In 1980, America elected a charismatic President who embarked on economic policies at least 135 degrees, if not a full 180, opposite those of his predecessor. To cure the stagflation of the 1970’s, Ronald Reagan proposed to combine an anti-inflationary monetary policy with large tax rate reductions. Thanks to a cooperative Federal Reserve Board and a Congress willing to swallow any medicine after the chilblains of the Nixon-Ford-Carter years, he was able to move forward with most of his program.
As the 1982 mid-term elections neared, the economy was still not doing well, and liberals cried that “Reaganomics” was to blame. The President responded with one of his less inspired slogans, “Stay the course.” A witty Democrat countered, “Stay the curse”, and the voters largely agreed. The Democrats expanded their already substantial House majority by 27 seats, to 269 (versus 166 Republicans), a bigger margin that they hold today.
Then history moved on, and it turned out that the Reagan course was the right one. In the very month of the election, the economy began to expand. It continued upward, with two brief and shallow interruptions, for the next 25 years.
Why, then, aren’t the Democrats now arguing, “The country was right to stay the course for President Reagan; we ought to give President Obama the same chance”?
The chief difference between 1982 and 2010 is that parts of Reaganomics were palpably working. The Fed’s restraint had brought inflation down to less than half the 1980 level and heading lower. The economy was not yet growing, but there was a clear reason: Tight money was hindering business expansion, while the Reagan tax cuts weren’t slated to go into effect until 1983 (an unfortunate concession to the Baker-Dole school of “tax collectors for the welfare state”). One could say confidently that the ship was moving in the right direction, even though port was not yet in sight.
In 2010, a trillion dollars in “stimulus” spending and a gargantuan two trillion dollar increase in the monetary base – the Obama Administration’s remedies – have left us with a shaky, stalling recovery. “Unexpected” is now the norm for economic news: an unexpected decline in productivity yesterday, an unexpected increase in the trade deficit this morning. We can expect the unexpected again tomorrow.
When we turn the corner into next year, we also have the expected to fear: a huge tax increase awaits as the tax cuts enacted in 2001 expire. The best that anyone hopes for at this point is to avoid a double dip recession, prolonged deflation and a Japan-like “lost decade”. Japan, it should be noted, tried many Obama-like palliatives after the collapse of its asset bubble: “stimulus” spending, near-zero interest rates, higher taxes. None of them worked very well.
At this point, the Administration’s friends don’t claim that staying on their course will bring us to a happy haven. Their case is reduced to the assertion – a counterfactual that can be neither proved nor refuted – that different policies would have made conditions worse. The only reason to believe that, so far as I can discern, is on the basis of blind, unwavering faith.
The physicians at the court of Louis XIV of France routinely prescribed bleeding and purging for their patients, with deleterious effects on the life expectancy of the higher nobility. Perhaps, in place of the spirit of Dr. Fagon, it is time to give the American body economic an interval free of rising taxes and rising spending, in which to heal itself.
Further reading: Peter Wehner, “In Bush v. Obama, Bush Wins in a Rout”Matt Welch, “The Endless Bummer”
N. Gregory Mankiw, “Crisis Economics”
J. D. Foster, “Another Recession, Really?”
Michael Barone, “Obama’s State Capitalism: A Failure of Modesty”
Washington Examiner, “Time to Admit Obamanomics Has Failed”
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