Donald Trump is no Ronald Reagan. But then again, neither was Reagan.
Stocks and the dollar have risen since the Nov. 8 presidential election on hopes that Trump’s advocacy of big tax cuts, increased defense spending and deregulation will usher in another period of prosperity. The coming change will be a “profound president-led ideological shift” akin to Reagan’s, according to Bridgewater Associates founder Ray Dalio. Trump’s advisers and the billionaire himself have embraced the comparison.
Yet in their rush to buy, investors may be forgetting that the economy is in a different place now than it was then and that former Federal Reserve Chairman Paul Volcker was as much responsible for the good times in the 1980s as Reagan was.
Also lost in the afterglow of that period: A president now known as a legendary cutter of taxes increased some as well as budget deficits ballooned. He also didn’t go as far as some supporters wanted in rolling back federal regulations. And he abandoned a hands-off approach to the currency markets when a soaring dollar crushed American companies and sent the trade shortfall surging.
“Reagan was not Reagan, if I may put it that way,” said ex-Fed Chairman Alan Greenspan, who was tapped by the late president to head the central bank in 1987. “I admired him and thought he was an excellent president. But he has a reputation built up since he left office that was never quite what he was as president.”
That notoriety is built on the foundation of a much improved economy during his watch. Gross domestic product grew at an average annual clip of 3.6 percent from 1981 through 1988, versus a 2.8 percent pace in the prior eight years. Inflation more than halved, to 4.3 percent.
Reagan and Trump “are very similar at this stage,” tax-cut advocate Arthur Laffer, who has advised both men, said in an interview. “If the past is prologue, we’ve got a great eight years ahead of us.”
Trump himself has likened his evolution on some issues to Reagan’s political conversion. “Ronald Reagan was a fairly liberal Democrat and he evolved over the years, and he became more and more conservative,” Trump said on CBS’s “Face the Nation” in January. “And he ended up being a great president.”
His new economic team sounds like it wants to replicate Reagan’s success.
Treasury Secretary-nominee Steven Mnuchin told CNBC television on Nov. 30 that Trump will push for the “largest tax change since Reagan” with big reductions for the middle class and businesses. The aim: to achieve sustainable annual growth of 3 percent to 4 percent.