Reagan and Thatcher Would Mock Today's Pessimists

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While it's not as prevalent as it was back in 2008, pessimism somewhat defines portions of the modern electorate. The view among some is that we've crossed an imaginary line toward permanent statism thanks to the very real errors committed by the political class. Their taxing, spending, and tendency to devalue the currency understandably has many depressed about the future prospects of great countries like the United States and Great Britain.

To be clear, government is a problem today, and it's the source of relatively slow economic growth for both countries. Taxes in the U.S. and U.K. are too high, and they're a barrier to production. Regulations are too intrusive, trade could be freer, plus the dollar and pound could be stronger and more stable in terms of value. Government spending is a certain tax on growth, and in both countries reduces the amount of precious capital available to businesses and entrepreneurs. All that, plus Barack Obama and David Cameron don't exactly remind us of Ronald Reagan and Margaret Thatcher. Life and economic opportunity could surely be better, and they would be if individuals like Reagan and Thatcher were running the proverbial show.

At the same time, the exponentially worse policy mistakes that Reagan and Thatcher overcame are a reminder that today's problems are relatively small. They're in a sense rich man's problems. Reagan and Thatcher would mock what has so many so pessimistic today simply because it in no way measures up to the horrors that they confronted when elected President and Prime Minister.

Both leaders had common sense in abundance, and their common sense perhaps explained their optimism that two sagging countries could right themselves. Each knew that prosperity and optimism were as simple to achieve as reversing the very governmental policies that had the electorate so downcast. To put it bluntly, Reagan and Thatcher would laugh at what has some down simply because the fixes are so easy.

Going back to 1976, and in the aftermath of Jimmy Carter's election as 39th President of the United States, no less than conservative firebrand Robert Novak wrote that Carter's election was "a continuation of the long descent of the Republican Party into irrelevance, defeat, and perhaps eventual disappearance." Over in the U.K., Nigel Lawson, Chancellor of the Exchequer under Thatcher, wrote in his essential book The View from No. 11 that the political class that took over after World War II "was proud to call itself socialist." That was the norm back then.

In terms of money, the dollar was in freefall throughout the 1970s thanks to President Nixon's sad decision to sever the greenback's link to gold. The British pound followed the dollar's descent such that investment in both countries was choked off. Investors are the creators of companies and jobs, when they commit capital in the U.S. and U.K. they're buying future dollar and pound income streams, so the decline of both formerly gold-defined currencies pushed intrepid investors into hiding.

Leaders in each country missed Adam Smith's essential lesson that far from it being actual wealth, "the sole purpose of money is to facilitate the exchange of consumable goods." So with each currency weak and floating, money was robbed of its essential purpose as a measure meant to facilitate exchange of actual wealth, and investment in the creation of future wealth.

In the U.S., airlines that were largely the creation of the federal government were told what routes they could fly by the Civil Aeronautics Board. In England, British Airways was a state-run entity until Thatcher's government had it privatized in 1987. Back in the U.S., and to Carter's credit, along with amazingly that of Sen. Ted Kennedy, deregulation of routes began in the late ‘70s.

What about communications? In the 1970s there was no internet, there weren't any handheld mobile phones, and in the U.K. the government owned British Telecom. In the U.S. owning a landline phone was actually illegal such that Americans could only have a phone if they rented it from the government's preferred monopoly.

And then taxes. The top tax rate in the U.S. was 70 percent. Though Reagan was for cutting taxes, very few Republicans were. To remind readers of how exceedingly dumb policy was back in the ‘70s, Democrats and Republicans thought a reduction in the penalty placed on work would cause inflation. As Alan Greenspan said about Arthur Laffer, the great economist who helped shape Reagan's tax policies, "I don't know anyone who seriously believes his argument."

Carter too was part of the mainstream about the alleged horrors of tax cuts, so in a debate with Carter ahead of the 1980 election, Reagan quipped:

"I would like to ask the president why it is inflationary to let the people keep more of their money and spend it the way they like, and it isn't inflationary to let him take that money and spend it the way he wants?"

Of course, and as mentioned previously, Carter believed what most in the political class did about taxes, including most Republicans. Reagan's eventual running mate in George H.W. Bush famously referred to Reagan's views on taxes as "Voodoo Economics," his eventual Treasury Secretary James Baker along with most of Treasury's staff regularly leaked against Reagan's tax plans, and while his negative impact (his rate hikes did nothing to strengthen the dollar as evidenced by how the dollar was in freefall from 1979 until early 1980 as the hikes began) on the Reagan economic program has been whitewashed in modern times, Fed Chairman Paul Volcker also regularly leaked against the Reagan tax cuts.

Back to Great Britain, the tax situation there was, if possible, even worse. The top tax rate in the 1970s was 83 percent. Beyond that, there are no companies and no jobs without investment first. This requires mention simply because the tax rate levied on capital gains was 98 percent. Rolls-Royces were prevalent in a depressed London in the ‘70s not because the economy was booming, but because those with actual wealth had every incentive to consume what they had on depreciating items, as opposed to investing in Britain's companies of the future. Why invest when, if you're lucky enough to receive a return, the government will take a 98% cut?

What about the "new normal" of sluggish growth that has captivated so many witless economists and pundits? They would have felt right at home amid the ‘70s gloom; gloom that Carter channeled on the way to a one-term presidency. As he put it back then:

"I think it's inevitable that there will be a lower standard of living than what everybody had always anticipated...I think there's going to have to be a reorientation of what people value in their own lives. I believe that there has to be a more equitable sharing of what we have...The only trend is downward."

Interesting about Carter's pessimism, Steven F. Hayward wrote in the first book of his masterful two-volume The Age of Reagan that despite losing to Reagan in landslide fashion, Carter won the votes of people who thought that America's problems were insurmountable. Hayward quotes National Review at the time as saying that "The profound negativism of the liberal wing of the Democratic Party is alien to the American tradition."

Back to the U.K., Lawson went on to write in The View from No. 11 that "I suppose nowadays nobody of any significance calls himself or herself a socialist, except between consenting adults in private, without at least a twinge of embarrassment." Fast forward 14 years, Alistair Campbell wrote about Tony Blair's stint as Prime Minister about how Blair was clear that "the minute we signaled we were raising the top rate, as far as the public is concerned, that was us [Labour] back to the old ways rejected." Campbell added that when pressed by his advisers to "be more progressive and radical," Blair would respond that "What gives me real edge is that I'm not as Labour as you lot."

What does all this mean about the present? It signals that the pessimism that infects at least the American right is wrongheaded, overdone, and dare it be said, very Democratic Party. To the extent that there's pessimism in the U.K. that resembles what's revealing itself stateside, it's similarly overdone.

Nowadays no serious national candidate in either country would talk about returning major swaths of industry to government ownership, about the need for tax rates in the 70-98% range, not to mention the inflationary implications of a lower tax burden. Policy is surely stupid given the tautological reality that government is incompetence personified, but no reasonable person would argue that what prevails today in any way resembles the monstrous policy errors that took place in the 1970s.

In a speech given last month at the Reagan Ranch Center, I made the argument that today's pessimism is wrongheaded, and belied by history. In a speech set for tomorrow at the Institute of Economic Affairs in London, I'll make a similar argument.

The solutions to what ails us are common sense, and because they are we have every reason to be optimistic. Reagan and Thatcher overcame much worse, so rather than complaining about what's wrong, it's time for the right in both the U.S. and England to match the optimism of their heroes.

There's a reason to be cheerful right now, and the reason lies in simple fixes that Reagan and Thatcher well understood not terribly long ago. Let's stop talking about what's wrong, and start talking about how much better off we'll all be when we elect individuals intent not on helping us, but on reducing the lone barrier to our prosperity which is the size and scope of government itself.



John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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