Economists and the Economy

The reaction to Carte's January 1980 budget reflected these converging and diverging perspectives. To supply-siders, whose voice was

the Wall Street Journal, a budget nearly balanced by tax hikes was totally unacceptable. Newsweek and Time differed because the more Keynesian Newsweek, caring more about unemployment, was impressed by the degree of restraint in the budget.

Yet there was also agreement, centering on the shared concern for business investment as the source of productivity. Keynesian Arthur Okun of the Brookings Institution called Carter's plan "a directionless, muddle-through budget of an election year." "I wish to hell," he added, "that there was some concrete policy you were buying with all that extra money, liked a reduction in corporate depreciation rates to stimulate investment."^[18] His colleague Joseph Pechman, similarly worried, felt that a tax cut was needed to stimulate investment; to allow for this, he wanted a spending cut.^[19] Keynesians had begun to worry more about investment than consumption. The administration's economists were also working to restrain workers' consumption through recession. Democratic economists were deserting Democratic constituencies.

Ultimately, all economists emphasized the confidence of business interests. Keynesians wanted to manipulate demand in order to encourage entrepreneurs. Supply-siders wanted lower taxes. Neoclassicists wanted higher profits from lower wage increases and interest rates. All believed that if, for whatever reason, business lost confidence in the future, that future would be dismal. The crucial barometer of business confidence was the behavior of the financial markets. In February 1980, one major market, the market for bonds, collapsed; that collapse in turn killed Carter's budget.