Posted on 04/28/2014 1:03:14 PM PDT by LucianOfSamasota
Well, tax cuts are always a boon to the economy. They don’t just end something bad. They allow something good: money plowed into the free market wealth-producing engine. Not sure you’re on broad with the free market economy, but it is THE alternative to big government with its myriad of regulations.
IIRC a large fall in the oil price happened immediately after Reagan took office but that was in response to Reagan removing the controls on oil that Carter had imposed and letting the market work.
The arrangement with the Saudis certainly took time to arrange and wasn’t responsible for the initial break in oil prices. And while the cheap Saudi oil added to the boom it was not the lone factor by any means.
“Awful thing is that the USA fracking revolution is going to make Obama look good whether he likes it or not and despite his best efforts to kill it. “
I doubt that fracking will save him. He has too many policies in place that hobble business and inhibit hiring. He’s either a fool or consciously seeking to cripple the economy.
I doubt that fracking will save him. He has too many policies in place that hobble business and inhibit hiring. He’s either a fool or consciously seeking to cripple the economy
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The economy is not Obama’s number one issue. Its “fundamentally transforming America”. That means Obamacare which will make the country dependent on the government and amnesty which will give the democrats a lock on the white house and all the federal agencies to which power is migrating.
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fracking will bring the feds the kinds of revenues that will nearly balance the budget by the time Obama leaves office. Same thing as happened under clinton.
Dummie Underground - It’s a bulletin board where posters try to outdo each other in the use of profanity.
IIRC a large fall in the oil price happened immediately after Reagan took office but that was in response to Reagan removing the controls on oil that Carter had imposed and letting the market work.
Here is a graph of inflation adjusted oil per barrel prices going back to WWII
http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
These are the years in question:
Year Nominal Price Inflation Adjusted Price
1980 $37.42 $106.36
1981 $35.75 $92.10
1982 $31.83 $77.21
1983 $29.08 $68.32
1984 $28.75 $64.75
1985 $26.92 $58.54
1986 $14.44 $30.80
1987 $17.75 $36.54
1988 $14.87 $29.45
1989 $18.33 $34.58
Notice the year 1982. That price of about 77.21 in today’s adjusted price is about what Russians need to run their government since most of their government revenues come from oil. Drop below that and you put a squeeze on their government. Notice how prices kept falling. At the same time as the Russians government was being squeezed — the US economy was really taking off.
These are today’s prices. Notice how they are quite similar to 1981; In fact its kind of amazing just how well balanced oil prices are. (Hard to say what mean adjusted prices for 2014 will be. So far they look to be higher than last year. But in any case its important to notice that we are well above the mean for the last 70 years.
Year Nominal Price Inflation Adjusted Price
2011 $87.04 $90.52
2012 $86.46 $88.11
2013 $91.17 $91.54
I’m fine with low tax rates. I don’t like paying taxes. But I don’t believe that tax cuts are a cure all for every economic malady.
Income taxes were low and applied to only a small portion of the population in the 1920s and ‘30s. Government spending was something like 6% of GNP. And yet we still suffered the Great Depression.
The probable cause of the Great Depression was a massive collapse of the American money supply over a three year period due to a vagary of American banking law- our Canadian and European cousins didn’t experience this. One third of the American money supply simply vanished as thousands of banks failed. Tax cuts wouldn’t touch this.
In that era there was no deposit insurance so when a bank collapsed its customers’ savings were wiped out. Milton Friedman wrote that the greatest innovation to come out of the Great Depression was the creation of FDIC.
You had a classic collapse of ‘demand’. People had lost their money and couldn’t buy things so businesses closed, causing more unemployment and even less ‘demand’.
It was this sort of scenario that Keynes had in mind when he advocated government spending. He argued that the private sector would rationally cut back spending when confronted with this. But if everyone cut back spending at the same time then the slowdown would feed on itself in a vicious spiral. Counter-cyclic spending was needed and the only thing able to do that was government.
Of course what Keynes didn’t account for is that government spending gets entrenched and doesn’t end. And it ends up funding all sorts of agendas hostile to the public at large. And so we find ourselves in our current dilemma with a hostile alien occupying the White House with loads of money to use against us.
“The economy is not Obama’s number one issue. Its “fundamentally transforming America”. That means Obamacare which will make the country dependent on the government and amnesty which will give the democrats a lock on the white house and all the federal agencies to which power is migrating.”
You’re preaching to the choir here. It’s possible that Obama actually likes having the economy get worse since it weakens America. AFAIK the fracking is only occurring on private land, it’s not like he is promoting it.
I refreshed my memory and your argument that the Reagan boom was the result of cheap Saudi oil doesn’t hold up.
A collapse in oil prices related to Saudi Arabian production couldn’t have occurred prior to 1986, five years into the Reagan administration.
From 1980 to 1986 OPEC, which includes Saudi Arabia, decreased oil production in the attempt to hold up oil prices. By 1982 OPECs production was at its lowest level since 1969.
In September 1985 Saudi Arabia broke with OPEC and dramatically increased production. Oil prices collapsed in 1986.
One of Reagan’s first acts as President was signing an executive order on January 28, 1981 to immediately remove price controls on oil, price controls that Carter had dawdled over removing since 1979. The price controls under Carter had created an artificial scarcity and discouraged new production. Reagan also ended the Windfall Profits tax. These policies unleashed American oil companies and the futures market reacted by knocking down the price of oil.
Ronald Reagan’s centenary coincides with the unraveling of Ronald Reagan’s Middle East. The president born February 6, 1911, is most associated with the dramatic end of the Cold War in Europe. But you can make a powerful case that the Cold War was won — not in Europe — but in the Middle East.
Four events were decisive. 1. The Reagan administration cemented Egypt, the largest and most important Arab country, into the U.S. alliance system.
The great Egyptian peacemaker Anwar Sadat was assassinated on Oct. 6, 1981, less than a year into the Reagan presidency. The killing was not the work of a lone gunman. A squad of soldiers fired grenades and automatic weapons at Mr. Sadat as he reviewed troops on the anniversary of the Yom Kippur war. The assassins killed 10 other people beside Mr. Sadat, and wounded many more, including Mr. Sadat’s vice president, Hosni Mubarak. At the same time, other conspirators launched an insurrection in Upper Egypt.
With U.S. assistance, Egyptian security forces suppressed the uprising. Mr. Mubarak assumed the presidency and proceeded to tighten the U.S. Egypt relationship even closer than under Mr. Sadat. 2. Reagan oversaw the weakening of the Soviet’s strongest Arab ally, Iraq.
Banished from Egypt, the Soviets developed a relationship with the second strongest Arab state, Iraq. On June 7, 1981, Israeli jets smashed the Iraqi nuclear reactor at Osirak. The Reagan administration joined the UN condemnation of Israel. Yet the U.S. benefited enormously from the act it condemned.
Lacking nuclear weapons, on the defensive in the war it had launched against Iran in September 1980, Iraq was forced into greater economic dependence on the Gulf Arab states aligned with the U.S. — another blow to Soviet influence. 3. Middle East events forced the Soviet Union toward an (ultimately doomed) reconstruction of its economy.
In summer 1982, Israeli warplanes met the Syrian air force in a huge dogfight over Beirut.
Only nine years before, during the 1973 war, Soviet-provided ground-to-air missiles had wrought havoc against Israeli planes. Some questioned whether Israel had lost air supremacy over its enemies.
But in the interim between 1973 and 1982, the microelectronics revolution had transformed warfare. U.S.-made Israeli planes downed 80 Soviet-manufactured Syrian planes, one-quarter of the entire Syrian fleet, without suffering a single Israeli loss.
The Soviets had to face that the American advantage in military technology was widening. Unless the Soviets did something dramatic, American quality would overwhelm Soviet quantity in any future conflict.
That encounter over Beirut challenged the Soviet leadership to begin the changes that would become world-famous as “perestroika,” or reconstruction. These changes were meant to save the Soviet socialist system. Instead, they destroyed it, a too violent gear shift of a too-rusty transmission. 4. Then the final shove: In 1985, the Reagan administration persuaded Saudi Arabia to increase oil production.
Between 1985 and 1986, Saudi Arabia increased oil production from two million barrels a day to five million barrels. The oil price tumbled as oil supply surged: from US$30 a barrel to US$20 in just a few months.
The effect on the Soviet economy was devastating. Oil was the Soviet Union’s main – practically only – exportable product, the most important source of hard currency for the economically stagnant regime.
As former Soviet prime minister Yegor Gaidar details in a 2006 book, the Saudi action cost the Soviet Union $20 billion a year, money that had been used to pay for food imports from the West. How to close the sudden financial gap? The Soviets borrowed from Western banks.
As the Soviet economy stalled, borrowing needs increased. By 1989, the Soviet Union needed US$100-billion to avoid food shortages. That desperate need for Western loans precluded any Soviet intervention when first Poland and then the rest of the Warsaw Pact shook off Soviet rule in the spring, summer and fall of 1989.
The Reagan administration’s Middle East policy broke the Soviet empire. But no political achievement lasts forever. The price of oil has soared again, re-empowering Russia and other bad actors like Venezuela and Iran.
The Western military technology that decided the Cold War against the Soviet Union carries less weight in the new economic competition with China.
Iraq revived its nuclear program after Osirak, invaded Kuwait in 1990, and finally drew the U.S. into outright war to topple the regime in 2003. Unfortunately, the mission to reorienting Iraq to the West has taken longer and proved more challenging than expected.
Now Egypt will probably soon change direction, in a way possibly uncongenial to the United States and the Western world.
The Reagan policy has run its course, as all policies do. But no statesman is expected to solve the problems of all time. The 40th President of the United States magnificently surmounted the problems of his time. We honor Ronald Reagan most not by replicating him, but by emulating him: by doing not what he did, but as he did. He was the right leader for his time. Modern conservatives need to discover the right leadership for their time.
So its safe to say that Reagan in 81-82 took off Carter price controls and windfall profits tax. That chopped down oil prices. Then in 85-86 he talked the saudis into ramping up oil production. That brought down the hammer on the Soviets.
“Then the final shove: In 1985, the Reagan administration persuaded Saudi Arabia to increase oil production.”
That fits the facts. Saudi Arabian oil production cut the floor from underneath the Soviets. That, and trying to keep up with America’s military buildup broke the back of the Soviet economy.
It was a calculated policy that worked. The old strategy of containment had left America with a dangerous enemy. Reagan intended to defeat the Soviet Union without firing a shot.
What the Saudi production didn’t do is create the Reagan economic boom, which took off like a rocket in August 1982. Find yourself a chart of the Dow Jones average for that time.
Yep. You have it exactly right.
From Saturday’s WSJ:
U.S. oil production grew more in 2012 than in any year in the history of the domestic industry, which began in 1859, and is set to surge even more in 2013. Daily crude output averaged 6.4 million barrels a day last year, up a record 779,000 barrels a day from 2011 and hitting a 15-year high, according to the American Petroleum Institute (API), a trade group. It is the biggest annual jump in production since Edwin Drake drilled the first commercial oil well in Titusville, Pa., two years before the Civil War began (see chart above).
The U.S. Energy Information Administration predicts 2013 will be an even bigger year, with average daily production expected to jump by 900,000 barrels a day. The surge comes thanks to a relatively recent combination of technologies—horizontal drilling and hydraulic fracturing, or fracking, which involves pumping water, chemicals and sand at high pressures to break apart underground rock formations.
Together, they have unlocked deposits of oil and gas trapped in formations previously thought to be unreachable.
IIRC the first time that the USA bought oil from the Saudis was in 1950. Prior to that the United States had produced all the oil that it needed and even exported oil. I’m sure that WWII burned up a huge amount of our domestic supply.
I used to hear that the cost of Saudi production was 50 cents, but 25 is close enough to give you the idea of their price. The stuff just flows out of the ground.
Here’s a graph of US oil production from 1860. Notice how production went up especially after WWII and then stopped rising in 1970. That was because of the Saudis. US oil production briefly rose again in the 1980’s as the Saudis throttled back production and then went into decline again as the Saudis increased production.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus1&f=a
That’s the history.
Now notice how the production line has gone parabolic in the last couple years. That signals a change in the world as big as the graph above that shows Saudi oil production going straight up starting in the late 60’s and into the 70’s.
It was a calculated policy that worked. The old strategy of containment had left America with a dangerous enemy. Reagan intended to defeat the Soviet Union without firing a shot.
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I thought that the containment policy was ok as far as it went. The premise of the containment policy was that communism was a bogus economic policy that would eventually cause any economy that practiced it—to collapse.
This is where the soviet union was headed except that they were able to sustain themselves with their oil exports.
There’s a huge moral here by the way. It goes roughly like this. Huge oil production can cover a multitude of economic mistakes.
Alas, I think that that applies to Obama. The worst effects of his communist mistakes are going to be masked by the oil boom.
What the Saudi production didn’t do is create the Reagan economic boom, which took off like a rocket in August 1982. Find yourself a chart of the Dow Jones average for that time.
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Yes, the stock market did take off, and the Saudi production decreases were not responsible for it—because they were increasing at the time....however,if you’ll look up thread you’ll note that oil prices were almost cut in half from 1980-1984
Year Nominal Price Inflation Adjusted Price
1980 $37.42 $106.36
1981 $35.75 $92.10
1982 $31.83 $77.21
1983 $29.08 $68.32
1984 $28.75 $64.75
Year Nominal Price Inflation Adjusted Price
Further the 1980 $37.42 $106.36 price was a historical high for oil prices.
Why is that important to remember? Because when oil hit its next historic/cyclical high in 2008 and the economy tanked in the fall of that year—it was conventional wisdom that high oil prices choked off economic growth. Why was this conventional wisdom? Because everyone remembered 1980.
Year Nominal Price Inflation Adjusted Price
2008 $91.48 $99.06
2009 $53.48 $58.20
Now, you look at the table from which these numbers are gleaned and compare 1980-1984 to 2008-2013
http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
2008 $91.48 $99.06
2009 $53.48 $58.20
2010 $71.21 $76.38
2011 $87.04 $90.52
2012 $86.46 $88.11
2013 $91.17 $91.54
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Whereas oil prices fell and kept falling from 1980-1984—which was pure oxygen to the USA economy—and detrimental to the soviets....in 2009 oil prices fell almost in half but have since bounced back to nearly their old highs.
Now is it a coincidence that the booming US economy from 1981-1985 corresponded with falling energy prices while the slow slow economy of 2010-2014 corresponds with high energy prices?
I think not.
The 1980s boom also benefited from Reagan’s program of removing regulatory burdens off of business, an often overlooked leg of Reaganomics.
While the current era may mimic the falling oil prices of the ‘80s the regulatory burden is moving in exactly the opposite direction. Obama is greatly increasing the red tape that business has to deal with, beginning with Obamacare. It is the regulatory burden that will prevent the economy from booming.
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