Commentary Magazine


Reagan Recovery vs. Obama Recovery

Investor’s Business Daily ran an interesting editorial yesterday (h/t: Instapundit) comparing the recovery from the 1981–’82 recession with the recovery from the 2007–’09 recession. The comparison goes a long way toward explaining why Ronald Reagan won reelection, carrying 49 states, while Obama is well on his way to being a one-term president.

After the end of the ’81–’82 recession unemployment fell sharply as growth expanded dramatically. Twenty-seven months after the official end of that recession, unemployment had fallen to 7.5 percent from a peak of 10.8 percent. At the same point after the recent recession, unemployment had fallen not 3.3 percentage points, but only 1.4 percentage points. The reason is not hard to find. In the seven quarters following the ’81–’82 recession, GDP growth averaged 7.1 percent (on an annual basis). In the current post-recession span it has averaged only 2.8 percent. We need 2.5 percent growth just to absorb increases in the work force. The first quarter of 2011 had only a 1.8 percent increase in GDP.

The two economies are not exactly comparable, of course. Manufacturing jobs, to which workers can be quickly summoned back, make up a much smaller percentage of the total jobs today. Inflation fell sharply in and after the ’81–’82 recession, while it is increasing today. Housing prices had not suffered nearly the hit they have taken in recent years, adversely influencing people’s perception of their ability to spend money. The microprocessor revolution was much less advanced then than now, when firms contemplating expansion are more likely to look to investing in new technology than in new employees (although the new technology will create more jobs in the long run).

But Reagan’s low-tax-rates, less-regulation, America-is-the-hope-of-the-world philosophy also differs sharply from Obama’s, in which taxing the rich, turning always to the government for answers, and America-causes-the-world’s-problems are cherished principles.

If Obama sticks with that ideology, and it’s hard to see how he can abandon it now, he’s got a big reelection headache.