Old newspapers are time capsules, transporting anyone lucky enough to read the yellowing pages to mostly forgotten yesteryear’s. So it happened to me today as I was handed a February 18, 1981 edition of the now-defunct Los Angeles Herald Examiner. A friend had lived through a major airplane accident back then and produced several old newspapers for us to peruse. An Air California 737 had stalled on approach to John Wayne Airport. The hard landing crushed the landing gear, snapped the fuselage in half, and ripped the engines off the wings. Despite the fact that the plane immediately caught fire, all 108 passengers and crew made it out alive. Knowing one of the survivors and hearing him add details to the newspaper’s account made for an interesting breakfast meeting.
As I held the crumbling newsprint another story caught my eye. “Reagan’s $6 billion budget squeeze” brought a smile; $6 billion used to be a lot of money. The subhead was more specific: “Congress, nation will hear his economic answers in speech tonight.” The question Reagan was attempting to answer less than one month into his first term was, in some ways, similar to the dilemma now confronting President Obama. Reagan’s predecessor, Jimmy Carter, had left the county in appalling economic shape. Unemployment was fast approaching 10%, the economy was stagnant, and inflation was roaring along at double digit rates. Stagflation is a tough beast to beat, and Reagan’s ”answers” needed to be good ones.
The Herald Examiner got right to the point. “President Reagan will propose budget cuts of about $6 billion for this year [1981] and slightly more than $41 billion in 1982 in addition to a three-year tax cut in personal income taxes….” Also, “Reagan moved to kill pay raises proposed last month by former President Jimmy Carter for members of Congress, Cabinet officers and high-ranking government bureaucrats.”
Discerning readers may have already grasped the difference between Reagan’s approach to tough economic times and that of our current Commander-in-Chief. Tax and spending cuts formed the heart of Reagan’s recovery formula, and they worked spectacularly. America’s GNP shrank 2.2% in 1982 but rebounded to post a robust 3.9% gain the following year. The prosperity of the Reagan years continued a full two years after the Gipper left office. In the words of Martin Anderson:
“The raw economic facts of the Reagan years are clear. From 1982 to 1990 the United States experienced 96 straight months of economic growth, the longest peacetime expansion in its history. Almost 20 million brand-new jobs, most of them high-paying jobs, were created. Inflation fell dramatically to low levels and stayed there as the American dollar once again became sound. Interest rates also fell dramatically and stayed down. The stock market soared, nearly tripling in value. Government revenues – at the federal, state and local levels – nearly doubled, making possible the largest increase in social-welfare spending in history. And, almost incidentally, we financed an enormous buildup in America’s military power, checkmating the evil intentions of the old Soviet Empire, and ultimately causing the disintegration of Communism throughout the world.”
Of course, a sad reality of the 1980s was runaway deficit spending. The national debt nearly tripled under Reagan, from just under $1 trillion in 1980 to nearly $3 trillion by the time George H. W. Bush took office. Nevertheless, all Americans benefited from Reagan’s polices. Doubters should consider that inflation dropped from 13.5% annually in 1980 to just 3% annually in 1983, and the 10.2% unemployment rate of 1982 fell to less than 6% by 1987 and stood at 5.4% when Reagan left office. Reaganomics worked, setting the stage for more remarkable economic growth in the 1990s.
Obama has also inherited an economy in trouble, but his plan for economic recovery couldn’t be more different from Reagan’s. Instead of a reduction of government spending, Obama wants to increase spending to record levels, perhaps eclipsing Reagan’s combined deficits in a single year. And instead of cutting taxes, Obama is proposing to raise them, dramatically so on those making more than $250,000 per year. Reagan believed that “government is the problem,” and therefore sought to reduce it. Obama believes the solution to all American predicaments fall within the purview of bigger government. Comparing Reagan with Obama is a study in stark contrasts.
Average Americans would do well to salt away many editions of 2009 newspapers. In 10 or 15 years the full effect of Obamanomics will be realized — for good or ill — and the old clippings will remind us of whence we came. By 2018, will inflation and unemployment be low, the dollar sound, and the future bright? Writing more than 40 ago, Henry Hazlitt’s words are as true today as ever, and as sobering:
“More and more people are becoming aware that government has nothing to give them without first taking it away from someone else — or from themselves. Increased handouts to selected groups mean merely increased taxes, or increased deficits and increased inflation. And inflation, in the end, misdirects and disorganizes production. Even a few politicians are beginning to recognize this, and some of them even to state it clearly.” (Economics In One Lesson, p. 211)
All those learned politicians are now dead or at least long-retired. The new batch currently installed in Washington give no indication of agreeing with Hazlitt’s reasoning. They prefer to experiment in the murky science of monetary and economic policy in which “figures never lie but liars always figure.” They have forgotten or never learned what Hazlitt knew in 1976:
“More than forty years after the publication of John Maynard Keynes’ General Theory, and more than twenty years after that book has been thoroughly discredited by analysis and experience, a great number of our politicians are still unceasingly recommending more deficit spending in order to cure or reduce existing unemployment. An appalling irony is that they are making these recommendations when the federal government has already been running a deficit for forty-one out of the last forty-eight years and when that deficit has been reaching dimensions of $50 billion a year.” (Ibid, p. 204)
One is almost glad that Hazlitt didn’t live to see a deficit projected to be 35 times the size of those that concerned him. The chilling reality of such monumental dissipation is that it is nothing less than an experiment on us. We are the Guinea pigs, test subjects for the most outlandish economic schemes ever devised.
Indeed, our economic future and that of the next few generations are being determined by a man with almost no practical experience in business, economics, or politics for that matter. Even Jimmy Carter had run a state for four years. Four years ago Barack Obama was a newly installed Senator, famously spending a total of 187 days (according to Bill Clinton) on the job before hitting the campaign trail. Now, he is advocating trillion dollar bailouts and deficits and multi-trillion dollar budgets. If Obama fails, he will not fall alone. He’ll take the entire country with him, reason enough to oppose his repudiated, monstrously large gimmicks at every opportunity. We fail to do so at our peril.
Posted by Jerry Pomeroy in Economics, Obama Presidency, Taxation, Video