Ronald Reagan's Stimulus Plan

Barack Obama keeps referring to the current economy as the worst since the Great Depression, a bold lie that he hopes will allow him to prevent most Americans from recalling what sort of policies actually got us out of the worst economy the country had since the Great Depression, those of Ronald Reagan.

Even Jimmy Carter inherited a much worse recession from Gerald Ford than Obama currently faces, and his policies ballooned that recession into epic proportions during Ronald Reagan's first term. So what did Ronald Reagan do to put an end to America's downturn? Thankfully, we don't need to ask John Edwards to channel the spirits of the dead, because Ronald Reagan himself told all about his successful stimulus plan in his final address as President to the American people.

The fact is, from Grenada to the Washington and Moscow summits, from the recession of '81 to '82, to the expansion that began in late '82 and continues to this day, we've made a difference. The way I see it, there were two great triumphs, two things that I'm proudest of. One is the economic recovery, in which the people of America created--and filled--19 million new jobs.

Wait, did I read that right? 19 million jobs created and filled? How many jobs has Barack Obama predicted his Spendulus Bill will create or "save," whatever that means? A paltry four million. Barack Obama would never suggest creating 19 million new jobs, because if that happened America would be at full employment. And unless Barack Obama plans to bring back forced labor (slavery) or repeal child labor laws, that will never happen. But adding 4 million jobs should be simple if we only remember what happened to create all these new jobs and end the Carter recession...

What would Reagan do? IMO, a very interesting question when applied to 2009.

One thing that Reagan was willing to do was allow the Fed to undertake extremely painful measures to stem inflation; cutting taxes tends to be a pretty popular program, moving your interest rates to 17% is anything but.

Reagan however was willing to allow Volcker to place economy in deep recession on the assumption (probably correct IMO) that inflation was even more pressing and dangerous concern.

(Reagan could not is a matter of formal presidential powers have countermanded that policy, but he mounted a public relations campaign to moderate it, he could probably have done so.)

You can contrast that with the Obama administration’s very clear efforts not to undertake the more radical program recommended by a wide range of economists - both liberal and conservative - to deal with the banking crisis: segregate toxic assets, declare insolvent institutions insolvent, fire management, force the stockholders to take the losses, then recapitalize the remaining banks.

One can understand why Obama and some of his advisers don’t want to do this: it would be a considerable shock to “business confidence” and would force shareholders and management to accept the reality of insolvency rather than engage in a variety of balance sheet manipulation to avoid acknowledging it - and nobody can know exactly how that would work out.

But nobody knew exactly how Volcker’s attempts would work out, either.

Paul Volcker now sits on Obama’s board of economic advisers, and it would be interesting to know what he would be saying to Ronald Reagan this afternoon where Reagan sitting in the Oval Office, and how big a gamble Reagan would be willing to take.

This may be a case where Barack Obama would be well advised “to be more like Ronald Reagan”.

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