The Keys to Recovering from Jimmy Carter’s Second Term
The Wall Street Journal has dusted-off The Reagan Memo, and it is important we re-read it in order to realize just how far we have veered from such logic and reasoning in our American economy, and ideology on government's role in our lives. The original counsel and advice Reagan was given as he prepared to become President in November 1980 is a touchstone to now look back to as our Founding documents are our cornerstones to build, and rebuild, on.
One lesson is how similar current economic problems are to those Reagan faced when he took office. The late-1970s were also a time of great economic anxiety fed by runaway government. Spending was out of control, taxes were too high, regulation too burdensome and energy too expensive. The big difference is that inflation today is lower, though food and energy prices have climbed fast until recently.
But the cause for optimism is that if the problems are similar, the solutions can also be similar. The memo is a tacit rebuttal of the White House talking point that today's Republicans are more radical than Reagan. Today's policy debates are remarkably similar to those 32 years ago. The Gipper's advisers wanted to reduce the cost of capital by cutting capital-gains taxes, for example, while Jimmy Carter thought like Mr. Obama that taxes don't much matter to economic growth.
A second lesson is the imperative for consistent policy that focuses on the long term: "The need for a long-term point of view is essential to allow for the time, the coherence, and the predictability so necessary for success."
An economy recovering from recession or other turmoil needs a steady, consistent hand. This gives business and entrepreneurs the confidence to invest and take risks, and it helps to build a durable recovery as Americans conclude a President isn't going to change policy every month for political reasons.
Reagan took his advisers' advice and focused on implementing his reforms his first year, then rode out various storms confident his policies would work in the long run. They resulted in a boom that added an economy the size of Germany's to U.S. GDP.
This is the opposite of President Obama's approach, which has been marked by the helter-skelter of temporary tax cuts, stimulus after stimulus, housing bailout upon housing rescue, favoritism for some industries over others, and arbitrary regulation that may or may not be mitigated if the White House feels enough political pressure. This is one reason in our view that the current recovery has been so lackluster.