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Bush’s Reagan Moment?

Posted By Barry Ritholtz On October 26, 2003 @ 11:45 pm In Media,Politics | Comments Disabled

“Senator, I served with Jack Kennedy Ronald Reagan. I knew Ronald Reagan. Ronald Reagan was a friend of mine. Senator, you’re no Ronald Reagan [1].”

Of all the astounding claims made by the present administration — and from the economy to the war in Iraq, there have been plenty — the one I find utterly incomprehensible is the frequent comparison to Ronald Reagan. Its hard to imagine two Presidents less alike in American history than Reagan and Bush.

But that doesn’t seem to dissuade Peter J. Wallison (President Reagan’s counsel in 1986-87). In an op-ed in today’s NYT — “Bush’s Reagan Moment [2]” — Wallison attempts to draw on that same iconography:

“As the election approaches, Mr. Bush will face enormous pressure to alter his policies — particularly to retreat from his tax cuts, scale back our commitments in Iraq and make foreign-policy concessions to our allies. But changing directions out of political expediency would be a grave mistake. And if he needs a model, there is none more apt than the man to whom he is often likened: Ronald Reagan.

Early in his first term, Mr. Reagan faced very similar pressures: his economic program was not yet producing the promised results, and his foreign policy — in that case, his confrontational approach to the Soviet Union — was criticized by the Democrats and the press and opposed by most Europeans and their governments.”

In his attempt to provide spiritual guidance to the President, Wallison turns a blind eye to the astounding economic differences between the problems Bush is grappling with and those Reagan faced. The failure to recognize those divergences may very well be the epitaph this Administration writes for itself.

Reagan came into office in the 8th inning of a 15 year bear market. Interests rates were high, Oil prices were up, economic and capital investments were down. The economy had been through not one but several recessions in the preceding decade. Everyone hated the stock market.

When Reagan was sworn into office in 1981, the top income tax bracket was 70%; Capital Gains taxes were similarly high, and the off-shoring of the country’s manufacturing base was already in full swing. The S&P500 [3] was no higher than it was in 1968. The country was suffering from high interest rates and low economic growth — economic stagflation. And the stock market had been in the tank for years. The Dow had been unable to stay over 1,000 [4] in 1980 — despite 5 previous attempts dating back to the 1965:

Dow Jones Industrials, 1969-1982, (weekly chart)
15 year chart shows no stock market progress; The Dow was unable to get past 1000

Reagan’s team crafted an economic plan to specifically attack those issues: they made a huge cut in the top tax bracket to encourage more saving and investing. They hacked at the capital gains tax to encourage people putting money into the stock market. It also didn’t hurt that Reagan had Paul Volcker as Fed Reserve Chair. Volcker is widely credited with ending the spiral of inflation in the 1980′s.

Reagan also avoided “incremental” policies. For good or ill, he made sweeping changes in all his policy initiatives. The top tax bracket rate was nearly cut in half.

In many ways, the economic problems [5] Bush faced were the polar opposites of Reagan’s:

President Bush came into office facing very different economic (as well as foreign policy) climate. The market had just ended an 18 year Bull run [6] — the longest in history. A massive VC over-investment bubble had just popped. Excess capacity existed in many technology and manufacturing industries. And too many people had recklessly plowed cash into the market just before the debacle was in full swing.

Dow Jones Industrials, 1982-2000, (monthly chart)

A very different picture: The market had just completed an 18 year Bull move, and was on the verge of collapsing

Here’s the great irony of the story: Bush had brought with him many of Reagan’s team. Despite facing glaringly different problems — could those 2 charts be any more different? — the former Reagan crowd trotted out the same old play book: they cut the top tax bracket — only it was an incremental decrease from 38% to 35%; Despite coming off the biggest investment bubble the world has ever seen, they saw fit to cut the capital gains tax rate from 20% to 15%. It was almost as if their attitudes were “Hey it worked before, so it should work again [7].”

Given his unwillingness to acknowledge economic reality, its of little surprise that Peter Wallison ignores the rest of the real world:

In many ways, President Bush is in better shape than Ronald Reagan was. While his popularity has sagged, it is still much higher than the 35 percent approval rate Mr. Reagan had in January 1983. Today’s Republicans, if not the Democrats or the press, understand that deficits are not necessarily harmful, and that tax cuts stimulate the economy. His staff is cohesive and behind him, certainly in public and likely also in private. And while Mr. Bush has plenty of domestic and foreign critics of the Iraq campaign, unlike Ronald Reagan, he is not being accused of risking World War III.

The source of Reagan’s popularity was his personal charisma, vision and charm; Bush’s poll numbers only shot up after the September 11 terrorist attacks; As typically occurs, Bush’s numbers also rose when just before our troops engaged in military actions in Afghanistan and Iraq, before settling back towards the baseline.

Certainly, tax cuts stimulate the economy, but some do so more than others [8]. The focus on the top bracket puts more money into the hands of the savings and investing class — not the spending classes.

His staff is cohesive? What about all the recent leaks, the animosity between the White House and the CIA, and the power struggle between the State Department and the Pentagon? Anyone who believes that hasn’t been paying much attention lately; The person who wrote it is delusional — or a liar.

And yes, the President has been “accused of risking World War III [9].

Unlike the Reagan moment mentioned, its late, not early in the President’s first term. Much of the impact of his tax programs have long been felt by the economy. While the Hoover comparison’s don’t ring true to my economic analysis, the Reagan comparos are just as untrue.

This is not George W. Bush’s Reagan moment; Indeed, it looks more and more like his “George H.W. Bush” moment [10] . . .

Bush’s Reagan Moment [2]


October 26, 2003

Tax Policy, Economic Growth and American Families [8]


Joint Economic Committees of Congress
July 20, 1995

Policymakers Face Economic Challenge:Can They Learn? [7]
by Andrew E. Busch, September 2001
John M. Ashbrook Center for Public Affairs


Bush Tax Cuts versus Reagan Tax Cuts [5]


August 25, 2003 Vol.4 No.1
OMB Watch

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/10/bushs-reagan-moment/

URLs in this post:

[1] you’re no Ronald Reagan: http://www.historychannel.com/speeches/archive/speech_222.html

[2] Bush’s Reagan Moment: http://www.nytimes.com/2003/10/26/opinion/26WALL.html

[3] S&P500: http://stockcharts.com/charts/historical/images2/SP1960.gif

[4] stay over 1,000: http://stockcharts.com/charts/historical/images2/DJIA1900.gif

[5] economic problems: http://www.ombwatch.org/article/articleview/1755/1/186/

[6] 18 year Bull run: http://stockcharts.com/charts/historical/images2/NASD1978.gif

[7] work again: http://www.ashbrook.org/publicat/oped/busch/01/economy.html

[8] more than others: http://www.house.gov/jec/growth/taxpol/taxpol.htm

[9] World War III: http://www.google.com/search?q=Bush+Iraq+World+War+III&ie=UTF 8&oe=UTF-8

[10] moment: http://abcnews.go.com/sections/politics/US/poll030503_election.html

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