Avatar of admin

by

From Stagnation to Prosperity to Stagnation

April 16, 2013 in Economics

By Richard W. Rahn

Richard W. Rahn

The great tragedy of our time is that so few know economic history; thus we have been doomed to repeat the mistakes of a generation ago, and millions suffer.

By the late 1970s, many viewed Britain and the United States as in terminal decline. The United Kingdom had been rotting for decades. The empire had been lost, and Britain began to look more and more like a Third World country as incomes stagnated and inflation soared. Then, along came a remarkable lady, Margaret Thatcher, who said “no” to the status quo and through incredible toughness, ability and just plain smarts turned around Britain.

On this side of the Atlantic, the United States was also in despair. Real incomes had stagnated, inflation seemed to be out of control, and the establishment political class had little idea of what to do. President Carter referred to the country as being in a “malaise.” Out of the American West, a savior, Ronald Reagan, rode into Washington and turned around the nation.

Long before taking office, Thatcher and Reagan studied economics seriously. In fact, Reagan is the only U.S. president to have had a degree in economics. Thatcher was impressed with the writings of F.A. Hayek, arguably the best economist of the 20th century. She spent time absorbing lessons and insights from him, in person, before and after she was elected. Reagan, also a fan of Hayek and of Milton Friedman, had the remarkable ability (because his thought process was so logical and clear) to explain economics so that anyone could understand the basic principles and concepts. Reagan was advised by Friedman, and many of Friedman’s associates and students had important roles in the Reagan administration.

The success of the Reagan-Thatcher era has been quickly erased.”

Reagan and Thatcher understood that high tax rates, excessive government, undisciplined government regulation and inflation were the curses that were killing the economies of the United Kingdom and the United States, and to reverse course would take at least a couple of years and a degree of pain. They knew that their political opponents and many members of the press would portray them as heartless for applying the necessary medicine. Fortunately, both had the fortitude to do what had to be done and it worked, as can be seen in the accompanying chart.

Thatcher, British prime minster from 1979 to 1990, and Reagan, U.S. president from 1981 …read more
Source: OP-EDS

Leave a reply

You must be logged in to post a comment.