A Tale of Two Recessions

Pundits have taken to calling the 2008 financial meltdown the "Great Recession," hinting at the idea that this was the worst recession since the Great Depression of the 1930s and 40s. This is a clever name. Not only does it have a nice ring to it; it also provides cover for the current resident of the White House, as it allows him to blame the anemic recovery/ongoing recession on the terrible economic situation he "inherited."

For example, on his current bus tour through the Midwest, he promised Americans he would do everything he could to address the economy he inherited, which was, "as deep and as dire as any since the Great Depression." And that White House resident is more than happy to blame everybody but himself for the current economic situation (dare we say, "malaise") of the country:

• "Obama Suggests Congress to Blame," (The Atlantic Wire, August 11)
• "On Bus Tour, Obama Shifts Blame to Republicans," (Reuters, August 16)
• "Obama Blames Tea Party for Holding Back Economic Recovery," (The Raw Story, August 16)
• "Obama Blames Bush and GOP," (Washington Wire, August 2)
• "Obama Blames Blogs, Fox News," (Beltway Confidential, August 16)
• "Obama Blames the Internet for High Unemployment," (Fox Nation, August 17)

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What ever happened to, "The Buck Stops Here"? So let's look at two questions here:

1. Is this in fact the worse economic downturn since the Great Depression?
2. Is it really everybody's fault but Obama's?

First, let's compare this to the last truly ugly recession this country faced. To do this, we have to go back to the early 1980s. We can skip over the 1991-1992 recession, as it was mild, despite the fact that Bill ("It's the Economy, Stupid") Clinton convinced enough voters otherwise to get elected. That recession lasted just eight months and saw a peak unemployment rate of 7.8%. The recession of 2000, which came on the heels of the bursting of the Internet bubble and the September 11 terrorist attacks, lasted eight months and saw a peak unemployment rate of 6.3%. The last really hard recession this country faced lasted from July 1981 to November 1982. It came directly on the heels of a shorter recession, which lasted from January to July 1980. Ronald Reagan took office during this short period between recessions, so he certainly had every right to complain that he had "inherited" a pretty tough economic situation, just as Barack Obama claims today. So let's compare these two in terms of unemployment, interest rates, and other factors to see who faced a tougher economy:

President	Unemployment	Inflation	Prime Rate
Ronald Reagan 1981-1982	7.4%	10.8%	20.5%
Barack Obama 2007-2009	5%	4%	7.25%

Clearly, every economic indicator was worse at the start of the 1981 recession. Unemployment was higher, President Reagan was dealing with inflation more than double the rate faced by President Obama, and the prime interest rate (which guides all lending rates in the country), was more than triple. Obviously, President Obama didn't face a recession "as deep and as dire as any since the Great Depression." What is more telling, however, is how the economy looked later in each presidency. It is now 26 months since the "Great Recession" officially ended in June of 2009--just five months after Obama took office. Let's compare the numbers today with those of January of 1985, which was 26 months after the recession of 1981-1982 ended:

President	Unemployment	Inflation	Prime Rate
Ronald Reagan	7.3%	3.5%	10.5%
Barack Obama	9.1%	3.6%	3.25%

Not only did Ronald Reagan face a more difficult economic situation, but his results were far better. This is even more amazing when you consider that the unemployment rate peaked at 10.8% in November and December of 1982, and fell to 7.3% from there--down 3.5 points. The 2007 recession unemployment rate peaked at 9.5% in June of 2009 (although it went as high as 10.1% after the "recovery" began). At best, this number has only fallen 1 point since its peak. President Reagan also brought inflation from a stifling 10.8% down to 3.5%, the prime rate was cut in half. When President Reagan left office in January of 1989, the unemployment rate had fallen to 5.3%. By the end of President Reagan's first term in office (January 1985), which correlates to our 26-month mark after the start of the 1981 recession, over 5.3 million jobs had been created on his watch. In the 26 months since the start of the 2007 recession, 2.4 million jobs have been LOST on Barack Obama's watch. So why the difference? How did President Reagan take a more difficult economic situation and turn it around, while the economy stagnates and loses ground under Barack Obama? The answer is clear: Ronald Reagan put his faith in the American people. Barack Obama puts his faith in government. On August 13, 1981, Ronald Reagan signed the Economic Recovery Act. This law cut income tax rates by 23% across the board, and cut the top tax rate from 70% to 50%. Eventually the top rate fell to 28%. Note that this law provided NO government grants or "stimulus" money. It simply forced the government to take less of the people's money to begin with--it gave them their money back so they could do with it as they chose. In the years that followed, President Reagan also rolled back onerous regulations on individuals and businesses; these decisions all flow from the same idea, according to Reagan: "Government is not the solution to our problem. Government is the problem." Reagan believed that if the government simply got out of the way of the people and their pocketbooks, the American people, freed from economic bondage, would stimulate the economy. And they did. Let's compare this to the American Recovery and Reinvestment Act, which provided $787 billion of stimulus money to the economy. The philosophy of Barack Obama is that people don't stimulate the economy; governments do. Only the government knows where money needs to be spent and how it should be spent. He has no faith in individual Americans to make these choices on their own. It is no surprise that this stimulus package didn't stimulate. Stimulus packages never stimulate. They create temporary jobs, misdirect money that could be better spent in the private sector, and increase government debt--all of which we have seen in abundance with this "stimulus." So the answers to both questions seem clear:

1. Barack Obama did not inherit the worst economy since the Great Depression.
2. Our current situation really IS his fault. Barack Obama has been in office nearly three years, and the recession has been over for more than two. He's been president long enough to take ownership of things at this point. If Ronald Reagan could pull off the economic miracle he did with a far worse economy in this much time, can you imagine what Barack Obama could have done if he understood basic free market principles?