Reagan and the 80’s economy

Though I was certainly never a fan of Ronald Reagan’s policies, he certainly deserves credit as a very influential president.  What he doesn’t deserve credit for is the end of the Cold War (not going into it– as you know, foreign affairs isn’t my thing, but I know enough to know that the argument that he “won” the Cold War is way overstated); nor does he deserve more than modest credit for the economic recovery of the 1980’s.  Even when I was a teenager, I understood the role of oil prices in all this, though admittedly, not the role of Federal Reserve policy (and just plain good timing). Kevin Drum brings it  all together:

It’s probably hopeless to take on the Reagan economic myth at this late date, but honestly, it’s long past time to put it to rest. The truth about the ’80s is far more prosaic: In 1979, Jimmy Carter appointed Paul Volcker chairman of the Federal Reserve. Inflation was running at about 12 percent when he took office, and Volcker immediately slammed on the monetary brakes in order to bring it down. Whether he was targeting interest rates or monetary aggregates remains a bit murky, but it hardly matters. In the end, he engineered one minor recession in 1980, and when that didn’t do the trick, he tightened Fed policy even more and threw the economy into a second recession—this one extraordinarily deep and painful—which he maintained until 1982. When he let up, the economy recovered. Reagan had very little to do with it…

But that’s not all. If you’re looking for other reasons that the 1980s were boom years, No. 2 would be oil prices. The American economy is highly sensitive to oil prices, and after peaking at around $100 per barrel during the Iranian revolution (in inflation adjusted terms), oil prices steadily dropped, falling below $30 in 1986 (again, in inflation adjusted terms)…

What else? Well there was enormous deficit spending in the early ’80s that wasn’t offset by Fed action, and that probably stimulated the economy a bit. That was Reagan’s doing, though it’s not something his fans like to boast about today.

For what it’s worth, Reagan didn’t muck things up, but I’ve read plenty now that certainly gives more credit to Paul Volcker than to Reagan.  And surely those oil prices really had to help.  Of course, that doesn’t fit the conservative narrative of hagiography.

Times are tough for Jon Hunstman

Via Weigel:

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When is a “jobs plan” not a jobs plan?

When it comes from Republicans in Congress, of course.  Rather than releasing a plan that would actually do something to help get Americans back to work (I’m sure most of the unemployed are Democrats), they just re-package their ideological wishlist and call it a “jobs plan.”  Greg Sargent contacted a non-partisan economist at Moody Analytics for a quick analysis:

The GOP unveiling of the plan was widely treated as major news, and Republicans are challenging Obama to respond to their plan — a challenge that’s also garnering widespread coverage.

But an economist I spoke to just now said there isn’t enough information in the plan to evaluate whether it could even achieve its goals as Republicans themselves have defined them. He said it won’t help the economy in the short term, and could even make matters worse.

“I don’t have enough detail to evaluate how many jobs this would create,” Gus Faucher, the director of macroeconomics at Moody’s Analytics, told me. “I could say, `My plan is to do nothing, and it will create five million jobs.’ And it could work, particularly if I don’t say over what time period.”

Moody’s recently estimated that Obama’s jobs plan, if passed, would add two percentage points to economic growth next year, add 1.9 million jobs, and cut unemployment by a full percentage point. By contrast, the Senate GOP plan isn’t designed to help the economy in the short term, Faucher said…

Faucher said he had no way to evaluate the idea that the release of the plan itself could create confidence and certainty.

“That’s not an economic argument,” he said. “I do think the lack of confidence is a problem, but again, the way to get over that problem is by having strong near term growth, and this proposal isn’t focused on that.”

To anybody paying attention it is glaringly obvious that the Republicans in Congress have no interest in trying to reduce short-term unemployment.  Sadly, it is in their political interest to keep the economy as bad as possible to help elect a Republican president in 2012.

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