Reagan v. Obama

Posted on January 18, 2013. Filed under: Politics |

I was a teenager in the 1980’s, and I was one of those who worshiped the ground Ronald Reagan walked on. After seeing my parents struggle under the stagflation of the 1970’s, any change was a good change.

By 1980, the United States had a hangover from Vietnam, Watergate and the Iran hostage crisis, feeling like maybe, our best days were behind us. The pullout from Vietnam had a very deep, profound impact on this nation’s psyche. We had never lost a war before, and we didn’t know how to deal with it.

We had also gone through an oil crisis, high inflation, and high unemployment. A lot of this wasn’t Carter’s fault, but he was a weak president. He was elected, I think because Ford pardoned Nixon, and it outraged the country. Carter actually tried a hostage rescue attempt, but it failed miserably. It seemed like anything we tried to do failed. We were the greatest country in the world! We had defeated the evil Nazi and Japanese Empires! What was wrong with us? Our inner cities were burning and crumbling, and the Yankees were winning the World Series again (something that never happened under Reagan’s watch!)

Along comes Ronald Reagan, and his “Shining City on the hill”. He showed us that he still believed in this country, and that he was funny and had a sense of humor. He got in there, and he fixed this country. He didn’t complain about the mess he inherited from Carter, he just worked hard with Congress and brought the high unemployment down, while lowering our taxes at the same time. He spent a large amount of government money on defense, and in the process, bankrupted the Soviets.

Was Reagan perfect? By no means! I don’t agree with some of the stuff that he did, in particular the amnesty he granted to all illegal aliens and the Iran-Contra Affair, but most of what he did was monumental.

What did Reagan do to get the economy back on track, and how does that compare to today?

He cut taxes, both the income tax and the capital gains tax.

He deregulated a lot of industries, particularly the airline industry.

When the air controllers went on strike, he showed that he would brook no-nonsense and fired all of them.

The government spending that he did was directed towards the military, buying tanks, aircraft and ships, as well as bombs, missiles and ammunition.

He and Fed Chief Paul Volker raised interest rates temporarily until inflation had been crushed, then brought them down to a reasonable level.

He bankrupted the Soviet Union, through a hoax that we know as the “Star Wars Defense Initiative” (SDI).

He ultimately freed Eastern Europe from the Soviet Union, bringing down the iron curtain and setting the stage for Germany to reunite.

During his inaugural address on January 20, 1981, he said “In this present crisis, government is not the solution to our problems; government is the problem.”

He proceeded to slash a lot of government assistance programs which upset a lot of people. But he got us back working again. We started to feel good about ourselves again, that we could once again take on the world and win.

To this day, I know a lot of Democrats who still call Reaganomics “voodoo economics”. It wasn’t. It worked. Nobel Prize winning economist Paul Krugman was a harsh critic, but it should come as no surprise. Krugman is a demand side economist (also known as a Keynesian), while Reagan followed supply side economic policy.

It worked through Bush I and through Clinton. The economy started slowing down in 2000, Clinton’s final year. The economy was overheating, and several bubbles were developing that would soon burst. In 2001, we had the World Trade Center/Pentagon attacks. That same year, the company I work for started talking about moving to China. Nike, I believe was one of the first to do so, and other companies were contemplating following suit.

If you look at the chart of the major indices (Dow Jones Industrial or NASDAQ Composite), you see that they more or less move sideways from 2000 until today. Throughout the decade, more and more jobs were moved overseas. Companies have been keeping more and more money overseas so that they aren’t taxed on it here, and you can see the results reflected in the stock market.

Compare these policies with today. The economy started to melt down back in late 2007. Unemployment skyrocketed. Gas prices soared. Food prices were increasing.  Inflation was rising (although the government plays a little game of excluding food and gas prices to convince themselves that it isn’t rising).

True, George W. Bush was president, but from 2006 until the election, he had a Democrat controlled Congress. He started spending hand over fist (but still not as much as his successor) believing that if he approved all of the Democrats spending wishes, they would work with him. That turned out to not be the case.

Obama takes office, and authorizes a “stimulus bill” (following up on Bush’s tax refund and TARP), extends and expands government benefits, creates Obamacare (which the taxes for that are about to kick in) and just prior to his second inauguration, raises both the income tax and the capital gains tax. In addition, he catches millions by surprise and allows the “payroll tax holiday” to expire, increasing most everyone’s taxes to some degree.

He has created bills to provide incentives for employers to hire people, but it hasn’t worked.

The EPA has created a massive amount of regulation against the coal and oil/gas industry that it stifles production and starts increasing everyone’s energy bills. (To be sure, some industries, like the banking industry, should be heavily regulated. The government must ensure that people’s money is safe. As much as people like to bash Bush for it, it was actually Clinton and a Republican Congress that repealed Glass-Steagall, the act that prevented banks and investment banks from merging)

He gave government loans to green energy companies that soon go out of business.

The Fed has lowered interest rates to zero, and has proceeded to print a lot more money, flooding a lot of it into securities (which are completely misnamed. There is nothing secure about them)

More spending, more regulation, and higher taxes. Where has that taken us?

The Democrat/Keynesian theory of economics demands that when the economy slows, the government must increase spending to compensate. Democrats like to point back to FDR to show that their theories worked.

Only they didn’t work back then, either. During FDR’s first term (1933 – 1936), the economy weakened even more, despite his spending. By 1937, the beginning of his second term, the US entered an all new recession. The recovery prior to US involvement in the Second World War sputtered, and was slow or non-existent. Keynesians defend this by saying that FDR didn’t spend enough. After the US was attacked at Pearl Harbor at the end of 1941, many of the men who would be working in the factories went to war. The demand for workers at the aircraft and tank factories skyrocketed to the point where women stepped into the workplace.

It is my suggestion (and it could be wrong) that the spending that FDR did was in the wrong sector. He spent on the worker to put people to work, making them, more or less, government employees. When he was forced to invest in the entrepreneur, the economy suddenly roared to life.

During the 2012 campaign, Bill Clinton was on the trail saying that there was no president that could have turned the economy around in 4 years.

Reagan did, and he did it in two.

I’ve laid out the differences in policy between the two.

Can you spot the difference?

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