For Obama, the worst economy for an incoming president since...
drum roll, please....
Ronald Reagan-- and probably by a good margin.
By all of the indicators in economics and foreign policy, Reagan inherited a much worse situation:
-In the macro-economy, unemployment as well as double-digit inflation, interest rates above 20%, and the last time we had a significant trade surplus in goods & services (and thus, an investment deficit-- indicating that people didn't want to invest here vs. the rest of the world).
-In foreign policy, there was the Iranian hostage crisis for something short-term, the ever-dangerous Soviets for the longer-run, and yes, the Israeli/Palestinian conflict for the just-short-of-eternal-run.
-In attitude, we were in the midst of what Carter famously called "malaise".
The only potential, significant counter-example are the unknowns created by the possibilities of a continuing financial crisis. Only time will tell if greed and bail-outs will have an even larger "pay-out" for the population at large.
Why is Obama taking the comparison back to FDR? Historical ignorance? Perhaps. Wanting to connect himself to a Democrat rather than a Republican? Perhaps, but that would be odd for someone who purports to be post-partisan. More likely, it's useful for rhetorical purposes-- both to "change" expectations, impact the way we'll likely see him in future history, and to make us more willing to embrace dramatic reforms.
The problem is it's not true.
posted by Eric Schansberg @ 5:14 AM
2 Comments
2 Comments:
I've read that the 1982 Reagan recession was deliberately engineered, to fight inflation. Nobody engineered the present recession, which seems to be accelerating now.
What was the situation with the banks in 1982?
It's a long story, but higher unemployment is not a necessary consequence of fighting inflation. (See: e.g., ending the hyperinflation in Germany in the 1920s.) But it can and did happen in the 1980s. These are the two standard examples covered in Macro principles.
So, it would be more accurate to say that Volcker and Reagan believed it was very important to fight inflation-- and the recession turned out to be an unwelcome by-product of that fight.
I just looked at the numbers. Unemployment was 7.5% when Reagan took office-- part of the then-famous term "stagflation" (stagnant economy with high inflation).
Incidentally, this was the death knell for (old) Keynesianism-- which said that there were necessary trade-offs between unemployment and inflation. The existence of high levels of both was thought to be impossible. (The notable, prominent exceptions were two prophet-like theoreticians, Friedman and Edmund Phelps, who did amazing work on the "New Phillips curve"-- anticipating this issue before the data indicated it).
As for banks, there were failures-- but not the uncertainty we see today (which has/had the potential to be devastating). The Fed in the 1970s had greatly increased uncertainty about the money-- itself, a big problem. (And not unlike today-- where we're not as sure that the govt will not inflate away or otherwise default on the growing govt budget debt.) But the banks were seemingly in better shape then.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home