Advertisement
YOU ARE HERE: LAT HomeCollectionsBusiness

THE ECONOMY

Two presidents, two recessions

Ronald Reagan and Barack Obama both took office facing economic crisis. Many lessons from the '80s no longer apply, though a strong display of optimism is never unwelcome.

March 21, 2010|By Jim Puzzanghera
  • President Reagan's unbounding optimism that the economy would pull out of recession turned out to be well-founded. Some critics say President Obama would help himself, and the country, by projecting a clear vision for recovery.
President Reagan's unbounding optimism that the economy would pull… (Barry Thumma / Associated…)

Reporting from Washington — A charismatic president sweeps into office amid economic turmoil, promising to turn the country around. Instead, things get worse. The unemployment rate climbs into double digits and the federal budget deficit soars, sending his approval ratings plummeting and triggering unrelenting criticism of his economic strategy.

It's the tale of President Obama's first year in office -- but also of Ronald Reagan's nearly three decades ago.

As the economy staggers out of the Great Recession, there are some key similarities to the nation's last severe economic slump in the early 1980s that offer clues about stoking a recovery -- and the political implications if one doesn't happen quickly enough.

A clearly articulated economic strategy, bolstered by his ability to project a sense of optimism that conditions would improve, was crucial to Reagan's success. That is the main lesson for Obama, who has been criticized for not providing a clear economic vision, said Dean Baker, co-director of the liberal Center for Economic and Policy Research.

" 'We're going to cut your taxes and get the economy going again.' It was a clear message," Baker said of Reagan's efforts. "Whether it worked doesn't really matter. It was something people could identify with as 'Here's what they're doing.' My expectation is that Obama is going to have problems because he hasn't put forward a clear plan."

The nation's continued economic troubles have sent Obama's approval ratings spiraling just as they did Reagan's. Though Obama's rating hit a new low of 46% last week, it has yet to plunge to the 35% Reagan hit in early 1983.

But even when Reagan's political prospects and the nation's economic outlook appeared bleakest, his clear strategy helped him rebuild support, said Annelise Anderson, an economist and senior fellow at the Hoover Institution who worked in the Reagan White House.

"In the Reagan administration, you had enormous certainty about what the objectives of the administration were," she said. "In this administration, there's a huge amount of uncertainty. We don't know what's going to happen on healthcare. We don't know what's going to happen on energy."

Many Republicans say Obama should follow Reagan's recession-fighting strategy, which hinged on across-the-board tax cuts.

The period following the 16-month recession from 1981 to 1982 is a textbook example of the post-World War II trend of strong growth following deep downturns. The nation's economic output shot up 9.3% in the second quarter of 1983, a few months after the recession officially ended, and the gross domestic product grew at a brisk rate of more than 7% in the year after that.

Reagan pulled his approval ratings out of a nose-dive and won reelection in 1984 with a campaign theme that highlighted the country's economic rejuvenation -- "It's morning again in America" -- but not before the recession's lingering effects cost his fellow Republicans 25 congressional seats in the 1982 midterm elections, a larger-than-usual loss that was attributed to the sluggish economy.

"Do what Ronald Reagan did, and you will solve the problem," Rep. Dan Burton (R-Ind.) publicly advised Obama last fall.

It's not so simple.

There are significant differences between the two recessions. Although the unemployment rate was worse in the early 1980s -- it peaked at 10.8% in late 1982, well above the 10.1% high of last November -- most economists agree that the Great Recession that began in late 2007 has been worse.

The financial system took a severe hit this time, increased globalization spread the calamity worldwide more quickly, and households saddled with more debt -- particularly mortgages on homes whose values had cratered -- were less prepared to deal with the fallout.

Because of such factors, the early 1980s approach won't work as well this time, and the economic rebound is likely to be slower and weaker, said Mark Zandi, chief economist for Moody's Economy.com.

The economy is expected to continue expanding after growth returned in mid-2009, but at a slower pace than it did in the final three months of last year. The GDP for that quarter was revised upward recently to an annual rate of 5.9%.

Still, a public that has been bombarded with bleak economic forecasts could learn something from that earlier downturn, Zandi said.

"One comfort should be that we recovered so well from that recession, as bad as it seemed at the time," he said. "In the darkest of times, we shouldn't believe there's no way out. Our economy is probably going to be much stronger five or six years down the line than people are expecting now."

That optimism is reminiscent of Reagan's when the nation was struggling with the second half of a double-dip recession.

Advertisement
Los Angeles Times Articles
|
|
|