Paul  Kengor

President Obama says the economy is the worst since the Great Depression. Actually, it is the worst since the Reagan recession of 1982-83. Further, the 2009 market crash is not the worst since 1929 but since 1987—also on Ronald Reagan’s watch.

What did Reagan do—or, more importantly, didn’t do—in response to these “crises?” How was Ronald Reagan’s response different from what Barack Obama is doing?

In both cases, Reagan did the exact opposite of Obama’s massive government spending infusions. In fact, it’s worth noting that Bill Clinton—listen up, Democrats—didn’t invoke Obama’s method when he faced recessions at the very start and end of his presidency. (That’s another article for another time.)

As for the Reagan recession, the president waited extremely patiently—to the point where he drove his advisers nearly nuts—for his huge 1981 tax cuts to take effect. He didn’t spend money because he believed spending had been out-of-control, particularly since FDR’s New Deal and LBJ’s Great Society, which created systemic deficits. Reagan felt that high spending, high regulation, and high taxes had sapped the American economy of its vitality, and particularly its ability to rebound from recession. The economy needed to be freed in order to perform.

Reagan’s prescription rested on four pillars: tax cuts, deregulation, reductions in the rate of government spending, and a stable, carefully managed growth of the money supply. The federal income tax reduction was the centerpiece: Reagan secured a 25 percent across-the-board reduction over a three-year period, beginning in October 1981. The upper income marginal tax rate was dropped from 70 percent, which Reagan believed was punitive and stifling, to 28 percent.

By 1983, America had begun its longest peacetime economic expansion in history, cruising right through the 1987 market plunge.

What did Reagan do about the October 1987 crash? Basically nothing—certainly nothing like a massive government “stimulus.”

“Some people are talking of panic,” Reagan calmly confided to his diary. “Chrmn. of Stock Exchange is acting very upset.”

Those are Reagan’s only diary references to the financial crisis. With the economy freed, he was confident it would bounce back. Reagan let the economy correct itself.

Okay, but Reaganomics created huge deficits, right?

That’s the big criticism. It isn’t accurate. It needs to be understood—now more than ever.