The Rockaway Irregular
Nearly thirty years ago this country underwent a paradigm shift when Ronald Reagan swept into the presidency, displacing Jimmy Carter after a single term. Along with Carter, Reagan displaced an entire way of thinking that had informed our politics since the Great Depression of the 1930's.
Reagan was a transformative president. An old line liberal Democrat, undistinguished actor and B movie studio "star," Reagan refashioned himself as a conservative Republican in the 1950's. As his film career wound down he transitioned from president of the Screen Actors Guild in Hollywood to TV pitchman for a product called "Twenty Mule Team Borax" on the old Western TV show "Death Valley Days." By the 1964 presidential race, Ronald Reagan had shifted again to pitching political views and supporting Senator Barry Goldwater, the principled libertarian-conservative Senator from Arizona who held the seat John McCain holds today.
Reagan wasn't highly thought of by the elite and intelligentsia of his day, most of whom favored liberal politics and the Democratic Party which had attained majority status during FDR's presidency. Nor was Reagan a compelling speaker in the manner of history's great orators. Though, because he had an amiable and easygoing style and could make people feel at ease, he got the reputation of being a "Great Communicator." That's a valuable quality for any politician. Surprising many of his detractors, the former actor and pitchman won the governorship of California and, even more surprising to many, he didn't do a bad job of it. In 1980 he claimed the Republican presidential nomination and Goldwater's conservative mantle to win the White House, too.
As president, Reagan wrought a kind of revolution in this country, making conservatism respectable, when he effectively handled the Soviet Union through a forceful foreign policy and advocacy of democratic values even as he presided over a resurging American economy. Things had been bad throughout the 1970's, after the spending excesses of Lyndon Johnson's Great Society, Richard Nixon's neo- Keynesianism and Jimmy Carter's gloom and doom malaise. Big, activist government had begat big spending and, by the time of Carter's presidency, it had also begat stagflation, driving our economy into a deep and seemingly permanent recession. To many of us in those years it seemed like America would never claw its way out again. But Reagan brought a rhetoric of hopeful, if somewhat platitudinous, phrases to Washington when he extolled the "shining city on a hill". He gave us the ability to believe in America's future and her capacities to recover again. And he delivered policies that released the pent-up economic power still latent in the nation.
His policies of deregulation and lower taxes provided incentives for millions to invest, work and earn again. The dissolution of the Cold War on Reagan's watch helped, too, of course, as did the various moves for welfare reform which began in his presidency and kept growing right into the '90's and the administrations of his successors. Many liberals never forgave him for those successes though. After all, he seemed like such an amiable dunce so much of the time (though subsequent revelations about his writings have revealed a thoughtful, if not an especially deep and original, thinker). Whether you liked him or not, his ideas formed the basis for how we how we came to think about economics and society. He revived our belief in individual responsibility, liberty and the importance of rewarding hard work. Without gutting what he called the "social safety net" he fought to scale it back and to build into it obligations and limits for those who would use it.
Despite the naysayers, his policies worked and for nearly thirty years thereafter America and its democratic, free market values became both beacon and benchmark to the wider world. But something went wrong with this model in 2007 and our financial institutions and markets began to spin out of control in 2008. In the first months of 2009 we find ourselves faced with what could be a downturn the likes of which we haven't seen since the Great Depression back in the 1930's.
With major banks' share prices tanking, out of fear of bank nationalizations, and the usual January stock market rally a no-show, investors, who bet on economic activity and prosperity, are mired in the gloom. The last time we had a continued decline in markets such as we're seeing now was back in 1929 when the Dow began plunging to an 80%+ loss it would not finally reach until some three years later. On February 23rd of this year, the Dow surpassed its own recent low set this past November 2008 for a 50% loss from the Bull market peak. Unlike previous declines in recent years, there hasn't been much in the way of counter-trend rallies to offset the damage while significant bearishness by market players and commentators has failed to herald the usual retracements such negative sentiment usually brings.
That doesn't mean we won't see a decent rally in the markets again, of course. Unless the world is ending or America is finished we will. But it does suggest a serious paradigm shift here, one we need to pay attention to. For thirty years since Reagan's election to national office we saw, and came to believe in, the value of free markets and reduced regulation. The current downturn could well wreck that model.
The new Democratic administration that swept into office in the wake of an imploding economy, which had previously gone from strength to strength, seems committed to a different way of doing business. The previous Republican administration, more pragmatic than principled in the matter of economic management, had been too tolerant of spending excess while proving ineffective in dealing with entitlement reform or stopping Fannie Mae and Freddie Mac before they sinned again. Those two "government sponsored entities", of course,were in the vanguard of those that precipitated this mess. It's not that the Bush administration didn't try to address the Fannie and Freddie excesses. It's just that it got nowhere for want of focus, commitment and, perhaps most tellingly, a lack of political skill in an unusually harsh, partisan atmosphere.
Now President Obama has the helm and, with Democrats controlling both houses of Congress, what little spending restraint once existed seems to have flown entirely out the window. Barack Obama, a far greater communicator than Ronald Reagan ever was, is promising to address the exploding deficit in the out-years while adding fuel to the deficit fire in the near term. Perhaps it can't be helped. In a crisis no administration can sit on its hands as George W. Bush learned to his chagrin. The country wants movement, it wants to see its president, sleeves rolled up, doing something — and President Obama is more than willing to oblige.
If he succeeds in righting this listing economy, or is seen in the end to have succeeded, he will have changed the paradigm as Reagan and FDR did before him. But for those of us who came to believe in the free market/ small government model that Ronald Reagan pitched so successfully to the nation thirty years earlier, a paradigm which grew to be the bellwether feature of American society in the minds of populations across the globe, there is now a much larger question to be answered: Were these last thirty years of increasing national and global prosperity nothing but an illusion and can we hope to pull ourselves out of it this time by forsaking those policies which saved our bacon the last time we blew it?