Don Trump: Meek Inheritor Of The Forgotten Reagan Protectionist Legacy?

A Benjamin Cole post

When it comes to trade and protectionism, President Ronald Reagan (1980-1988) dwarfed in real life anything GOP candidate Don Trump has imaginatively proposed.

Trump wants a 45% tariff on China goods?

Hoo-haw. President Reagan slapped a 100% tariff on Japanese consumer electronics. And a 50% tariff on Japanese heavy motorcycles, as a favor to Harley Davidson, hog-makers. Forgotten today, Harley was about to go under. Reagan rode to the rescue, and Harley Davidson survives to this day. I guess if you like American-built huge motorcycles, protectionism has its merits.

Little was safe from Reagan’s protectionism, including sugar, textiles, roller bearings, machine tools, autos from Japan (limited by amount, not tariff. But that was OK because it went by the name of “Voluntary Export Restraint”!), steel, garments, lumber, forklifts, color TV tubes, and other items.

Sheldon Richman, writing for Cato Institute in 1988 (before latter-day hagiographers), reported, “Treasury Secretary James A. Baker III boasted last September (1987) that the administration ‘has granted more import relief to United States industry than any of [its] predecessors in more than half a century.’”

Richman concluded, “Ronald Reagan by his actions has become the most protectionist president since Herbert Hoover, the heavyweight champion of protectionists.”

The number of nations hit by trade restrictions reached into the dozens. Indeed, Reagan was such a ferocious protectionist that Milton Friedman wrote that the one-time actor was “making Smoot-Hawley look positively benign.”

William A. Niskanen, who was for a while acting chairman of President Reagan’s Council of Economic Advisers, reported, “The share of U.S. imports subject to some form of trade restraint increased from 12% in 1980 to 23% in 1988.”

Trump in contrast, has suggested tariffs on just one nation, and that as bargaining position.

Forgotten today is that Reagan conducted a global trade-war.

Plaza Accords

Moreover, Reagan didn’t just go crazy with tariffs—he repeatedly pressured other nations into increasing the value of their currencies, or, put it mildly, sought to cheapen the dollar.

As in September 1985, when the Reaganauts engineered the “Plaza Accord,” an international monetary straitjacket which mechanically depreciated the U.S. dollar against the Japanese yen and German mark.


Today, the punditry is in full-shriek mode at Trump-o-nomics. We are lectured The Donald’s trade policies will result in snowballing recessions or economic Armageddon.

But in the 1980s, the United States flourished behind rising walls of aggressive Reagan protectionism, much more pervasive than anything proposed by Trump.

Did Reagan’s wide-ranging trade-killing measures improve the domestic economy (in addition to saving Harley Davidson’s big motorcycles)?

It does not seem likely, but today Reagan is lionized by many, and the 1980s remembered as a period of prosperity.

When Reagan Did A Nixon

A Benjamin Cole post

Thanks to the White House tape-recording system installed by then-President Richard Nixon, we have transcripts of Nixon ordering then-Fed Chairman Arthur Burns to gun the presses before the pending 1972 election.

Never underestimate Nixon, who had an uncanny sixth sense for national and global politics, as well as monetary policy.

But lately it came to this writer’s attention that President Ronald Reagan was a crafty fellow as well. From David M. Jones’ 2014 book, Understanding Central Banking: The New Era of Activism:

“A second incident—one that, according to Volcker, [Bob] Woodward got right—involved a hush-hush unpublicized meeting at the White House just prior the Reagan’s reelection in 1984. Volcker was ordered by [Reagan’s Treasury Secretary and Chief of Staff] James Baker to attend this highly confidential meeting, which turned out to have only three participants. Volcker, James Baker, and President Reagan. At this meeting, by Volcker’s account, Baker “ordered” Volcker not to tighten Fed policy “under any conditions” prior to Reagan’s reelection (quoted in Woodward 2000). This unprecedented order by Baker in the presence of Reagan was, of course, totally inappropriate. It fundamentally violated the Fed’s independence within government. If revealed, it would have severely damaged Fed credibility and greatly unsettled the global financial markets.

In recounting this incident, Volcker said with a wry smile that what Baker and the President did not know was that Volcker was, at that very time,  urging his fellow policymakers to ease rather than tighten. Specifically, Volcker was worried that the Continental Illinois Bank failure at that time had caused an unintended tightening of bank reserve pressures, accompanied by an unwelcome spike in the federal funds rate…

In any case, Volcker remains shocked to this day be being called to this secret 1984 meeting at the White House, and being ordered directly by Baker—in the presence of the President—not to tighten under any conditions prior to Reagan’s reelection. Not since the days prior to the 1951 Treasury-Federal Reserve Accord had there been such an explicit White House threat to Fed independence.”

Actually, I think the Reagan White House was within its rights, and that the Fed should be a part of the Treasury…as was publicly recommended by Reagan’s Treasury Secretary, Don Regan.

The current arrangement, that of an independent Fed, is undecipherable to the public on many levels. Who knows who is on the 12-member FOMC? The public does not understand who is responsible for monetary policy, and even if it does understand, cannot vote accordingly.

Are surreptitious White House policy meetings—ala Nixon and Regan—a better way?

Krugman remains “confused”

Previously, Steve Williamson said Krugman was “confused”. To sort of “settle the issue, in “Demand Policies in Two Big RecessionsKrugman writes:

With job growth finally running at the pace we’d expect to see after a deep slump, we’re not hearing as much about how Obama’s anti-capitalist policies are the reason we’re not having a V-shaped recovery, the way we did under the Blessed Reagan. But it’s true that recovery was a long time coming. Why?

Well, the answer has long been obvious: constrained monetary policy thanks to the zero sort-of lower bound, constrained fiscal policy because of the combination of debt fears and Republican obstruction.

He shows two pictures as corroboration for his arguments:


And concludes:

[A]t a time when monetary policy was limited in its effectiveness, fiscal policy was perverse. In practice, Reaganomics was far more Keynesian while Boehnernomics — which is what it ended up being, in practice — was anti-Keynesian.

That’s the story of the delayed recovery.

In his post Krugman concentrates on Government Purchases. That´s an incomplete measure of government contribution to demand. Better to look at the fiscal balance (in this case deficit of the Federal Government relative to GDP).


The chart shows that the pattern was similar, with the deficit increasing more during the Obama cycle.

In cyclically adjusted terms (CA), the  outcome is different, with the deficit taking a deeper and quicker “dive” under “Obama”.


But what really provides the explanation for the contrasting recoveries is the behavior of monetary policy, not as (wrongly) inferred from levels and changes in the FF rate, but as reflected in the behavior of nominal spending (NGDP).




TV’s Larry Kudlow Pulls Two Big Historical Boners In One Column

A Benjamin Cole post

TV pundit Larry Kudlow recently opined that it has never been proved that President Richard Nixon (1969-74) pushed for loose money, and that President Ronald Reagan (1981-89) “backed” then Fed Chairman Paul Volcker in his epic battles against inflation.

The old CCCP historical rehabilitationists and revisionists were pikers next to our hagiographer Kudlow.

Unfortunately for Kudlow, and even more unfortunately for Nixon, that president tape-recorded himself. So we have this conversation between Nixon and Fed Chairman Arthur Burns was caught on tape on March 19, 1971, in the White House Oval Office:

Nixon: Arthur, the main thing is next year [1972, election year]…let’s don’t let it [unemployment] get any higher. I hope we can—

Burns: That’s what I have my eye on.

Nixon: Yeah. But I think we really got to think of goosing it.

Burns: Yes.

Nixon: Shall we say late summer and fall this year in order to affect next year?”

Burns: Exactly.

BTW, inflation during Burns-Nixon duet was just under 5 percent, on the CPI.

Then there is Nixon telling aides, “I’ve told [Treasury Secretary John B] Connally to find the easiest money man he can find in the country and one that will do exactly what Connally wants and one that will speak up to Burns…Connally is searching the goddamned hills of Texas, California, Ohio,” Nixon said. “We’ll get a populist spender on the board one way or another.”

The UPI reported on July 28, 1971 that, “President Nixon is considering a proposal to double the size of the Federal Reserve Board, it was learned today. The suggestion, if put before Congress, could touch off a controversy rivaling President Franklin D. Roosevelt’s attempt to ‘pack’ the Supreme Court.”

Okay, enough on Nixon.

President Reagan

Where to start? Fed Chairman Volcker, it is now usually forgotten, was first appointed by President Jimmy Carter—and was largely viewed by Reaganauts as a tight-money D-Party Trojan Horse, determined to wreck the GOP.

At one point, the Reaganauts, like Nixon before them, were looking at institutional myrmidons to shackle the Fed, while the money-presses were kept wide open. As the AP reported in December of 1984, “’The Reagan Administration is considering a plan that would place the now autonomous US Federal Reserve under some form of administrative control,’ the US Treasury Secretary, Don Regan, said yesterday. ‘The United States is the only country in the world that has a totally independent central bank.’”

And President Reagan? Speaking before the National Association of Realtors in December 1984, Reagan echoed the Regan assault on the Fed. “Let me assure you we are not pleased with the recent increases in interest rates,” said the Gipper. “And frankly there is no satisfactory reason for them.”

Here are the national columnist GOP attack-dogs Rowland Evans and Robert Novak (back then, writing a national column was big stuff, btw) in July 8, 1984 column: “When Paul Volcker and his central bank colleagues decide later this month whether to further tighten the screws on a dangerously deflationary economy, President Reagan’s policymakers will be offstage as impotent….”

Of course, the 1984 elections were up to bat.

Evans and Nowak continue, “The Federal Reserve’s staff…monomaniacal fear of resurgent inflation ignores sliding commodity prices which connote deflation rather than inflation.”

The column-penners darkly continue, “Their (tight-money) position is being pressed by Lyle Gramley, a former Fed staffer named to the board by Jimmy Carter in 1980.”

And Evans and Nowak were the Kudlows of their era!

Things Have Changed

In fact, right-wingers were not always daft-kooky-nuts about the money supply, gold, inflation and interest rates. In 1958 famed economist Milton Friedman testified before the Joint Economic Committee, and told the august body that the Federal Reserve had caused the 1957 recession by…being too tight.

The right-wing today would exile Milton Friedman.

Today’s Misguided Right Wing

It is sad to see Kudlow and other wahoos tub-thumb for tight-money, but they could at least be truthful about their antecedents.

Well, scratch that, today’s righty-tighties have no antecedents. Nixon and Reagan were far too shrewd to let the self-destructive dogma of tight money gain control over policy levers.

Nixon and Reagan wanted prosperity, and I say good for them.

What does the GOP want today? Has some sort of auriferous theology replaced monetary realism?

Maybe so. But maybe not. The GOP, once again in control of White House in 2016, may do what R-Party forefathers have always done: Run big deficits and browbeat the Fed for loose money.

Because, you know, prosperity does trump genuflecting to piles of gold, and we want to get re-elected.