Fascinating.  The two men both have surnames beginning with “R” and containing six letters, Reagan and Romney.   Both face or faced Democratic incumbent presidents who were undermined by a severe recession and major challenges by Iran.  In 1980 Jimmy Carter had to deal with a recession that led to over 10% unemployment and the Iranian seizure of our embassy in Tehran and subsequently holding its staff hostage.  In 2012 Barack Obama faces a recession that continues to see unemployment over 8% and poor economic growth, as well as an Iran that is certainly to gain nuclear weapons soon. 

Obama did take the right measures at the beginning.  He continued the TARP plan initiated by “W”  and in an imaginative move used some of the funds to “bail-out” GM.  He led a bold stimulus plan that spent as much in one year as we spent in 8 years of war in Iraq.  He succeeded in stabilizing the economy and saving GM.  However, he did not reach his own stated goals with unemployment staying above 8% and economic growth limping along at less than 2% a year.

Contrast this to the Reagan recovery.  The 1980 recession was the direct result of then Federal Reserve Chairman George Volcker´s all out war to contain inflation.  He raised the Fed´s discount rate so high that loans to businessmen came at 20% interest and for home buyers at 13% interest.  It worked.  Borrowing dropped like a rock leading to massive losses in consumption that led to massive layoffs of workers and, by the way, reduced inflation. 

Reagan bested Carter basically because of the sorry economy and his sorry handling of Iran seizing our embassy.  In a pointed slam of Carter the Iranians released our embassy staff when Reagan was elected.  Reagan then resorted to his much maligned “supply side economics,” called “voodoo” economics by many, to rescue  our economy.  And recovery came, not because of “voodoo” but because Volcker finally gave in to complaints from the White House and others and dropped the Fed discount rate in November 1982.  The result was instantaneous, by November 1983 unemployment had fallen to 6% and the economy was smoking at a rate of 10% growth.  The recovery extended into 1984 and Reagan rode it to a landslide reelection victory. 

Now many may say Obama is the victim of bad timing.  The stimulus and other attempts to restore economic growth and regain the jobs lost in 2008-2009 simply have not worked on a timetable conducive to reelection.  I believe there is a more profound problem, the entrenched Keynesian remedy may no longer work.  We need new ideas and approaches, some new “voodoo.” 

One approach taken by Romney suggests he has learned that the American middle-class is now dominated by small businessmen, e.g. yours truly.  He has targeted his campaign to appeal to this group of voters and knows what we want:

Less regulation

Lower capital gains taxes

Level playing field

This may or may not yield a stronger economy, but it sure will get votes from small business people.