WSJ: Obamanonics vs. Reaganomics - One program for recovery worked, and the other hasn't.

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    Aug 26, 2011 9:36 PM GMT
    http://online.wsj.com/article/SB10001424053111904875404576530412322260784.html?mod=ITP_opinion_0

    By Stephen Moore, Wall Street Journal, Opinion, August 26, 2011

    If you really want to light the fuse of a liberal Democrat, compare Barack Obama's economic performance after 30 months in office with that of Ronald Reagan. It's not at all flattering for Mr. Obama.

    The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

    By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

    My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't.

    The Reagan philosophy was to incentivize production—i.e., the "supply side" of the economy—by lowering restraints on business expansion and investment. This was done by slashing marginal income tax rates, eliminating regulatory high hurdles, and reining in inflation with a tighter monetary policy.

    The Keynesians in the early 1980s assured us that the Reagan expansion would not and could not happen. Rapid growth with new jobs and falling rates of inflation (to 4% in 1983 from 13% in 1980) is an impossibility in Keynesian textbooks. If you increase demand, prices go up. If you increase supply—as Reagan did—prices go down.

    The Godfather of the neo-Keynesians, Paul Samuelson, was the lead critic of the supposed follies of Reaganomics. He wrote in a 1980 Newsweek column that to slay the inflation monster would take "five to ten years of austerity," with unemployment of 8% or 9% and real output of "barely 1 or 2 percent." Reaganomics was routinely ridiculed in the media, especially in the 1982 recession. That was the year MIT economist Lester Thurow famously said, "The engines of economic growth have shut down here and across the globe, and they are likely to stay that way for years to come."

    The economy would soon take flight for more than 80 consecutive months. Then the Reagan critics declared what they once thought couldn't work was actually a textbook Keynesian expansion fueled by budget deficits of $200 billion a year, or about 4%-5% of GDP.

    Robert Reich, now at the University of California, Berkeley, explained that "The recession of 1981-82 was so severe that the bounce back has been vigorous." Paul Krugman wrote in 2004 that the Reagan boom was really nothing special because: "You see, rapid growth is normal when an economy is bouncing back from a deep slump."

    Mr. Krugman was, for once, at least partly right. How could Reagan not look good after four years of Jimmy Carter's economic malpractice?

    Fast-forward to today. Mr. Obama is running deficits of $1.3 trillion, or 8%-9% of GDP. If the Reagan deficits powered the '80s expansion, the Obama deficits—twice as large—should have the U.S. sprinting at Olympic speed.

    The left has now embraced a new theory to explain why the Obama spending hasn't worked. The answer is contained in the book "This Time Is Different," by economists Carmen Reinhart and Kenneth Rogoff. Published in 2009, the book examines centuries of recessions and depressions world-wide. The authors conclude that it takes nations much longer—six years or more—to recover from financial crises and the popping of asset bubbles than from typical recessions.

    In any case, what Reagan inherited was arguably a more severe financial crisis than what was dropped in Mr. Obama's lap. You don't believe it? From 1967 to 1982 stocks lost two-thirds of their value relative to inflation, according to a new report from Laffer Associates. That mass liquidation of wealth was a first-rate financial calamity. And tell me that 20% mortgage interest rates, as we saw in the 1970s, aren't indicative of a monetary-policy meltdown.

    There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions. Reagan applied tax cuts and other policies that, yes, took the deficit to unchartered peacetime highs.

    But that borrowing financed a remarkable and prolonged economic expansion and a victory against the Evil Empire in the Cold War. What exactly have Mr. Obama's deficits gotten us?
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    Aug 27, 2011 12:00 AM GMT
    Ah.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!
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    Aug 27, 2011 4:56 AM GMT
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
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    Aug 27, 2011 5:22 AM GMT
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.
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    Aug 27, 2011 5:24 AM GMT
    TropicalMark said
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.


    Is inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.
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    Aug 27, 2011 5:31 AM GMT
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.


    Is inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.
    Really?

    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_736579.html
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    Aug 27, 2011 5:36 AM GMT
    TropicalMark said
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.


    Is inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.
    Really?

    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_736579.html


    From your article:
    "There is nothing in our results to show that U.S. trade with China overall is negative" in its impacts, Hanson says. For one thing, their study makes no effort to account for positive impacts on the economy from US exports to China.


    The way I've always thought of it is that Chinese labor is like the invention of a machine that can churn out widgets at a considerably lower cost. Study after study have shown that China's trade deficit is more of a consolidation of other countries than it is just growth of overall trade - which is to say that the big losers aren't US firms who were importing anyway, but other countries with whom China has competed. China's lower costs have also allowed for a higher standard of living for many Americans not to mention the ability for new companies to compete with lower costs of entry. China is, as well in the next few years anticipated to reverse the trend and become a net importer given its pace of development and the creation of higher value add products abroad like machinery.
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    Aug 27, 2011 5:37 AM GMT
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.


    Is inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.
    Really?

    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_736579.html


    From your article:
    "There is nothing in our results to show that U.S. trade with China overall is negative" in its impacts, Hanson says. For one thing, their study makes no effort to account for positive impacts on the economy from US exports to China.


    The way I've always thought of it is that Chinese labor is like the invention of a machine that can churn out widgets at a considerably lower cost. Study after study have shown that China's trade deficit is more of a consolidation of other countries than it is just growth of overall trade - which is to say that the big losers aren't US firms who were importing anyway, but other countries with whom China has competed. China's lower costs have also allowed for a higher standard of living for many Americans not to mention the ability for new companies to compete with lower costs of entry. China is, as well in the next few years anticipated to reverse the trend and become a net importer given its pace of development and the creation of higher value add products abroad like machinery.
    Do NOT "cherry pick".. its called intellectual dishonesty.
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    Aug 27, 2011 5:39 AM GMT
    TropicalMark said
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark said
    riddler78 said
    TropicalMark saidAh.. but Mr Moore.. one question.. Reagan didnt have the 'supply' outside of this country! But he paved the road for it to leave!

    oopsie!


    Paved the road for it to leave? Are you someone who believes in protectionism despite the massive productivity growth and jobs from trade?
    Nope.. just the inequities built into it.


    Is inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.
    Really?

    http://www.pittsburghlive.com/x/pittsburghtrib/business/s_736579.html


    From your article:
    "There is nothing in our results to show that U.S. trade with China overall is negative" in its impacts, Hanson says. For one thing, their study makes no effort to account for positive impacts on the economy from US exports to China.


    The way I've always thought of it is that Chinese labor is like the invention of a machine that can churn out widgets at a considerably lower cost. Study after study have shown that China's trade deficit is more of a consolidation of other countries than it is just growth of overall trade - which is to say that the big losers aren't US firms who were importing anyway, but other countries with whom China has competed. China's lower costs have also allowed for a higher standard of living for many Americans not to mention the ability for new companies to compete with lower costs of entry. China is, as well in the next few years anticipated to reverse the trend and become a net importer given its pace of development and the creation of higher value add products abroad like machinery.
    Do NOT "cherry pick".. its called intellectual dishonesty.


    How is it even remotely dishonest? Dishonest would be your referencing a link where it is buried that the researchers point out that "There is nothing in our results to show that U.S. trade with China overall is negative" in its impacts. There are winners and there are industries that will lose workers - particularly low skilled laborers but there is a net positive gain to trade.
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    Aug 27, 2011 11:28 PM GMT
    riddler78 saidIs inequity important if both rich and poor get wealthier? After all, imports for instance have been shown to improve the standard of living. In a period of high levels of trade, countries have also been able to maintain consistent if not higher levels of employment - which means that trade is not the factor that has been destroying jobs domestically.

    I think the gist of the position of some on the left is they are so focused on inequality that they support measures to reduce that even if it means everyone is worse off. Conversely, measures that improve the overall economy and offer the potential for all classes to be better off will be resisted if there is any chance the wealthy can get even wealthier.
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    Aug 28, 2011 12:48 AM GMT
    socalfitness saidIn any case, what Reagan inherited was arguably a more severe financial crisis than what was dropped in Mr. Obama's lap. You don't believe it? From 1967 to 1982 stocks lost two-thirds of their value relative to inflation, according to a new report from Laffer Associates. That mass liquidation of wealth was a first-rate financial calamity. And tell me that 20% mortgage interest rates, as we saw in the 1970s, aren't indicative of a monetary-policy meltdown.


    Haha. What?! No sorry, this financial crisis is a lot worse than what happened in the early 80s. What happened in the early 80s was the Fed needed to curb high inflation so it increased the federal funds rate and pretty much caused the recession by doing that. Once inflation was under control, they lowered the rate back down and along with GOVERNMENT SPENDING, which Reagan did a lot of, the economy got better. The tax cuts just created less revenue for the government, and tax rates were never increased back to the same level. Thats why were stuck with huge government debts now!

    What Obama inherited was a huge government debt created by Bush and Reagan (as mentioned, created in part by huge tax cuts!!!!!!!!), and a financial crisis and recession created by too much deregulation by Republicans since Reagan. Reagan caused the problems we face today! Obama had no choice but to increase government spending to stop the financial crisis from getting even worse. Now we're running into a problem with the debt. Its a catch 22 situation for Obama created by Republicans! He either could of kept our government debt at the level which it was and let our economy tank even further, or try to help the economy but increase our debt even higher.

    What our economy needs is demand. Cutting taxes for wealthy individuals won't create that; they will most likely just invest that money. Cutting taxes for middle and lower class probably will be better since they will be more likely to spend that money. But then they may just put that money towards debts they owe. So when the private sector can't create demand, thats when the gov't should step in, and put money towards infrastructure, education, etc, which puts more people back to work, and gives them income. Now that they have income, they can stop penny pinching as much and spend more money. Then companies they buy goods/services from will get more income and produce more. Then they can hire back all the employees they laid off.

    But unfortunately, Republicans want us to reduce the deficit by cutting government spending which will be the total opposite of what we should be doing with high unemployment. That will just put more people out of work, and less money spent on products. What we should do is get unemployment down first and our economy growing, then worry about getting the debt lower with higher taxes and lower government spending.
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    Aug 28, 2011 1:31 AM GMT
    Bait and switch--get elected for "jobs" and change the dialogue parameters to anti-job "debt-reduction" to make it much harder to get more jobs and blame everything on Obama. Straight from the Senate Minority Leader's mouth, the Republican objective from day 1 is to get Obama out of the White House--there has been no attempt to compromise.

    I predict again that if Obama loses, there will be a major stimulus package, either in the form of another war or one of the ideas already floating around, like an infrastructure bank. Then the economy will boom, and Republicans will take the credit.
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    Aug 28, 2011 2:15 AM GMT
    q1w2e3 saidBait and switch--get elected for "jobs" and change the dialogue parameters to anti-job "debt-reduction" to make it much harder to get more jobs and blame everything on Obama. Straight from the Senate Minority Leader's mouth, the Republican objective from day 1 is to get Obama out of the White House--there has been no attempt to compromise.

    I predict again that if Obama loses, there will be a major stimulus package, either in the form of another war or one of the ideas already floating around, like an infrastructure bank. Then the economy will boom, and Republicans will take the credit.





    I'm right there with you on this one !!! That's exactly what the repubs would do and watch the stimulous be more in the range of twice what Obama attempted which many economists said was too little to get the economy moving. Bachmann, Perry, Santorum and Palin will all be for it.


    If you look at the history of deficit spending over the last 40 years, Reagan came in second to Bush number two. Its always the same with these fundamentalist christian backed presidents, they tell the biggest lies and the fundamentalists spead them.


    Maybe someone can give SoCal more details of how off he is in comparing the 80's situation to the severity of the Bush Recession we're still dealing with. He won't listen to me because I tell too much truth about the TBAGGERS and he doesn't like my dissing them by calling them that, he says I should be more respectfull to them. LOL
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    Aug 28, 2011 3:27 AM GMT
    Christine Lagarde, new head of IMF:
    http://news.yahoo.com/urgent-action-needed-protect-recovery-imf-chief-180833587.htmlLagarde also warned advanced economies away from tightening their belts so fast that it imperils recovery.

    "Put simply, macroeconomic policies must support growth," the former French economy minister said. On Friday, she made the same point in a phone conversation with U.S. President Barack Obama, in which the White House said they agreed on the need for policies to spur job creation.

    "Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation," Lagarde said, adding that central banks should stand ready to jump back into unconventional policy actions if needed.
    ...
    In the United States, the focus on long-term fiscal consolidation must not ignore the importance of fostering near-term growth, she said.

    "After all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?" she asked.

    Policymakers must also stop the slide in the U.S. housing market, which is dragging on consumer spending and slowing the recovery, Lagarde added. The nation could turn to intervention by government housing finance agencies and more aggressive programs to reduce homeowner debt, she said.
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    Aug 28, 2011 1:37 PM GMT
    A lot of reading in there but ultimately the singular most important thing mentioned in the article itself to note is a study of centuries of recession and boom cycles showed it takes longer than 6 years for it to play out, so the comparison is not valid at all -- one process is complete; the other is not, so it is totally ridiculous to say it didn't work."

    One might as well go pick up the dynamite stick with a just-lit fuse and stand holding it for a while, complaining - "humph. didn't wor----"BOOM


    One really should practise allowing something to proceed to its conclusion before interrupting with a loud (and fallacious) conclusion, cutting off further discussion or completion. One might find out (yet again) he was actually in total agreement all along if only he were listening.
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    Aug 28, 2011 2:54 PM GMT
    Upper_Canadian saidA lot of reading in there but ultimately the singular most important thing mentioned in the article itself to note is a study of centuries of recession and boom cycles showed it takes longer than 6 years for it to play out, so the comparison is not valid at all -- one process is complete; the other is not, so it is totally ridiculous to say it didn't work."


    And therein lies the crux of the matter. Whoever is in the White House when the recovery is going to happen takes all the credit.

    Hence the overriding concern of the GOP to get Obama out before it happens, even at the expense of delaying the recovery by too much short term austerity and putting money in the bank rather than investing it in jobs.