Monday, October 21, 2019 17:25
“More MAGA ‘Magic?’”
by David Stockman
“Perhaps the less we have, the more we are required to brag.”
– John Steinbeck, “East of Eden” (1952)
Impeachment politics are fantastically fluid right now. It may turn out that all Republicans must do is listen to Mitt Romney fret and watch Democrats spin themselves into a veritable circular firing squad. At the same time, there’s no telling what the Donald might tweet; will we find out the point at which even the rankest and filest – even Lindsey Graham – abandon MAGA?
The thing is, it’ll probably end because of something fantastically prosaic: a recession. This week, in a three-part series on Monday, Wednesday, and Friday, we’ll assess the Donald’s reelection prospects in the context of recent history of presidents and their relationships with the business cycle. Funny thing is, the last time the U-3 unemployment rate hit 3.5% was December 1969. The U.S. economy tipped over into recession in January 1970. But we should know this drill by now; when it comes to the Tweeter-in-Chief, it’s all bile, bombast, braggadocio, and bullshit.
Bigger than that, though, is the fact that presidents only inherit and do not really shape business cycles. Thus, it is of great importance when in the cycle they take up their inevitably temporary residence in the White House. The cycle is essentially repetitive, and it doesn’t matter who’s president. The U-3 unemployment rate – that’s the one that makes the headlines – is high during the first months of a recovery, 8% or above during recent cycles. It grinds down toward the 5%-to-4% range, sometimes even lower, in the last months before the next recession.
There’s nothing brilliant or virtuous or “great” about simply traversing the appointed path from the U-3’s cyclical high to its cyclical low. What’s at work are free-market capitalism and millions of workers, managers, entrepreneurs, investors, savers, and speculators. They push gross domestic product (GDP) onward and upward – usually against headwinds of statist intervention.
A president sworn in amid the “golden years” of a business cycle brags about very low unemployment in the face of history showing there’s a recession lurking almost literally around the corner and on their watch. The unemployment rate was 3.7% when Richard Nixon was sworn in for his first term. It crept down to 3.5% by December. But the expansion phase of the business cycle was already 96 months old by January 20, 1969. Tricky Dick was defined by his many defects and foibles. Bragging about the inherited U-3 was not among them.
By contrast, Jimmy Carter was sworn in during month No. 21 of the recovery after the deep 1974-75 recession. In theory, his economy had a fair amount of room to run. And, on the surface, it did. During the next 28 months, U-3 dropped from 7.9% to 5.6% in May 1979. The Carter White House didn’t mind claiming credit, though their talents for self-promotion couldn’t hold a candle to the Donald’s.
I happened to be a GOP back-bencher during those 28 months. Along with fellow “Young Turks” of the day, including Jack Kemp and Newt Gingrich, I didn’t hesitate to point out the warts down below. Indeed, that economy was also plagued with accumulated imbalances and instabilities. A wage-price-cost spiral was sown by the Federal Reserve from 1970 to 1973 after Chair Arthur Burns succumbed to Nixon’s brutal private importuning.
The inflationary blow-off in 1972-74 hadn’t been fully cured by the deep 1975 recession, even as Burns’ successor, G. William Miller, a Democrat CEO, had reignited it during his brief tenure in 1978-79. As it happened, a mini-recession incepted in January 1980, month No. 58 of the expansion. Not so lucky by the cycle, Jimmy Carter journeyed back to his Georgia peanut farm a year later. Worse still, as a one-termer Carter wasn’t around to reap the benefits of the one wise policy decision he did make, the appointment of Paul Volcker to lead the Fed in the fall of 1979.
Then came Ronald Reagan in January 1981. That was seven months after the brief but fatal slowdown that did in his predecessor had ended. But it was barely seven months before the even deeper downturn of 1981-82 got started.
My boss was at that point the oldest man to become President of the United States. He’d been to innumerable rodeos in his day. Like Tricky Dick, the Great Communicator knew to never stop blaming his predecessor for any and all matters that found ill favor among the electorate.
I was running the White House Office of Management and Budget. Everyone in the administration knew the rhetorical drill. And we had endless enjoyable occasions for our part to join in flagellating the Failed Carter Economy. When the Gipper appeared on the reelection ballot in November 1984, the young recovery was only 23 months old. It set the stage for a timely pivot to “Morning in America.”
The great Paul Volcker had been given running room to purge the inflationary fires. And, although the Reagan deficits loomed overhead as a long-run threat, the U.S. economy was healthier than it had been since the early 1960s. Still, rather than blame the Fed for the short-run economic dislocations that caused U-3 to spike to 10.8% in December 1982 – a bleeding cure the “gold bug” Ronald Reagan knew had to be endured – he instead whomped on the political carcass of the peanut farmer in Plains, Georgia, until the spring of 1984. By then, the U.S. economy was roaring out of the blocks at 4% to 6% real GDP growth rates… We’ll pick it up here on Wednesday.”
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