• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

Bush & the Reagan Legacy

With the passing of the President Reagan this weekend, expect to see a frenzy of politcal jockeying, with the White House hopes to catch some moonglow from the 40th president.

We addressed this issue last October: Bush's Reagan Moment?.

I believe such a tactic is fraught with risk for the White House. The comparison, at least when examinded closely, does not hold up well. Whether its the economic cycle, the use of military power, the accepting responsibility for mistakes and judgement errors, its apparent that 43 is very very different from 40.

But since my expertise is in matters market and economic, lets have a look at the key differences:

President Reagan took a top rate of 75%, cut it to below 30%, and stimulated the economy (long term). People can (and have) legitimately argued whether he overshot, and that the dangers of deficits required that top rate to be brought up to a revenue neutral level -- but still far below the 75% starting point. Reagan's economic actions were big and bold enough that it changed people's behavior.

Remember, the "Death of Equities" BusinessWeek cover had just run a year before his election. Stocks were uniformly hated.

As this deficit chart makes clear, President Reagan came into office with an existing deficit (at the tail end of a 16 year Bear market), cut taxes dramatically, and jump started the business cycle:

Compare: When President Bush came into office just as the 18 year Bull market was ending. There was stilla national love affair with stocks; Taxes were relatively low and there was a budget surplus.

Despite these radically different economic environments, Bush cut the top rate (incrementally), and lowered capital gains taxes (5%) and stimulated the stock market.

Bush essentially applied a Reagan solution to a very different set of circumstances. Its not surprising that their results have been different.

Sources:
Bush's Reagan Moment?
Sunday, October 26, 2003
http://bigpicture.typepad.com/comments/2003/10/bushs_reagan_mo.html

An Impact Seen, and Felt, Everywhere
By TODD S. PURDUM
NYT, June 7, 2004
http://www.nytimes.com/2004/06/07/politics/07legacy.html

Monday, June 07, 2004 | 10:02 AM | Permalink | Comments (4) | TrackBack (4)
add to de.li.cious | digg this! | add to technorati | email this post

Comments

I've read where you have been critical of supply-siders in the past. But you do believe Reagan's tax cuts had long-term stimulus effects? Could you explain?

Posted by: Shane | Jun 7, 2004 7:49:14 PM

Economic dissimilarities aside, the way Christopher "I used to be a liberal" Hitchens describes Reagan in his shredding today at salon.com, he could have been writing about his new best buddy, Bush the Younger.

Posted by: Jeff Huffman | Jun 7, 2004 8:17:06 PM

Hitchens is in Slate. His bile is amusing, but he's off base.

Those who don't like Reagan assume that he was responsible for everything bad that happened during his terms in office, while everything good was inevitable. It's the worst sort of revisionism.

Posted by: rickheller | Jun 7, 2004 9:51:17 PM

Reagan did a few good things (cutting the top tax rate from 70%) was good -- and he did quite a few bad things -- Iran Contra was a horrific violation of the spirit of the constitution -- and Ed Meese was the archetype for John Ashcroft.

But he will be remembered for revitalizing the spirit of America after a period of malaise. That -- and not all of the scandals -- will likely be his legacy.

Posted by: Barry Ritholtz | Jun 8, 2004 6:38:59 AM