Business Ascendancy and Economic Impasse: A Structural Retrospective on Conservative Economics, 1979–87

Abstract

Conservatives have been waging economic revolution since the late Carter years. Have they succeeded? Ronald Reagan and the early architects sought their place in the history books as institutional innovators, not economic tinkerers. Viewed in this perspective, the conservative economic agenda has sought—and is often recognized as an attempt—to change the rules of the game. One might therefore properly ask: Did conservative economic leadership under Paul Volcker and Ronald Reagan succeed in transforming the underlying structure of the U.S. economy? If so, what have been the macroeconomic effects of this transformation? Answering this question requires a somewhat unusual economic model, one which identifies and develops quantitative indicators of the key dimensions of the institutional environment of the economy and estimates the relationship of these dimensions to the behavior of key economic variables such as profitability and investment. We present here such a social structural model of macroeconomic performance.