Here Is Where Obama And Reagan Part Ways

In conventional political classification, Barack Obama and Ronald Reagan are in quite different categories. But still there are remarkable parallels between the two.

Both Obama and Reagan first campaigned for the presidency in dark times. Both were inspirational speakers. Both entered office on a wave of enthusiasm. Both saw their popularity plummet when the economy slumped and unemployment soared.

Both were condemned for being indecisive and ineffective. And both were dismissed by pundits as hopeless one-termers doomed to join Jimmy Carter on the list of failed presidents.

The parallels are starkest when the two presidents’ approval ratings are placed on the same graph (which can be done at the Gallup. com website). Obama’s line takes a long, slow, steady slide, followed by a long flat section. So does Reagan’s. The only difference between the two lines is that Obama’s is usually a few points higher than Reagan’s.

But that started to change this summer.

The decline in Obama’s rating has resumed. But at the same point in Reagan’s presidency, his approval rating had bottomed out and was rising steadily. It kept climbing until Reagan won a landslide reelection in November, 1984.

Right now, Obama’s approval rating is at 42 per cent, according to Gallup. At the same point in Reagan’s presidency, his rating was 47 per cent.

Statistical trivia? Hardly. It’s a strong hint about the underlying nature of economic reality – and the fate of the presidency which that reality will determine.

In Republican lore, Jimmy Carter’s loss to Ronald Reagan in the 1980 election was all but inevitable. Carter was hopeless. Stagflation was strangling the American economy and the liberal Democrat, with his Big Government ideas, had no clue what to do about it. Unlike Ronald Reagan.

To get control of inflation, Reagan’s chairman of the federal reserve, Paul Volcker, raised interest rates to punishing levels. The economy suffered. But this was essential medicine. And it worked. By 1983, inflation – the scourge of the previous decade – was beaten.

The fed then let interest rates fall. The new inflation-free environment, in combination with Ronald Reagan’s legendary tax cuts, created an unprecedented economic boom.

It was morning in America. And grateful Americans thanked the man who made it happen with that landslide re-election.

Or so goes Republican lore, which has become the popular take on the era as well.

What is seldom mentioned in this little tale is that years earlier, the man whose theoretical work lay behind Reagan’s approach – Milton Friedman – had convinced Jimmy Carter of the need to tackle inflation and how to do it. Carter made Paul Volcker fed chairman in 1979.

And it was during the Carter administration that Volcker began his war on inflation – which is one reason why the economy was weak in 1980 and Jimmy Carter became a one-term president.

It’s also been forgotten that many Reagan administration officials wanted the president to fire Volcker because of the damage his policy was doing to the economy and Reagan’s approval rating. To Reagan’s eternal credit, he refused.

Ronald Reagan was lucky. He inherited the right policy. And the economy rebounded rapidly at exactly the moment he needed it to – the year before he sought reelection.

Barack Obama is not lucky. The recession Reagan faced was severe, as was the recession Obama faced. And Reagan’s recession was a double-dip, as Obama’s increasingly seems to be. But otherwise, they are entirely different.

Kenneth Rogoff, former chief economist at the International Monetary Fund and professor of economics at Harvard University, argues that the recession of 2008-’09, and the next dip (if there is one), is an economic retraction caused by the implosion of a financial bubble. That’s the sort of thing that may happen only once in a lifetime. And it’s nastier than any ordinary recession, however severe.

“In a conventional recession, the resumption of growth implies a reasonably brisk return to normalcy,” Rogoff wrote in the Globe and Mail. “The economy not only regains its lost ground, but, within a year, it typically catches up to its rising long-run trend. The aftermath of a typical financial crisis is completely different.”

Working with economist Carmen Reinhart, Rogoff analysed centuries of data from fiscal crises in 66 countries. The result was the book This Time Is Different, which was published amid the turmoil of 2009. It may be the most boring bestseller of all time.

More importantly, Reinhart and Rogoff showed that following a severe financial crisis, it typically takes the economy four years just to get back to where it was prior to the catastrophe. Based on that work, Rogoff said early in the crisis that the end of the recession would be followed by years of very weak growth in the United States and elsewhere. That and much else has played out as Rogoff expected.

If Rogoff is right, there is essentially no hope of a swift economic rebound like the one that lifted Ronald Reagan from ignominy to glory. And without that, there will be no landslide re-election for Barack Obama (although squeaking back into office is still possible given the weakness of the Republican alternatives).

Rogoff’s analysis also suggests that those who condemn Obama for the continued malaise in the United States – “one of the most miserable performances in the modern history of the American presidency,” quoth Rex Murphy – are being very unfair.

Responsibility for the current state of the American economy lies with the presidents – mostly Clinton and Bush – who allowed the financial system to become a catastrophe waiting to happen. The malaise that followed was something no president could avoid: There was literally nothing Obama could have done to restore strong economic growth in his first term.

The presidential election of 2008 was a poisoned chalice, and Barack Obama had the terrible misfortune to win it.