Global Crisis Blog

Saving America: What Ronald Reagan Would Do

By Shlomo Maital


Ronald Reagan: Not your ordinary cowboy!

Suppose, theoretically, America is in deep deep trouble.  Suppose, theoretically,  the economy is barely growing and suppose you need at least 2-3 per cent growth to keep unemployment from rising above already high 10 per cent levels. [Why? Because productivity, output per worker,  is growing at 2-3 per cent.   So the economy can grow that fast without businesses hiring a single new worker!].    Suppose, theoretically, that President Obama (mis)-advised by his advisors is cutting government spending rather than increasing it, firing teachers and other superfluous public workers.

Is there anything economists can suggest, that can solve the problem?

As Isaiah said,  “come, let us reason together.”   When was America deep in recession?  1980-82.  Who was president?  Ronald Reagan, the B-movie actor who was widely mocked – and ultimately, greatly beloved.   What did he do?   He worked to limit imports, by forcing Japan (America’s China of the 1980’s)  to accept VER Voluntary Export Restraints on its car exports to America, limiting them to 1.68 m. vehicles annually.  And note, this was at a time when America had total automotive imports of $31 b. (1981).

The result was that Japanese companies (Honda, Mazda, Toyota, Nissan, Mitsubishi) were producing substantial numbers of cars in America by 1990.  This created well-paying jobs for Americans, and even exports (a car made in Honda’s Marysville, Ohio, plant, and shipped to Japan, is an American export).

From 1982 through 1991, America enjoyed strong economic growth, peaking at 7.2 per cent in 1984, growth that today seems unattainable.   Part of this growth was due to limiting imports.

Fast forward to 1992.   Bill Clinton becomes President, and is re-elected in 1996.  From 1992 to 2000, America’s automotive imports balloon from $91.5 b. to $195.9 b., more than double!  For vehicles alone, the import surplus in 2000 is $110 b.!    That alone lops one per cent off US GDP growth.    Clinton takes no action.  Yes, this is the President Clinton who insisted that America, the inventor of globalization, was a big winner from it.  Tell that to unemployed auto workers.

China has been unwilling to allow its currency, the yuan, to appreciate.   Its yuan is undervalued by half, making its import prices half of what they should be.  Okay,  use the Japanese VER card.  Tell China:  Restrain your exports to America – those thousands and thousands of containers that go to Wal-Mart —   or we will slap a tariff on them!  Horrors, you say.  A gross violation of World Trade Organization rules!   Sure.  So is China’s currency manipulation – far far worse.  But horrors!  China will retaliate.  China will restrict its imports from America.

Well – what imports?   Paper for recycling?

Once, there were American presidents who knew how to make policy, even though they were not silver-tongued.  Today we have an American president who gets A+ on oratory, but not even C-  on action.    This is not only America’s problem, but the world’s.