There is a chart currently making the rounds that shows President Reagan’s approval ratings during his first two years in office overlaid upon President Obama’s. The trend lines nearly overlap. Liberal commentators are using the chart to argue that Obama’s unpopularity is almost entirely attributable to the weak economy and thus comparable to that of Reagan, who also inherited a recession. If the economy improves, the argument goes, then Obama’s approval ratings will bounce back just as Reagan’s did. Liberals add that Obama faces a more difficult task than Reagan did because he inherited a nastier recession. Some conservatives are taking issue with this, arguing that Obama has made his task much more difficult by going on a government spending spree, whereas Reagan cut taxes to stimulate growth.
Both arguments miss the important ways in which the recessions the two men inherited are similar and the important ways in which their approaches differed. Both men faced seemingly intractable economic problems with no easy solution, but Reagan understood that curing the nation’s debilitating inflation was going to involve a good deal of short-term economic pain and political unpopularity, and he was prepared to endure that. By contrast, Obama has done everything in his power to avoid painful corrections — at great cost to future taxpayers. It is increasingly evident that his policies have merely put off these corrections or dragged them out, and that we have not avoided them at all. Reagan’s willingness to accept painful and unpopular but necessary economic adjustments — and Obama’s lack of the same fortitude — is the essence of what separates the two men.
It is true that Reagan and Obama faced very different challenges. The biggest impediment to economic growth in the late 1970s and early 1980s was instability in the general price level that made it difficult for businesses to make long-term plans or invest with confidence in the future. As Robert Samuelson explains in The Great Inflation and Its Aftermath, the resulting stagflation confounded U.S. policymakers, who had come to rely on excessively cheap money as an easy way of keeping the unemployment rate low. President Carter nominated Paul Volcker in 1979 to head the Federal Reserve without understanding that Volcker would set out immediately to conquer inflation. “It is doubtful that, aside from Reagan, any other potential president would have let the Fed proceed unchallenged,” Samuelson writes, one of many reasons it is a lucky thing that Carter lost and Reagan won.
The blowback that resulted from Volcker’s decision to put the economy into a coma was swift and severe. The sharp recession that ensued once Volcker started shrinking the money supply prompted Democrats and Republicans alike to introduce legislation to rein in the Fed. But Reagan refused to back any such action or even criticize Volcker in public. In private, Reagan was candid about what needed to be done, according to the late Bob Novak’s reporting on the subject: “I’m afraid this country is just going to have to suffer two, three years of hard times to pay for the [inflationary] binge we’ve been on,” Reagan said. It is impossible to imagine Obama speaking such unpopular truths in public or in private after having so often expressed the opinion that a massive debt-fueled government-spending program would create millions of jobs and reconstruct an economy torn asunder by years of binging on debt.
It is true that economic crises present presidents with difficult challenges, but it is not true that the challenges Reagan faced were so much easier. We can look back now and say that the solution to stagflation was obvious, but that’s only because the Reagan/Volcker approach worked. At the time, the idea that simply raising interest rates would be sufficient to alter inflationary expectations was a contested proposition. Samuelson produces numerous priceless quotes from influential doubters, including from Volcker’s predecessor at the Fed. Ultimately, these doubters were silenced when yearly price increases shriveled from 11 percent in the fall of 1980 to less than 4 percent by the end of 1982, and by the decade of robust growth that followed.
Notably, Obama’s doubters have not grown quieter: Obama’s manifest failure to deliver on his economic promises has amplified their voices, to the point that administration officials have made a rhetorical shift from trumpeting mediocre economic indicators as signs of recovery to blaming Republicans for obstructing the extension of various stimulus programs or for not letting them pass a larger stimulus in the first place. It is probably true that critics on both the left and the right have exaggerated the pros and cons of the stimulus bill, just as both sides have probably exaggerated the importance of Reagan’s early tax cuts. Conservatives tend to underestimate the credit due Reagan and Volcker’s triumph over crippling inflation for the subsequent boom. Liberals, meanwhile, attack Reagan’s tax policy for creating large deficits while underplaying the effects of the Fed-induced recession on revenues.
To the extent that insufficient aggregate demand is not what ails the economy, the stimulus isn’t important. Obama’s strategies with regard to the banking system, the housing market, and the deficit, on the other hand, matter significantly. And in these areas, he has opted for a strategy of maximum pain-avoidance that has contributed to the sluggishness of the recovery. Instead of forcing the bondholders of TARPed banks to share in the sacrifice, Obama opted for a slow-motion bailout that allowed banks to rebuild their balance sheets gradually by borrowing from the Fed at zero and lending to the government at 4 percent. This strategy kept a lot of capital locked up in zombie institutions rather than flowing to productive enterprises.
Instead of letting housing prices find their floor, the administration tried to prop them up with a variety of ill-advised programs. Instead of attempting to restore stability to a shaken economy, Obama decided to shake things up even more by borrowing at record levels to effectuate a bailout of insolvent state governments, passing a raft of new financial regulations, and attempting to pass a total overhaul of the way the nation uses energy. Instead of spending the considerable political capital he brought to his presidency to take these painful but necessary steps, Obama saved it for his year-long battle to pass a health-care plan that the American people didn’t want. In that sense, he was willing to take unpopular steps, but only when they served longstanding liberal policy goals.
In short, while Reagan accepted a great deal of short-term unpopularity, including among members of his party — “He said he would not do something to help the chances of Republicans in Congress in 1982 only to have to see the need for restrictive policies afterward,” said Reagan adviser Jerry Jordan — his unpopular moves laid the groundwork for three decades of unprecedented economic expansion. So far, we have seen no evidence that Obama’s unpopular policies will pay those kinds of dividends. Like Reagan, Obama inherited an economy with structural problems requiring painful adjustments. Unlike Reagan, he has tried to put off those adjustments or cover them up with feel-good stimulus programs. Reaganomics worked. Obamanomics? Let’s just say it will be interesting to see how much longer those trend lines overlap.