Sunday, September 09, 2012

Kelly invokes Saint Reagan

There are a couple of ways to discuss today's Jack Kelly column. Kelly has a long history of repeating inaccurate, incomplete and frequently wrong facts. But, without even accusing Kelly of outright lying we can look at his central premise.

In this column Jack Kelly compares the economies that Barack Obama and Ronald Reagan inherited, and how well their respective responses fared. So first, what kind of economies did both men inherit? Obama came into something that resembled the great depression. Banks were in danger of failing, the stock market was in danger of crashing, unemployment was shooting up, the GNP was crashing as well. It was an immediate crisis. By the way, I need to say that while the crisis started in the Bush administration, that administration had also reacted swiftly with hundreds of millions of dollars to stem the immediate effect. Although they deserve blame for allowing the crisis to occur, they also deserve praise for not simply allowing the economy to drop into depression before Obama came into office.

When Reagan came into office, the economy was in the grip of something that had been labelled stagfaltion. That was where unemployment was high, but also inflation was high. It was not a situation where there was a threat that unemployment would go higher, or that banks would fail. There was, as I recall, concern that inflation could continue to rise and no one was sure what would happen. But no one, *no one* thought we were no more than a month or two away from another great depression.

In terms of Obama's and Reagan's responses to their respective economic crises, first, many economists agree that Obama's stimulus was too small, and contained too many tax cuts that don't really have as big an impact as direct spending (Obama's tax cut disproportionately benefited the middle class and poor, but tax cuts they were). Obama introduced the thing to Congress with a lot of tax cuts I believe as an immediate olive branch to Republicans. Not one House Republican voted in a bipartisan way to save the economy. Only three Senate Republicans voted for the stimulus, and only after they had further gutted the package, ensuring it would be too small. Thus the recovery now is anemic.

By contrast, Reagan's recovery was, as Kelly says, quite strong. But the man to credit with that recovery is not Ronald Reagan, it was the Jimmy Carter appointed Chairman of Federal Reseve Paul Volker. Volker raised interest rates much higher than the (then) current rate of inflation, and basically caused the economy to crash. Inflation dropped rapidly and then Volker dropped interest rates, essentially opening the flood gates and caused businesses to borrow money to start hiring and buying equipment, and those new hires bought things they had been putting off buying. Reagan watched this all from the Oval Office. All legislation he did put through was passed by a Democratic Congress that was interested in making America great again.

So you can see Jack Kelly whole column is disingenuous. There is no comparison between Reagan's and Obama's economies, and by the way Kelly fails to give credit to Paul Volker. I guess that is because Volker supports the idea of raising taxes on the rich now.

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