Reaganomics and Credibility

This chapter examines the monetary and fiscal authorities of a single country as a “team” and judges their patterns of behavior against standards absorbed from the sports pages. This view provides a broad framework for summarizing classic doctrines and controversies in government finance, and also serves as a basis for criticizing the way in which monetary policy as well as fiscal policy have been coordinated de facto in the United States over the last several years. The chapter first considers a few formal definitions of concepts that will help to clarify the analogy between the quarterback-end problem and the monetary-fiscal problem. It then discusses an economy as a dynamic game and whether government deficits are inflationary. Finally, it explores whether Reaganomics was credible.