s and policy makers in the Federal Reserve System who designed and carried out monetary policy, as well as among those at the Treasury, the White House, and in Congress who created tax laws and carried out fiscal policy. The intractable economic crisis led to the election of Ronald Reagan in 1980. His administration adopted a radical "supply-side" economic strategy that linked a high-deficit fiscal policy to a tight "monetarist" policy at the Federal Reserve. This historic reversal of policy amounted to a counterrevolution against the "New Economics" revolution that Kennedy's economists had launched in the 1960s (on the counter-revolution, see the outline of supply-side economics documented in the Economic Report of the President, 1982; the New Economics revolution is outlined clearly in the Economic Report of the President, 1962). The Kennedy policy mix, in sharp contrast to Reaganomics, had built upon a tightly controlled budget policy with low real interest rates. The supply-side Reagan counterrevolution had several profound consequences: first, the Economic Recovery Tax Act, passed in August 1981, opened up a structural deficit in the federal budget that was a major cause for the U.S. national debt to rise from $909 billion at the end of 1980 to $2,600 billion when Reagan left office at the end of 1988, and to $4,000 billion when Bill Clinton was elected president at the end of 1992.(3) The on-budget deficit had reached $340 billion in the last year of Republican rule (5.7 percent of GDP). The uncontrolled explosion of the federal budget deficit left the Clinton administration no real choice but to attack the fiscal problem aggressively. Because of Clinton's budget package passed in 1993, the steep decline of interest rates, and the revival of growth, the deficit has declined faster than expected to some 3.8 percent of GDP in 1994, and to about 2.5 percent estimated for 1995. The second major result of the twelve Reagan-Bush yea...
