2/9/2012 7:11 PM ET|
Election '12: Obama vs. Reagan?
As President Obama struggles to right the US economy, Republicans point to the turnaround engineered by the Reagan White House to tout GOP remedies. Yet today’s economic situation is far more complicated.
The late President Ronald Reagan looms large over this year's presidential election. GOP candidates invoke him as the visionary who revived a flattened economy with lower taxes, easier regulations and smaller government. That's what the economy needs today to bring back the growth of the 1980s, say his acolytes. Yet the Republican argument leaves out one important factor: President Barack Obama's recession is a lot more complicated than the one Reagan tussled with in 1981.
Superficially, their predicaments are similar. Both presided over economic downturns considered to be the worst since the Great Depression. They lost congressional support in midterm elections and were presiding over economic recoveries as they geared up for re-election campaigns.
Now the differences. The economy surged under Reagan. Gross domestic product in the final three months of 1983 rose at an annualized 8.5%. For Obama, the economic engine is running much more slowly. He narrowly avoided a double-dip recession in mid-2011, and growth accelerated in the fourth quarter to a 2.8% rate -- the fastest the country experienced in 18 months. The unemployment rate in December 2011 was 8.5%, versus 8.3% in December 1983. Yet joblessness 29 years ago dropped 2.5 percentage points in just 12 months, compared with a decline of less than 1 percentage point in 2011.
Obama has struggled to master a far more complex situation. The Reagan recession was sparked by the high inflation of the Jimmy Carter years and the decision by then-Federal Reserve Chairman Paul Volcker to raise interest rates to as high as 20% in May 1981 to smother higher prices. Although the high rates caused a lot of pain, they left Volcker with plenty of room to cut until the recession had eased. Rate cuts started in June 1981. By December 1982, rates were down to 8.5%. The economy responded quickly to monetary easing. Current Fed Chairman Ben Bernanke, in contrast, has little room left for cuts; the federal funds rate is close to zero.
"When you have a deep financial crisis paired with recession, it's a completely different animal than a normal recession," says Kenneth Rogoff, an economics professor at Harvard University. "The one in the Reagan administration was a more normal one."
The presence of so much debt in the economy makes companies and consumers reluctant to borrow and banks reluctant to lend, no matter how low interest rates go. Debt today remains a greater drag on the U.S. than in 1983, says Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics in Washington and co-author, with Rogoff, of "This Time Is Different: Eight Centuries of Financial Folly." In the third quarter of 2011, household debt was 86% of GDP, compared with 47% in the third quarter of 1983, according to the U.S. Commerce Department.
"The capacity for households to be the engine of growth that they have been in past recoveries is simply not there," Reinhart says.
Americans in 1983 borrowed readily to buy a home, despite double-digit mortgage rates. The runup in home prices had started in the 1970s, and buying a house seemed like a sound investment. Purchases of previously owned single-family homes in December 1983 were up 23% from the year before, according to the National Association of Realtors. Housing was a strong part of the Reagan recovery, says Neal Soss, chief economist at Credit Suisse in New York and an assistant to Volcker at the Fed. "You added a lot of construction jobs that you aren't adding now," he says. Last month, year-over-year home sales rose just 4.3%.
Obama has worked with an economy that was weak even before the recession officially started in December 2007. The expansion that started in late 2001 under President George W. Bush was among the most lackluster in modern U.S. history, providing little cushion against a possible downturn. By the start of the recession in December 2007, payrolls had grown less than 6% during the decade that started in 2000. Payrolls grew 20% during the 1980s and 1990s and 27% during the 1970s. A lot of work could be found in defense, a sector Reagan expanded. Defense spending rose from 4.9% of GDP in 1980 to 6.1% in 1983.
Many of the jobs generated during the Reagan recovery were well-paid factory work. Although Billy Joel was already lamenting the decline of industrial America in his 1982 hit "Allentown," manufacturers maintained considerable might in 1983 and 1984. At the end of 1983, almost a fifth of working Americans -- 19% -- labored in manufacturing.
"Back then, a larger fraction of the workforce was in manufacturing," says Soss. "And you hire those people back when business gets better. There's less of that going on now."
"Reagan could talk about 'morning in America' and could come from that perspective," says Peter D. Hart, who was a pollster for Walter Mondale, Reagan's Democratic opponent in 1984. "The major difference this time is that Americans are much more likely to believe we are in a long-term decline." Reagan, too, might have had to struggle to convince voters it's morning in America in 2012.
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Let's understand this for one second and quit using partisan politics to try to make an argument. Calling someone dumb or bring up the past as a justification of current action is equivalent to your parent's saying "Because I said so", it is not an argument, it is just an answer. If you think that what W. did is wrong (unfunded wars and increasing the debt and whatever else you want to argue) then correct course, don't use that as justification for the same or worse action.
First, over recent history, the majority of presidents (Republicans, see GWB most recently, and Democrats, see BHO most recently) have tried to centralize power and control in the federal government. If this is what you believe in, as people seem to when their person is in charge, it is a good thing. But our country is a vastly diverse country, with many different opinions, so to allow one person to fully control the direction of the country is not what this country was founded on.
Second, Ronald Regan was one of a handful of presidents recently that tried to lower the power and scope of the federal government. Does that mean that everything he did was right? I would say no, and in some cases he did expand the reach of government, but no one is perfect. Decentralizing power gives more freedom and liberty to all people to make their own choices and live with those consequences. The current president seems to want to do the opposite, possibly without understanding the impacts on future generations of Americans.
Third, someone brought up "Trickle Down". The bottom line is that trickle down does not make the poor into rich. It allows them the opportunity and freedom to make their own choices and formulate their own success. You say it doesn't work.... Please explain all the successful technology and dot-com companies without the freedom to generate these opportunities. Companies like Google, Apple, Microsoft.... they all benefit from the freedom to succeed and they all employee thousands of Americans. None of these company's founders came from a family of the richest Americans, but they all became that, because they were not stifled by excess government regulations or limitations (and they made a lot of other people rich along the way too).
Fourth, just for the fun of it, I love when people like Bill Gates and Warren Buffett say that they should pay more taxes. If they truly feel that way, I would ask each of them why they don't contribute to the federal government rather than Bill Gates' wonderful charity. The answer is simple, they know that the charity will utilize the resources available in a much more beneficial way. By the way, I don't think we can completely cut our way out of the hole we are in, and I think I speak for many Americans when I say that I would be willing to pay more in taxes if they were put to good use.
My proposal: Pass a balance budget amendment that goes into effect 5 years after date of ratification. Budget for the year is based on last year's tax revenue +3%. Military spending can be increased beyond budget limits in case of a Declaration of War passed by Congress. A temporary tax of 3-5% is levied on all Americans (Cap Gains, Work Income, etc.) with no deductions, credits, or exemptions allowed (similar to SS/FICA Tax but without the limits and applied to all income). This tax can only be used to pay down debt, actual debt, not interest on debt which would be included as part of the general budget (not as part of the "last year's tax revenue for the balanced budget) and is eliminated when National Debt equals 25-40% of GDP. Finally, all tax increases can only be imposed 6 years after implementation, allowing for a change in Congress to eliminate the tax if the people do not agree.
What a joke...Obama/Reagan in the same breath.
Only in your dreams Mr. Obama....lol
So what do the Democrats do? They pass 'Financial Reform', making it far more difficult for banks to lend money, and far more difficult for businesses to borrow money. Way to do Democrats.
The story failed to point out the REAL difference between Reagan and Obama;
Reagan passed business friendly legislation, reduced regulations, and lowered taxes, which allowed the economy to take off.
Obama added a record 81,000 pages of new regulations in his first year alone (2009), has put moratoriums on drilling and the Keystone Pipeline, blocked developing our energy reserves, threatened higher taxes on businesses, added to the cost of hiring employees (Obamacare), and generally fostered anti-business, anti-growth policies.
Is it any wonder that we have a sluggish recovery 3 and a half years after the recession ended?
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