By Peter Roff, Thomas Jefferson Street blog
The No. 1 issue for President Obama, the issue on which his presidency will likely succeed or fail, is the state of the U.S. economy. And, as it now stands, he's failing.
It's true that the Dow Jones Industrial Average, a key economic indicator, is now back up around 10,000 but, contrary to what he promised when pushing his economic stimulus package, unemployment continues to rise and is now over 9 percent.
The administration's response to all the bad news has been to continue to blame George W. Bush for leaving things in a mess. Richard Rahn, a founding member of the supply-side school of economics, makes a persuasive case that this is nonsense, and that Obama must now take ownership of the economy's problems.
Rahn, the chairman of the Institute for Global Economic Growth, writes Wednesday in the Washington Times that Obama errs when he and other members of his administration describe the current state of the economy as being the worst since the Great Depression. Rather, he says, "The deepest and longest-lasting recession the United States has experienced since then began in 1980, when Jimmy Carter was president."
That recession, which like the current one included a year of no growth and rising, almost identical unemployment figures, did not end until the fourth quarter of 1982, "almost two years into the Reagan presidency." But the situation Reagan inherited was far worse, including double-digit inflation and a prime interest rate of 20 percent; almost the polar opposite of what Obama must contend with.
Reagan's approach was to cut marginal tax rates to provide incentives for people to save and invest and to gun the economy, achievements he realized only after months of negotiation with a hostile and disbelieving Congress. And he took dramatic steps to deregulate the economy, so capital investment would have someplace productive to go.
Obama, again moving in the opposite direction, has made clear his intention to let economically stimulating tax cuts enacted under Bush expire while shoveling tax dollars out the door on pork barrel projects thanks to a stimulus package rushed through by an adoring congressional Democratic majority. At the same time he and his allies in Congress are pushing for historic increases in the level of regulation imposed from Washington, setting up a situation that will further hamper the economy's ability to rebound and to begin growing again.
Both have run up deficits, but on that score the current president makes Reagan look like a spendthrift.
Reagan's tax cuts fueled a period of record economic growth and job creation. Obama's spending and regulating has yet to accomplish anything. And that, says Rahn, sets up an interesting test case that should settle things once and for all.
Once Reagan's tax cuts were largely phased in, the economy took off—it grew by 7.6 percent in 1984 alone. We are in the midst of a most interesting experiment. The administration and the CBO forecast moderate and uninterrupted economic growth between the end of this year and 2019. If they are correct, 1980-82—not the current recession—will remain the longest sustained period without economic growth since World War II. If they are wrong, they indeed will have the worst economic downturn since the Great Depression and no one to blame but themselves.