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Reagan’s Legacy: Trickle Down Economics, Inequality, and Debt

February 7, 2011

It seems I have forgotten the centennial celebration of Ronald Reagan’s birthday. I must be becoming senile if I could forget such an individual, who helped coin this site’s name.

To honor his legacy I’ve featured an interview with Economist Micheal Hudson who talks about how Reagan affected the deficit and debt, wealth and income distribution, the housing bubble, and our nation throughout the 1980’s and beyond.

JAY: Okay, but the theory is it’s supposed to trickle down. So didn’t it?

HUDSON: No. There was–it was sucked up. That’s the important thing. Instead of trickling down, there was a huge sucking up of wealth to the top. If it trickled down, the richest 1 percent wouldn’t have doubled their share of the returns to wealth. If it had trickled down, real wages would have gone up. Instead, we have the greatest inequality of any country in the Western world. That’s not trickling down.

JAY: Part of Reaganomics was the relationship to foreign debt and what happened with interest rates. That was also why it wasn’t very good for Brazils and other places. It did draw a lot of money back into the US. Wasn’t that good for the US economy?

HUDSON: No, because it would have been good for the economy if the money coming back to the United States would have been invested in real, tangible capital formation. But it wasn’t. The money coming into the United States took the form of loans by the upper 10 percent of the population to the bottom 90 percent. So the wealth coming back in ended up indebting the bottom 90 percent. The bottom 90 percent had to go into a lifetime of debt peonage in order to afford housing. There was a huge increase in housing prices. The advocates of Reaganomics said, look, he created balance sheet wealth; look at how everybody got rich off their houses. But when you say someone got rich off the value of their houses, that means new buyers have to pay much, much more of their future income to afford housing. So what they call wealth creation is actually debt creation that impoverished the economy, laying the groundwork for the bubble economy that burst under Bush and Obama.

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