Maandelijks archief: november 2014

Reaganomics

Since WWII the leading economic opinion was based on the ideas that Keynes had expressed in 1936. Keynes gave government a important role in regulating the economic growth. Government should spend more in times of depression and less in an economy that was overheated. It was clear that in the long run government expenditures should be in balance. That proved to be the hard part. Large part of government expenses consisted of salaries and investments in infrastructure. Cutting on these expenses created big resistance. So public expenses had a tendency to rise whether the economy was good or bad. The system worked or seemed to work for about 35 years. By then the US were traumatized by the Watergate scandal, the Vietnam War and the not so succesfull Carter administration. The economy halted and the US-spirit was low.

That was the moment (1980) when Ronald Reagan was chosen for president. Reagan brought back what you can call the American spirit. He had a very clear statement and mission: the government is not the solution, government is the problem.

Taking that statement as a startingpoint it was clear that government expenses ought to be cut. That became a leading issue for the next thirty years. This was accompanied by an optimistic view on the functioning of the market. The market would take care of all problems in the economy. Adam Smith was fully back. I’m not sure if the Reagan policy changed much in government expense. What it did change was the faith in the American dream. A new spirit went through America.

As a matter of fact: Reagan was not the first. In Great Britain not even a year eearlier Margaret Thatcher had started her government along the same lines.