More On Reagan And That Pooch-Screw Known As The 1970s

The only good things that came out of the 1970s were the Steelers, the Reds (hey, I’m from Mississippi and we don’t have our own teams!!), some movies and some music.

Virginia Postrel has a couple of years on me, though she’s way ahead on looks and brains, and remembers why Reagan was so consequential:

Amazingly, his prescriptions worked. The economy got worse at first–much, much worse, so bad Reagan himself called it a depression. But he stayed the course, and helped Paul Volcker stay it. The economy got better, and stayed better–mostly good and sometimes even great, except for a few short bumps–for decades.

Most miraculously, the Cold War ended without a nuclear war. And the president took a bullet and lived and told jokes on the way to the hospital.

In some ways, surviving that assassination attempt in good health was the most important thing Reagan did. It robbed history of its inevitable tragic ending. (Remember, too, that the pope similarly survived a bullet, and Margaret Thatcher made it through an IRA bombing.) Reagan became living proof that things do not have to end badly.

Many of his conservative allies, taught by the terrors of the 20th century, firmly believed that history is a tragedy, that the best we can do is to fight a long, twilight struggle. They believed that evil is as strong as, perhaps stronger, than good, and that tyranny is more powerful than freedom. At the time, I believed them too.

Reagan believed in the triumph of good and the strength of freedom. He acted on those convictions, and he was right.

Interestingly, most of the economic problems of the 1970s can be traced back to three words: the Phillips curve. The curve shows an inverse relationship between inflation and unemployment; inflation increases, unemployment decreases and vice versa.

Starting in 1971, I believe, the Fed had to learn how to manage a fiat currency for the first time. They needed a guide and they chose poorly. They hadn’t been reading their Friedman (see here and here) or their Postrel, for that matter (first link). Friedman pretty much said the Phillips curve is vertical in the long run and any attempt to inflate the currency to lower unemployment would be a wash inside of eighteen months or so; real prices adjusted to make real output (income) the same. See the first “here” link for a clearer explanation.

The strange thing in all of this to me is that Presidents continue to take credit for great economies and get the blame when things go bad. Their impact can be large, particularly if they are stupid and impose price controls or something similar, but it’s usually minimal. The Fed pulls the strings on the money supply and has most of the control. The Fed’s lack of experience managing a fiat currency had more to do with the economy in the 1970s than anything Carter did as President, though he rode into office claiming he could heal the economy and ultimately got sunk by that along with fecklessness in other areas.

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