Krugman vs. O’Reilly: 1981 tax cut, 1990’s boom, and R&D

Chef Ragout’s Krugman vs. O’Reilly: Luskin Helps Referee (8/12/04 here) not only was another fine example of his keeping the Luskin Lie Squad in line but also discussed the Russert interview with Bill O’Reilly and Paul Krugman linking to this from Krugman’s archives.

During this debate, O’Reilly tried to credit the late 90’s economic boom to the 1981 tax cut. His explanation?

Mr. O’REILLY: And when did the R&D blow and get into the go-go ’90s? It happened when Reagan cut taxes, all right…

Prof. KRUGMAN: I love this.

Mr. O’REILLY: And all the corporations started R&D. I don’t care whether you believe it or not.

Prof. KRUGMAN: Reagan’s ’81 tax cut–credit for the prosperity in 1999.

Mr. O’REILLY: When do you think all that R&D took place?

Mr. O’REILLY: Call any corporation, any high-tech corporation in Silicon Valley, and just ask them when their R&D ramped up and when the machinery that has led the the United States and the world–when it started getting developed. They will all tell you it happened during the Reagan administration. When corporate taxes were cut, there was more income to devote to that. I mean, look…

Prof. KRUGMAN: Gee, what corporations.

O’Reilly did not answer and certainly most of Cisco Systems R&D occurred in the 1990’s, but we can check with this report from the National Science Foundation R&D as a Percentage of GDP Continues Upward Climb by Steven Payson:

R&D as a share of GDP will reach 2.79 percent in 1999, up from 2.67 percent in 1998, and 2.61 percent in 1997. This 1999 forecast of R&D as a share of GDP is the highest since 1967’s 2.80 percent, and reflects a continuation of a general upturn that began in 1994 after a three-year decline from 1991-94.

The NSF report does show overall R&D as a percent of GDP was rather respectable in the 1980’s followed by a dip in the early 1990’s. But other NSF data shows that nondefense R&D did not decline from the 1980s to the early 1990’s. If O’Reilly wishes to attribute the late 1990’s boom to defense R&D (e.g., Star Wars), why did he claim it was corporate R&D that was stronger in the 1980’s than in the 1990’s. The evidence does not back O’Reilly’s assertion.