Is This the '92 Election All Over Again?

The always-interesting David Leonhardt, in his Economic Scene column, posits that this year's election is a lot like 1992's which is hard to deny in some ways and echoes what I wrote last night. When you have economic anxiety, you see a Reagan '80 or a Clinton '92. (Reagan's landslide was leavened by the Iran hostage crisis and the incompetance that often marked the Carter years.)

Some things seem different to me this time:

First, what's causing the problem? The credit crisis, while it had its Cassandras, came largely out of nowhere and no one's quite sure of how bad it is and the solutions see difficult to manage. In the past, the diagnosis of the problems whether they were wrong or right--in Reagan's estimation government was too big and taxes were too high and in Clinton's government debt was too high and investment was lagging--had a degree of certitude about them. This time, I think any thinking person has to be slightly perplexed about how to manage the subprime, debt mess.

Second, we've tried it their way. It's hard for me to see how a return to pure Reaganism of lower taxes and less government spending and regulation would really revamp the economy. After all, we've seen how it stimulates growth in a Keynesian way but we're still dealing with the aftereffects of the resultant debt, a generation later. And in an age of unsafe Chinese toys, collapsing coal mines and greenhouse gases, do we want another round of blunderbuss deregulation?

On the other hand, we've seen the incompleteness of the Clinton-Rubin model. NAFTA was no panacea for our economic woes and the investments in various job-training schemes and the like haven't proven to be any great shakes either. There's a lot to be said for more investment in human capital, as all of the Democratic candidates have called for, but that is, at best, a long term balm for the economy and not something that can stave off a recession.

So we're dealing with a degree of intellectual exhaustion as well as economic sputtering. When Reagan and Clinton showed up on the scene, they were selling something new. Now, this time out, there's no guiding new idea while various individual notions may be good whether it's John McCain's attacks on earmarks and pork spending or Obama's broadband strategy. But there's no big guiding new idea on the horizon unless you buy the Fair Tax that Huckabee is selling, but even if you believe in that, who thinks the country could convert from an income-tax financed federal government to a sales-tax financed one in less than a decade?

The good news, I think, is that the problems the economy faces seem less intractable. After all, as Leonhardt points out, in 1992, Japan seemed destined to overtake us and we quickly saw that they could be beset by problems. Everyone's worried about China but would you really want to exchange the American economy for China's--not just because of current GDP per capita rates but also in the long run, their statist economy, deadly pollution, lack of social safety net, and other woes seem like a greater weight to carry than a subprime crisis, a federal debt and a low savings rate.

In some ways we're worse off because there's no big new idea out there but we're also better off because we've had the experience, both in the 80s and 90s, of knowing we can sink and then thrive again.