Trumpomics and Reagans lost legacy

The spirit of neoliberal market capitalism is back with vengeance. Republicans love to say how big, costly and ineffective governments are. One of the most popular presidents, Reagan stated his wish to become President was for to give back the country to the people. Trumps inauguration speech could have been written by Ronald Reagan. As good republican, Trumps shares a lot of ideas with Reagan, especially on economics and deregulation.

For why deregulation took such a big importance, we need to look at the time of stagflation when Reagan became president, 1981. Stagflation is combined high inflation and unemployment, something that should not be possible to occur. Economic policies and theories were disalligned for an answer on this economic problem. Reagan suggested lowering taxes and a deregulation program resulting in freeing of massive amounts of capital and manoeuvrability which in turn could stimulate the economy and make America great again as manufacturer. Sound familiar, doesn’t it?

It’s fair to state that financial deregulation started in the 80’s contributed to multiple financial crisis’s over the last decades. We have had the S&L crisis in the eighties, the Dot.com bubble in the nineties and the Great Recession in 2007-2009. The decades from 1980 till 2007 should be seen as an era where politics was dominated by neoliberal market beliefs. Simply stated, the market knows best and needs room to roam.

We have seen differently. Many reasons contributed to the ‘great recession’ of 2007-2009.  Though, what every financial crisis has in common is when you flood the market with cheap money, over-speculation and the creation of risky financial products will be triggered. Trumps tax and financial deregulation program shall be a first step towards a new financial crisis occurring within 10 years, just as happened with the last three crisis’s. But for now, a flood of money will stimulate the economy, although temporarily.

Reagan was more a dreamer than an economist. His economic thoughts and resulting policies have been attacked by many critics; still lowering taxes and deregulation are core elements of the republican economic agenda. Reagan is called an advocate of the supply-side theory or the trickle down effect, though Reagan stated it as common sense. Trickle down effect is a much mocked economic term, basically it means that lowering taxes can create higher tax revenues (which did not happen, by mine most positive research it costed $500 billion over the period 1982-1990). Reagan’s idea was that this ‘freed money’ would find it’s way to investments contributing to technological progress. In turn technological progress would create a more productive economy which results in higher government revenues.

We have seen that also here this was not exactly the case. Yes, massive amounts of investments have been made in technological companies and we have seen unbelievable feeds of human technological ingenuity. Moreover, too much money has been loaned, squandered, consumed and eventually considered as a loss. From last crisis, multiple trillion dollar alone in the US… Even when considered that a part of these trillions was just air, still it stands for a considerable loss of opportunities.

What we should learn from this is that money doesn’t find investments in ways best for society alone. In regard to what Trump proposes on economic deregulation and tax policies, I haven’t noticed any strategy where Reagan at least had a vision how things could become better. Sure, Reagan counted to much on the market to solve social-economic problems, but at least his economic policy was build on a dream, a vision and sadly a lost legacy of his presidency.

Reagan dared to dream big, in a way where humans imagination is our only limitation. His defence policies, SDI foremost, also more mockingly called the Star Wars shield, are a testimony of his beliefs in technological progress as a problem solver. At the moment these ‘Star Wars’ shield are operational in every major country and some local areas as Israel and South Korea (deployed by the US army). In the end not so far fetched.

SDI was just a part of Reagans ideas how to comply to earths reality on a technological level. Another project was called back alive, the SOCRATES project. Goal of this project was to better understand human and technological development in aim of stimulating economic activity. Simply put, human societal development follows a certain patron where possibilities between organisational skills and natural resources combine into new opportunities where major productivity gains can be reached, so called economic or technological revolutions (picture). Important advise from SOCRATES holds that government should invest in theoretical areas and more practical areas where is non market interest. Reagans policies were much tuned on these principles and advices. Aside Reagans believe in the free market, he was aware of the limitations imposed on technological revolutions by capitalism. In response Reagan stimulated heavily in R&D government activities and subsidised many technological development programs. Combined with lowering taxes and deregulation programs, we should see Reagans economic policy as a disguised Keynesian industrial program.

A major cause of the stagflation period is the same cause why Trump could win the elections. The United States knows a relative decline in her total factor productivity (TFP), internationally the U.S. economy is becoming less competitive. Critics of Reagan miss the elemental drive of Reaganomics, it’s not that liberal at all. It’s closer to Keynesian economic policies where governments invest heavily in economic activity, only the way towards is different. With some adjustments, maybe not a bad policy for these times.

In comparison to Trump suggested economic policies, I have not heard any vision or any of Reagans underlying reasonings. Only empty phrases of America First, Hire American and Buy American, strange that Ivanka’s clothing line is partially produced in China or that the Trump tower is build with Chinese steel… Furthermore a world were the US advocates free trade seems over, only when it suits the US. I hope Reagans lost legacy will be found soon,  as his vision on free trade.

 

 

 

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