All hail Ronald Reagan

Apparently, the editors of the Wall Street Journal have a rule about the number of op-eds each week that praise Ronald Reagan.  I haven’t figured out the exact count yet, but Robert Barro’s piece in Monday’s Journal gets the paper off to a nice start on their weekly quota.  It’s a pity that there are so many inaccuracies in Prof. Barro’s piece.

In contrasting President’s Obama and Reagan, Prof. Barro writes: “Mr. Reagan’s immediate challenge was that inflation and interest rates were out of control. He met this great test by allying with the Federal Reserve chairman, Paul Volcker, in accomplishing a return to price stability, even through the 1982 recession when the unemployment rate hit 10.8%.”

Well, to say that Reagan teamed up with Volcker is a little like saying that I teamed up with the 2007 Red Sox to win the World Series.  Sure, I was in Boston at the time, but….

Volcker was, in fact, appointed by Reagan’s predecessor Jimmy Carter.  Volcker’s tough monetary policy cured inflation–and led to Carter’s defeat.  By the time Reagan reappointed Volcker, in 1983, we were already on our way out of recession.  And Volcker had such credibility that it would have been politically stupid to replace him.  Reagan was many things but politically stupid was not one of them.

Barro continues: “Reagan’s success is not in doubt. Inflation and interest rates were reduced dramatically, and the recovery from the end of 1982 to the end of 1988 was strong and long with an average growth rate of real GDP of 4.6% per year. Moreover, Reagan focused on implementing good economic policies, not on blaming his incompetent predecessor for the terrible economy he had inherited.”

Sigh.  Reagan’s success is very much in doubt.  The economy did grow during the 1980s, but that was because Reagan went on a military spending binge.  This was Keynesian policy at its finest.  Give me a blank check and I too will deliver impressive economic growth.

And, as for interest rates, the graph below shows that the real ex-post yield on 10 year Treasury securities was elevated throughout the 1980s–thanks in large measure to the Reagan spending binge (data taken from the Economic Report of the President).

And, as for not blaming his predecessor, take a look at President Reagan’s 1982 State of the Union, in which he he blames his predecessors for the country’s problems.

Blaming your predecessor for the country’s problems is a time-honored tradition in American politics.  Reagan did it to great effect.  Obama has done it.  It is not an unreasonable strategy, particularly when it is rare for a new president’s economic policies to dramatically improve or worsen an economy within the first year or two of taking office.

The question for President Obama is: how long is that strategy politically viable?

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