Paul, Minn.: West Publishing, 1984), p. 41.
4
Thomas F. Huertas, "The Regulation of Financial Institutions: A Historical Perspective on Current Issues," in G. Bentson, ed., Financial Services ( Englewood Cliffs, N.J.: Prentice-Hall, 1983), pp. 20-22.
5
The regulatory authority to set depository interest-rate ceilings was not made permanent, but was subject to periodic review and extension by Congress. Carter Golembe and Raymond Hengren, Federal Regulation of Banking ( Washington, D.C.: American Institute of Banking, 1975), p. 55.
7
In. 1943, the federal budget deficit was 31 percent of Gross Domestic Product (GDP), and by 1946 the gross federal debt was 127.5 percent of GDP, yet during this same period of time, interest rates were pegged within the range of ⅜ of 1 percent to 2.5 percent on government securities. Compare this with the Reagan era, in which the federal budget deficit was never larger than 6.3 percent of GDP and the gross federal debt was never larger than 54 percent of GDP, and yet interest-rate yields on government securities were many times higher than during the 1940s. President's Council of Economic Advisers, Economic Report of the President, 1993 ( Washington, D.C., 1993), table B-76, p. 438. From a broad historical perspective, there is no compelling empirical evidence to support the conventional wisdom that public deficit

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