I've been watching the tributes to Ronald Reagan this week. I've been somewhat dissatisfied with them because none of them capture the enormity of Ronald Reagan's contribution to mankind. They tend to focus on just one aspect of what he did. They tend to ignore the full benefit Ronald Reagan's presidency has given to us all.
Ronald Reagan's achievements can be categories in three areas the made our lives better. Rich or poor, American or non-American, odds are, you directly benefited from one of Ronald Reagan's 3 bold initiatives.
- Defeating Soviet Communism
- Lowering taxes
- Deregulating private industry
Defeating Soviet Communism
When Jimmy Carter left office, if someone were to say that at the end of the Reagan administration the Soviet Union would be finished in all but name, you would have laughed. The fall of the Soviet Union was not inevitable. Countries that are not pushed over the brink can go on for decades teetering (look at Cuba and North Korea for example). Ronald Reagan changed US policy from respecting the status quo to one of trying to beat the Soviet Union. This came in two forms: SDI and a massive military build up.
The massive conventional build up of American forces ended the Soviet's ability to realistically expand. There would be no more Korean Wars. Pretty soon as American conventional military power, amply demonstrated in 1991, would be outstripping Soviet military capability. But still, the Soviet Union could remain a super power with its nuclear threat. This is where SDI ("Star Wars") came in. If the Soviet Nuclear arsenal could be neutralized, then the Soviet Union had nothing over the US.
That's usually where the discussion ends. That is a pity because it doesn't explain why the Soviet Union collapsed. Gorbachev recognized that the problem with the Soviet Union was its closed society and tight controls. To compete with Reagan's build up, Gorbachev issued a series of reforms. Keep this in mind: Without pressure from Reagan, these reforms would likely not have happened. These reforms, however, opened the door for the discontented to express themselves and before anyone knew it, the Soviet Union collapsed.
But let's talk about the ramifications of that. Because the Soviet Union collapsed, Eastern Europe and Russia all became part of the "free world" so to speak. Our company employs people from eastern Europe. The lead developer of SkinStudio lives in Poland. Some of the top developers and graphics designers that we work with live in Ukraine and Russia and beyond. A lot of games are now being made in Eastern Europe. A half-billion or so people have been added to the world community as both buyers and potential workers which helped create new opportunities all over the world.
When I was a kid, I lived under the fear that a nuclear war could break out at any time. While terrorism and other threats are significant, my children don't have to worry that they might all die at a moment's notice because of a nuclear war. It is easy to lose sight of that difference or forget that subconscious tension but it was there.
Lowering Taxes & Interest Rates
When Ronald Reagan came into office, the tax rate for high earners was around 70%. Interest rates were over 20%. Want to buy a new house? The mortgage rate was at around 16%. My house today has an mortgage of 4.75% making it possible for people to buy homes relatively easily. Home ownership has skyrocketed since the election of Ronald Reagan. Millions of Americans would not have houses if it weren't for Ronald Reagan.
But the taxes and interest rates had a more significant effect. They encouraged people to start businesses. They encouraged Americans to work longer and harder because their wages wouldn't be confiscated by the government. And despite the tax cuts, the poverty rate has steadily decreased from 1982 on. When you reward the people who are really good at creating wealth, they tend to create even more wealth which tends to get distributed around.
Starting a company is a real risk. Most companies are started with bank loans or venture capital. But how can anyone seriously consider taking out a loan to start a small business if the interest rate is 20%? And even if they succeed, why bother if the government is going to take 70% of it? Talk about an incentive killer. Most entrepreneurs just stayed at their "safe" big company jobs.
Reagan changed all that. He got the taxes down into the 30s%. He got interest rates under control down to under 10%. And suddenly there was an incentive again for individuals with a good idea to take out a small loan and build it into a successful company where there was an incentive to stick to it. And the lowered taxes encouraged investors to invest in companies instead of having it in gold or Persian rugs and other "Tax shelters" of the day.
I know from personal experience that if the government was going to confiscate 70% of the money we earned that I would never have bothered starting a company. We employee dozens of people today. Not a huge number but there are millions of companies of the same size -- all which came into business since the Reagan revolution.
Deregulation
This is the biggest achievement in some respects and yet gets the least amount of attention because it's more "complicated" to explain. In essence, Reagan helped eliminate a ton of red tape. He got rid of regulations that kept business from competing. He ended price controls. When I was a kid, flying from Detroit to Dallas might cost $800 (in 1980 dollars). Today, I can get that same trip for $200 (in 2004 dollars).
It wasn't just the airlines he deregulated. His administration broke up AT&T and let cable and local phone companies start competing. Without Ronald Reagan, it's unlikely that we would have consumer level Internet in the United States at anywhere near the level that we know it. Behind your ISP is probably someone like MCI or UUNet which wouldn't have existed without deregulation.
Deregulation combined with lower interest rates made companies like AOL possible. It allowed banks to get into the credit card business. Consider that - credit cards. Do you have one? Probably right? -- at least if you're an American. In fact, if you're an American, you've probably had one for years. Thank Ronald Reagan for that (or blame him for that).
Ronald Reagan's deregulation opened the door to easy credit. How many businesses were started with credit cards as the "Credit line"? Go to an executive forum of small businesses and you'll find that a significant percentage were started that way. Think how much your own life has changed thanks to credit cards. Without credit cards, electronic commerce wouldn't be viable. No electronic commerce no dot-coms. No Stardock. No JoeUser.com.
Putting it together
It is so easy to think of many of the things we enjoy today as being inevitable. But that is not the case at all. There was nothing inevitable about credit cards. Nothing inevitable about 4% interest rates, 5% unemployment, massively high productivity, and no threat from nuclear war.
Ronald Reagan changed the world in ways few people can claim to have. He made the world a fundamentally better place. And while no one would claim he was a perfect man or perfect President, few can reasonably argue that his actions haven't led to a world, that is overall, much better off because of him. When one looks at the world of 1984 and the world of 2004 it is pretty apparent how much things improved. Improved because of specific decisions made by a single man.
Ronald Reagan was the right man at the right time. Wherever he is now, I hope he can feel and understand the appreciation of a grateful world, even if some of it doesn't realize how much they benefited from his greatness.