With so much misleading talk about the current economic situation, I thought it might be appropriate to provide a simplified account of exactly what happened to the US economy over the last 50 years. And by training I am an economic historian, though long since moved on to other pastures.
But first I want to suggest two lenses to view what happened. First Genesis Chapter 47 verses 29-30 Joseph interpreting the Pharaohs dream predicts: ‘There will come seven years of great plenty throughout all the land of Egypt. After them there will arise seven years of famine.’ Economies like agriculture-dependent ancient civilizations have cycles.
And secondly the savior of western capitalism from the twin perils of fascism and communism, the economist John Maynard Keynes ( 1883-1946) inspired counter cyclical economic policy that is not so far removed from the story in Genesis. In his theory, economies need to run government surpluses (government spends less than it raises in taxes) in good times and deficits (governments spend more than they raise in taxes) to keep the economy running in bad times. That is what Keynesianism is about and that is not what it is understood to be about by conservatives, probably the greatest beneficiaries of Keynes insights as he saved their beloved capitalism from doom, as even Milton Friedman once admitted. This is John Maynard Keynes and a hero of mine, so I am biased:
So how have US Presidents fared? What exactly happened over the last fifty years?
Eisenhower 1953-1961) and Kennedy (1961-1963) did a reasonable job at running the US economy, though through his initial involvement in Vietnam, Kennedy sewed the seeds for over-spending trouble. Johnson (1963-69) when he took over, tried to do two economically incompatible things: fund his Great Society of social programs, and fight a massively costly war in Vietnam. 1968 was by the way the year that US society was economically most equal: the national income was most equally divided.
But this could have been reversed by Nixon (1969-1974) when he was elected. Instead, almost pathologically determined to win a second term in office (think Watergate), Nixon accelerated the mismanagement of the economy to such an extent that in 1972 he was forced to take the US off the gold standard and devalue the dollar and really kick start the inflation of the 1970s. (Gerald Ford 1974-77 was the blink of an eye.)
People often see the oil shocks of the 1970s as if some act of God. They were the direct result of Nixon’s devaluing the dollar, the currency the OPEC oil countries were paid in. Nixon also supported Israel in the 1973 Yom Kippur War, when the US had previously been neutral in 1956 and 1967 wars. So OPEC jacked up the price of oil to offset the dollar devaluation and punish US support of Israel, and triggered the stagflation of the 1970s: inflation without economic growth and essentially destroyed the Carter presidency’s (1977-1981) ability to deliver sound economic performance, though he was also a gloomy blighter and not exactly upbeat for consumer confidence.
To his credit, Reagan (1981-1989) let Paul Volcker puncture the inflationary bubble by provoking a vicious downturn in the economy. But then Reagan turned on the taps of tax reductions, particularly for the rich, plus very heavy defense spending and created a huge government deficit, unprecedented in peace time. He also de-regulated the financial sector and created the catastrophic collapse of Savings and Loans requiring massive Federal government bail out. In his second term, Reagan did raise taxes to limit the deficit just a bit. And his defense spending, coupled with persuading Saudi Arabia to produce much more oil to reduce gas prices on which the Soviet Union depended, brought down the Soviet Union. Bush I (1989-1993) continued these economic policies, but was never forgiven by his own party for his necessary tax rise and lost to Clinton.
Clinton (1993-2001), aided by a Republican Congress after 1994, managed to run the economy quite efficiently, and successfully started to run a surplus over government taxation over spending and there was even talk of eliminating the national debt. Some hope! He was succeeded by a reformed alcoholic with an unlimited credit card mentality.
While there was good argument for fiscal stimulus post 9/11, Bush II (2001-2009) continued the process of slashing taxes and jacking up spending, both defense and domestic, and created unprecedentedly huge deficits, including an incompetently managed Iraq War that will cost $3 trillion. Moreover, by failing to limit the asset price bubble, he set the scene for our most recent financial collapse. Though he had been aided by Republican pressure in the Clinton era to further de-regulate banks, despite the previous Savings and Loan debacle. Free Market ideology is a sight to see and of course in 2002 Dick Cheney famously said publicly: ‘Reagan proved that deficits don’t matter‘ Duh!
So here we are with Obama (2009-) and it is probably too early to judge his performance on the long haul, though the omens do not look good, he did stave off possible 1930s style economic collapse. Certainly he was handed the worst possible economic situation. And certainly he has done what Keynes would suggest: try to deficit finance his way out of it. But Bush II had not followed the rules and run surpluses in good years, so Obama had the impossible choice of cutting back the impossibly large deficit to keep America solvent or spending to keep America solvent. Good luck with that.
So how would I judge Presidents’ performance on economic management? Clinton emerges as a very modest hero of the tale, as do Kennedy and Eisenhower. Reagan is a lesser villain. The prize for being really big economic villains must go to Nixon and Bush II. Obama will find it very hard to compete with their comprehensive destruction of the economic basis of American power and wealth. The other Presidents are also-rans: not big villains, far from heroes.
Now is reality more complex than this? You bet, but you have to start at some level of abstraction and if you want more, go study the economic statistics.
Personal Footnote: This posting was inspired by Kathy A who makes me think about why I think what I do, and makes me turn to the book of wisdom, though I prefer the King James version. Thanks!
Below is Bill Clinton, morally flawed, guilty of perjury, but the best manager of the US economy in a generally uninspiring field. And without him we would already be bankrupt.