The other nite I caught about 30 seconds of Charlie Rose on PBS with his guest, former sec Jim Baker. Baker was telling how Reagan's policies were pro business and fostered business expansion while Obama's are otherwise. That's an opinion you hear a lot of.
I want to comment about "the Reagan recovery."
In the early years of Reagan's 1st term, the economic outlook was dismal. We had just had inflation that was killing us, killing savings, causing interest rates to be high and unpredictable. At times it was good to have savings; I remember getting 15% interest (yes, that is fifteen percent, not 1.5% or the .15% that you might get now) on 10K CDs at the local bank. All the while there was an atmosphere of uncertainty and gloom. Marty Zweig came on Louis Rukeyser's Wall Street Week and looked hang-dog and as though he was chain-chewing Rolaids and said "there are good investments out there, if we can avoid a depression."
Then, inflation came down and the stock market soared and the recovery began; if I remember correctly the longest bull market except for the one in the 1930s when the stock market roared back even as the nation was still in depression. It got to where investors hoped to see appreciation of 70% a year, and shopped for mutual funds that showed that kind of record! (The influx of money into a highly successful fund of course drove the fund down, but few were thinking about that.) Totally crazy and unsustainable, but that's how it was.
Back to the point. What Baker overlooks is that this is a very different time. The structure of our economy is different. The savings rate is different, consumer debt is different, the proportion of wealth in home equity is different. The financial sector is wildly different from 1981, in its percentage of the economy and in the variety of securities that have been invented since then. The distribution of wealth among our citizens is radically different, with a greater percentage of the wealth belonging to the wealthy. The middle class is disappearing.
And energy costs. Energy cost is a multiple factor in every human activity, and when energy costs are high, the cost of everything grows higher disproportionately. Reagan was lucky that the price of oil dropped early in his presidency, and that drop set off the boom in the stock market.
It was more than luck. The Saudis wanted to buy fighter planes and AWACS aircraft, and there was opposition to letting them have state of the art military tech. King Fahd's plane landed near D.C., and Reagan went on board to have a secret pow-wow with Fahd. What followed was this: Saudi Arabia would get it's planes; and perhaps linked to that, they increased oil production and undercut OPEC, lowering energy prices world wide. In my opinion, that, more than anything else, was the secret to the business recovery of the Reagan era, not Reagan's policies per se.
I want to comment about "the Reagan recovery."
In the early years of Reagan's 1st term, the economic outlook was dismal. We had just had inflation that was killing us, killing savings, causing interest rates to be high and unpredictable. At times it was good to have savings; I remember getting 15% interest (yes, that is fifteen percent, not 1.5% or the .15% that you might get now) on 10K CDs at the local bank. All the while there was an atmosphere of uncertainty and gloom. Marty Zweig came on Louis Rukeyser's Wall Street Week and looked hang-dog and as though he was chain-chewing Rolaids and said "there are good investments out there, if we can avoid a depression."
Then, inflation came down and the stock market soared and the recovery began; if I remember correctly the longest bull market except for the one in the 1930s when the stock market roared back even as the nation was still in depression. It got to where investors hoped to see appreciation of 70% a year, and shopped for mutual funds that showed that kind of record! (The influx of money into a highly successful fund of course drove the fund down, but few were thinking about that.) Totally crazy and unsustainable, but that's how it was.
Back to the point. What Baker overlooks is that this is a very different time. The structure of our economy is different. The savings rate is different, consumer debt is different, the proportion of wealth in home equity is different. The financial sector is wildly different from 1981, in its percentage of the economy and in the variety of securities that have been invented since then. The distribution of wealth among our citizens is radically different, with a greater percentage of the wealth belonging to the wealthy. The middle class is disappearing.
And energy costs. Energy cost is a multiple factor in every human activity, and when energy costs are high, the cost of everything grows higher disproportionately. Reagan was lucky that the price of oil dropped early in his presidency, and that drop set off the boom in the stock market.
It was more than luck. The Saudis wanted to buy fighter planes and AWACS aircraft, and there was opposition to letting them have state of the art military tech. King Fahd's plane landed near D.C., and Reagan went on board to have a secret pow-wow with Fahd. What followed was this: Saudi Arabia would get it's planes; and perhaps linked to that, they increased oil production and undercut OPEC, lowering energy prices world wide. In my opinion, that, more than anything else, was the secret to the business recovery of the Reagan era, not Reagan's policies per se.
Rig count. The number of all petroleum drilling rigs in use. A measure of how actively the industry is searching for oil.
You used to find this number every week in the Lubbock Avalanche Journal. Now you can find it at various places such as http://www.ihs.com/products/oil-gas-information/drilling-data/weekly-rig-count.aspx and http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm
The current U.S. rig count is 1979 as of March 30, 2012, from the Baker Hughes website. That is close to what it was through the period 2001-2008, during the Geo W. Bush presidency.
Here is a comparison of the decade 1973-1983 compared with 2000 through 2008. This is from a Rigzone article dated December, 2008 and is from Baker-Hughes.
[img]http://images.rigzone.com//images/news/library/other/13/5606.jpg[/img]
As you can see, the rig count soared during the Carter presidency and then plunged drastically about 1981-1982, the early years of the Reagan presidency. Why? The price of oil fell sharply on world markets. Why? The price of oil dropped drastically at that time because Saudi Arabia exceeded OPEC's targeted oil production. Why did the Saudis increase production? Because of a secret deal with Reagan. Ronald Reagan destroyed the oil industry in West Texas -- or more accurately, set it back by decades
Curiously, no one burned Reagan in effigy in Levelland or Brownfield.
And some accuse Obama of being hostile to the petroleum industry and to business in general?
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