Reagan's Greatest Achievement?
So Ronald Reagan has hitched up the twenty-mule team and gone off on his final journey, and our country mourns a fallen hero. I don't guess anyone should really be surprised at the irrationality of this. In reality, Reagan is a hero only to the ideological Right; his Administration's policies made life worse for most people, and they paved the way for the thundering anti-triumphs of the current regime. But, we remember the Gipper as an affable grandpa kind of a guy. He was sternly unfazed by the tantrum of the air traffic controllers. The beatniks who thought it was hip to sleep in the streets on cardboard sheets didn't fool him. And, after all, he did win the Cold War.
Now I'm aware of the argument that history is never that simple, that Reagan just basically threw the switch for the final demolition of the Soviet Union after it had been softened up by five decades of strategic weapons buildup, by our arming and encouraging Osama bin Laden and the Mujahideen in Afghanistan, by the Chernobyl disaster and by the stupendously heavy dead weight of Soviet economic planning. But there's no doubt that in a symbolic sense, Reagan won the Cold War. He stood up to the Evil Empire. That's what people remember him for, and that's why his sunny disposition, his "Gosh darn, let's give it a try" smile may soon be appearing on the dime, the ten dollar bill, or Mount Rushmore.
So, all right, Reagan "won the Cold War", if you will. I find it a bit odd that no one is commemorating another part of Reagan's legacy that had as much, if not more, historical significance. Certainly it affected as many people, and probably quite a few more -- and it has, arguably, an even stronger, more direct bearing on the political realities of today's world.
Are you scratching your head, dear reader? Well you may, but please, stroll with me down memory lane and let's recall how Reagan caused the international debt crisis.
In the 1970s, the countries of OPEC were awash in cash. Western banks were eager to loan them money for all manner of development projects. Most of these loans were made at rates that were attractively low, but were (ouch!) variable. In fairness, that didn't seem like such a bad deal at the time, because the United States had been emphasizing full employment (at the cost of higher inflation) and it looked like interest rates would stay low.
At the same time, lots of money was loaned to developing countries, on the same terms. For the most part, these loans were spent irresponsibly (to put it mildly) -- used by ruling elites for outright consumption in some cases, for ostentatious and ill-conceived public works or for military adventures. The infusions of money provided short-term booms and popularity for the regimes that spent them, but no foundation for any long-term growth.
Meanwhile, in the United States, the Carter Administration had been keeping unemployment low at the expense of higher inflation rates than succeeding administrations were willing to accept (inflation was around 6% in 1977). In 1979, they were socked with a large oil price increase. Inflation rose dramatically -- up to 13% by 1980. The Fed imposed a dramatic "monetarist experiment", increasing bank reserves to cut back on the money supply. Then the Reagan Administration succeeded in establishing a massive tax cut and a huge military buildup paid for by deficit spending. The result was to drive interest rates way, way up -- to levels that had not been seen since the Civil War. A deep, worldwide recession ensued.
Suddenly all those debtor nations that had agreed to variable-rate loans were facing monstrous, unsupportable debt service. The recession had sharply lowered demand for the exports that these countries used to acquire the foreign exchange they needed to meet their debts. They were in an impossible situation. Brazil and Mexico both nearly defaulted on their loans and were only kept from doing so by eleventh-hour aid and loan packages from the US. With commercial banks unwilling to keep making loans under such disastrous conditions, the debtor nations had to turn to the World Bank and the International Monetary Fund. Suddenly, these institutions -- especially the IMF -- became the sustainers of a fundamentally unsustainable situation. In return for more loans -- which went, in many cases, straight back into debt service -- the infamous "structural adjustment programs" were imposed on debtor nations. They were compelled to cut back on social spending, privatize public institutions (such as power grids, water supplies, and mining operations) and stabilize their currencies, no matter what the cost in domestic poverty and stagnation. Across the developing world, small subsistence farms were broken in favor of huge plantations producing single crops for export.
So, to recap: while the rich got richer, cashing in on financial and high-tech booms in the 80s and 90s, more and more of the world's poor had to struggle to grow export crops (or cut down rainforests) in order to pay off loans from which they never saw the slightest benefits. (During this time -- lest we forget -- the United States and Europe never stopped imposing high tariffs on those very exports.)
That's the world in which we find ourselves today. To a very great extent, it was shaped by those pivotal policy decisions that led to ballooning interest rates in 1981-82. From that point, the "race to the bottom" was on.
Reagan fans will no doubt cry foul at my blaming the Gipper for all this -- but, oddly, they'll be the same folks who credit him with whupping those Soviets. As I said, I think their point is well taken: Reagan did indeed Beat the Soviets, in a symbolic sense. An impressionistic view of history can nonetheless be a valid one, and might discover insights that a more coldly factual scan would miss. So, I'll concede that Reagan won the Cold War -- and I think they'll have to admit that Reagan caused the international debt crisis.
Some might note, by way of protest, that all those debtor nations knew going in that international law has never provided any means for a nation to declare bankruptcy. But, of course, another legacy of the Reagan years, heartily embraced by the current administration, is that international law is for wimps. The United States doesn't give a rat's butt about international law. (Who's the Sheriff in this town?) The mandate of international law is no excuse for US behavior. The Reaganomists knew perfectly well that their economic policy was going to create skyrocketing third-world debts. (Indeed, it took no more sophisticated a financial analyst that Pat Robertson to explain the process -- I saw him do so in the early 80s on The 700 Club.) They could (somewhere in the middle of the hundreds of billions they were spending on new weapons) have earmarked resources toward softening the blow. The World Bank and IMF (headquartered in Washington, controlled by the USA) could have implemented policies to manage the situation before it became a global tragedy. If nothing else, they could have dropped the tariffs on imports from heavily-indebted countries.
But they did none of those things, of course. So while we're commemorating the fabulous mark Ronald Wilson Reagan made on the history of the world, while we're blasting his simpering puss onto the side of Mount Rushmore, let's not forget, like it or not, that the Gipper also caused the international debt crisis.
And we wonder why "they" don't like us. "Over there."
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Lindy Davies is the Program Director of the Henry George Institute.
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