One of the main pillars of Republican thought is that LBJ's spending on social programs and his relatively modest federal deficits caused the hyperinflation and economic stagnation of the 1970s and early 1980s. The problem with this theory which largely goes unopposed is that the much larger deficits of Ronald Reagan in the 1980s and Georhe W. Bush stubbornly failed to cause inflation. LBJ managed to produce a b udget surplus in his last year in office, as well. I f federal deficits cause inflation, this record makes no sense.
In fact, I patiently waited for Regan's deficits to run into hyper inflation and lo and behold, we never had it. The same thing held with George W. Bush. Were larger Republican deficits kept in check by complicit bankers and Wall Street types or was there something else at work here. Well, it turns out that price inflation remarkably correlates with rise in oil prices rather than with federal deficits. Following the Arab-Israeli War OPEC applied an oil embargo to countries considered friendly to Israel. prices zoomed from $3 a barrel in 1971 to over $12 a barrel and the prices at the gas station went above $1 per gallon. A scond shock followed with the Iranian Revolution (1979-80) and the Iraq-Iran War which mostly cut off Iranian exports until Iran started winning in late 1981 or 1982. By 1981, oil prices rose to $35 a barrel.
Reagan exacerabated hyperinflation and stagnation by secretly supporting Iraq as retaliation of the hostage crisis. It was Dick Cheney who first armed Saddam Hussein while working for reagan. But Reagan got the politically credit by deliberately engineering a steep recession (10 straight months with unemployment over 10%) which broke the back of both our own economy and oil demand. Future deficits, which were huge, were paired with falling oil prices (and therefore) falling or stable cost of living stats. This economic malpractice tranferred the blame from the Nixon-Ford era to LBJ and "social programs." Social programs were tarred and feathered semi permanently while the Reagan and George W. Bush tax cuts were deified. Only the tax cuts really didn't produce much growth and the social spending does not appear to be the real cause of infalation. Nonetheless, this is politically effective and has seeped into conventional wisdom.
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