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In a self-described balanced political treatment of the history of health care policy, Paul Starr delivers us this:

What finally broke the grip of the hospitals (and later the doctors) on the methods of Medicare payment was the acute fiscal crisis that developed after Reagan cut taxes and increased military spending in 1981 and the economy then plunged into the worst recession in decades.

The dual recessions of the early 80s are largely thought to be the result of the necessary tightening of monetary policy at the time which was the unfortunate policy prescription (necessary) from the Keynesian unicorn period of the 1970s (high inflation and high unemployment). Indeed, the early 80s recession is known as the Volcker Recession after the chairman of the Fed who sharply and quickly increased the federal funds rate to stave off the inflation.

Interestingly, the narrative above is a little out of touch with modern stimulus advocates, no? Wouldn’t both cutting taxes and raising spending (whether on bombs or bridges or battery powered cars or basement digging for that matter) be precisely what the Keynesian doctor ordered? But is the author going to argue that doing this, only when Reagan was president, plunged us into recession? Seems like the opposite of the austerity fairy to me.

To give the author a little leeway, he did just remind readers on the page prior that Reagan himself was responsible for instituting both an expansion of Medicaid and in imposition of Medicare price controls. Remind your friends of that when you are at a dinner party.

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