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.
I wrote earlier in the summer about the potential motivations for the Pain Caucus, and reliving the glory days of the early 1980s struck me as a an easy answer though it felt unfair after I wrote it. Sadly the reality is even more embarrassing. The comparison between the early 1980s to right now is both terrible and inaccurate. From Richard Koo’s book, The Holy Grail of Macroeconomics: Lessons From Japan’s Great Recession, here’s a chart comparing Japan’s Great Recession to the U.S. early 1980s:
Which one looks more like our situation right now? Koo frames it this way because he is a fan of the structural reforms from the early 1980s, but doesn’t see them as being relevant for Japan’s Recession. He’s right, and it’s not relevant for our situation either. Look at the Mott’s strike, where workers are just trying to keep their current wages in a profitable company and Dr. Pepper Snapple is squeezing them and tell me if you think our biggest problem is that labor is causing supply-side issues? Look at the 10 years, which are hovering at less than 2.6%. Was that on the table back in 1982?