. ronald reagan promised to get the government ofthe backs of the amecan op he aued thatess government gives usreaterroductivity. the keystohis an was a 50 billionax cut.how could we getmoreroductivity with less taxaon? the 1970s d been difficult years for the american people, for the governme even for ecomists. by980, a growing number of people saw the govemes the sourceofconomic miseries. a new grouof economistsbega say let's get the goveme ouofhe marketplace let's give the people an incentive to produce. these economists wereupy-siders. their spokesman was arthur laffer. people work to get what they can after tax. people don't increase the productivity of their capital bor, or production process to give the money to the government. they do it to make personal profits. when you cut t taxes you increase their incentives fodoing that activity. you'll increase productivity output. when you increase the amount people get after tax, they will be more productive. laffer believed that tax cuts cause people to work harder. economist norman ture argued that t resul would be increased savings.
situation changed. the election of ronald reagan gave volcker the opportunity to return to his long-term plan. as part of his economic program reagan encouraged and supported monetary restraint. but in 1981, restraint began to take its toll. high interest rates caused a collapse in the building industry. the high cost of consumer loans put auto dealers out of business and auto workers out of jobs. still, volcker held to his long-term course. consolidating and extending the heartening progress on inflation will require a continuing restraint on monetary growth and we intend to maintain the necessary degree of restraint. schoumacher: by 1982 the economy had fallen into the deepest recession since the great depression. even the reagan administration was urging the fed to relent. but volcker and the fed board, determined to bring inflation down, held tight. finally, in late 1982, the fed saw inflation drop substantially and eased the money supply. this last week the federal reserve bank decided to lower its discount rate to 9.5%, the first time this key interest rate has gone below two
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