June 1, 2009

Krugman: Blame Reagan for the economic problems

Posted: 09:39 AM ET

By NY Times' columnist Paul Krugman:

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.

For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.  Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence.

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Filed under: Economy • Paul Krugman

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Glo   June 1st, 2009 10:38 am ET

I totally agree with this analogy. I'm glad you have brought this to the attention of the American public. I wish Rush Limbaugh, Hannity and Newt Gingrich would get a clue. I hope Obama's plans will help all of the middle class. I have faith in him.

Michael C. McHugh   June 1st, 2009 11:51 am ET

Reagan was the one who set the tone for the free market capitalist policies of the last 30 years, that have now collapsed. I call that whole period the Second Gilded Age, when the rich got very rich, the middle class stagnated and declined, and the poor were sunk into Third World conditions. It's not an era to be proud of, when capitalists openly ran the government and had the politicians in their pay, but it's certainly over now.

This is why I have to laugh when Republicans blame labor for this disaster, since labor unions have been going under all over the place, losing millions of jobs and members over the last 30 years, and are not nearly as powerful as they were in the 1950s and 1960s. One of the reasons that we have become such an unequal and oligarchic society that looks like something out of a 19th Century Marxist textbook is precisely that organized labor and progressives have been so weak over the last 30 years, while the rich and big business had everything their own way. That's why they are 100% responsible for this mess we are in now, and may never recover from.

Sumaluvv   June 1st, 2009 12:50 pm ET

I hope that the ecomony will take a turn for the better.
We are knee deep in stinky doodoo right now, and its going to take a long time before this country see any relief..
Reagan was not the best president, nor was Bush, infact I disliked bush so much I shave mine off.

Can Obama be the one to change all this around, I dont think so, but at least hes making an effort.

I dont care about his clothes or his wifes muscle tight arms or what she is wearing, nor do I care about the dog, or what there children are doing, I care about America, and I really dont see any signs of it changing for a long time to come.

Ted   June 1st, 2009 1:17 pm ET

I always propagated that Reagan was the worst president we had in the 20th century, topped only by Bush Jr. He ruined the country financially, his star wars costed us billions and did achieve nothing.
I had to laugh when he was declared a "saint" by the republican presidential candidates, because he was a very bad actor and even a worse president. President Obama has the job cut out for him, we should support him as much as we can.

Dodie - California   June 1st, 2009 1:44 pm ET

This is my understanding of what occurred some of which was very similar to the 1930s depression and first started with Reagan Administration or what I call “Reagan Economics”
Under the Reagan Administration, deregulation was coming fast and furious. Local ownership requirements for S&L's were repealed and the number of required stockholders dropped all the way down to one. Buyers could use land instead of cash. Then in December 1982, the Garn-St Germain Depository Institutions Act was passed which effectively deregulated the industry. This was a Reagan Administration proposal that passed with broad bi-partisan support, and was a leading cause of the 2009 crisis. At the same time states were also deregulating the S&L's, especially California and Texas.

Then between 2000 and 2008 during the Bush Administration – asset bubbles built on high leverage ("where multi-layered holding companies allowed securities to be watered down, to the point where the real collateral was worth just a few cents on the dollar, and returns were diverted from operating companies and ratepayers.")

The Bush Administration also allowed for securitization of credit, which was first developed in the late 1920s that lead to the depression of the 1930s.

Also the Bush and Clinton Administration allowed for the corruption of the gatekeepers ("In the 1920s, the corrupted insiders were brokers running stock pools and bankers as purveyors of watered stock. 1990s and 2000s, it was accountants, auditors and stock analysts.")
Some of this I found on the Internet, some of this I complied over the years with the knowledge of the industry.
The regulatory reforms save capitalism from its own self-cannibalizing behaviors. And we wonder why the world is furious with us!

Fight another battle   June 1st, 2009 2:28 pm ET

That is insane. Regan had to turn around the mess Carter created. This huge mess was created by the collapse in housing, which was started under CLINTON. CLINTON is the one who started the policy of homeownership for everyone. Do a little research folks, anyone with a brain knows Democrats are Never good for business or growth.

Roberta Gallant   June 2nd, 2009 12:41 am ET

No only Ronald Reagan, but also Geoge W. Bush
and his administration, put America in a huge
economic mess. The economic problem is not
only Ronald Reagan's fault, either. No one
should blame Mr. Reagan for the whole situation.

D   June 2nd, 2009 1:45 am ET

My family was far from rich, but during the 80's, after carter totally messed up the economy, my father increased his meager amount of investments into a small fortune. Get your facts straight

theresa   June 2nd, 2009 11:27 am ET

we just need to look toward the future. the past is the past and regan had served his turn. just be thankful that the new president is trying to make things right for all.

Christine   June 2nd, 2009 6:58 pm ET

Not to mention Ronald Reagen is dead and can't even defend himself. Let's hope Obama can help but he's got to stop spending money we don't have and going farther into debit. He has spent more money in 100 days than Bush did during his term. Reality is that it's gonna take longer then his term to fix. I'm tired of the press making him out to be a celebrity when he's the president. We will be owned by China very soon. See the news today about GM? Who bought a large portion? Nancy Pelosi and Geithner have been there within the last month.

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