During the sharp recession of the early 1980s Ronald Reagan and Paul Volcker subjected American families to extreme economic pain, and hundreds of thousands of industrial jobs evaporated and never returned. Had Reagan and Volcker decided to do everything in their power to preserve the economy of the late 1970s in amber, the world would look very different today. To put it bluntly, there is good reason to believe that the United States would be an economic backwater, and that the world’s most innovative firms would have taken root elsewhere. Many say that Barack Obama, like Reagan, will suffer a serious political reversal in the midterm elections if high rates of unemployment persist, as seems likely. This comparison belies an important distinction. Reagan and Volcker made the difficult decision to allow painful restructuring. The Obama administration has, in contrast, tried to cash-for-clunker its way over the economic abyss instead of staring into it.
The truth is that America has changed over the intervening years. In the 1980s a large number of Americans still remembered the extreme deprivation that defined the interwar years. Now, in contrast, few American adults have previously seen real economic pain. One can hardly blame the president for this broader cultural shift. He can be blamed, however, for failing to understand how the restructuring of that earlier era really worked.
I then go on to describe President Obama’s interpretation of the “change in corporate culture” in the 1980s, and how it informs his efforts to transform the U.S. economy.