Reagan handily defeated Jimmy Carter (44 states to 6) in 1980 and took up the challenge of re-invigorating a weary economy, once the envy of the world, now weighed down by over-taxation and over-regulation. The economic climate Reagan inherited was every bit as bad as Barack Obama’s. Unemployment peaked at 10.8 percent versus 10 percent in the recent recession. Further there were the pressures of double-digit inflation (13.5 percent) and interest rates (21.5 percent prime), so the quantitative easing seen throughout the Obama Administration, with the Federal Reserve financing trillions of dollars in deficit spending with money printed out of thin air, was not an option. Instead, the Fed had to do just the opposite and shrink the money supply in order to knock down inflation.
The two men fundamentally disagreed over the role the federal government should play on the stage of American life. President Obama announced in his First Inaugural Address, “The question is not whether government is too big or too small, but whether it works, ” Reagan said, “In this present crisis, government is not the solution to our problem, government is the problem…. It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.” He reminded America, “We are a nation that has a government—not the other way around.” In short, Reagan wanted to reduce the role of the federal government, so the roles played by the American people could increase. He knew their combined creativity and industry trumped the collective wisdom of a few “elite” Washington bureaucrats trying to tax, spend and borrow us into prosperity.
The results speak for themselves. The Reagan economy brought about the greatest economic expansion in American history. It created 18 million new jobs (with a population of 85 million less than today.) In his re-election year of 1984 alone over 4 million new jobs were created, which was the amount added during Obama’s entire first term. The unemployment rate dropped in half to 5 percent; unemployment ticked back up again last month to 7.9 percent, and if the labor participation rate were the same as when Obama took office, it would be 10.8 percent. The Reagan economy grew an entire third larger with GDP growth hitting 7.2 percent in his re-election year versus 2 percent for Obama in 2012, (-0.1 percent for the last quarter). Additionally, revenues to the federal treasury nearly doubled during the 1980s. Under Obama, revenues still have not reached the 2008 level.
For Reagan, it was all just "common sense." When you tax something more, you get less of it. Following his cutting of taxes and burdensome regulations, “the economy bloomed” like a pruned plant that could now grow “quicker and stronger.” When he left office in January of 1989, he could report with the deep satisfaction that the American dream was restored and the story of the greatest nation in the history of the world would continue. “My friends: We did it. We weren't just marking time. We made a difference. We made the city stronger, we made the city freer, and we left her in good hands. All in all, not bad, not bad at all.” Reagan believed that America could be young again, and that faith was so deep and abiding in political truth, he convinced her too.