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The Greatest Leaders Of The '80s Get No Respect


Economic Viewpoint

THE GREATEST LEADERS OF THE '80s GET NO RESPECT

Former Mexican President Carlos Salinas de Gortari, former U.S. President Ronald Reagan, and former British Prime Minister Margaret Thatcher all know the truth of Niccolò Machiavelli's observation that those who take the lead in introducing a new order of things get in hot water.

All three leaders achieved great success, and all three are vilified. Salinas undertook the biggest changes. He had to make a one-party state democratic, create a rule of law where there was none, and privatize a socialist economy. Reagan rescued the U.S. from stagflation and had the vision to see the end of Soviet communism. Thatcher stopped runaway inflation, put public expenditure under control, and cut tax rates, thereby restoring British vitality.

Salinas' accomplishments are denied, while Reagan's and Thatcher's are frequently ignored or attributed to other factors. For example, Reagan's victory over stagflation is attributed to the breakup of the Arab oil cartel.

Machiavelli recognized that people resent leadership even when it benefits them. This makes leadership a rare commodity even in countries with an abundance of politicians. It emerges only in a crisis, and seldom then. Its absence today attests to the success of the three great leaders of the 1980s in putting their countries on firm footing.

Nonetheless, Salinas is viewed as the man who ruined Mexico by failing to devalue. There is a certain illogic to this argument, as the devaluation by his successor solved nothing and brought on a crisis of its own. This crisis, which remains, is explained away with the claim that there was no alternative to devaluation. But there was: monetary tightening and a large privatization. The former would have eased fears of peso oversupply, and the latter would have boosted the currency with capital inflows.

BUDGET BOGEYMAN. Reagan and Thatcher have not suffered the personal vilification heaped on Salinas, but their policies are routinely trashed by pundits. For example, David E. Rosenbaum of The New York Times saw the specter of Reaganomics in the strong showing of Steve Forbes's flat tax in early Republican primary polls. To ward off a resurrection, Rosenbaum marshaled "the overwhelming consensus" in "Washington and academic circles" that "the supply-side theories Mr. Forbes espouses were largely discredited in the 1980s."

Rosenbaum is oblivious to the humor in his appeal to such discredited authorities as "Washington and academic circles," but what Rosenbaum means is that nothing Reagan did counts because of the budget deficit.

Never mind that all of the deficit hysterias have come to naught. The bogeyman is still rolled out every time supply-side economics is mentioned. Despite the deficit, inflation and interest rates have collapsed, and virtually everyone who took out a mortgage during the past 20 years has refinanced. The U.S. has not become a deindustrialized Rust Belt, as booming exports and a virile auto industry demonstrate. The Japanese have not taken us over. Instead, they are experiencing an economic and financial crisis. Meanwhile, the U.S. stock market continues to reach new highs.

STAG-WHAT? In the late 1970s, when supply-side economics stepped onto the policy stage, the issue it addressed was not the budget deficit but the inability of the economy to grow without higher inflation. Supply-side economics was designed as an explanation of and remedy for stagflation. Its success is evidenced by the disappearance of stagflation as an issue. Even the term is unfamiliar to those who came of age within the past 10 years.

To cover up this success, a failure was invented. Reaganomics is alleged to have been based on a prediction that tax cuts would pay for themselves, and the deficit is proof of failure. No facts support this charge. All official documents showed that the tax cut was explicitly based on the assumption that it would reduce revenues by more than $700 billion, a loss built into the deficit forecast.

Unanticipated disinflation caused the budget deficit in the Reagan years. It produced $2.5 trillion less gross national product than was forecast between 1981 and 1986. This loss of tax base was the source of the revenue shortfall. As Congress would not ratchet down spending proportionally, the gap between revenue and expenditures grew.

The evidence supporting the achievements of Salinas, Reagan, and Thatcher is so overwhelming that economists and pundits have to go out of their way to avoid it. If these leaders are failures, where are the success stories?BY PAUL CRAIG ROBERTS


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