Tuesday, September 23, 2014
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The Reagan myth and the housing bubble

My soon-to-published book -- "Tear Down This Myth: How the Reagan Legacy Distorts Our Politics and Haunts Our Future" -- deals in part with the many misconceptions about the Reagan presidency, about how is remembered as both more popular and more successful than he really was. But a good chunk of the tome also deals with what happened after the Gipper left the Oval Office on Jan. 20, 1989 -- about the really bad policies that are built around a distorted Reagan legacy that are still haunting us 20 years later. The scariest disciple of the Reagan myth has been George W. Bush, who fell back on the 40th president to justify crazy things like cutting taxes during a war and relaxing regulations to the point where a $50 billion Ponzi scheme is overlooked. But today's New York Times has an excellent example of how some early warfare over the Reagan legacy -- about which presidential candidate could grab the mantle of tax cutter in the mid-1990s, even as the economy was humming along without needing lower taxes -- led to the housing bubble of the 2000s, that led to the resounding crash of 2008. It happened during the 1996 contest between Bill Clinton and Bob Dole -- a race that was so obviously tilted to the incumbent that there was really no need for a taxpayer bidding war. Yet that is what happened: The change in the tax law had its roots in a Chicago speech that Senator Bob Dole, Mr. Clinton’s Republican opponent in the 1996 presidential election, gave on Aug. 5 of that year. Trailing Mr. Clinton in the polls, Mr. Dole came out for an enormous tax cut, including an across-the-board reduction in the capital-gains tax. The proposal made Mr. Clinton’s political advisers more nervous than almost anything else during the campaign. The campaign’s chief spokesman, Joe Lockhart, traveled to Chicago to stand outside the ballroom where Mr. Dole was speaking and make the case that the Dole tax cut would cause the deficit to soar. At the same time, Mr. Clinton’s aides began scrambling to come up with their own tax proposal. Dick Morris, the president’s chief outside political adviser, argued that Mr. Clinton could assure his re-election by matching Mr. Dole’s call for a big cut in the capital-gains tax. For Dole, the Reagan playbook was the only one he had -- especially as he worked to overcome the perception among GOP primary voters early that year that he was too moderate, the same criticisms that would dog John McCain 12 years later. In 1994, Dole told a Republican confab here in Philadelphia: "I'm willing to be another Ronald Reagan, if that's what you want." He would choose a Reagan-mold believer in supply-side, trickle-down economics in Jack Kemp as his running mate, and fully embraced what his moderate wing of the party had once branded as "voodoo economics." . Here's how John Cochrane of ABC News described the August 1996 gambit (via Nexis): He had to do something. The character issue wasn't working. He had to move on from metaphysical questions to bread-and-butter issues. This was the best way the campaign thought to go. So his answer to all this is: "Go ahead and accuse me of voodoo economics. Associate me with Ronald Reagan. Reagan's still popular, that's not a problem for me." It's hard to know why Clinton took the bait; it was his 1993 budget-balancing push, which included a tax hike targeting some of the wealthy who'd received the biggest gains under Reagan, that was helping to drive the economic growth of the 1990s. But politically, the memory of how Reagan had bludgeoned Walter Mondale on taxes in 1984 was still fresh in Clinton's mind. In 1996, just seven years after Reagan left office and left the nation with staggering debts, and just two years after Reagan announced he was leaving public life due to Alzheimer's disease, the myth of the Gipper was already taking root in American life. So when Clinton countered with his own tax ploy -- eliminated capital gains taxes on the vast majority of home sales -- the GOP-led Congress was happy to oblige. The tax break that few were clamoring for -- before the Reagan myth loomed over the 1996 campaign -- encouraged rampant speculation that playing a big role in inflating the bubble over the next decade. As the Times notes: By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one. Twelve years and one global economic meltdown later, we have a new president who has promised to restore rationality and common sense to the American economy -- toward our tax laws, toward the ever-growing gap between the rich and the middle class, and toward the unregulated Wild West on Wall Street. Let's all hope so. But Barack Obama is also a president-elect who's been known to voice his affection for the Reagan style, if not too much of the substance, and who has shown us again with his Rick Warren move that he's not above making a symbolic play for the center-right. That's why undoing the Reagan myth is going to take a lot more work by a lot more people than simply flooding the D.C. zone on Jan. 20 and going home again.. Cutting taxes every year and promising the "shock and awe" to solve any foreign crisis is the easy way, the Reagan-myth way. We can't afford to go down that road any more times.

The Reagan myth and the housing bubble



My soon-to-published book -- "Tear Down This Myth: How the Reagan Legacy Distorts Our Politics and Haunts Our Future" -- deals in part with the many misconceptions about the Reagan presidency, about how is remembered as both more popular and more successful than he really was. But a good chunk of the tome also deals with what happened after the Gipper left the Oval Office on Jan. 20, 1989 -- about the really bad policies that are built around a distorted Reagan legacy that are still haunting us 20 years later. The scariest disciple of the Reagan myth has been George W. Bush, who fell back on the 40th president to justify crazy things like cutting taxes during a war and relaxing regulations to the point where a $50 billion Ponzi scheme is overlooked.

But today's New York Times has an excellent example of how some early warfare over the Reagan legacy -- about which presidential candidate could grab the mantle of tax cutter in the mid-1990s, even as the economy was humming along without needing lower taxes -- led to the housing bubble of the 2000s, that led to the resounding crash of 2008. It happened during the 1996 contest between Bill Clinton and Bob Dole -- a race that was so obviously tilted to the incumbent that there was really no need for a taxpayer bidding war.

Yet that is what happened:

The change in the tax law had its roots in a Chicago speech that Senator Bob Dole, Mr. Clinton’s Republican opponent in the 1996 presidential election, gave on Aug. 5 of that year. Trailing Mr. Clinton in the polls, Mr. Dole came out for an enormous tax cut, including an across-the-board reduction in the capital-gains tax.

The proposal made Mr. Clinton’s political advisers more nervous than almost anything else during the campaign. The campaign’s chief spokesman, Joe Lockhart, traveled to Chicago to stand outside the ballroom where Mr. Dole was speaking and make the case that the Dole tax cut would cause the deficit to soar.

At the same time, Mr. Clinton’s aides began scrambling to come up with their own tax proposal. Dick Morris, the president’s chief outside political adviser, argued that Mr. Clinton could assure his re-election by matching Mr. Dole’s call for a big cut in the capital-gains tax.

For Dole, the Reagan playbook was the only one he had -- especially as he worked to overcome the perception among GOP primary voters early that year that he was too moderate, the same criticisms that would dog John McCain 12 years later. In 1994, Dole told a Republican confab here in Philadelphia: "I'm willing to be another Ronald Reagan, if that's what you want." He would choose a Reagan-mold believer in supply-side, trickle-down economics in Jack Kemp as his running mate, and fully embraced what his moderate wing of the party had once branded as "voodoo economics."
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Here's how John Cochrane of ABC News described the August 1996 gambit (via Nexis):

He had to do something. The character issue wasn't working. He had to move on from metaphysical questions to bread-and-butter issues. This was the best way the campaign thought to go. So his answer to all this is: "Go ahead and accuse me of voodoo economics. Associate me with Ronald Reagan. Reagan's still popular, that's not a problem for me."

It's hard to know why Clinton took the bait; it was his 1993 budget-balancing push, which included a tax hike targeting some of the wealthy who'd received the biggest gains under Reagan, that was helping to drive the economic growth of the 1990s. But politically, the memory of how Reagan had bludgeoned Walter Mondale on taxes in 1984 was still fresh in Clinton's mind. In 1996, just seven years after Reagan left office and left the nation with staggering debts, and just two years after Reagan announced he was leaving public life due to Alzheimer's disease, the myth of the Gipper was already taking root in American life.

So when Clinton countered with his own tax ploy -- eliminated capital gains taxes on the vast majority of home sales -- the GOP-led Congress was happy to oblige. The tax break that few were clamoring for -- before the Reagan myth loomed over the 1996 campaign -- encouraged rampant speculation that playing a big role in inflating the bubble over the next decade. As the Times notes:

By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.

Twelve years and one global economic meltdown later, we have a new president who has promised to restore rationality and common sense to the American economy -- toward our tax laws, toward the ever-growing gap between the rich and the middle class, and toward the unregulated Wild West on Wall Street. Let's all hope so.

But Barack Obama is also a president-elect who's been known to voice his affection for the Reagan style, if not too much of the substance, and who has shown us again with his Rick Warren move that he's not above making a symbolic play for the center-right. That's why undoing the Reagan myth is going to take a lot more work by a lot more people than simply flooding the D.C. zone on Jan. 20 and going home again..

Cutting taxes every year and promising the "shock and awe" to solve any foreign crisis is the easy way, the Reagan-myth way. We can't afford to go down that road any more times.
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