Feeds: 
symbol identifies content for paid subscribers only.
Foreign Debt: The Overlooked Downside to the Reagan Era
The NYT had a front page article discussing Senator John McCain's views on economic policy. At one point it notes his strong support for Reagan's economic policies. The article then points out two major downsides to the economic legacy of the Reagan years, the stagnation of middle class living standards and the large increase in the government's debt.
The article should have included in this list the large trade deficits of the Reagan years. The country went from a net international creditor in the Reagan years to a net international debtor, with the shift towards an international debtor position exceeding 17 percent of GDP in the Reagan years, the equivalent of almost $2.5 trillion dollars in today's economy, or $8,000 of additional foreign debt for every person in the country. This rise in foreign indebtedness will have more impact on future living standards than the government debt incurred in the Reagan era.
The article also refers to a list of ineffective programs cited by the Bush administration, which is described as comprising 10 percent of the budget. The 10 percent figure presumably refers to domestic discretionary spending, which is currently just over $570 billion, about 20 percent of the total budget.
--Dean Baker
COMMENTS (9)
In speaking of things which are economically ineffective, military spending should be included. This went up markedly during the Reagan-BushI administration:
http://www.truthandpolitics.org/military-relative-size.php
and has obviously gone up in BushII. McCain approves of the Iraq war and would presumably continue the high military spending.
Posted by: Anonymous | January 26, 2008 10:58 AM
Would someone be kind enough to explain how trade deficits are related to standard of living? Or point me to an explanation?
Thanks.
Posted by: Mar | January 26, 2008 12:30 PM
Mar,
It's simple: a trade deficit improves a nation's standard of living in exactly the same way that buying an HD TV on credit improves a family's standard of living. When foreigners send us more goods and services than we send to them, we have more goods and services to enjoy. For a while.
-- TP
Posted by: Tony P. | January 26, 2008 2:04 PM
I thought than in economical theory trade deficit is because of :
1) Low savings
2) budget deficit
Both or alone.
Is that true ?
Posted by: JLS | January 26, 2008 4:15 PM
JLS's question anticipates my comment. The real problem with the Reagan years was its fiscal fiasco which cuts the national savings rate from around 9.5% of NNP to only 5% of NNP. Part of this crowding out took the form of the current account deficit and part of it took the form of lower investment as a share of NNP. The lower national savings rate did not raise long-term growth - it lowered it.
Posted by: pgl | January 28, 2008 10:36 AM
I'm amazed that the NYT will give coverage to anything McCain has to say about the economy. During the last Republican debate, McCain froze like a deer in headlights when asked about the President’s Working Group on Financial Markets, something he was obviosly completely unfamiliar with (Google for the video clip if you haven't seen it. It's quite hilarious).
Posted by: patient renter | January 28, 2008 3:30 PM
Convert MOD
Posted by: sdfsd | April 1, 2009 2:44 AM
The hot-sale Ugg Boots are coming now.We offer wide range of colors and styles Ugg Boots UK and Ugg Boots Sale for you.Shopping now for your favorite!
Posted by: ugg boots sale | November 26, 2009 4:09 AM
Amazed that the NYT will give coverage to anything Mccain
Posted by: Öğretmen | February 9, 2010 4:04 PM