Home > Americas, English > Obamanomics vs. Reaganomics – Which Can Save the Economy?

Obamanomics vs. Reaganomics – Which Can Save the Economy?

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By Marquis Codjia

President Reagan in the Oval Office delivering his Tax Reduction televised address in July 1981 (Photo courtesy of the Reagan Library, Official government record)

In the 1980s, Ronald Reagan asserted emphatically that “government is not a solution to our problem,” but rather, “government is the problem.” Nowadays, many specialists revisit the soundness of such avowal in light of the mammoth government-engineered bailouts that questionably helped safeguard the global economic fabric.

Those experts are not alone. The current White House chief denizen, who uttered openly during the 2008 presidential campaign his admiration for Reagan’s political persona – much to the ire of some diehard Democrats – , has so far spearheaded policies overmuch adversative to Reaganomics.

Many Americans remember President Reagan for his debonair, articulate and Hollywoodian public posture; yet, the former leader had developed a sophistication in economic analysis that served him throughout the recession that hallmarked his presidency.

Faced with a dysfunctional economy at the onset of his mandate, President Reagan ingrained his policies in supply-side economics, advocating a quartet of measures that revolutionized America’s social dynamics and reignited its growth machine.

First, he proposed vast tax cuts on labor and capital to incentivize corporations and entrepreneurs to invest and innovate, whereas citizens, freshly cash awash due to increased savings, were heartened to spend. Next, deregulation in targeted economic sectors aimed at eschewing unnecessary costs to investors. Third, he steered a package of major budget cuts approximating – from 1981 onwards – a 5% reduction in government expenses (circa $150 billion today). Fourth, Reagan sought to tighten monetary policy to combat inflation.

The late president’s plan delivered mixed results.

Inflation experienced a spectacular fourfold decrease from 1980 to 1983 (13.2% vs. 3.2%), federal receipts grew higher than outlays (at an average rate of 8.2% vs. 7.1%), and the 16 million new jobs created helped shrink unemployment by 3 points (to 7.5% from a 1982 peak of 10.8%). Other accolades from the Cato Institute, a libertarian think thank, include a real median family income rise of $4,000 and a higher productivity.

This said, Reaganomics and its no holds-barred canons structurally devastated parts of America’s socio-economic fabric: fiscal cuts coupled with a surge in Cold War military spending created a yawning abyss in the nation’s finances (e.g.: large budget deficits, trade deficit expansion). In addition, some culpability can be attributed to the Republican leader vis-à-vis the 1987 stock market crash and the Savings and Loans crisis, merely because, at a minimum, both pandemonia occurred under his watch. In order to cover budget shortages, the administration then embarked on a borrowing spree that catapulted the national debt to $3 trillion from $700 billion, part of which (circa $125 billion) subsidized an S&L industry crippled by the failure of 747 thrifts.

The portmanteau Obamanomics – used to depict economic policies espoused by current U.S. President Barack Obama – is a new concept, which understandably needs more time to develop before a studious analysis can be conducted on its merits.

Clearly, the current administration – also faced with a chaotic economy – has so far adopted, or is envisaging, policies diametrically opposed to Reagan’s precepts: higher taxes, increased regulation, more spending, and a loose monetary policy.

President Obama’s plan to save banks was the correct initiative for two reasons: decrepitude in capital markets would have metastasized into a more costly, general chaos, and the fact that banks are now relatively stable attests to the program’s effectiveness, notwithstanding the remaining work to be accomplished in the bank bailout’s scheme.

Even if the current economic recovery plan will take a while to reach its desired goals, preliminary results so far are altogether mixed: banks are loath to lend, the mortgage sector is still lethargic, the lackluster private consumption is hampering corporate investments and the global economic productivity. The economy is gradually adding thousands of jobs but the unemployment rate still stands at 9.7%.

So, which of Reaganomics or Obamanomics can save the economy today?

The answer is none.

No economy policy ingrained in political partisanship can save the economy; to be efficient, authorities must use a combination of ideologies, extirpating the best areas of each and amalgamating them into a coherent plan deep-rooted in sound economics.

First, the government must balance its budget by reining in bureaucratic waste at the federal and state levels, seeking higher efficiency in its social programs and maintaining a tax base able to provide sufficient inflows. The recent nomination of Jeffrey Zients as U.S. Chief Performance Officer is a welcome decision.

Second, the government and the legislative branch must agree to suppress or significantly reduce pork-barrel spending; even if some of the projects subsidized are valid, the lack of transparency and the fact that too much power lies in the hands of one lawmaker are troubling. Citizens Against Government Waste, a private, nonpartisan watchdog, estimated in its latest report that 2009 pork-barrel spending amounted to $19.6 billion, up from $17.2 billion the previous year.

Third, the government must invest in education, sciences, health, and recreation services to assure a productive labor force and educated populace. Every citizen appreciates a good local school system, an efficient police, and functional social services. Fourth, a gradual and well-balanced regulatory framework for critical sectors is needed to level the playing field for all economic agents and eschew the negative effects of systemic risks.

Finally, the tax code should be more efficient and easier to understand so more revenues are collected. Currently, it is estimated that it costs the IRS between 25 and 30 cents for every tax dollar collected, without counting the billions spent by citizens in tax compliance and planning. We have a simplified property tax code in our cities; why can’t we engineer a similar scheme at the federal level?

  1. Reveeen
    April 3, 2010 at 6:55 am

    You miss, ENTIRELY, one important difference. Since President Reagan our politicians have been doing their best to export jobs out of the US. Be it free trade with Mexico, Columbia, or “favoured trading status” with communist China, the “working class” jobs in the US have all but dissappeared. In this manner you are comparing apples to oranges and are trying to pull a rabbit out of a hat.

    • April 3, 2010 at 8:48 am

      Thanks for your comment.

      My analysis endeavored to compare and contrast two ideologies that have come to epitomize – what I call – “partisan economics” in our country. Republican critics believe Reaganomics was the greatest policy framework ever, whereas Democrats posit that its “Trickle down economics” did harm the country. As I said in the article, a middle ground can be found in both concepts to lead us off this recession.

      Looking at the job picture only is erroneous in my view because the economy is dynamic and other factors come into play: capital and technology. Reagan had its challenges and Obama is having his.

      Blaming NAFTA and other free trade agreements will not serve the debate since it can be argued that they also served well US consumers. The questions then become: what investments do we do in training workers? How do we stay competitive? How do we adjust to the changing world?

  2. Fred
    April 3, 2010 at 7:37 am

    You’re very right about that: politicians usually don’t want change unless it’s forced upon them or a crisis happens. let’s hope obama succeeds in his efforts.

  3. MAD19
    April 3, 2010 at 7:37 am

    Great article!

  4. Rachel Horn
    April 3, 2010 at 7:38 am

    Excellent😉

  5. Rierso
    April 3, 2010 at 7:39 am

    I agree with the author that both presidents aren’t doing what should fix the economy, rather they’re colluding with their lobbies to export jobs out of the US and invest in sectors we dont need.

  6. Paula
    April 3, 2010 at 7:40 am

    Thanks for sharing this.

  7. Fatou N
    April 3, 2010 at 7:41 am

    Well, if only our politicians can learn from past mistakes… that’d be a gd start!

  8. RockyB
    April 3, 2010 at 7:42 am

    Wonderful post, keep it coming!

  9. Leila Walid
    April 3, 2010 at 7:43 am

    What a waste all the money we spend everyyear on tax; we cld build roads and infrastructure with that and not cripple our kids with debt! Shame on all politicians.

  10. Gideon
    April 3, 2010 at 7:44 am

    Gr8 article

  11. Robert
    April 3, 2010 at 7:44 am

    Right on!

  12. Zaha Patel
    April 3, 2010 at 7:46 am

    Corruption, corruption….. that’s what kills the economy and politicians know it!!!!!!!!!!!!!!!!!!!!!!!!!!

  13. Ringe Elizabeth
    April 3, 2010 at 7:47 am

    Thanks for enlightening us on this

  14. Allen P
    April 3, 2010 at 7:48 am

    Great article! DO MORE ON THE ECONOMY

  15. GOP Go
    April 3, 2010 at 7:53 am

    Obama’s plan will leave the country indebted for ever with trillions of dollars and our kids will pay for it, too bad!

  16. Dr Riga Shutter
    April 3, 2010 at 7:56 am

    Marquis,

    Thank you for an excellent post. You cover perfectly the pros and cons of both doctrines but you fail to emphasize that the current administration is doing quite the opposite of what Reagan did and that worked.

    Regards,
    Dr Riga Shutter

    • April 3, 2010 at 8:51 am

      Dr Shutter,

      Thank you for your comments. I believe I’ve stressed that the Obama administration is doing quite the opposite of what Reagan did. I’m not sure I agree with you that what Reagan did worked well 100%, I’ve rather offered a nuanced view about that.

      Regards

  17. Hamed
    April 3, 2010 at 7:58 am

    Raising taxes on those that stimulate the economy the most and already pay the most taxes makes no sense at all.

    • Pam
      January 3, 2012 at 8:25 pm

      If they are doing such a great job stimulating our economy, then why are we having these debates? The wealthiest Americans still have a tax break, and have had a tax break for a few years, so why is our economy not stimulated? We still have high unemployment rates and our econonmy is still very fragile, so hiding behind they stimulate the economy just doesn’t cut it for me. We do need to cut spending, but everyone should be taxed equally, period.

  18. Roi Hang
    April 3, 2010 at 7:59 am

    Poor people don’t provide jobs so why keep helping them?

  19. Linete
    April 3, 2010 at 8:00 am

    Joseph Stiglitz, who was connected to the Clinton presidency and a 2001 Nobel prize winner, said that Obama’s actions on the economy are brilliant. He also said that the deregulation of the markets during Clinton’s presidency was a mistake and the markets need to be re-regulated.

    Edmund Phelps, 2006 prize winner, agreed. We need a new way of looking at the economy and Obama is the one that can do that. We do not need the thinking of the past.

  20. Loveli
    April 3, 2010 at 8:01 am

    NO NO NO NO!

    “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.”

    http://online.wsj.com/article/SB12112446…

    Tax increases cause businesses to cut back and/or raise prices. This hurts consumers. Businesses are not in business for the goodness of their hearts. They are suppose to make a profit. Taxes hurt businesses.

    Those that think Obama’s tax increases will only affect those making over $250,000 are naive. Experts have said that with all of Barry’s plans, taxes will have to be increased for lower incomes. Plus, the capital gains increases will hit much lower incomes.

    AND, his health care scheme is unfair. If we insure “47 million Americans” what includes the 20+ million illegal aliens and missions of Americans that CHOOSE not to get insurance. Why should we have to pay for them?

  21. Madness
    April 3, 2010 at 8:01 am

    What has Bush the 3rd come up with? What were his economic policies??…

  22. Rpi
    April 3, 2010 at 8:02 am

    Couldn’t be any worse than our current economy frm Reagan to now. let obama work!

    • Pam
      January 3, 2012 at 8:29 pm

      I agree. Nothing is irritating me more than right versus left debates. No one agrees because no one wants to let “the other side win.” My thought is why don’t we work together and help everyone win. This left versus right thing is just irritating.

  23. Close USA
    April 3, 2010 at 8:03 am

    If you don’t work and have no desire -to- work, Obama is your man

  24. Grumo
    April 3, 2010 at 8:04 am

    Well, we know how bad Reaganomics suck. Maybe it is time to move on to something else….. and fast!

  25. Al
    April 3, 2010 at 8:05 am

    It’s pretty clear politicians have no understanding of economics what so ever.

  26. Angel
    April 3, 2010 at 8:05 am

    Obama is not good for America or Americans at all!

  27. Bo
    April 3, 2010 at 8:06 am

    Who really knows? I know that Reaganomics weren’t working and neither is this current administration of spend, spend spend and not even try to pay for anything.

  28. April Fool
    April 3, 2010 at 8:07 am

    Heavy taxing during a REcession will lead to a DEpression. Plain and simple, you can’t tax a country into prosperity.

  29. Rahl
    April 3, 2010 at 8:08 am

    Obamanomics is called socialism and is a failed economic model going back centuries. When will these guys learn? Do not punish those that make product and money, go after those who hold back productive people.

  30. PAPA
    April 3, 2010 at 8:10 am

    Obama action is bad for rich people, it was already clear during the last campaign; take a look at what both candidates offered

    McCain’s Plan:
    If you make over:
    $2.9 million – You save $269,364
    $603,000 – You save $45,361
    $227,000 – You save $7,871
    $161,000 – You save $4,380
    $112,000 – You save $2,614
    $66,000 – You save $1,009
    $38,000 – You save $319
    $19,000 – You save $113
    Under $19,000 – You save $19

    Obama’s Plan:
    If you make over:
    $2.9 million – You PAY $701,885
    $603,000 – You PAY $115,974
    $227,000 – You PAY $12
    $161,000 – You save $2,789
    $112,000 – You save $2,204
    $66,000 – You save $1,290
    $38,000 – You save $1,042
    $19,000 – You save $892
    Under $19,000 – You save $567

  31. Free at last
    April 3, 2010 at 8:11 am

    History has proven that Obamas fundamental economic misunderstanding is a plan for failure. Those who fail to learn from the mistakes of history are doomed to repeated them. Jimmy Carter made about every mistake possible for a president to make and Obama is just a carbon copy of Jimmy Carter.

  32. Chuck
    April 3, 2010 at 8:12 am

    Not Bush, nor McCain, nor Obama can fix this mess the country is in now.
    We all did it to ourselves with greed.

    They give billions to the banks to bail them. Then they tell the banks to loan the money that they have been given. Which, by the way, is our OWN DAMN TAX MONEY. Well my question is who are they going to loan the money to?

    Are they going to loan money to all the thousands and thousands of AMERICANS that have lost their jobs? NO

    Are they going to loan the money to the thousands and thousands of AMERICANS that are losing their homes? NO

    I mean, who the hell are they going to loan this money to?

    Are they going to loan it to companies that are closing down their business to move it out of the country to put MORE AMERICANS out of work?

    Are they going to loan it to the illegal aliens and immigrants that don’t pay taxes or anything else?

    The rich can go borrow the money for really low interest rates and go spend it and make more money off of it. Or if they lose it they just get rid of MORE WORKING AMERICANS and blame it on the economy and then we have more unempolyed AMERICANS that can’t borrow the tax money that the government gave the banks that we paid.

    I have said this on many of these discussions:

    MIDDLE CLASS AMERICANS are screwed over more than anyone in the WORLD.

    MIDDLE CLASS AMERICANS, whether you are black or white or hispanic, YOU need to stand up and say ENOUGH.

    MIDDLE CLASS AMERICANS support the world. WE make the rich people rich, WE support the poor. The rich don’t care they already have theirs. The poor don’t care becuase we support them.

    President Elect Obama, whether you voted for him or against him, CAN NOT fix this mess. He might be able to put a bandaid on some of it but NO President can fix it. He won’t be able to stop all of the jobs leaving our country becuase the rich want more profit. He won’t be able to stop the greed anymore than any other President ever has.

    The ONLY people that can fix this is MIDDLE CLASS AMERICAN WORKERS. We pay the taxes we support the world. I have had people tell me the rich pay all these taxes, that the rich are the ones that make the companies and the factories. SO THE HELL WHAT!! WHERE do you think they got those riches. Was it magic? NO. They got rich and got the money from selling their products to MIDDLE CLASS AMERICANS.

    Wake up MIDDLE CLASS AMERICANS. We are all going to be poorer and the few will be richer.

  33. Worb
    April 3, 2010 at 8:13 am

    Unemployment won’t matter. When socialism is instituted, we will all make the same amount of money. We can live in high rise government apartments, go to our government jobs, etc. Man, the Chinese have this stuff figured out! I sure hope my daughter is a gymnast….I will get to move into the sweet apartment that has a separate room with for the toilet to go in. I hear it is called a “bathroom.”

  34. Portland
    April 3, 2010 at 8:14 am

    Great article! thx

  35. Wells
    April 3, 2010 at 8:14 am

    thx for sharing this

  36. Matt
    April 3, 2010 at 8:16 am

    unemployment can’t get much worse, things will pick up again soon.

  37. Alexa
    April 3, 2010 at 8:17 am

    Pay atention to current numbers, things are getting worse.

  38. Mary
    April 3, 2010 at 8:18 am

    Long term growth vs long term recession is what we’re getting from Obmaa

  39. Peter
    April 3, 2010 at 8:18 am

    Well, the architect of “Reaganomics” (a/k/a “trickle down economy”) Alan Greenspan already testified before Congress last year saying he was “Surprised” that his “economic theory was severely flawed” and that these flaws contributed “greatly to the current economic downturn”. On the other hand, we have yet to see any of the effects of Obamanomics…ask again in a couple of years.

  40. Economist
    April 3, 2010 at 8:19 am

    Reaganomics is trickle down (the wealthy, who own the businesses will help the middle class earn money through employment and the more money the wealthy earn the more generous they would be with their employees)
    Obamanomics is trickle up, that giving the lower and middle class all kinds of financial breaks will somehow incentivze them to be more productive and then the owners of the businesses will benefit too. That is a theory that I don’t understand to be honest. The problem with our economy doesn’t have anything to do with Reaganomics it has to do with over leveraging by America’s biggest businesses.
    Also, Reagan cut the size of government. Smaller government means smaller budget. Smaller budget means less taxes which means you get to keep more of your hard earned money.

  41. Coolio
    April 3, 2010 at 8:20 am

    REAGONOMICS – THE PEOPLE KNOW BEST – LET TO THE THE LONGEST ECONOMIC GROWTH PERIOD IN THIS NATION’S HISTORY.

    OBAMANOMICS – THE GOVERNMENT KNOWS BEST – A LOT LIKE FDR’S NEW DEAL WHICH FAILED TO END THE GREAT DEPRESSION AND PROBABLY EVEN MADE IT WORST OR AT THE VERY LEAST MADE IT LAST A LOT LONGER.

  42. Mad
    April 3, 2010 at 8:22 am

    8 year of rich getting richer… poor getting poorer vs. 8 years of the DISASTER of BUSHONOMICS… leading to the worst recession in decades.

    LET OBAMA FINISH THE JOB HE STARTED PEOPLE…………..

  43. independent
    April 3, 2010 at 8:22 am

    People will soon realize that BO only said what he needed to say to get elected, now that he is in, it’s a different story. As you said if he studied Regan, he could apply some of it, but that is not truly what he planned.

  44. Watta
    April 3, 2010 at 8:23 am

    Obama and Ebonics?🙂

  45. Hamid
    April 3, 2010 at 8:24 am

    There was a big housing crisis under Reagan as well.

  46. Raoul
    April 3, 2010 at 8:24 am

    Great article, thx for sharing

  47. Prescient
    April 3, 2010 at 8:26 am

    the economy is getting better despite Obama having done nothing. Almost none of the “stimulus” money has been disbursed. This just shows how completely unnecessary it was. Unfortunately, this is only a temporary lull and the real recession hasn’t hit yet. It will come when foreign investors refuse to buy our bonds because we are so far in debt as a result of Obama’s policies. In other words, the “stimulus” bill will CAUSE the real recession.

  48. Panda Man
    April 3, 2010 at 8:26 am

    Economies are cyclical in nature anyway. There is little government can do to make them better but they can make them worse. What politicians are good at is using natural downturns in economies to seize power from a scared population.

  49. Liberal
    April 3, 2010 at 8:27 am

    Believe what you see….. Is the economy doing better? No it’s not… Just cause some liberal media wishes to brain wash people to help support a liberal president doesn’t mean everything you hear is true.

  50. Gustavo
    April 3, 2010 at 8:29 am

    Basically, everyone needs to get used to lower living standards. That is the outcome of socialism.

  51. Roizz
    April 3, 2010 at 8:30 am

    If you think Obama has had a real, lasting effect on the economy in 15 months, there’s something wrong with you.

  52. Taylor P
    April 3, 2010 at 8:31 am

    What about some optimism? I think things are improving slightly I just hope Obama’s stimulus bill doesn’t hurt the recovery once it kicks in..

  53. A125
    April 3, 2010 at 8:33 am

    I believe the bottom has been reached. Hopefully, the government can find itself out of private business very soon.

  54. rocky1969
    April 3, 2010 at 8:34 am

    unemployment is even worse and getting worse by the day…i think that says a lot..i think the media is bsing how bad it is

  55. Mediawatch
    April 3, 2010 at 8:34 am

    No the economy it’s not getting better and is going to get worse before getting back on track.

  56. P
    April 3, 2010 at 8:35 am

    Great post here!

  57. Canada
    April 3, 2010 at 8:36 am

    Read this
    Olive: Despite what the critics say, ‘Obamanomics’ is working
    http://www.thestar.com/business/article/781052–olive-despite-what-the-critics-say-obamanomics-is-working

  58. Reveeen
    April 4, 2010 at 1:09 am

    “Blaming NAFTA and other free trade agreements will not serve the debate since it can be argued that they also served well US consumers. The questions then become: what investments do we do in training workers? How do we stay competitive? How do we adjust to the changing world?”

    The only thing served by shipping our jobs offshore was it allowed those who could take advantage of the savings to make yet more money. Those offshore workers, are just that, workers, their wages are too low for them to be consumers. The average middle class worker (pre NAFTA, or whatever you choose to call it) is NOT in this position and we must remember: to consume you have to have a level of income that allows you to consume.

  59. Reni
    April 6, 2010 at 6:02 pm

    Obama will succeed, let’s help him out and wish him good luck.

  60. Dunbar
    April 6, 2010 at 6:04 pm

    This is all bs because either party can’t fix the economy if they dont rip the system off all the bribes.

  61. Koliour
    April 6, 2010 at 6:05 pm

    Well, we shd wait and c as far as what Obama is doing.

  62. Physics Man
    April 6, 2010 at 6:09 pm

    Well the economy shd fixed itself if all those Washington politicians just let it run on its own.

  63. Delta
    April 6, 2010 at 6:11 pm

    great post!

  64. SNL
    April 6, 2010 at 6:15 pm

    Great😉

  65. Fisher V
    April 6, 2010 at 6:18 pm

    Thanks for sharing this.:)

  66. Obi
    April 6, 2010 at 6:19 pm

    Excellent post here, sign me up

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