Reaganomics vs. Obamanomics

The current president wants higher taxes, more regulation, more spending and loose money.

By PETER FERRARA

In his inaugural address, President Barack Obama said, "The question we ask today is not whether our government is too big or too small, but whether it works -- whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified." Or as administration spokeswoman Stephanie Cutter said in January, the touchstone is, "What will have the biggest and most immediate impact on creating private sector jobs and strengthening the middle class? We're guided by what works, not by any ideology or special interests." Unfortunately, this rhetoric is not true. Mr. Obama's economic policy is following not what has been proven to work but liberal ideology.

The best way to understand this is to compare what's being proposed now with what Ronald Reagan accomplished. In 1980, amid a seriously dysfunctional economy, Reagan campaigned for president on an economic recovery program with four specific components.

The first was across-the-board reductions in tax rates to provide incentives for saving, investment, entrepreneurship and work. The second component was deregulation to remove unnecessary costs on the economy. In today's world, that would especially mean removing the onerous restrictions on energy production -- allowing drilling offshore and onshore for oil and natural gas, revival of the nuclear power industry, and construction of more electric power plants.

Third was the control of government spending. In 1981, Reagan forced through Congress not only his famed, historic tax cuts, but also a package of budget cuts close to 5% of the federal budget -- equivalent to roughly $150 billion today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan's two terms. By 1988, this spending was still down 14.4% from its 1981 level in constant dollars.

Even with the Reagan defense buildup, which helped win the Cold War, total federal spending declined to 21.2% of GDP in 1989 from 23.5% of GDP in 1983. That's a real reduction of 10% in the size of government relative to the economy.

The fourth component of the Reagan recovery plan was tight, anti-inflation monetary policy, which was spectacularly successful. Inflation was cut in half to 6.2% in 1982 from 13.2% in 1980, and cut in half again to 3.2% in 1983.

We know such policies work because they turned around in just two years an economy far worse than today's. We were suffering from multiyear, double-digit inflation, double-digit unemployment, double-digit interest rates, declining incomes, and rising poverty. In fact, what we suffer with today is not the worst economy since the Great Depression, but the worst economy since Jimmy Carter -- the last time liberals were dominant politically and intellectually.

The Obama administration's economic policies do not include any of the four Reagan components. In fact, the stimulus plan is the greatest increase in government spending in the history of the planet. Meanwhile, the Fed is furiously reinflating, sowing more havoc down the line. Mr. Obama is still promising future increases in tax rates by letting the Bush tax cuts lapse, because for ideological reasons he thinks even current rates are too low. And instead of deregulating for more energy production, he is still promising massive increases in regulatory barriers -- through global warming cap-and-trade legislation -- to increased production from proven energy sources to serve an extreme environmentalist ideology.

This is why America seems so hopeless right now, and so depressed. We are stuck going in exactly the wrong direction on economic policy because of currently dominant ideological fashions.

A natural economic recovery will begin sometime this year, not because of the president's policies, but because soon this will be the longest recession since World War II. However, thanks to the administration's retrograde policies -- cut from the cloth of the 1970s and even the 1930s -- the recovery will not be what it should be. Rather, unemployment will remain too high, and inflation will resurge, recreating the disastrous economic results we suffered the last time Keynesian policies were dominant.

Mr. Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation. He served in the White House Office of Policy Development under President Reagan.

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President Obama's Savior-Based Economy

By MICHELLE MALKIN | Posted Wednesday, February 11, 2009 4:20 PM PT

President Obama is back in messianic campaign mode. It is unbecoming. When he's not snarling at conservative opponents of his endless spending programs, he's pandering to supporters as the nation's community-organizer-in-chief.

At a stimulus rally in Fort Myers, Fla., on Tuesday, a woman named Henrietta Hughes stood up to decry the mortgage crisis and ask Obama for his personal help. Choking back tears, she implored: "I have an urgent need. . . . We need a home, our own kitchen, our own bathroom."

If she had more time, she probably would have remembered to ask Obama to fill up her gas tank, too. The soul-fixer dutifully asked her name, gave her a hug and ordered his staff to meet with her. Supporters cried "Amen!" and "Yes!" A young McDonald's worker named Julio Osegueda bolted out of his seat and exclaimed: "It is such a blessing to see you. Oh! Gracious God, thank you so much! Ungh!"

The event turned into a full-blown revival meeting when Obama announced that the Senate had passed his massive stimulus plan. Audience members erupted into applause. Tongues of fire descended from the sky. Loaves and fishes (or rather, pork and Kool-Aid) multiplied miraculously into trillions for all.

GOP Gov. Mark Sanford of South Carolina didn't know how right he was when he warned over the weekend: "We're moving precipitously close to what I would call a savior-based economy."

Like Mighty Mouse, President Obama is here to save the day. The government is here to help — and it is your patriotic duty to pay for it all without preconditions. Hughes didn't explain the cause of her financial turmoil. Obama didn't ask.

And if we conservatives dare to question the circumstances — and the underlying assumption that it is government's (that is, taxpayers') role to bail her out — we'll be lambasted as cruel haters of the downtrodden.

Woe unto ye unbelievers in Big Government who cling to what Obama derided as "ideological rigidity." Well, pardon my unbending belief in fairness and personal responsibility, but why should my tax dollars go to feed the housing entitlement beast?

At his fear-mongering press conference Monday night, Obama lamented that homeowners "are seeing their property values decline." Countrywide crony Sen. Chris Dodd successfully stuffed $50 billion into the just-passed stimulus package for Treasury Secretary Tim Geithner to spend on "mandatory loan modifications" for homeowners deep underwater on their mortgages. That's in addition to the $20 billion already allocated by the House last month for the same purposes.

Banks have been engaged in these "Mo Mod" programs over the past year. Democrats want to accelerate the pace and use the power of government to essentially provide a blanket amnesty for borrowers and lenders who made bad financial decisions.

Yes, there are many responsible borrowers out there having trouble negotiating loan modifications. But this $50 billion giveaway to the banks — on top of the upward of $2 trillion more from the Treasury department, on top of the $700 billion in original TARP funding — is throwing more bad money after bad.

This massive expansion of government meddling in the housing market — yet another attempt to get federal bureaucrats in the business of rewriting loan contracts and reducing principal — will just delay the inevitable.

A report released by the Comptroller of the Currency in December showed that more than half of loans modified in the first quarter of 2008 fell 30 days delinquent within six months. And after six months, 35% of people were 60 or more days behind on their payments.

Where's the fairness in forcing prudent homeowners and renters to subsidize people who bought overpriced houses and rescue the banks that lent to them?

Tellingly, Obama chose Fort Myers to drum up support for his wealth redistributionism. The area has been one of the hardest hit by foreclosures, as the president was quick to point out. But many of those homes are second or third homes and investment properties.

And low housing prices are not a catastrophe for everyone. They've created opportunities for Americans who haven't been able to buy in an artificially inflated market. The median sales price of a home in the Fort Myers area fell 50% to $106,900, from $215,200 in December 2007. Bargain-priced home sales are up 146% from a year ago.

It's sacrilegious to say it in the Age of Obama, but it needs to be said: Homeownership is not an entitlement. Credit is not a civil right. Your property-value preservation is not my problem. Can I get an "Amen!"?