Reagan, Inflation, and Technology

Back in the 1970s interest rates were high. Logic tells us: that means inflation, higher prices for everything, and those capital costs must be paid for.

But I always felt we got out of the high interest rates of the last half of the 1970s and the entire decade of the 1980s without really paying for it. Yes, we had a nice recession in the early 1980s, and another little one at the start of the 1990s, but with rates at such a high percentage, we should have had a larger one.

Ronald Reagan was Governor of California from 1967 until 1975. The defense industry was a large player in the California economy since early on in World War II. A side-effect of the this was the technology industry. Intel was founded on July 18, 1968, not long after Reagan got to Sacramento. Advanced Micro Devices would start up one year after Intel, May 1, 1969, and has been chasing them ever since. The first link for ARPANET (the Internet's father) was established in 1969. Intel released its first microprocessor, the 4004, in 1971.

Apple would start up April 1, 1976, not long after Reagen left the governorship and ran for president. During that time Hewlett-Packard (started in the 1940s) was making a larger presence in the California economic landscape. The basic technology and computer expansion was poring the foundation of its growth during the time that Reagan was governor, and much of that foundation in California.

By the time Reagan got the White House, the tech boom was starting, Microsoft was now operating, IBM (IBM PC - August 12, 1981) and Apple (Apple II - April 17, 1977) where both coming out with new and easier to use personal computers.

So, at the time when we should have been paying for the excesses of high interest rates, the technology boom exploded. It would move through microprocessors, computers (mainframes, minis, and PCs), software, Internet, mobile phones, email, GNU, GUI, etc. This technology revolution would mask the price that we were supposed to pay for high rates (and inflation) back in the 1980s.

Now Reagan must have seen what was happening in the California economy (in the 70s), and subsequently in the entire economy as a whole (in the 80s). But did he realize that it was helping him out at the time? Instead of paying for high interest rates at the time, it was shifted to new tech companies popping up like weeds, and absorbed by tending to those weeds (lots and lots of jobs and capital). Reagan did not need a New Deal, a Civilian Conservation Corps (CCC), a Tennessee Valley Authority (TVA), a Rural Electrification Administration (REA), and a Works Progress Administration (WPA), etc. The private sector in the form of technology was doing it for him.

Remember Michael Milken, KKR, RJR, and the LBO? These events where also occurring during Reagan's years in the White House. But, we didn't pay the piper for their full price tag (either), for what they were doing, back then. The market tried to collect in the fall of 1987, but somehow, like a bettor needing another fix, we talked it out making us pay up.

Since technology has not come up with the "next really big thing", we are now, finally, paying for what we should have years ago. It is kind of like a bookmaker or loan shark telling you, "I'll give you 20-25 more years." But, time is finally up.

Someone must pay for inflation, high interest rates, over-leverage, junk financing, etc. And, the bookie can wait no longer. Like the grim reaper with hooded-cloak and sickle, the reaper of high interest rates and junk financing is finally at the door.

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