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Author: Pituophis Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 457125  
Subject: Re: Reaganomics vs. Obamanomics Date: 2/12/2009 11:07 AM
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Did I take a wrong turn and end up on PA? I guess this is about the most blatantly political post I've seen posted here in a long time - maybe the most political post in years by someone who should know better.

Whatever. I'm glad you brought it up. I'll try to keep my reply focused on policy and not on individuals and parties but that's a little difficult when you've put the name of presidents of opposing parties in the subject line and the replies to the posts have already been pointing fingers and assigning blame.

* * * *

The effects of public policy during the Reagan years are the subject of the most successful revision of history ever. Some of those oft-repeated myths were regurgitated once again in the OP.

I made a long and detailed post on Reaganomics nearly seven years ago, before we had Wendy to keep us in line, one of the highest rec'd posts ever on this board: http://boards.fool.com/Message.asp?mid=18347223 , so it's a subject I've researched extensively. I simply don't have time to give this rebuttal the attention it deserves this morning but I'll try to hit the high points.

First, Reagan was NOT handed an economy created by Jimmy Carter in four short years. Carter was handed an economy created by Nixon/Ford. Carter was handed 10% unemployment and runaway inflation and an energy crisis. Carter created more jobs than Reagan did. Average unemployment rate was lower under Carter than it had been when he took office. Carter inherited runaway inflation but Carter appointed Paul Volker and instituted the inflation fighting policies that eventually got inflation under control. The only myth bigger than the one that says that Carter's policies created the economic problems of the 70s is the one that says that Reagan policies cured them.

Reagan's tax cuts never led to a broad economic recovery. Period. Unemployment rates remained in the 6, 7, 8% range. Reagan's policies did lead to greater wealth for already wealthy. But for the average guy, for everyone in the lower 90% of wage earners, average incomes started to go down under Reagan in a downhill dash that has not abated to this day.

And in parts of the country there was hardly any sign of economic recovery at all. Here in Texas, I recall shopping for a house in Houston in 1986 - there were whole subdivision after whole subdivision of abandoned, unsold, houses, many of them vandalized and selling for bargain basement prices. Unemployment was high - in the Rio Grande valley it was running over 20%. The only pseudo "economic recovery" visible around here was an extremely transitory BUBBLE in real estate speculation fueled by Reagan era deregulation that ended up very badly - you might recall the Savings and Loan Crisis.

Reagan's tax cuts for the already wealthy might have added fuel to the cyclical bull market in stocks, but then the stock markets experienced one of the greatest crashes in history before Reagan's term was over - a crash largely due to the participants fear of the enormous debts and deficits that Reagan had created and what that had done to the value of the US dollar.

In 1980 we were the greatest creditor nation in the world, but largely as a result of policies that began to be instituted in 1981, we are now the largest debtor nation in the world.

And that is Reagan's greatest legacy. The debt.Some have pointed to the ENORMOUS increase U.S. government debt over the last eight years, and in total dollar terms it is enormous - around $6 trillion after the dust settles, more than double the 2000 level. But in percentage terms that is nothing. When it comes to fiscal irresponsibility Reagan is still the undisputed champ. In 1980, U.S. government debt was a manageable 900 billion. By 1990, it was a previously unimaginable $3 trillion. A 300% increase!! THAT is Reagan's legacy. THAT is the most important result of Reaganomics. And that is the SOURCE of the appearance of a recovery under Reagan -- two trillion BORROWED dollars. YOU TOO can look financially prosperous for a while - just go out and charge that new car and some new clothes and jewelry and a down payment on that McMansion you've had your eye on to your credit card!!

The economy was in the absolute crapper and sliding into recession when Reagan handed it off to Bush the Elder. Among other things, Bush inherited out of control budget deficit, 300% more debt than 10 short years before, increasing unemployment, a crashed stock market, and banks failing left and right. THAT was the immediate result of Reaganomics and THAT was Reagan's legacy.

But the long term effects have been even worse than that.

More than any one set of policy misadventures, Reaganomics is at the core of what led us to our current crisis. The idea that lowering taxes on corporations and the wealthy will lead to economic prosperity and higher federal revenues was ludicrous and demonstrably WRONG when Reagan and crew started saying it in 1980 and it was still just as ludicrous and demonstrably WRONG when Bush II repeated it in 2001. The results were the same both times - more of the wealth of the country concentrated in fewer and fewer hands, while the average Joe saw his standard of living decrease steadily. And NOW Reagan's policy of deregulation continued even through the Clinton administration has resulted in an even greater crisis.

And Obamanomics? I don't know. He's only been president for three weeks. I'll wait and write the history of Obamanomics AFTER it has happened. But the HISTORY of Reaganomics is CLEAR and it is a DISASTER. I'm willing to try something else.
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