Veiled within the news that Ronald Reagan handily topped a recent Gallup poll of Americans’ favorite presidents is a pretty clear mandate: We want somebody to make the 1970s end.
This is not the swinging '70s of fond memory (a period during which the nation actually experienced a surge in nostalgia for the 1950s) but the brutalizing fiscal '70s of stagflation, soaring gas prices, President Jimmy Carter’s national “malaise,” and then-California Gov. Jerry Brown’s “era of limits.”
With a Carteresque president, a scolding yet permissive Federal Reserve chairman who inspires even less confidence than Nixon-appointed Fed chief Arthur Burns, and Jerry Brown himself back in charge of the Golden State, the United States is experiencing a grim and pleasureless sensation of '70s nostalgia.
This retro-shock is showing up in political and media rhetoric. President Obama got the ball rolling in May 2009 by announcing “We’re out of money now.” Jerry Brown’s most memorable quote since returning to the office of governor has been a shocker about the state budget: “It is much worse than I thought. I’m shocked.” Succumbing to the spreading panic, Washington Postcolumnist Steven Pearlstein recently let loose a closing-all-the-exits lamentation:
Now, even three years after reality came crashing down, we have only just begun to figure out how to bring about the reduction in living standards that will be necessary to create a sustainable balance. Will the pain come in the form of prolonged high unemployment? Or wage and salary cuts? Or reduction in the value of homes and financial assets? Or loss of ownership of American companies? Or price inflation? Or higher taxes? Or reductions in government services and benefits?
In practical terms, there is no case to be made against hairshirt drones like these. (Nor is 2011 the first year the United States has been possessed by demons of the 1970s.) Governments in most of the 50 states are facing severe budget deficits. Obama proposes [pdf] adding $1.645 trillion this year, $1.102 trillion next year, and $768 billion in 2013 to a national debt that is already more than $14 trillion, and the full cost-cutting power of a Republican majority in the House of Representatives succeeded in knocking only $61 billion out of that spending.
Commodity inflation is soaring while the value of most Americans’ primary asset—real estate—continues to plummet. When Rep. Jeb Hensarling (R-Texas) asked yesterday about the spike in prices for gold, oil, wheat, and other commodities , Fed chief Ben Bernanke—whose expansion of the money supply over the past three years amounts to a highly confident gamble on the Fed’s ability to control the devaluation of the dollar—dismissed the idea that this inflation was related to Fed policy, noting that “commodity prices have risen just about as much in other currencies as they have in terms of the dollars. So while I take those commodity price increases very seriously I don't think they're primarily a dollar phenomenon.” While accurate within a narrow scope, this reply doesn’t provide much comfort to Americans who are subject to the dollar economy. When the central bank is rapidly creating more dollars and the cost of your daily existence is rapidly increasing, do you feel better knowing that other Bernankes in other countries are doing the same thing?
The Congressional Budget Office’s (CBO) most recent Budget and Economic Outlook [pdf] contained more news suited to the Crash of ’79 era. The trust funds for Social Security’s disability insurance (DI) and Medicare’s hospitalization insurance (HI) ran 2010 negative cash flows of $21 billion and $30 billion, respectively, and neither have any prospects of returning to balance. Says the report: “In CBO’s projection, the negative cash flows for the two funds continue throughout the baseline period; their balances are exhausted in 2017 (DI) and 2021 (HI).”
Meanwhile, unemployment remains in the high single digits, economic activity is increasing at too slow a rate to replace the dollar values lost since the start of the 2007 recession, and the real estate market remains stuck in the lieux d'aisance (actually, the real estate market has cleared the loo and is now passing through lengths of cheap PVC pipe toward the municipal sewers).
The fad for calling the great credit unwind the "Worst Since the Great Depression" seems to have run its course by 2009. (And what is the point of ranging recessions on a “good-bad-worst” continuum, given how radically your definition of good may differ from mine when our financial interests are concerned?) But there’s a strong case for calling the Bernanke economy the most stagflationary malaise since the ’70s.
So why shouldn’t people talking to pollsters fondly recall the president they perceive as having ended stagflation the first time around? History has not yet settled on how much credit Reagan deserves for restoring the U.S. economy to vigor. There is a decent presidential-continuity case to be made from the evidence that Jimmy Carter (currently holding twelfth place in the hearts of his countrymen, according to Gallup) began the deregulatory and anti-monopolist processes for which the Gipper gets most of the thanks. But belated interest in the 1980s at least suggests Americans are interested in innovation rather than repetition as a way out of the current jam. The first time around, stagflation was defeated by a combination of tight monetary policy, deregulation, market competition, and supply-side tax policy. What will it take to get America moving this time?
An earlier version of this article misspelled the name of the Gallup polling organization.