Obama and Reagan: Mirror Images, Mirror Ironies

If history does repeat itself, can it happen in a mirror image? Consider the strange similarity (in reverse) between Barack Obama and Ronald Reagan. They are distinct mirror reflections of each other, and if that continues, we just might see a major Obama market rally - in about six years.

There are a number of minor mirror image attributes about Obama and Reagan. For example, Reagan was the oldest president in U.S. history while Obama at 47 is fifth youngest. And both were outsiders but in different ways: one because of his prior career as an actor and the other because of his race. But there are much more significant mirror attributes than those.

Both Reagan And Obama Called For “Change” Except In Directly Opposite Directions.

They each had good cause to run on the concept of change. In the most recent election, some 80 percent of the electorate believed the nation was going in the wrong direction. When Reagan campaigned against incumbent Jimmy Carter, the “misery index” was at about 20, its highest level in history (the index is simply unemployment plus inflation; in February 2009 under Obama it was 8.34; the lowest recorded was 2.9 in July 1953).

But most significant is the mirror image of how they appealed to the middle class. Reagan painted a bright picture for the middle class with the idea that if the government adopted policies that favored the wealthy - primarily capitalists and investors - their increased prosperity would cause prosperity to “trickle down” to all others. Thus, the keystones of Reagan’s economic agenda as he assumed the White House were:

1. Reduce the growth of government spending,
2. Reduce income and capital gains marginal tax rates,
3. Reduce government regulation of the economy,
4. Control the money supply to reduce inflation.

Among the most significant results of this approach was that the marginal tax rates under Reagan fell from 70 percent to 28 percent. Capitalism, wealth, investing and finance were glorified. The American Dream of success as measured by wealth and materialism was restored.

Look into the political mirror and you’ll see Obama reflected in reverse. Reagan told the middle they could dream of living like the wealthy; Obama told the middle that Reagan’s dream was fake. In his nomination acceptance speech, Obama laid out the case this way:

“Tonight, more Americans are out of work and more are working harder for less. More of you have lost your homes and even more are watching your home values plummet. More of you have cars you can’t afford to drive, credit cards, bills you can’t afford to pay, and tuition that’s beyond your reach.”

Who and what were to blame, according to Obama?

“For over two decades — for over two decades, [McCain has] subscribed to that old, discredited Republican philosophy: Give more and more to those with the most and hope that prosperity trickles down to everyone else…. Well, it’s time for them to own their failure. It’s time for us to change America.“[Emphasis added]

And here’s how Obama’s mirror image of Reagan is being executed:

1. Increase the growth of government spending,
2. Increase taxes on those who benefitted most under Reagan policies; give tax breaks for the middle/working class,
3. Increase government regulation of the economy and engage directly in corporate strategic decisions such as who should be the CEO of General Motors,
4. Pump massive cash into the economy, even if it means increasing the risk of inflation for the sake of solving short-term needs.
   

So What Does That Mean For The Market?

Remember October 19, 1987? Commonly known as “Black Monday,” it is the day the Dow Jones Industrial Average dropped by 508 points to 1739 - a drop of 22.6 percent, the single biggest drop in market history and almost double the record falls of 1929. That was followed by “Terrible Tuesday,” the not so-well known event when the financial markets around the world came within an hour of a true meltdown. It was saved only by the vigorous and unprecedented involvement of the Fed, and, because it happened just a little more than a year before Election Day, it marked the beginning of Reagan’s long period as a lame duck president.

The simple-to-see mirror image (thus far) between Obama’s and Reagan’s market is that a bust came as Obama was beginning rather than exiting his presidency. But there yet may be an even more critical mirror image than that - we’ll have to wait to see if it happens.

Is It Possible That Obama And Reagan Share The Same Irony In Reverse Too?

The big Reagan irony is that a capital market meltdown on Terrible Tuesday was solved only by the type of massive government involvement that he abhorred and the crash worked against the interests of his constituency of the powerful when their wealth eroded with the market. And here’s the prospective mirror image of irony for Obama: Imagine that after several years of pumping money into the economy, building infrastructure, elevating the nation’s education system to produce a more competitive workforce, etc., the market could take off with a rebirth of earnings, allowing the upper class - the capitalists and investors - to ride a booming market back up for a restoration of wealth.

If that did occur, the transfer of wealth from the wealthy to the not-so-wealthy that Obama told “Joe the Plumber” would be a good thing, would be fleeting and temporary if it happens at all. But those Obama has called “shameful” and “greedy” would be well-served by an Obama market boom.

Reagan and Obama: mirror boom and bust (or, for Obama, bust and then boom), and mirror ironies. History repeating itself - in reverse.

Comments

[Hope2Bwrong:]

I have never hoped to be wrong more than I do today, but I think we have a new definition of insanity by those who think Reagan's mirror image is going to help the economy.

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

Insanity: doing the opposite thing and expecting the same results.
Obama?

Apr 01 07:44 AM

[jpiretti:]

I would like to remind everyone that even though Reagan's average nominal GNP growth per year was 3.4% (above 50 yr. trend) that the average annual debt as a function of GNP was 4.2%. After the first 2 years of a massive tax cut which pushed debt/GNP to over 6%, Reagan offered the TEFRA act of 1982-3 which was the largest tax increase at it's time. That relatively stabilized annual deficits and the major gains in GNP and the markets followed. I don't see as much as a mirror in this case. I wished Bush 43 would have reacted as quickly to the budget shortfalls as Reagan did.


On Apr 01 07:44 AM Hope2Bwrong wrote:

> I have never hoped to be wrong more than I do today, but I think
> we have a new definition of insanity by those who think Reagan's
> mirror image is going to help the economy.
>
> Insanity: doing the same thing over and over again and expecting
> different results.
> Albert Einstein
>
> Insanity: doing the opposite thing and expecting the same results.
>
> Obama?

Apr 01 08:59 AM

[kelm:]

It is interesting that you left out one of the key planks that Reagan ran on - balancing the budget and paying off the deficit. That was a long term, necessary condition for his enabling the middle class to live like the rich. The failure to drive that fiscal discipline into the government and society undid the tax cuts. We all found it too easy to bask in the tax cuts and put the debt off for another day. That mindset then permeated society and was directly reflected in the forms of interest only, low quality lending that pumped up the housing bubble.

We will unfortunately never know of Reagan's agenda, properly executed, would have produced the benefits that it advertised. We are left instead with decades of the cut taxes mantra and a massive deficit. Taking just those two items together it is very easy for Obama to say it was a failed policy. Without reform of the deficit portion, further tax cuts at this stage would simply perpetuate the debt growth.

Apr 01 09:34 AM

[jpiretti:]

Like Dick Cheney said "Reagan proves that deficits don't matter"...but they do (in the long term). I also underscores the fact that Cheney was wrong on just about everything he had an opinion on over the last 8 years.


On Apr 01 09:34 AM kelm wrote:

> It is interesting that you left out one of the key planks that Reagan
> ran on - balancing the budget and paying off the deficit. That was
> a long term, necessary condition for his enabling the middle class
> to live like the rich. The failure to drive that fiscal discipline
> into the government and society undid the tax cuts. We all found
> it too easy to bask in the tax cuts and put the debt off for another
> day. That mindset then permeated society and was directly reflected
> in the forms of interest only, low quality lending that pumped up
> the housing bubble.
>
> We will unfortunately never know of Reagan's agenda, properly executed,
> would have produced the benefits that it advertised. We are left
> instead with decades of the cut taxes mantra and a massive deficit.
> Taking just those two items together it is very easy for Obama to
> say it was a failed policy. Without reform of the deficit portion,
> further tax cuts at this stage would simply perpetuate the debt growth.

Apr 01 09:44 AM

[CLH:]

I believe Reagan was right and Obama is wrong. I think history will prove me right.

Apr 01 01:33 PM

[WayneS:]

Albert Einstein also said everything is relative.
Reagan's tax cut: My income taxes tripled in one year.
Bushes "read my lips" tax increase: My income taxes went down 20%
Clinton's tax cut: My income taxes went up 10% per year (raises were 5%).
W's tax cuts: My income taxes leveled out.
Go figure.

Apr 01 01:49 PM

[brokerinbir...:]

The coming inflation will eat away any dollar gains the low and middle class gain in wages, if there are any gains in wages. With the labor market no longer in tight supply will wages rise? Law of supply says no. Thus the inflationary impact will be felt most by th every people O says he's going to help. THere is a fixed cost for some things without which one cannot reasonably do - electricity, gasoline, food, housing. As the prices for these things rise, they will claim more and more percentage of the poor and middle class income. SO how does a $3 trillion injection (before the velocity effect even takes effect) help the poor and middle class exactly? This is perhaps the "mirror" - O believes the best way to hep the poor and middle class is to take action that will reduce incentives to invest, work, and grow a business. Regan believed the opposite. I was only in high school during Regan's first term, and college during the second, but I do recall that both houses of Congress were controlled by the opposition party, thus Regan was handicapped in what he could accomplish for tax policy. Nevertheless, there has NEVER been a nation who taxed themselves into prosperity. As Abraham Lincoln said, and it's just as applicable today, "there are too many pigs for the teats".
Obama delenda est.
Remeber the Cole.

Apr 01 06:31 PM

[WayneS:]

PS - Obama played an April Fool's joke on me. I just found out after having to pay 20% more than my withholding this last year, he is lowering my withholding this year by 80%. Now I have to redo my W4 so I don't have to pay a penalty next year. George Senior played the same joke just before he left office.

Apr 02 04:02 PM

[floatyerboat:]

One big difference is Obama didn't have tens of thousands of Latin American women, children and farmers killed thru his proxies and instructors from the School of the Americas. I know what some of you are thinking, "they're dark skinned and don't matter to conservative ideas of freedom" but they do. Why he wasn't tried at Nuremberg I don't know, probably too many statues of him erected by all the corporate gangsters he took care of.

Sep 05 03:01 PM