Tuesday, March 29, 2005


A lot of people are way smarter than me. Still, I can’t really say I was lingering somewhere near the restrooms when God handed out neuron kits and brain cells. That is why, now some five years ago, I was surprised myself how I could ever have mistaken Ronald Reagan for a dumb cowboy. Five years ago a friend of mine asked me who I thought was the most important 20th Century US President. I guess that while I considered my cautious answer – Roosevelt – certainly not the sole candidate for the laurels, I’d never have contemplated bestowing the honour on Ronald Reagan. At that time.

The reason? European MSM. During all of the Reagan years, we in Europe were fed with a continuous battering of negative spin and half-truths on Mr. Reagan. Unrightful beneficiary of the credit for liberating the US hostages in Tehran. Religious zealot. B-film actor fallen upward. Heinous warmonger in central America. Player with fire in scoffing the USSR. Dumbass. Liar to Congress and the American People. Social Butcher. Idiot. Etc etc… No occasion was missed to highlight his – admitted – numerous lapsuses. That’s why the quotes that stick with yours truly are not that his economic thinking was influenced by Von Mises, Hazlitt or Hayek, but that he once toasted on Bolivia while on an official visit to Brazil. Or that he once claimed that it’s actually trees which are mainly responsible for air pollution.

Anyway, on that day, now some five years ago, my friend, a rightwing madman and a Michael like myself, showed me another Reagan, one who should have gotten the Nobel Peace Prize for eliminating the nuclear threat through pioneering ICBM reduction talks. One whose Administration produced important legislation slashing insanely high taxes (70%!) from the Carter era. One who gave Americans not only their jobs back but also their Pride. And one who, simple as the phrase may sound, by denominating the USSR as an "Evil Empire" saw a hundredfold clearer the inhuman face of the Warsaw Pact regimes while Western Europes socialist "elites" had no qualms being thick with their namesakes on yonder side of the Iron Curtain.

But that was politics.

Politics is easy stuff. One can be a Professor in Politics, tell nonsense for three decades and at the end of his/her carer still come away with honorary doctorates in nanny states and retire as Sir or Herr or whatever.

Economics though, is another matter. Belgian, or should I say Flemish, Blogger LVB has a first installment on Reagan as seen through an economic lens. In an eloquent way he sheds some light on Reaganomics from a European Point-of-View. That’s why I think that the Americans reading Downeast (afaik the majority of our readership) should read this. FYI, LVB is a pro free market type. Professionally, he's an Internet entrepreneur. Some excerpts:

[Reagans policy] ...policy meant a radical rupture with Keynesianism where consumption was stimulated by massive government spending. Keynes put the emphasis of economic policy on the demand-side (consumption). Reagan, by contrast, put the accent on the supply-side (production). Keynes believed that demand would create supply, but Reaganomics started from the opposite idea, namely that supply would create demand. In this way of thinking, the supply side of the economy (the economic activity, production etc…) had to be stimulated in order to create wealth. The best way to do this was to cut the marginal tax rates on personal income. Such a tax cut would create a strong incentive to increase economic activity and would have spectacular effects on growth, investment, risk-taking and saving...


When tax rates are raised, people reduce their participation in taxed activities, such as working, risk taking, saving and investing. When tax rates fall, people increase their participation. Fortunately, Reagan understood this logic immediately. Few people know that Reagan had a major in economics, which he obtained at the Eureka College (Illinois) in 1932. The economic theory he was taught was untouched by Keynesian thinking and, as a consequence, very appropriate to the problems of the eighties. Reagan followed the advice and took action. The top marginal tax rate of 70% was lowered in two phases: to 50% with the "ERTA" (Economic Recovery Tax Act of October 1, 1981) and in a later phase to 28% (The Tax Act of 1986). These tax cuts created 18 million new jobs in 8 years, lowered inflation to 4.3% and cut unemployment from 9.7% to 5.4%. One of the longest and strongest economic expansions since World War II had begun, with an average annual growth rate of 3.5%.

Ludwig Von MisesFriedrich HayekRonald Reagan

(Economic mentors Von Mises and Hayek and President Reagan)

If you have read the post, you may want to read a little further and check out his post on the so-called Bolkestein Directive, which was essentially shot off this weekend. Bolkestein is EU Commissioner for Internal Markets and Taxation; as a leading proponent of the Dutch Centre Right VVD, he was nearly crucified by the PC Crowd in the early nineties for haveing the audacity to say that the integration efforts in The Netherlands were a shambles. If only they had listened to him: the news coming out of Holland these days is appalling.

Anyway, the Bolkestein Directive was meant to create the legal framework for liberalizing services throughout the EU. For example, if you are a Czech flower arranger, making it easy for you to set up business in Austria. Or if you are a Lithuanian plumber, facilitate working in another EU country. All this under the regulations of the service provider’s country. In other words, if you work as a Polish architect in France, you still pay the (lower) Polish taxes. The Bolkestein Directive was one of the tools to generate millions of new jobs and make Europes economy the strongest by 2010. (Old) European neoprotectionism killed it prematurely. One of the most outrageous statements of the past week was Chirac's, who more or less said that unlimited free markets are as bad as communism.

Poor Europe. Read it at LVB. It's in English.


No comments: