Writing nearly 40 years ago, historian Ernest R. May warned of the dangers of misusing history for policy purposes. May was primarily concerned that policy makers drew the wrong lessons from the past.
In their opinion piece in yesterday’s Wall Street Journal, Glenn Hubbard, dean of Columbia Business School and an advisor to Mitt Romney, and Phil Gramm, a former US senator (R-TX) misuse history in another way: they misrepresent facts to support a partisan policy agenda
Hubbard and Gramm contrast the robust “Reagan Recovery” after the recession of the early 1980s with the tepid “Obama Recovery” following the current recession. They argue that a “Romney Recovery” would look very much like a Reagan recovery.
Hubbard and Gram’s argument is simple. The 1981-82 recession and subsequent savings and loan crisis resulted from the tight monetary policy conducted by then-Federal Reserve chairman (and Democratic-leaning) Paul Volcker. The subprime crisis occurred because the government (read: Democrats) intervened in the mortgage market, easing mortgage lending rules.
The 1981-82 recession was caused by tight monetary policy, however, the savings and loan crisis–which erupted nearly a decade later–was due in large measure to the policy of financial deregulation pushed through during the Administration of the very Republican Ronald Reagan.
And blaming the recent recession on easing subprime lending rules while ignoring the ruinous consequences of Republican George W. Bush’s tax cuts (combined with increased defense spending) and Republican Alan Greenspan’s excessively loose monetary policy isn’t so much a misuse of history as a willful ignorance of it.
The argument that Reagan’s fiscal policy set the economy up for robust growth is laughable. The economy picked up during the mid-1980s because Reagan ran huge deficits by cutting taxes and increasing spending. Any other interpretation is a misuse of history.
Hi, Noah. I would argue that the tax cuts–combined with the increase in military spending (due to the wars in Afghanistan and Iraq)–got the macroeconomic boom off the ground. Aided by expansionary monetary policy, this contributed to the boom in the subprime market.
Hi Richard,
In what way did the Bush tax cuts contribute to the recession? I always thought of those two events as separate, and the recession as caused by the subprime housing bubble fueled by loose monetary policy. I thought the Bush tax cuts were just a giveaway to the rich that hurt our fiscal position but didn’t affect growth very much.
Thanks!
Best,
Noah
Sure you can. Equating tax cuts with deficit spending is a real stretch. For incomes above about the median, tax cuts get saved, not spent. Keynesian stimulus means spending the money.
maybe I’m having trouble with readng comprehension , due to new glasses, but this isn’t a well written post
the 1st paragraph should be cut
in the 4th, you identify crises by dates, except the subprime, so readers who don’t already know might be confused as to where that crisis goes historically
your argument about subprime causes is disjointed; you fail to address the main gop charge – that gov’t (=dem in their view) actions caused the crises
I think the idea that the CRA was involved is a quiggen zombie; however, the role of B Frank, the faux liberal (I’m in his district) and other “lib” dems in allowing Fannie/Freddie to convert the mortgage market to wholesales securitization, which gave mozillo et al the tools they needed to cause the crisis…thats still, in my book, alive, although most liberals think that is also a zombie from the time series data, showing that fannie freddie did bad mortgages only to grab share back from the priv sector
also, the ruinous Bush tax cuts…against a trillion dollar plus stimulus aka porculus (gotta hand it to rush sean et al, they good with words) is the bush tax cuts really that bad (and, you can’t argue keynsian stimulus on one side and ruinous bush tax cuts on the other…)