Obama Needs Reagan Style Job Growth

President Reagan won a second term in a 49 state landslide.  With opposite economic policies and opposite results President Obama’s prospects are not so good.

The Labor Department posted another disappointing jobs report on Friday, emphasizing America’s continuing economic misery.  Employers created only 54,000 new jobs in May and the unemployment rate ticked up to 9.1%, from 9% in April.

Hoping to get a head start on the eventual Republican nominee, the Obama Administration has already shifted to campaign gear.  During a Friday campaign speech at a Chrysler plant in Ohio the President said:

I want America to be big and optimistic, not small and fearful.

The chart above compares President Obama’s failure to create jobs with the success of President Reagan’s administration.  Obama could learn from Reagan what government can do to help transform America from fearful to optimistic and in the process achieve the reelection victory he desires.

Twenty eight months ago President Obama inherited a deep recession.  The center-piece of his response was the so-called Stimulus, nearly a trillion in extra borrowing and spending, over and above the government’s already bloated budget.  Obama promoted the stimulus aggressively, promising that it would, in his words “immediately jumpstart job creation.”  Additional measures of government intervention in the private economy were to

  • Expand the bailout program begun under the Bush administration;
  • Enshrine as explicit government policy the theory that some companies, such as GM and Chrysler are deemed too-big-to-fail and will always be rescued from the consequences of their own mistakes, especially if their workforce is unionized;
  • Offer The “cash for clunkers” subsidy to new car purchasers
  • Subsidize blue-sky energy schemes that are too expensive and unreliable to survive in the competitive marketplace;
  • Provide subsidies to home buyers in the form of tax credits.  Because home prices have since declined those buyers have lost more equity than they received in tax credits.
  • Continuously promise tax increases on small businesses and investors to begin this year.  Last minute legislation passed in December postponed the tax increases for two years.  But in the face of the debt crisis he created the President and his supporters in Congress are again calling for immediate tax increases.
  • Continuously burden employers with hyper-regulation and new health care mandates.

Like President Obama, President Reagan inherited a deep recession as he took office in 1981. By some measures it was worse than the current downturn.  The unemployment rate was higher and mortgage interest rates soared above 15%, compared to 5% today.  Reagan’s economic program, based on his commitment to liberty, was the opposite of Obama’s:

  • Reduce regulation and government intervention in the economy;
  • Enact sweeping tax cuts that were phased in over three years.  Each of the 16 income tax bracket rates were reduced by at least 25%.  The top bracket rate was cut from 70% to 50%, and then to 28%.  Tax cuts left capital in the hands of those who had earned it and were best equipped to invest in job creating enterprises;
  • Release the creative and productive energies of The People from the restraints of government regulation.

The results, shown in the chart, speak for themselves.  Reagan’s policies turned the job market around and voters rewarded him with the largest Electoral College majority in American history.

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