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Pain Caucus

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"Pain Caucus"

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National Review takes on the similar trajectories between Barack Obama’s approval ratings over the past two years and Ronald Reagan’s. They concede that in both cases economic fundamentals are important drivers, but:

Both arguments miss the important ways in which the recessions the two men inherited are similar and the important ways in which their approaches differed. Both men faced seemingly intractable economic problems with no easy solution, but Reagan understood that curing the nation’s debilitating inflation was going to involve a good deal of short-term economic pain and political unpopularity, and he was prepared to endure that. By contrast, Obama has done everything in his power to avoid painful corrections — at great cost to future taxpayers. It is increasingly evident that his policies have merely put off these corrections or dragged them out, and that we have not avoided them at all. Reagan’s willingness to accept painful and unpopular but necessary economic adjustments — and Obama’s lack of the same fortitude — is the essence of what separates the two men.

I think this highlights the extent to which political commentators like to substitute cheap moralism for real thinking about economic issues. But these are just different situations. When Reagan took office, we had double-digit inflation. We needed to bring that down. The means deployed to break the back of inflation were painful, but at the end we had the rate down to about 4 percent. And good for us. But we weren’t suffering a pre-recession inflation problem, and we didn’t deliberately engineer the current recession to solve it.

Given our current situation, there’s good reason to believe that a four percent inflation rate would be a good idea—at least until the price level catches up to its long-term trend. But in 2010 it’s for some reason considered outrageously left-wing and dangerous to suggest that we return to the inflation rate we had after Reagan and Volcker whipped inflation. One major impediment to taking necessary action is the the tendency to cry “structure” amidst inflation and, like National Review, urge pain on the country. But while structural reform is always welcome (I can bore you some day with my thoughts on occupational licensing), it’s neither necessary nor sufficient to help an economy mired in inadequate demand.

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