Reagan, Obama Received Very Different Economic Advice
A big difference between our two political parties is rooted in economic theory, governing style, and different management strategies.
Top-down and bottom-up are very opposite ideas. By examining the economic advice given to two newly elected presidents by their chosen experts, perhaps we can see a difference between selected courses of action. There is, of course, no definitive right or wrong, and we only know that experience is the best teacher.
Recently The Wall Street Journal published excerpts from a Nov. 16, 1980, memo authored by a blue-ribbon committee of economic and fiscal experts that was titled "Economic Strategy for the Reagan Administration."
The committee was chaired by George F. Schultz, a Chicago School economist who served several presidents and was the first director of the Office of Management and Budget. The 12-person ad hoc group included leading thinkers of the day from business, government and the academic communities. They were generally Austrian School free market economists.
The advice is what one would expect from free market believers: stable, strong dollar; economic growth through real expansion of jobs, investment and productivity; strong defense; restraint of government spending; reduction of taxation and regulation; and anti- inflationary policies.
"The current regulatory overburden must be removed from the economy," the memo said. In strong language it told the president-elect that the flood of new regulations must be drastically curtailed.
Reagan's economic team addressed policy initiatives and preached stability as well as predictability. It called for elimination of the Department of Energy and deregulation of natural gas price controls incorporated in the Natural Gas Policy Act of 1978. In conclusion, it called on the president-elect to gain the support and understanding of Congress.
Finally, the memo pleaded that it was critical to be candid with the public and that long-term strategies should be announced with realistic time frames so the public could better understand what to expect.
In January 2012, the New Yorker magazine published the text of a 57-page document dated Dec. 15, 2008, from economist Lawrence Summers to President-elect Barack Obama. The document, which has never been made public, presented Obama with the grim scale of the post-Lehman Brothers collapse and depth of the Bush fiscal crisis.
The Summers memo was in reality a short-term action plan that reviewed campaign promises with conditions on the ground. The plan spoke only about stimulus and how much should be committed by the incoming administration. Input was provided by labor, liberal Democrats, the AARP and the economic faithful of Keynesian theories.
That economic theory developed by John Maynard Keynes during the Great Depression seeks to have the public sector step in to assist the economy generally through promotion of consumer spending using government power. Keynes believed that if the poorer segments of society are given sums of money, they will likely spend it, rather than save it. It is the spending that they believe is the driver of growth.
There is, unfortunately, no market oversight to the Keynes process. And if the planners miss the mark, there may be serious disruption to the system. The overuse of government power such as for subsidized mortgages for sub-prime home buyers, while reaching for a noble social goal, may have an impact on price levels that creates instability, oversupply or undersupply, and an irrational market.
The assumptions made by Summers and his associates were rooted in the critical need for a massive stimulus, and the memo only discussed how much. The mechanics of how to put the massive amount of money into the economy was not addressed in the memo. A chart provided to President Obama showed that a stimulus package of $890 billion would create 3.2 million jobs and that the unemployment rate would be 7.3 percent by the first quarter of 2011.
The remarkable document made no mention of efficiency or reduction of overhead for business operators or citizens. It was, "What can you get them to accept, and how will the public react?" A chart provided campaign issues and predictions for the 2012 Obama re-election effort.
Most of the predictions concerning job growth, debt as a percentage of gross domestic product, unemployment rates, cost estimates and income assumptions, with the benefit of hindsight, were wildly inaccurate. Perhaps that is why the document has not been distributed.
Any businessman knows that long-range planning that exceeds one year is only an educated guess, and that planning has to be reviewed frequently and measured realistically against results. Any time you fiddle with the output data to skew results, you do everyone a disservice.
Walter B. Bull Jr. lives in Pinehurst. Contact him at email@example.com.
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