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Reagan vs. Obama: A Test for the News Media

Friday, August 14, 2009

Will the media’s penchant for accentuating the negative prevail over its pro-Obama sentiments?

With a few economic indicators suggesting the economy may be starting to turn around, it is worth recalling the course of the recession of 1982–1983, which at the time was the worst since the Great Depression and is the closest comparison to current conditions. The causes of the two slumps and the policy responses of Presidents Reagan and Obama are very different, of course, but in one respect the two recessions are very similar—namely, the climate of extreme pessimism that did not reach its peak in the news media and among the political class until after the economy had in fact begun to recover. This poses a sharp dilemma for the pro-Obama news media.

A generation has passed since the Reagan recession; a younger generation knows nothing of it firsthand while many older people have likely forgotten how deeply pessimistic we had become by the end of 1982. It is worth recapturing the mood of that moment as events over the next year may well follow a similar course.

In 1982 and the early months of 1983, daily headlines were a floodtide of statistics on the economic ruin. By the middle of 1982, steel production had fallen to 42 percent of capacity—its lowest level since 1935. Business bankruptcies were up more than 40 percent from the previous year. The mortgage industry’s “foreclosure inventory”—the percentage of homes on which a formal foreclosure process was under way—reached its highest level since the 1930s. Construction and auto manufacturing employment were down by a third. Most ominous was a string of major bank failures, starting with the Continental Illinois Bank and cascading down through several savings and loan associations. The Hartford Federal Savings and Loan Association in Connecticut experienced what news reports called “the first genuine depositor bank panic since the 1930s” in February 1982, when depositors withdrew $3 million in cash in a matter of hours.

In hindsight, the near-universal pessimism was a good contrary indicator that a big turnaround was imminent.

There was ample talk of panics and bank failures and even a 1929-style crash. Then–private sector economist Alan Greenspan said on ABC’s “This Week” that “there are similarities to 1929. I think it’s the most risky period we have been in in the post-World War II period.” The New Republic wondered whether Reaganomics “may actually have produced a new depression, a self-sustaining slump from which there will be no recovery.” Ben Stein wrote in the New York Times Magazine, “There seems to be a feeling that the nation has progressed beyond the point where a 1930s-style depression could recur.” The 1982 Nobel laureate in economics, free marketeer George Stigler of the Reagan-friendly University of Chicago, dismayed the White House when he came away from a photo op with Reagan and told the media that the United States was in “a depression.” That view was also endorsed by Harvard economist Richard Cooper, who said, “the economic situation is worse today than at any peacetime period since the 1930s.” Fortune magazine was typical of the financial press: “Rarely has the public mood turned so swiftly . . . Many people have understandably interpreted the high interest rates and low stock prices as a thundering no-confidence vote in Reagan’s strategy for ending inflation.”

The economy had performed so poorly for so long that there was little optimism to be found as 1983 began. Forecasts for an economic rebound in 1983 were tepid. The New York Times reported on January 1: “The typical consensus forecast [for 1983] calls for only modest gains in industrial production, an unemployment level that may still be hovering around 10 percent next Christmas, and still further drops in both business investment and exports.” Official government forecasts were no brighter. Reagan’s new chief economic adviser, Martin Feldstein, told Reagan to expect a weak economic outlook for 1983 and 1984. While the Department of Commerce forecast a modest 3.7 percent increase in GDP for the year, Feldstein had knocked it down to an anemic 2 percent for the official budget forecast. “The mood in the White House was as foul as the weather,” Feldstein’s Council of Economic Advisers colleague William Niskanen wrote. The New York Times predictably said that “the stench of failure” hung around the White House, but even the Wall Street Journal discerned “a whiff of panic” in the administration’s mood. In a column entitled “The End of Reagan?” William F. Buckley Jr. wrote that “Mr. Reagan shows signs of slipping.” On ABC News, White House correspondent Sam Donaldson reported, “there is a consensus in Washington that unless he changes his game plan, economically the grade for the next two years will almost certainly be an F.” Greenspan said, “The economy continues to drift along.” He expected business activity to be “extremely slow-paced.” The New Republic speculated that the United States had entered a “permanent recession.” The 1983 deficit was now expected to reach $200 billion—more than 6 percent of GDP, a peacetime record.

Even as the economy started showing signs of life, the news media kept up an unrelenting drumbeat of negative spin.

In hindsight, this near-universal pessimism was a good contrary indicator that a big turnaround was imminent. In fact, a few indicators of a vigorous rebound were already evident. Late in 1982 the Federal Reserve’s “industrial production index” showed its first monthly gain in more than a year, and was one of the first signs that the end of the recession had arrived. The lingering effects of the recession would continue to wreak havoc on the economy; in February 1983, the United American Bank of Knoxville failed, the fourth-largest bank failure in the last 50 years. But the scales were tipping decidedly in favor of good news. General Motors quietly began recalling laid off autoworkers. By the second quarter, retail sales jumped by 10 percent and the economy as a whole was growing at an 8.7 percent annual rate—higher than is typical for the early phase of an economic recovery. The full year’s growth would come in at 6.4 percent. By the end of the year, employment grew by 3.9 million and unemployment fell more than 2 percent; real after-tax per capita income grew by 5.3 percent while inflation continued to fall rapidly. Interest rates had fallen along with inflation. Most significantly for supply-side theory, business investment began to take off. Chase Econometrics, one of the leading private-sector forecasting firms, had projected a 5 percent decline in business investment for 1983, and only a weak 1.5 percent increase in business investment in 1984. In fact private-sector investment rose 8.4 percent in 1983, and a robust 23.5 percent in 1984.  

The current period is likely to produce a classic case study for media watchers.

Even as the economy started showing signs of life, the news media kept up an unrelenting drumbeat of negative spin. One study of network news coverage of the economy in 1983 found that 85 percent of TV news stories about the economy were negative. Fortune magazine editor Paul Weaver observed:

It is hard not to conclude that [the networks’] opinion of [Reagan] and his program was so low that they were determined to do everything within their legitimate discretion, and perhaps then some, to prevent their reportage from suggesting that the policies worked, or that a recovery was in full swing, or that the president might be in line for some credit for the expansion of the economy.

Time magazine’s William A. Henry concurred, writing that “the most antagonistic major news organization was CBS, which had challenged the morality of Reagan’s approach almost from its outset.” Reagan took notice of this in his diary, writing in March 1983: “CBS evening news an almost total attack on our admin. They are beginning to look like a deliberate campaign.”

This history suggests a big question for the current economic cycle: will the media’s well-known penchant for accentuating the negative prevail over its pro-Obama sentiments, or will the media detect and report signals of a cyclical rebound that is likely to come at some point down the road? The current period is likely to produce a classic case study for media watchers.

Steven F. Hayward is F.K. Weyerhaeuser Fellow at the American Enterprise Institute. This article is adapted from The Age of Reagan: The Conservative Counter-Revolution, 1980–1989, to be published on August 25 by CrownForum. Hayward delivered a Bradley Lecture on the Reagan Revolution and its discontents on April 13, 2009.

MORE TO LEARN: Sam Donaldson, Newt Gingrich, and Michael Barone participated in a panel on the legacy of Reagan at AEI. Click here for Jeane Kirkpatrick’s book on The Reagan Phenomenon. Newt Gingrich outlines the Obama challenge here.

 

Image by Darren Wamboldt/Bergman Group.

 

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