There are close parallels between the recession that haunted then President Reagan’s first years in office, 1980 to 1982, and the “Great Recession of 2009.”  The 1980s recession was self inflicted by an attempt to lower rocketing inflation which reached 10.3% in 1981.  The Federal Reserve under Paul Volcker raised its discount rate to the point that the prime rate for borrowers in 1982 reached 21.5%.  It worked, inflation dropped to 3.2% by 1983 but at the expense of driving unemployment to 10.8% in 1982. 

That recession ended in November 1982 when Volcker dropped the discount rate causing the prime rate to fall to 6% by 1983.  Recovery was instantaneous and robust.  The GDP jumped by 9% in 1983 and 11% in 1984.  Unemployment fell to 7.2% by 1984.

Contrast that recovery with what we see today.  In the wake of the “Great Financial Meltdown of 2008″  the economy declined in 2009 by 2% and  unemployment rose to almost 10% in the “Great Recession of 2009.”    President Obama’s economic initiative of 2009 cost $800 billion in that year,  almost equivalent to the cost of ten years of war in Iraq.  But instead of a quick, sharp recovery, we saw GDP grow by only  3.8% in 2010 and 2.3% in 2011.  And by 2012 unemployment remains above 8%. 

There is no question that Ronald Reagan’s reelection in 1984 was due to the dramatic recovery in our economy.  The question this year is if a more modest recovery will lead to President Obama being reelected.