Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Ronald Reagan: What happened?

rated by 0 users
Answered (Not Verified) This post has 0 verified answers | 10 Replies | 6 Followers

Not Ranked
Male
58 Posts
Points 2,060
tcostel posted on Thu, Jul 14 2011 2:59 AM
We all know the propagated story. Reagan cut taxes, cut spending, reduced government, and the economy grew immensely. We all know that is horse excrement. My question is what exactly happened? I know that Reagan did not cut taxes, spending, or reduce government, but the economy did grow. Liberals who recognize the Reagan myth point to him as why tax increases and deficit spending will grow the economy. Reagan did increase economic growth. But how? Was it just a bubble economy? I can find a ton of information on how Reagan did not decrease government, but nothing about the actual economy during the 1980s. All I hear is that it was great. But I suspect otherwise. Any specific information and analysis about the economy under Reagan from the Austrian perspective? I don't mean articles dealing with the Reagan myth, but information explaining why the economy grew and how it was related to the bust in the 90s.

All Replies

Top 10 Contributor
6,953 Posts
Points 118,135

A large part of it was Volcker's incredibly high interest rates that helped strengthen the dollar after it began collapsing when Nixon removed the last gold link in 1971.  This article talks a little about it.  I actually can't think of a good economic history text on that time period off the top of my head, but it's late.  I'll have to try again later.

 

And I know you said you weren't looking for these, but others may find them useful:

"The Myths of Reaganomics"

"The Sad Legacy of Ronald Reagan"

"The Reagan Fraud — and After"

"The Reagan Myth"

The Free Market: "Ronald Reagan : Protectionist"

"The Reagan Phenomenon"

"The Two Faces of Ronald Reagan"

"Ronald Reagan: An Autopsy"

 

And on the forum:

Onion: Embarrassed Republicans Have Been Confusing Reagan with Eisenhower

Wherein Lies the Strength of the Reagan Myth?

Ronald Reagan

 

  • | Post Points: 35
Not Ranked
Male
58 Posts
Points 2,060

What do Austrians think of Paul Volcker? Could it be said that under Volcker, the Federal Reserve allowed interest rates to function more like they would have naturally (of course still not naturally, but better than the inflationary policies)?

  • | Post Points: 20
Top 500 Contributor
297 Posts
Points 5,250
Rcder replied on Fri, Jul 15 2011 6:33 PM

What do Austrians think of Paul Volcker?

The general consensus from my understanding (and I'd agree with it) is that his contractionary monetary policy, though swift and brutal, ended the rampant credit expansion that started during the '70s and thus stopped stagflation.

It should be remembered, however, that a market rate of interest which exceeds the natural rate of interest can have just as much of a destructive effect on the economy as one which is lower than the natural rate of interest.

Could it be said that under Volcker, the Federal Reserve allowed interest rates to function more like they would have naturally (of course still not naturally, but better than the inflationary policies)?

In a sense.  Interest rates would've been higher than they were pre-Volcker simply to keep up with inflation, but it is extremely unlikely that the interest rates Volcker achieved were perfectly aligned with consumer time preference.

I always put the caveat that I'm very much a novice when it comes to economics, so I apologize beforehand if anything I've said is incorrect.

  • | Post Points: 20
Top 500 Contributor
312 Posts
Points 4,310

Sorry for lifting old topics, but Reagan-dispute never gets old. My big question - why there is no sources or references in Rothbards articles? Did he not understand how easy it is for leftists to shoot down all his arguments as a unsourced nonsense? Only one with references is made by Jeff Riggenbach, and those notes are directed to... Rothbards articles. Do I have to dig all these facts by myself, because I know that I have to show them If I use those articles.

-- --- English I not so well sorry I will. I'm not native speaker.
  • | Post Points: 5
Top 150 Contributor
Male
694 Posts
Points 11,400
Joe replied on Tue, Dec 13 2011 8:25 AM

Its simply not true that the FED setting interest rates higher than the natural market rate would have the same kind of distortions as when it sets it too low.  Borrowers on the market would simply seek out the lower market rate.  What would screw the economy up in the opposite way would be some sort of high interest rate price floor that the gov't imposed on all money borrowing transactions, but that would never happen.

  • | Post Points: 20
Top 10 Contributor
Male
4,987 Posts
Points 89,745

Yeah, it seems to me like higher-than market interest rates would have no effect due to the way in which the Fed interacts with the banks. It can make loans more accessible to them, but it can't (currently) restrict their own money that they have due to the free market.

  • | Post Points: 20
Top 500 Contributor
312 Posts
Points 4,310

Well, at least Niskanen and Cato had sources for their claims unlike Rothbard. According to them, Reagan wasn't HC-libertarian, but he was semi-successful.

-- --- English I not so well sorry I will. I'm not native speaker.
  • | Post Points: 5
Top 25 Contributor
Male
3,113 Posts
Points 60,515
Esuric replied on Tue, Dec 13 2011 5:44 PM

Yeah, it seems to me like higher-than market interest rates would have no effect

Arbitrarily constricting the supply of money and elevating interest rates, and therefore marginal costs across the board, would have major macroeconomic implications. It would lead to actual deflation which wouldn't occur uniformly, nor would it affect all prices simultaneously. This, in turn, would lead to structural issues/imbalances. 

There are two different types of inter-temporal disequilibrium. 

"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."

  • | Post Points: 20
Top 500 Contributor
297 Posts
Points 5,250
Rcder replied on Wed, Dec 14 2011 11:04 AM

Arbitrarily constricting the supply of money and elevating interest rates, and therefore marginal costs across the board, would have major macroeconomic implications. It would lead to actual deflation which wouldn't occur uniformly, nor would it affect all prices simultaneously. This, in turn, would lead to structural issues/imbalances. 

There are two different types of inter-temporal disequilibrium.

Esuric, I have a pretty good idea of what you're saying, but would you mind expanding on this issue?

  • | Post Points: 20
Top 10 Contributor
Male
6,885 Posts
Points 121,845
Clayton replied on Wed, Dec 14 2011 12:37 PM

Hey, Esuric, haven't seen you around in a while... welcome back.

@Rcder: The Fed is a price-controller. The price that the Fed manipulates is the discount rate of borrowed funds, otherwise known as "the interest rate."

If you put a price-cap on rental housing, what happens? Demand surges, supply diminishes and shortages ensue. In the case of borrowed funds, what happens is the same: demand surges (investors are willing to leverage up, banks begin re-lending, etc.), supply diminishes (savers stop saving and start taking out credit cards and mortgages instead) and shortages (as evidenced by the Fed "printing money") ensue.

If you put a price floor under wheat, what happens? Demand slumps, supply surges and surpluses ensue. Did you know that, during the Great Depression, the Federal government was paying farmers to till under their crops? Federal agents were raiding retailers and dumping fresh, "contraband" produce down the sewer because its producers/sellers were engaging in "price-cutting". That is a predictable consequence of the agricultural subsidies and price-floors that had been instituted. In the case of money, demand slumps (investors stop investing and begin "hoarding" instead), supply surges (everyone rushes to put their money in the bank to get the high interest rates, thus slumping retail demand further) and surpluses ensue (as evidenced by the Fed attempting to "sop up excess liquidity", that is, dump bonds and destroy dollars).

I hope that helps.

Clayton -

http://voluntaryistreader.wordpress.com
  • | Post Points: 5
Page 1 of 1 (11 items) | RSS