When your economy is growing far faster than your deficits, no, deficits dont matter. But when your deficits are growing waaaayyy faster than your economy, yes , they do matter.
Hmmm...nice try but not only is that historically incorrect, it is not even the context for which Cheney made that statement. Cheney was not espousing an economic theory, but stating that since Reagan won re-election by pulling the pull over the eyes of the American people, POLITICALLY Reagan showed that deficits don't matter. Meaning, ultimately the American people don't give a shit.
See the lovely chart below, "MM2K".
The Complete Failure of Supply-Side EconomicsWed Dec 13, 2006
Starting with Reagan in 1980, the Republican Party embraced and implemented "supply-side" economics. The central theory of supply-side economics was politically an easy sell: if the government cuts tax rates – especially on the wealthy – the wealthy will feel more inclined to earn more money. This will encourage the wealthy to make even more money. This will lead to higher tax revenue, which will more than offset the loss of revenue from the initial tax cuts. The central problem is no matter how you look at the results, they didn’t work as advertised.
Reagan started the implementation in 1981, cutting upper-income taxes from roughly 70% to 50%. But a funny thing happened. Tax revenues were stagnant for 4 years from 1981 to 1984. For the years 1981-1984, revenues from individual taxpayers were (in billions) $285, $297, $288 and $298, (click on historical budget data) respectively. While the double-dip recession is partially responsible for the first two years, the economy came out of the recession November 1982. Yet for two more years, the rich didn’t feel unencumbered enough to increase their work efforts. At the same time, discretionary spending increased from $307 billion to $379 billion – an increase of 29%. This discrepancy between revenues and receipts then continued for the rest of Reagan’s presidency. Here is a chart from the St. Loius Federal Reserve that shows the discrepancy. Expenditures are blue and receipts are red.
There are three problems with Reagan’s overall economic policy.
The first is the massive amount of debt he incurred for economic growth (which we’ll get too in a minute). The second was Reagan did not implement the other side of conservative fiscal policy – cutting spending. The third problem was the US did not achieve a super-human rate of national product growth. The median quarterly change in GDP during Reagan’s tenure was 3.85%. This is a good rate of growth. But the cost was substantial because to achieve this growth Reagan used debt which the US has not paid off.
