Archive for category Ronald Reagan

The Reagan Legacy

Ronald Reagan’s true legacy is in opening the door for high US debt

In 1980 I voted in my first Presidential election and like many people, voted for Ronald Reagan because of his optimism and vision of better times for America.    The late seventies had been traumatic.    After first bringing a sense of relief to a country torn apart by Vietnam and Watergate, Jimmy Carter seemed helpless as the US slipped into another oil crisis, a recession, and renewed tensions with the USSR.  In retrospect Carter handled the situation about as deftly as one could, but to a country used to being on top, it felt like we were in decline.

I had been a fan of Reagan’s back in 1976 when he challenged Gerald Ford for the Republican Presidential nomination.  His optimism was contagious, he was likable and seemed to offer a clear answer to our problems:  freedom and confidence.

Reagan, Bush and Ford on the podium at the GOP convention in Detroit in 1980 – I was there and took this picture – the theme was “Together a New Beginning”

Alas, the reality turned out to be much different.    When President Reagan took office the US debt was 30% of GDP, considerably lower than that of most European countries.    However, the deficits climbed in the 80s:

In 1977 the deficit was $53.7 billion.   That was low enough to help pay down the US debt, as the economy was growing faster.   It was down to $40 billion in 1979, though the recession caused a sky rocket to $73 billion in 1980.  Then the debt started to pile up:

1981 – $79 billion (mostly Carter’s budet), 1982 $128 billion, 1983 $207 billion, 1984 $185 billion, 1985 $212 billion, 1986 $221 billion, 1987 $150 billion, 1988 $155 billion.    Things would improve after that, and for four years (1998 – 2001) there would be supluses before debt would skyrocket again.

During the Reagan years debt went from 30% of GDP to nearly 60% of GDP.   Private debt grew just as fast, and credit card debt began to grow (it was very low before 1980).    Reagan’s rejection of the “malaise” of the 70s was straight from Michelob’s marketing department —  we can have it all!   Low taxes, less regulation, and more spending!

Due to borrow and spend, the 80s felt opulent and instead of being hippies, people like me became “yuppies” – young uppwardly mobile professionals

That was, unfortunately, the wrong direction to go.   Working in DC for a Republican Senator in the early/mid 80s I recall hearing constantly how the deficit was not a problem.    When told that during an economic boom one should keep surpluses in order to have money to stimulate the economy when the next bust comes, the response was predictable – counter cyclical funding was Keynesian demand-side economics.    Laffer curve supply side economics was now the rage.

Others had a more Machiavellian view — increasing debt would “starve the beast,” making it impossible to continue liberal big government programs.   Even as David Stockman, Reagan’s budget director, resigned out of anger over the economic illogic of the increasing debt, the growing economy with low inflation caused most people to close their eyes and enjoy.   It was the 80s, after all!

This decision is now haunts us.   The ‘we can have it all’ response to the recession of the early eighties was really simply a refusal to accept reality — that the US had to structurally adjust to the changing global economy and the fact that the rest of the world was catching up.   The post-war superiority that the US enjoyed after WWII was over, and the US needed to find ways to live within its means and make sure that commitments didn’t overwhelm capabilities.    We didn’t necessarily need to pay off the debt we had, but keeping a 30% debt to GDP ratio would have been smart.

Instead the so called “conservative” economists of the Reagan-Bush administrations (and later the George W. Bush administration — in which Vice President Cheney boisterously proclaimed budget deficits to be irrelevant) opened the spigots and borrowed and spent even during a boom.   As long as inflation didn’t rear its ugly head, they figured it was safe.   Add to that the deregulatory fervor that even the Clinton Administration joined in, and the cheap credit to the public coming from the fed, and it was party time for thirty years!   Borrow spend, carpe diem, living high, living fine on borrowed time!

Add to that the end of the Cold War and all was grand — we won the Cold War, the Soviets and communism lost, it was going to be an American led free market world… what could go wrong?

Perot warned of the unsustainable debt, and shaped the 1992 debate. By the end of the decade the US was running surpluses and it appeared on the right track

Ross Perot, a successful businessman and political gadfly, saw the problem and brought it front and center in the 1992 election.   It appeared to push the parties towards fiscal responsibility.   Unfortunately the US was beginning an advanced stage of economic decline, perpetrated by two sequential bubbles, the “” stock bubble and then the real estate bubble.   The latter was driven by both a renewed bout of debt from 2002 onward, plus very cheap and easy credit thanks to a misguided federal reserve policy.   The result is that when the bubbles burst and dust settled we see that de-regulation, tax cuts, and deficit spending gave us about a total debt of over 100% of GDP, an economy that relied on consumption more than production, and imbalances requiring a deep and long recession to repair.

Both parties share blame.   Both mouthed a desire to balance the budget but neither made the hard choices it would take.  Instead they reached the Great Republican and Democratic compromise – lower taxes and more spending, financed by debt.

I’m in the yellow shirt kneeling lower left in the South Dakota “College Republican” youth for Reagan delegation to the GOP Convention in Detroit.

Reagan can’t be blamed for all this – it took a long term bi-partisan effort to do so.   However, if we had heeded Jimmy Carter’s prophetic warning and avoided the Michelob “you can have it all” mentality, we might instead have built a sustainable economy in the 80s, immune to oil shocks and banking crises.   We took a wrong turn thirty years ago, and it’ll take at least another ten to get on the right path — assuming we start making better choices now!

Looking back at being part of the large “youth for Reagan” group in Detroit in 1980, being on the floor when Reagan accepted the nomination (they let a lot of us in despite lack of credentials in order to give television the image of lots of young people supporting Reagan), I don’t regret going.   Reagan did inspire hope, and it was an amazing experience.  I even traded a big “South Dakotans for Reagan” pin for a Maine lobster decal I’d carry all over on my photo case for over ten years, never dreaming I’d actually live in Maine (I’d never even been there).   But unfortunately the hope was misplaced.  Reagan’s borrow and spend approach bought short term prosperity at a long term cost.   But to be fair, he couldn’t have done it if it wasn’t a bi-partisan effort.

We stayed with youth from around the country at EMU in Ypsilanti — these two Maine girls (no idea who they are) traded me the decal I’d proudly carry on my photocase for over a decade, an omen perhaps that I would end up in Maine!

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If Only We Had Listened Then

On July 15, 1979 President Carter returned from nearly two weeks at Camp David to give a speech that would be remembered as a highlight — and some might say a lowlight — of his Presidency.   The speech is often the subject of such caricature that it gets remembered as far different than it was.   Called the “crisis of confidence” speech, it got morphed into the “malaise” speech (though Carter never used the term) and was trashed by his opponents, both Ted Kennedy and Ronald Reagan.

At the time of the speech it was well received.   His approval ratings jumped from 25% to 35% in the week afterwards.   In that speech he said America was at a cross roads.   He painted two visions of the path forward:

We are at a turning point in our history. There are two paths to choose. One is a path I’ve warned about tonight, the path that leads to fragmentation and self-interest. Down that road lies a mistaken idea of freedom, the right to grasp for ourselves some advantage over others. That path would be one of constant conflict between narrow interests ending in chaos and immobility. It is a certain route to failure.

All the traditions of our past, all the lessons of our heritage, all the promises of our future point to another path, the path of common purpose and the restoration of American values. That path leads to true freedom for our Nation and ourselves. We can take the first steps down that path as we begin to solve our energy problem.

The first path was one with a mistaken notion of freedom as being all about self-interest and distrust of community.   That path would lead, he warned, to crass materialism, narrow self-interest, and an unsustainable economy.   It would be a rejection of the values that made America great in favor of individual pursuit of people trying to get whatever they could, looking out only for their own bottom line, and justifying any injustices with a claim that if the market provided that result, it must be OK.   As Carter warned:

“In a nation that was proud of hard work, strong families, close-knit communities and our faith in God, too many of us now tend to worship self-indulgence and consumption.  Human identity is no longer defined by what one does but by what one owns.  But we’ve discovered that owning things and consuming things does not satisfy our longing for meaning.

The second path was one leading to energy independence, a focus on alternative energies, and a renewal of the American community.   For Carter this was a moral issue.   America’s future depends on the American people putting values ahead of greed, and coming together to face a world where we had become susceptible to oil shocks, facing economic uncertainty and realizing that the government couldn’t solve America’s problems.   He called the country to come together and take a long range vision of what is needed, avoiding the temptation to turn to cheap and illusory solutions.

If you don’t want to watch the speech, you can read it here.

Instead the US choose to follow another path, put forward by Ronald Reagan who defeated Carter in 1980 and promised Americans they could, as the beer commercial said “have it all.”

Reagan’s vision was seductive.   First of all, Reagan was a good man and people trusted him.   He clearly believed what he said.   He also was telling Americans what they wanted to hear.   The problems we face aren’t ones of values and the need for difficult choices.   All we need to do is cut taxes and let the American people shine and we’ll be that “shining city on the hill” once again.

When Reagan came into office he removed the solar panels Carter had installed on the White House.    He cut taxes.   The economy grew.   But yet, it was indeed an illusion.    The economy would have grown no matter who had been elected, deep oil price cuts injected massive amounts of money into the economy.   The recession that was so bad in 1980 had been induced by Paul Volcker’s monetary policies; once inflation was tamed, that and lower oil prices were a certain path to ending the recession.

But Reagan and the Democrats — this was a bi-partisan illusion — then engaged in a massive build up of debt.   US government debt to GDP ratio went from 30% to 60% in the 1980s.   That hyperstimulated the economy and started us down the road of having an unsustainable debt-based consumer economy.   Consumer debt started to rise too.    Total debt (private and public) had tended to hover around 150%.   In the 80s that debt zoomed up to over 250%.   The economic boom associated to Reagan was simply a country charging on its credit card, going into debt, and thinking things must be good because they could buy so much stuff.

Of course this continued.   Government debt growth slowed in the 90s, but private and consumer debt kept soaring.   Debt and low taxes on the wealthy produced not jobs via trickle down economics, but bubbles as investors chased the dream of “something for nothing.”   Americans both left and right thought that the good times would last forever, even as debt mounted to nearly 400% of GDP overall (public and private).

Now we’re in a crisis of massive debt, fears of long term energy crises, and no clear way to get back on the path of sustainability.    It’s led to wars and our political system, once the envy of the world, seems defined by partisan pundits who too often see compromise as something for only the weak.   Given that the US system can only run via compromise, it’s a path towards political stagnation and fragmentation at a time when we need to come together.

If we had listened to Carter in 1979 and saw the country’s problems as rooted in a weakening of the core values of community and sacrifice in favor of consumption and greed, we might now be in a much better place with a far better future.    Yet we didn’t.   But we can still learn from Carter’s words.   Our problems are primarily about values and ethics, not about economics and policy.   Focus there first and come together as a country true to our core principles — values shared by the left and the right — and we can start to rebuild the American dream.


GOP Message Failure

A year ago many asked the question “Does President Obama have a chance to get re-elected?”   Coming off the 2010 electoral slaughter of the Democrats, the GOP was riding high.  They had the House, the Senate was within reach, Obama’s approval ratings were dropping, and his efforts to intervene in the debt ceiling crisis and on the budget appeared at best ineffective, at worst inept.   Some even suggested Hillary run, or that party elders quietly convince Obama to step down for the good of the party.

The GOP didn’t know for sure who would beat Obama in 2012 — Romney, Perry, Daniels, Christy, Rubio and others were all talked about.   But it didn’t seem to matter, the Democrats had overreached and the political winds were blowing their way.   Sound familiar?   The Democrats thought the same way in early 2009.

As I noted before, the political pendulum can swing quickly.   President Obama’s approval numbers, never as low as Ronald Reagan’s or Bill Clinton’s early in their terms, have jumped from the low 40s to at or near 50% in both the Rasmussen and Gallup daily tracking polls.   The economy is rebounding, with a string of good job reports setting up the potential for a much brighter public mood by late summer.   However, the reason the GOP may find itself in an unwinnable election is not because Obama is suddenly going to recapture the magic of 2008; rather, the Republican message is off track.

Ronald Reagan exuded optimism and a sense of hope in his 1980 acceptance speech at the GOP convention in Detroit

Increasingly Republicans speak in a tone of harsh negativity (“Obama is destroying America, has a radical socialist agenda, etc.)   That’s fine red meat for the primary season, but it has to be coupled with a vision — a sense of the future that does not rely on criticism of the Democrats to make their point.

Back in 1980 I was in Detroit on the convention floor when candidate Reagan accepted the Republican nomination.   It was a great experience.  I went with a group of South Dakota college Republicans, heading to Detroit in a van, staying at Eastern Michigan University and being bused downtown each day.   We got to meet a lot of “big names,” I got some close up pictures of people like Reagan and Dole.    We met a young Ted Koppel, whose “Nightline” show was only a year old (thanks to the Iranian crisis — the hostages were still being held at the Tehran embassy).

The best experience was when the Reagan people snuck dozens of us onto the floor to cheer Reagan’s speech, even though we didn’t have credentials.   Reagan’s people always understood image, and lots of cheering young people would look good for the cameras.    One security guard pointedly grabbed my badge and looked – clearly I didn’t belong there.  I ignored him, and went on waving my sign.   Back stage Illinois Senator Chuck Percy offered one of us a beer; it was fun (though I didn’t stick with the GOP).

Reagan’s charisma was real, and his speech was not about how bad Carter supposedly was, or the troubles the country faced in 1980.   Under the banner “Together A New Beginning” it was about what America could accomplish and how.  It was optimistic, inspiring, and positive.   Most importantly, it was forward looking.

Same with Clinton in 1992 – “Don’t stop thinking about tomorrow…don’t you look back” – or Barack Obama in 2008, “change we can believe in.”   The Republican field lacks that kind of theme.   Talk is of American in decline, economic malaise, and various epithets hurled at “Obamacare.”   When there is a vision it’s nostalgic – a yearning for what things were like in the past, a desire to “take back” America.

Relatedly, the Republican message borders on being anachronistic — out of date.    A huge block of voters aged 18 to 30 have virtually no personal memory of the Cold War, yet Republican themes often slide into the ideological framework of that era.   Talk of ‘socialism’ speaks only to the small subset of the population, and most of those already vote Republican.  Rick Santorum’s social conservatism is even more outdated, harkening back to Jerry Falwell and the so-called ‘moral majority’ of the 80s.

There are many GOP-leaning independents who are not Republican precisely because of the religious conservatives.   Moreover, there aren’t that many ‘evangelicals’ in swing states.   Most of them live in states already solidly Republican.

The bottom line: the Republicans are unlikely to mount a serious threat to President Obama unless the economy falters again or something fundamentally changes the race.    In fact, despite the 2010 off year victory, the Republican party risks increasing weakness if they don’t retool their message for the 21st Century.

First, they need to jettison 20th Century ideological rhetoric and embrace the reality of needing a message for the future.   The Cold War is long past.   Harsh red meat negativity speaks only to a GOP base already likely to vote Republican.   Yes, it can motivate them, but if it becomes the message sent to independents and swing voters it’ll help the Democrats.

Ironically, Republicans seem to be ignoring one man who was on track to forging that new message:  George W. Bush.   As much as they supported him during the Iraq war, they now reject his notion of “compassionate conservatism” and the idea of being a “uniter” rather than a divider.   Compassion is now looked at as weakness by many in the GOP, and division is good if you define the other side as dangerous socialists!   President Bush also realized that the GOP needed to be inclusive of minorities, supporting efforts at immigration reform led by Senator John McCain that the conservative wing of the GOP thwarted.

Most importantly, President Bush’s notion of the “ownership society” had a lot of potential appeal.   At the very least, it didn’t simply regurgitate tired slogans and bland labels.    One wonders how different political discourse would be if President Bush hadn’t gotten into the Iraq fiasco!

To be sure, despite my presence at Detroit in 1980 I’m not a Republican.   I believe President Obama is a good President and should be re-elected.   But American politics is strongest when the two parties each have positive yet different visions of the future.    The Republicans need someone who transcends the pettiness of recent election cycles, much like Obama has.   They need someone who can talk in rhetoric comfortable to Democrats, just like Obama’s talk of free enterprise, markets, personal responsibility and initiative in the state of the union address echoed typical GOP themes.

To be sure, I think both parties still need to retool their messages for the new century and new generation.     But while Obama’s state of the union address emphasized Americans coming together and accomplishing great things, the Republican vision remains fuzzy and negative.   That’s not a way to win elections.


The Political Pendulum

After the 2008 election Democrats were on a high.    President Barack Obama had been elected as the first black President, the Democrats controlled both the Senate and the House, and demographics seemed to indicate that if anything, their future  was brighter than ever.   President Bush left office as one of the least popular Presidents in history, being blamed for a dubious war in Iraq and an economic crisis that hurled the US into recession.

Yet the pendulum swung.   The depth and severity of the recession proved greater than the Obama White House had anticipated, and with the Democrats in control of government they were blamed for anything that went wrong.   After health care reform was pushed through just barely, yielding a compromise that angered conservatives and many liberals alike, President Obama found the honey moon over.   The tea party movement achieved amazing success at shaping the political discourse, and a new narrative took hold.

This narrative said that President Obama’s policies were hindering the recovery, that the stimulus was a waste of money and a failure, and that the raw politicking of the health care deal showed the shady side of Democratic politics.    Republicans said the real solution to the problems the country faces is smaller government and fiscal conservatism.   The hope and change promised by the Democrats was just more tax and spend — more government programs.

In 2010 the GOP achieved dramatic success, something unexpected after two election cycles dominated by the Democrats.   Without the drag of the Iraq war and with President Obama “owning” the economy (even though neither he nor Bush ever could control it) the public swung right.   Some of it was fear that change was going too fast; others thought the Democrats simply moved farther and faster than the public wanted.  President Obama’s approval ratings dropped down below 50%.

Yet even as the Republicans start to lick their chops over electoral prospects in 2012, the pendulum may be swinging again.   The President’s approval ratings are still bad, but they are picking up slightly.   Don’t forget, President Clinton had 40% approval in early 1995, and Reagan dropped to 38% for awhile in 1983.   President Obama is now at about 43%.

The mood seems to be changing.  E J Dionne notes this “narrative change,” citing Paul Ryan’s somewhat bitter speech to the Heritage Foundation as evidence that Republicans recognize that the argument is slipping away from them.   Occupy Wall Street has shown itself more popular and resilient than anyone expected, and the efforts to paint them as a bunch of spoiled hippies and malcontents has failed.     President Obama’s “new populism” is hitting a chord.   Americans don’t want massive redistribution and high taxes, but the idea that the system is unbalanced in favor of the wealthy is gaining traction.

Moreover, the Republican party doesn’t seem to have a clear leader, and their primaries have been dominated by sometimes extreme rhetoric that scares independents.   Herman Cain wants an abortion ban with no exceptions, not even for rape and incest.   That kind of talk scares people.   Michelle Bachmann’s call to bring taxes back to the level they were under Ronald Reagan is illustrative.    Taxes were much higher under Reagan than they are now; as she had to retreat from that statement it reinforced the idea that Reagan would be far too liberal for today’s GOP.    The narrative of an extremist Republican party is building.   Rick Perry’s assault on social security addsto that as the GOP Presidential field tries to capture the tea party electorate that vote in early primaries.

Mitt Romney should be a strong candidate.  He is clearly a moderate who shouldn’t scare anyone, but his Mormonism and moderation might actually decrease conservative enthusiasm in 2012.   He’s benefited from the turmoil in the GOP field, but the Republican party has lost control of the conversation.   Instead of Reaganesque optimism the tune from the right is increasingly antagonistic.

Meanwhile, Democrats in the House start whispering that there are a lot of vulnerable Republicans, especially first termers, who are having trouble raising money and whose ideological voting records don’t play well at home.    All Democrats expect gains in 2012; the idea of winning back the House is not as far fetched as it used to be.

Right now the conventional wisdom remains that President Obama is, if not the underdog, in a difficult position heading into the re-election fight.   But at this point in 2009, when Obama was still above 50% in approval, few people realized that the pendulum had already started a decisive swing away from the Democrats and towards the Republicans.

It’s still too early to know for sure if the pendulum is swinging back in the Democrat’s direction.   Obama is getting kudos for success in Libya, he announced the end of the Iraq war, and there may be an end in Afghanistan sooner than people expect.   The economic news has become slightly more optimistic.    Occupy Wall Street has stolen the attention that the tea party used to enjoy and has spread across the country, gaining a lot of support from Iraq veterans.    In states like Ohio, Wisconsin and even here in Maine conservative causes have led to dissatisfaction — ballot initiatives in both Ohio and Maine might be very telling about the way the mood is changing (Ohio’s involves public labor unions, Maine’s is an effort to undo Republican legislation removing same day voting registration).

It feels like the pendulum has switched directions.   It feels like 2012 could be for the Democrats what 2010 was for the Republicans.   It feels like Obama may join Presidents Clinton and Reagan in the catagory of having their political obituaries written too soon.   Time will tell — there is still a lot that could go right or wrong for both parties.     The good news about the political pendulum is that if you’re on the losing side of an election, it won’t be that way forever.   The bad news is that if you’re on the winning side the same applies.


Lessons from the Wisconsin Recall

The recall elections in Wisconsin are almost finished — the final two Democrats up for recall are not considered in serious trouble — and overall it looks like the Democrats managed to recall two of six Republican Senators, not enough to put the State Senate in the hands of the Democrats.

Republicans are happy with the result.  They kept control of the Senate and can claim a victory despite losing two members.    Democrats can take solace in the fact that they were going against Republicans who had won their districts in 2008, a year when Obama took Wisconsin and the public was in a far more Democratic mood.   The fact that the Democrats could bat .333 in such districts — and come within two percentage points of taking a district that hasn’t gone Democrat since 1896 — should give them pause.   They didn’t get a victory so much as dodge a bullet.

Democrats privately had admitted they were only likely to win two — though they hoped for the third (and got close).  But many on the more liberal wing of the party had convinced themselves that public rage against Governor Walker and the GOP, along with voter enthusiasm on the left, would give them more — some thought a sweep possible.   For them this is disappointing, their chance to send a message failed.

The other day I had a post critical of a group Norbrook named the “Frustrati,” — progressives convinced that the only thing Democrats lack are leaders willing to take strong liberal stances and refuse to compromise.  They believe the public will reward strength and principle, and that Obama and Reid have been too willing to work with the GOP.    This election should give them pause.   Even with a very energized and hard working base fervently trying to win at least three elections voters didn’t vote that much different than they did before.   Republicans can also argue that the two who lost were in trouble for personal reasons, that stronger candidates would have won.

Put bluntly: people on both sides of the political spectrum over-estimate how much the voting public agrees with their side.    Each will cherry pick issue polls, look at particular races (e.g., the Democratic victory in a Republican district in New York earlier this year) and read into them a national mood or trend.  The fact is that the country voted overwhelmingly Democratic in 2006 and 2008, willing to elected an untested Barack Hussein Obama who was accused of being far left and somehow not truly American.   Then in 2010 an admittedly smaller electorate turned around and voted a stunning number of Democrats out of office in the House to take control.    The only reason the Democrats held the Senate was that they had few seats up for re-election.   If the 20+ seats up in 2012 had been on the line in 2010, Mitch McConnell would again be Majority leader.

There’s only one way to read that.   The voting public is neither liberal nor conservative.   People do not equate political ideology with principle.   Principles are what guide every day personal choices and ethical perspectives.   Politics is about making deals, compromising, and solving problems.   Pragmatism is the quintessential American philosophy.    People will vote one year for someone whose principles are informed by liberal or even Social Democratic values, then turn around the next time and vote for someone who embraces very conservative views.

Any party that over-estimates the appeal of its own ideology risks overreaching and causing the public to correct the situation in the next election.   Any party that refuses to compromise or show an understanding of different perspectives will be seen as intransigent and unable to govern.   And, though parties must keep their bases in line, giving their base too much power can doom them in the next election.

Right now the Republicans believe Obama is vulnerable in 2012 and the GOP can gain control of the Senate.   They see the potential of repealing the health care reform, dramatically cutting spending, and steeply downsizing government.   Many think that’s the only way to deal with the economic crisis.    If they hang around right wing blog sites and talk with like minded folk, they’ll bolster each others opinions and start to believe their view is self-evidently correct, and that compromise is therefore weakness and wrong.     But so far the more Social Democratic countries of Scandinavia are in less economic trouble than we are, their way is one way to respond, but not the only way.

Obama is vulnerable (though not dead in the water as some believe), but it’s not because Americans have done an ideological flip flop.   Rather, Americans are frustrated about the economy and if they see Obama as ineffective they’ll consider trying something else.    If the Republicans over-reach or show too much ideological stridency, they could lose the House (many tea party Congressfolk are in clear danger) or even cause people willing to vote against Obama to see him as a safer bet.

Democrats have to take from this that the energy of their base is not enough to win the hearts and minds of  voters.   President Obama isn’t having trouble because he’s weak or a bad President, anyone would be having trouble with this economy.  Moreover, you can’t just give beautiful speeches and stand firm and expect the other party to crumble.  The Republicans control the House — some on the left fall victim to groupthink and under estimate the ability of the GOP leaders in the House to play a high stakes game.   Obama can’t force them to vote for what he wants.

Rather, they have to recognize that given the current economic conditions the ideological appeal of big government is probably at a low ebb.  The public wants someone who will talk seriously about reducing debt, solving problems and making compromises.   Despite the problems Obama’s had with the economy, his approval isn’t any worse than Ronald Reagan’s was in the third year of his Presidency.   Obama’s obvious pragmatism and patience is one reason he is still favored by many to win re-election — people may be upset he hasn’t been able to fix the economy, but the 2010 image of Obama as an over-reaching liberal has given way to Obama as a conciliator.     The Democrats best bet in 2012 is to grab the center and hold it as firmly as they can, allowing the tea party rhetoric sure to be flying furiously in the primary season define the GOP.   That doesn’t guarantee victory (though if it were combined with a rebounding economy in 2012 it could come close), but it assures a competitive election.

The Republicans dodged a bullet but risk not learning their lesson.  The bravado of John Boehner saying he got 98% of what he wanted may mollify the base, but risks turning off a public not keen on ideology.    Did 98% of what he wanted guarantee a downgrade?   They have every reason to believe that 2012 will be the second part of the kind of two election cycle the Democrats enjoyoed in ’06 and ’08.   But it’s not guaranteed — and too much red meat for the base may come back to haunt them, they could be their own biggest obstacle to a successful 2012 election.

Both sides should take Wisconsin seriously.   Democrats have to realize the country isn’t mad at the GOP and willing to march boldly to the left.   Republicans shouldn’t think the US embraced tea party ideals and is swinging to the right.   Whoever occupies the center in 2012 is most likely to win.   For the Republicans that would be the safest strategy.   For the Democrats it’s essential.


The Age of Austerity

It wouldn’t make for a good song by the 5th Dimension, but the “Age of Aquarius” is giving way to the “Age of austerity.”  This is a dramatic shift.   The last time we faced such a dilemma was when the great recession of 1980 hit, and President Carter gave a much maligned, but now prophetic speech on the dangers facing the US at that time due to consumerism, oil dependence and an emphasis on material self interest rather than community values.   Carter was ignored.   The solar panels he installed on the White House were taken down.   Ronald Reagan defeated President Carter in the 1980 election with the promise that we can ‘have it all.’   There is no need to cut back, we only need to cut taxes!

Reagan succeeded, thanks to declining oil prices and a massive increase in debt.   Private debt, credit card debt and government debt all took off in the 80s, while the current account went into deficit.   Reagan’s “morning in America” was the start of a country  living beyond its means.

Private and public debt increase dramatically after 1980 - it is now about 400% of GDP

The first question, and one many liberals are asking, is why can’t we do what Reagan did?   Why can’t we just stimulate the economy with more debt until it starts producing jobs and economic growth.? (Conservatives refuse to acknowledge that this is what Reagan did — they want to hold on to the myth that he was fiscally conservative, not the reality.)

There are economists who think that a new stimulus could work.   They recognize we can’t use the kind of hyper-stimulus Reagan employed, but believe that another jolt of spending could get the economy moving, with the debt to GDP declining due to a higher GDP.    This argument relies on speculative and technical economic models which ignore political reality.   Due to almost certain credit downgrades and a devaluation of the dollar should such a route be taken, the risks to the economy are enormous — and could create long term stagnation.   Russian President Putin called the US a “parasite,” noting that we get away with high debt while pushing costs on to other states due to the reserve currency status of the dollar.   Countries aren’t going to let us get away with that; if we add yet more debt we’ll see countries dump dollars and treasury notes.  Again, this would damage the economy severely — and aren’t considered as variables when economists try to make the “more stimulus” argument.

Thats why most analysts who take into account both politics and economics say a decline in growth due to less government spending and higher taxes is preferable to running up a higher debt.   And if we do it right, it doesn’t mean that a recovery will be stymied.

First, though, a bit of cold water.   Remember the heady consumer utopia of the mid-00’s?  You know, low interest rates, home values rising (cheap home equity loans!), easy credit, buy buy buy!?   Those days are gone.   If by recovery you want to go back to the world of 2006, it’s not going to happen.   Recovery now simply means more people getting back to work producing goods and services people value.   The current account has to go into balance, and personal as well as public debt needs to decline.  We also have to come to grips with the fact that the number of people retiring will go up dramatically in coming years — needing social security and medicare, and the sad fact is over half of the people retiring have debt.

That’s why this will feel like the “age of austerity.”   The military will be forced to cut back its global role as the US will realize we cannot afford to try to dominate world affairs.    The dollar’s value will decline, and as foreign goods ultimately get more expensive, American products will rebound.   If government programs can effectively target spending into areas that create production and jobs, recovery can build even without increased government spending.  It will take time, and instead of flipping houses even well to do households will start to pay down debt and build savings.   The uncertainty factor is high, no one wants to be caught out of work and out of money.

As long as the re-balancing takes place with safety nets in place and government action to help facilitate growth (what Obama calls ‘investments in America,’) it won’t feel like the Great Depression.   The government and the federal reserve board have enough policy options to prevent massive unemployment and reliance on soup kitchens.    The tax rates on the wealthy are so low that raising them will not harm investment or stifle growth.  Yet it won’t be the booming bustling economy we’ve been used to.   Prices will likely go up faster than wages.  People will stay in their homes longer, keep cars until they start to wear out (and buy used ones rather than new ones), and live a bit more like we used to before the consumerist binge took off with the ‘something for nothing – borrow and spend’ mentality.

Ultimately, we will not be in good shape until the debt to GDP ratio is back under 60%, and even at that point we’ll still need to continue reducing debt.  I’ll be comfortable only when we hit about 30%.  To reach just 60% will require growth, cuts and tax hikes.  There is no other way.   And if wild cards like global warming or peak oil enter the fray, they’ll create more risk, but also provide opportunities.

The bubble growth that defined so much of the last 30 years was unsustainable.   The wealthiest benefited most, people were deluded into thinking they had more wealth than they did through bubble investments, and the apparent “growth” was built on the finance industry and services that offered little in real value.   It was a kind of “fake economy” which addicted us to the illusion that we could have something for nothing.

Although Americans think we’re immune to the kind of collapse states of Europe experienced in the early 20th Century, the massive gap between rich and poor plus the growing partisan divide and hyperbolic rhetoric, do show risk.  If the wealthy try to pay as little as possible and ignore social responsibility, the poor and middle class may turn on them in class warfare.  The right will then demonize minorities and foreigners, creating a  kind of neo-fascist rhetoric to keep the support of the working poor against intellectuals and “liberal elites.”  (One sees signs of this already in some of the more extreme tea party rhetoric).     If both left and right think that the need for austerity is false, foisted upon them by the ill will and misdeeds of the other side, the country’s bickering will prevent real solutions to fix our broken economic and political systems.

I hope it doesn’t come to that.   Re-balancing our economy will take years, but not decades.   We may not have the hyper consumerism of the 00’s, but we can have the comfortable middle class life styles that had been eroding even as the bubble economy grew.   Things seemed grand, but the reality was life was getting more difficult for the middle class and poor.    We can do it.   But the first step is to recognize the crisis is real, we’re entering a new era whether we like it or not, and we can’t just blame the other side for the problems.     There is no quick fix.

But given the consequences of hyper-consumerism on the environment, community, peoples’ psychological states and the political system, these changes could turn out to ultimately lead to a better place than where we’ve been.

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Understanding the Economic Crisis

I posted much of this back in 2009, but given the circumstances I’d like to again note what the nature of this economic crisis is — and thus how the circus in Washington totally misses the boat and in fact is risks real economic collapse.

In 1980 the US economy entered its worst post-war recession, one that would last until 1983.  The pain was real — high unemployment, high interest rates to fight inflation, and major manufacturing sectors going out of business, most notably the steel industry.   Nonetheless, the economic fundamentals were not all that bad.  The US government had gone from total debt of 120% of GDP at the end of World War II to only 30% of GDP, budget deficits were small, and the US ran a current accounts surplus, meaning that we were a net investor in the world.   The US could have responded to that recession by saving the manufacturing sector and investing in national infrastructure.   Instead, the Reagan Administration made a series of bad decisions, starting a process that would yield increasingly unsustainable economic imbalances for the next thirty years.

First, the recession was ending in 1983 due to a dramatic drop in oil prices, which stimulated the economy.  The oil price drop also eased inflationary pressures, allowing interest rates to go back down.   All other things being equal, we were going into a clear recovery.  Yet the Reagan administration increased budget deficits radically.   Total debt went from 30% of GDP in 1980 to 60% of GDP by 1990.   This hyper-stimulated the economy, creating an illusion of economic prosperity — you can think of the country as the equivalent of a family whose costs are declining but yet spending beyond their income through increased credit card debt.

Starting in 1981 US debt climbed rapidly as the Reagan Administration decided deficits and debt were OK; the trend has continued except for the mid/late 90s

Second, believing in the free market, the Reagan Administration allowed industries like the steel industry and manufacturing jobs to die out, to be replaced by jobs supposedly fitting our comparative advantage.   It was thought these would be high tech jobs that would benefit our advanced economy, but it turned out to be mostly service sector jobs, often in the financial industry, which did not produce any goods.   We started consuming more than we produced, as our current account went into deficit.

A current account deficit (not to be confused with a budget deficit or debt) means that we take in more from the rest of the world than we put back.  For us, this was mostly a trade deficit.  You can’t do that unless this is financed by foreigners buying US assets — property, bonds, stocks, currency, etc.    In this case China, Japan, and the Arab world were willing to buy US bonds and currency.  They trusted the dollar and thought these were good investments.   More importantly we were purchasing goods from them, and they knew the money would cycle right back to their economy, bolstering their industrial sector.  For China especially this was a win-win situation — they get a stake in the US economy, and we use that money to buy their goods, further stimulating their economy.   At this point China has about $2 trillion of US assets, and the US relies on China to help finance the deficit.  If China wanted to, it could launch a crippling blow to the US economy.   That would hurt China too, but if you ever wonder why the US doesn’t ever really pressure China, this is the reason.


The current account deficit becomes a problem at 3% of GDP.  The US hit that by 1990 and it kept growing.   We kept consuming more than we produced.   Moreover, the country as a whole went into debtor mode.   Saving rates dropped, personal debt (credit card and otherwise) increased, to the point that now the country is about $60 trillion in debt if you take all sectors into account (with nearly $15 trillion of that held by foreigners).  Credit card debt alone is $1 trillion.  Savings rates hit zero in 2006.   Some economists sounded alarms over this, but the wealth illusion made it seem like savings were unnecessary.  Instead of having money in savings, we had it in stock portfolios (in the 90s) and real estate (in the 00′s).   That theoretically meant that we could dip into our wealth if we needed funds, and thus low interest savings accounts were irrational.

Yet the wealth illusion was built on bubbles.   First was the stock bubble, where people literally believed all they had to do to get rich was buy some stock and watch it grow.   We got addicted to the notion of something for nothing.   People were borrowing to buy stocks, knowing they’d earn enough to pay back the loan and make money.  It was quite literally too easy.   And in 2000 (over a year before 9-11-01) the inevitable occurred:  it crashed.   The tech-heavy Nasdaq collapsed, and stocks started reeling.   The current account deficit was up to 5% of GDP, and the only good news is that we briefly had small budget surpluses rather than deficits.

At this point in time a painful recession like that of 1980-83 might have been enough to correct the imbalances and force us to increase production to bring it in line with consumption (and balance our current account).   Yet after 9-11, the US decided that we could not let terrorism bring down the economy.  President Bush said the patriotic thing to do was to go shopping, interest rates were kept very low, and thus a new bubble formed, the housing bubble.

Again, a something for nothing mentality took over.   Making money on real estate became easy, people could borrow from the equity on their home to buy more property, knowing it would go up in value.   Or at times people would borrow against their home just to have a better lifestyle, invest in a company, or pay for college.   Again, a wealth illusion spurred greater consumption, and by 2006 the current account deficit reached a whooping 7% of GDP.   Budget deficits started to rise again as well, as a mix of tax cuts and war (I still cannot comprehend cutting taxes in a time of war) led to rising debt and deficits.

With the financial markets deregulated, bizarre financial products were put on the market.   Mortgages were bundled and sold, and then those bundles were rebundled and resold.   These ‘derivatives’ were wholly unregulated, and produced huge gains as people saw them as both safe (rated triple AAA), and rising in value by 10% or more a year.  The perfect investment!   To keep creating these derivatives for which there was so much demand, mortgage brokers stopped caring if their clients could pay, leading to fraud and a massive decline in lending standards.  This wasn’t because of the government, this was deregulated capitalism!

The housing bubble was so dramatically out of line with historical housing prices people should have expected a collapse!

When the housing bubble burst, this started a chain reaction.   Note: the bad mortgages or subprime sector could not alone bring down the economy.   If it wasn’t for how these got bundled up and turned into complex financial products, the housing bubble could have burst with containable damage; easy mortgages alone were not the problem.   Rather, these complex and little understood financial products came crashing down, bringing the entire financial industry with them.  Bear Stearns felt it first in March 2008, then the biggie came when Lehman brothers had to declare bankruptcy in September 2008.

By September 18, 2008 credit markets had seized completely, the financial system stood at an abyss.   That’s why free marketeers like Treasury Secretary Hank Paulson were forced to go for a massive government bailout, and why Alan Greenspan admitted he was wrong in trusting the market to “get it right.”

However, that is only the tip of the iceberg.   The imbalances in the US economy not only are unsustainable, but it’s clear that China and the rest of the world are no longer willing to continue to finance a completely out of balance US economy.   We need to start producing more, or we will be forced to consume much less.    Even as we try to stimulate the economy, we do so by increasing debt, now at about 90% of GDP, and likely to rise to over 120% of GDP by 2015.

This is why the US cannot afford this fiasco about the debt ceiling.  The imbalances are real, and with the US no longer seen as a safe investment, interest rates could skyrocket causing a downturn that makes the last few years look minor.   This could be as bad or worse than the Great Depression.     The cause has been debt (especially in the 80s and 00s) and de-regulation.   I won’t go into taxes here (click here for more on that), but tax cuts to the wealthy have led to a dramatic increase in the gap between rich and poor, while adding to the debt.   That needs to be fixed.


Getting Real about Ronald Reagan

Former President Ronald Reagan’s name gets bandied about as either a mythic hero for the GOP or a dottering old bogeyman for many Democrats.   The reality, of course, is that he was neither, and the fallacies of both the left and right can be shown by looking at two especially misguided myths about Reagan.   The first is that Reagan’s economic policies brought the US a period of economic growth and prosperity, proving that smaller government works best, and the second is that Reagan shifted US foreign policy to be tougher on the Soviets, thereby hastening the end of the Cold War.   Both myths are dead wrong.

The truth about Reaganomics:   Ronald Reagan and the Democrats in Congress had an implicit deal:  taxes would be cut and spending would increase.   This meant that the economic boom in the 80s was built on debt.    The debt to GDP ratio went from 30% when Reagan took office to just under 60% when he left.   Given that the GDP grew during that time, this is a doubling of debt.    That is a stimulus package that puts Obama’s 2009 effort to shame.  If you double your debt it’s not hard to have an economic boom — but it was built on a house of cards.   Moreover, oil prices decreased dramatically during this time frame, meaning that the government stimulus of the economy was augmented by declining oil prices.

Simply: the supposed prosperity of the 80s was an illusion.   It was the functional equivalent of any one of us taking out credit and living very well for awhile.   It feels good while it lasts, but when it ends you’re left with debt.   It was unnecessary too — falling oil prices would have stimulated the economy naturally.   Moreover, this is the time frame when the US went from having a current account surplus (being a net investor in the world, with trade in balance) to a current account deficit (mostly a trade deficit).   We shifted from producing as much as we consumed to consuming more than we produce — with credit coming mostly from overseas.  This was the start of the great crisis we’re now enduring.

Yet Reagan doesn’t deserve all the blame.  The Congressional Democrats and Republicans found this path easy in the short term.  Just as Reagan didn’t veto spending (indeed, his administration famously said budget deficits don’t matter — something Dick Cheney would repeat in 2005), both parties of Congress found the ‘cut taxes, increase spending’ formula politically convenient.   This was a bi-partisan effort.

Still, the fact is that Reaganomics was a myth.   Government grew massively, debt grew, and so did spending.   All the 80s proved was that if you increase debt you can stimulate the economy.   We knew that already.

The truth about the end of the Cold War.   When the Soviets invaded Afghanistan in December 1979 President Carter announced a massive shift in US policy.    This included an increase in defense spending which he projected to be at higher levels than actually occurred under Reagan.   Moreover the Carter doctrine, announced on January 23, 1980, made it clear that the US would, for lack of a better term, fight a war for oil.   Keeping the flow of Persian Gulf oil going was made a primary national interest.

The shift of policy towards the Soviets was bi-partisan, with Reagan continuing the policies Carter put in place.   He did increase the amount of aid to the Afghan “freedom fighters,” something Carter didn’t want to do because he wasn’t sure it made sense to get in bed with Islamic extremists.  Reagan also shifted US policy in Nicaragua, supporting the Contras trying to overthrow the Sandinista government (Carter hoped to win the Sandinistas over).   Still, those changes did not lead to the collapse of the USSR.

The Soviet Union, stymied by a lack of leadership from 1981 to 1985, as Yuri Andropov and Konstantin Chernenko were both ill and ineffective in each of their brief tenures, imploded from within.   In Eastern Europe the crisis was worse, and by 1989 Hungarian and Polish Communists started a path to undo communism out of economic necessity.   Regardless of what US foreign policy would have been in the 80s, communism was collapsing and could not be saved.   Communism was an utter and completely failure on its own terms.

However, if Reagan didn’t cause the end of Communism, he also doesn’t get enough credit for helping assure Gorbachev could succeed.   As I noted in an earlier post about the two of them, Reagan should get credit for recognizing that Gorbachev was the real thing and acting in ways that helped him stay in power.   In 1986 the US military build up halted, as US defense spending stopped rising (in real terms).   In 1987 Reagan and Gorbachev signed the treaty eliminating intermediate nuclear missiles from Europe after the Soviet military concluded that SDI (the Strategic Defense Initiative designed to try to protect US strategic missiles from Soviet attack) was not a threat.

At that time, Reagan’s most vocal credits were from the right wing of his party.   Few remember how Reagan was attacked for ‘going soft,’ with some on the right claiming that Weinberger and Shultz weren’t letting “Reagan be Reagan.” Others thought Reagan was being fooled by Gorbachev who was just a slicker and more effective Communist.   True to his principles, Reagan shifted from a hard line to a helpful line when he saw that Soviet reform was real and a chance existed for Communism to either reform and die from within — a war wasn’t necessary.

This wisdom and insight of Reagan gets lost if one focuses on the myth of Reagan’s toughness somehow bringing down the USSR.   Many on the left attack Reagan as a hard core war monger whose approach was disproven by Gorbachev’s ability to push change.   In reality, Reagan and Gorbachev were a team, each needing the other.

In the fog of historical amnesia, Reagan’s rhetoric has become reality for most, both right and left.   Few realize that the 80s saw a doubling of US debt, with massive deficits during a boom — something that makes no economic sense.   Few realize that Reagan’s wisdom was not in standing tough against the Soviets (Carter started that policy) but shifting course after correctly understanding that Gorbachev was the real thing.   The ideological rhetoric used by Reagan covers up the fact that at base he was a pragmatist and a deal maker, someone who had the notion that he could reach an agreement with just about anyone.   He’d start with a tough sounding stance, but then negotiate.   People remember the former and forget the latter.

Historical reality shows that almost all Presidents and leaders are far more complex than the myths that survive.   Nuance, complexity and paradoxical information gets swept away in favor of a packaged simple narrative.   But it can be dangerous; those who say they want to be like Reagan on the economy don’t realize that means embracing more debt and economic stimulus.   Those who focus on Reagan’s alleged toughness don’t see his ability to shift when an opponent appears willing to embrace change.   Those who focus on Reagan as principled miss that he was also extremely pragmatic.    And as far as  I’m concerned the real Reagan was a far better President than the mythic Reagan ever could have been.

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Jerry Brown to the Rescue

The future of the United States may be seen in microcosm in California.  Like California, the US is in deep debt, having engaged in unsustainable economic practices.   But California, like the US, cannot be written off.  The resources, economic capacity and technological infrastructure is strong, and the state is not going to collapse into bankruptcy and chaos.

In this time of crisis Californians turned to a former Governor and one time Presidential hopeful, Jerry Brown.   Brown was last governor of California from 1975 to 1983, an era with a deep recession and an oil crisis.   He’s had experience in this kind of situation.     When he came into office Brown quickly got the reputation as a fiscal conservative, cleaning up excesses left by his predecessor, Republican Ronald Reagan.    For all his rhetoric, neither as Governor nor President was Reagan a fiscal conservative!

Brown opposed proposition 13, which cut taxes and dramatically reduced California’s state revenues.  But when it passed he implemented budget cuts and used the surplus he had garnered in his early years ($5 billion) to keep California viable.    He was respected by California fiscal conservatives, but not so much by social conservatives.  Seeing where the culture was headed before others, he appointed openly gay judges and officials, and pushed ahead on environmental issues, arguing that damaging the planet could have long term unintended consequences.  He also pushed for alternative energy, realizing that going from oil crisis to oil crisis would ultimately not be a healthy way to run California or the country.

Brown would run for President in the Democratic primaries a number of times, focusing on balancing the budget (he wanted a balanced budget amendment), exploring alternative energy sources, and repositioning the economy for a more high tech future.   In hindsight, it’s clear Brown had foresight.  Perhaps if he had been elected in 1980 the budget would not have spiraled out of control as it did in that decade.

So now Brown returns to California, no longer the balanced budget state he left when he moved out of the Governor’s mansion.   (Oh wait, he choose not to live there, and had a modest residence instead).   Now, he faces daunting challenges.

If California were a country, it would have the 8th largest economy in the world.  Yet it is heavily in debt, and its bonds are rated as just above junk (a distinction shared by Illinois).    California’s debt is about $100 billion ($80 billion in bonds issued, but another $40 billion of bonds have been authorized).    This year alone there is an expected short fall of $25 billion.  To cover that through borrowing would be very expensive due to the low rating of California’s bonds, meaning that they have to pay a high interest rate to borrowers.

Many are comparing California to Greece, saying that the state will default, and the collapse of California could have ripple effects throughout the US economy.   And, to be sure, that all could happen.    Arnold Schwarzenegger, elected to clean things up in California, tripled the debt during his tenure, setting up this crisis.   Yes, the housing boom hid the inherent weaknesses in the economy; Schwarzenegger was caught up in economic bubble like so many others, and he didn’t get much cooperation in trying to address budgetary problems.  Still, this leaves Brown with a herculean task — to save California, and perhaps by extension, keep the US economy from entering an even deeper crisis.

This solution is painful.  First, temporary tax increases are to be kept in place another five years.   Brown is smart enough to know the simplistic logic that “cutting taxes increases revenue” is wrong.   It can under certain conditions, but most of the time if you cut taxes, you cut revenue.  Second, Brown is proposing extensive budget cuts.   State workers, usually protected in such times, will be asked to take cuts of 8 to 10% of pay.   That is significant, but the state workers’ unions recognize its necessary.    He will also force workers to take furlough days — unpaid time off — to help cut costs.  A third of California’s budget is for state worker salaries.

Another $3 billion will be cut from state health care ($1.7 billion) and and the state’s “welfare to work” program ($1.3 billion).    The University system will also see $1 billion cut.   Despite this, Brown wants to start a rainy day fund, and significantly shift authority and money to local governments.   This is potentially the most important and dramatic of Brown’s moves.  Not only will the tax increases mentioned above go directly to local governments, but more and more Brown wants to decrease the scope of state government.   Local governments can better decide how to spend money, and perhaps what can be cut.

If Brown can get California’s democratic legislature to swallow these cuts (and at this point they’re in no mood to do so), California will show investors that it has its budget under control.   Not having to sell bonds this year to finance a budget shortfall will itself save billions, meaning that as painful as these cuts are, not making them only creates more pain down the line.  Brown also doesn’t want a federal government bail out.  He knows that the feds would be reluctant, given what this would signal to other states (and the jealous distaste many Americans have for California), but he also knows it would be the wrong thing to do.   California has to develop a sustainable economy on its own.

If it works, then not only is California poised to rebound, but Brown will have given the country a model of how to get out of this mess.   Not only can California demonstrate that deep budget cuts can be digested, but the idea of decentralizing power as a means to do so more effectively could alter the way this country is covered.   Brown always had a talent for paradox — he could demonstrate that in an era of globalization, the key to reviving the economy and becoming sustainable is to decentralize governmental power.

Another paradox:  Republicans talk a good game of decentralizing power and “states rights,” but while governing they do the opposite.  If a Democratic governor could convince a Democratic legislature to go along with this, that would show the Democrats capable of fiscal conservatism and of decreasing centralized power.

California is worth watching.  If Jerry Brown can pull this off, he may be able to do more for his country than he could have done as President.    A politician once consigned to trivia questions and jokes may emerge as a true leader, helping blaze a trail into the new world of 21st century politics.


Presidential approval

Many Republicans are pleased that President Obama’s approval rating has fallen to just 50%, a major drop from nearly 70% when he took office.   Historical comparisons might, however, put this in context.   (Approval rating data from the Wall Street Journal)

Ronald Reagan began his Presidency at about 60% approval, which went up a bit after the failed assassination attempt on March 31, 1981.    Due to what were seen by many as extremist policies undertaken by Reagan along with a Republican majority in the Senate and an alliance of the GOP and southern Democrats in the South, Reagan’s numbers began to tank.  The economy continued in a tailspin too — electing the golden voiced orator who espoused optimism did not elicit the magic people had expected.    By the start of 1982 his numbers were falling and nearing 50%, comparable to where Obama is at this point.   Reagan was seen to be a poor leader, out of touch, and too polarizing.  By mid-1983 his approval rating was under 40%.

At that point, Democrats were enthused.   Reagan was elected because of his charm and oratory.   Now that the public saw what he was really like, only 38% approved of the job he was doing.   No President that unpopular can be re-elected, Democrats looked towards 1984 with excitement.   However, the economy started to perk again, and with it Reagan’s numbers rose.    As 1984 started he was still below 50%, but then as the campaign moved forward, he bounced up to around 57% as he defeated Democratic nominee Walter Mondale.   The Republican majority in the Senate also remained in tact.   Soon Reagan was over 60%, though he would fall below 50% for much of this second term due to the Iran-Contra arms scandal.   He finished on an up note, leaving office with about 57% approval.

Bill Clinton entered office at about 55% approval, but within months he was down in the low forties, below where Obama is now.  He did push that back up to 50% by the start of 1994, but as his health care plan was defeated he hit 40% approval by late 1994.   The Republicans took back the House and Senate that year, and Clinton looked as weak a President as Reagan had seemed in 1982.    The economy started to pick up, however, and by 1996 he was at about 57% when he defeated Bob Dole for re-election.   From then on he stayed mostly in the low sixties, even as scandal and intrigue swirled around him.   The House impeached him, he survived a trial in the Senate, and his poll numbers stayed high.   Like Reagan, he left office considered as a hero to his party, the low early poll numbers forgotten.

George H.W. Bush, however, had no such problems.  He started out in the fifties, and zoomed into the sixties and early seventies during his first two years.   He did not lose popularity like Reagan had, he continually went up.   In 1991 he went over 80% after the Iraq war, and seemed poised for an easy re-election the next year.   Then the economy started to sputter.   By late summer 1991 he was in the low forties.  When he lost to Bill Clinton he had fallen to about 35% approval, though he did bounce back to near 50% by the time he left office.

George W. Bush started high, and peaked after 9-11.  He then had a steady drop to near 50% when he was re-elected, followed by an ongoing drop to ratings in the high twenties by the end of his term.

The bottom line in all of this is that Presidential approval ratings at this point are a poor indicator of anything, except perhaps the off year elections.   The Republicans should do very well this fall if Obama’s numbers go lower, though if he can hold at 50% it may not be as good as the Republicans hope for.   Obama, like Clinton and Reagan, are suffering less from any lack of performance on their part then the state of the economy.   To be sure, Clinton’s failed effort to reform health care drove down his numbers, and Obama may be experiencing a similar fate.   And, like Clinton, Obama is a target of a conspiracy theory minded right wing attack.   Obama is a socialist born in Kenya with radical ideas hidden behind a pragmatic veneer, if you buy the conspirators’ line.  Clinton had been a draft dodging radical who had people murdered and ran the White House like a mafia clan.   But while those conspiracy stories can inflame the far right, they don’t reach much into the general public, and often create a false sense by the extremists that the President is less popular than he really is.

Moreover, as the example of President Bush the Elder shows, high early numbers by no means guarantees a positive result.   Economic problems in late 1991 did President Bush, and erased approval highs that no other President had reached.   Only Bush the Younger approached such levels, and he left office with the lowest approval ratings ever.

Reagan and Clinton had their political obituaries written in 1983 and 1993 respectively.   They were failed Presidents, elected because of charm and offering “something new” — each espoused change — but were not up to the job.   Each proved that the reports of their political deaths were premature.    Bush the Elder was a sure thing for re-election, only to plummet dramatically to the ground.

So as one takes stock of the current state of affairs, trying to judge the future by the political winds of today is impossible.    It’s also too early to assume that Obama will bounce back like Reagan and Clinton — that might happen, but there is no guarantee.   Although Bush the Younger did manage to get re-elected, his poll numbers never bounced back once they started slipping.   Finally, it’s pretty clear that the President’s approval reflects less a response to the President’s actual job performance, and more a feeling people have about the state of the nation.  If things seem to be going well, and perhaps if the President has clear public successes, people will judge more favorably.   If things seem to be going poorly, and the President seems either invisible or under fire, they will judge less favorably.

So, Republicans can enjoy Obama’s current relatively low approval ratings, and maybe hope that like Clinton and Reagan, he continues to fall, perhaps to the 38% experienced by Reagan.   Democrats can take heart in the fact that 50% historically isn’t so bad, and he could fall farther and still have strong reason to believe things will get better.   But most of us can see the number as a short term sense of the mood of the country, subject to dramatic changes if conditions change.