The Leadership Forum: The World in 2005 December 3rd 2004. London RESEARCH TOOLS Economist.comsuRveYs Reaganomics redux From The Economist print edition Why the world cannot count on a repeat of the 1980s PARALLELS abound between Ronald Reagan and george Bush Like the gipper, dubya is a sun belt conservative with a fondness for his ranch. In all, Mr Reagan spent about one year of his eight-year presidency at his California retreat. Mr Bush has turned his patch of Texan scrub near Crawford into the hottest destination for world leaders cuts and big increases in defence spending. Mr Bush has already cut taxes by as much as Mr+t In economic policy the script, so far, seems eerily similar. Both presidents introduced huge ta Reagan ever did though he has not, as yet, matched the 1980s defence build-up. Both men spilled huge quantities of federal red ink. During Mr Reagan 's first three years the budget deficit rose by 3% of GDP. Mr Bush has doubled that figure, presiding over a deterioration of 6% of GDP in the federal finances since 2000. And under both presidents external imbalances alled. During Mr Reagan's first four-year term, America went from a balanced current account to a deficit of almost 3% of gdP. mr bush inherited a current - account deficit of 4% of GDP. It is now over 5% and rising fast. Critics of the current president make much of these Reagan-Bush parallels. They point out that it took a decade of painful budget discipline in the 1990s to work off the budget deficits built up in the profligate Reagan era. How comforting, then, that the Reagan-era story has a happy ending, at least as far as America's external accounts are concerned Having soared in the early 1980s, the dollar started to fall from 1985. a couple of years later the current-account deficit began to reverse. By 1991 it had disappeared. Though there were nasty scares, notably the 1987 stockmarket crash, there was no global financial meltdown and no global recession However, today's world is very different. a brief detour back to the 1980s will show why Morning in America The Reagan era, like the current Bush presidency began with an economy in recession. But unlike the mild downturn of 2001, the 1981 version was severe, with soaring unemployment and plummeting output. The recovery, however, was quicker and more dramatic. Helped by big tax cuts, America boomed In 1982-84, American domestic demand grew almost 15%, against less than 3% in Europe and 5% in Japan Unlike today interest rates were high, so in 1980-84 the dollar rose by more than 80% against the currencies of its trading partners. The combination of a strong dollar and a strong economyReaganomics redux Sep 18th 2003 From The Economist print edition Why the world cannot count on a repeat of the 1980s PARALLELS abound between Ronald Reagan and George Bush. Like the Gipper, Dubya is a sun￾belt conservative with a fondness for his ranch. In all, Mr Reagan spent about one year of his eight-year presidency at his California retreat. Mr Bush has turned his patch of Texan scrub near Crawford into the hottest destination for world leaders. In economic policy, the script, so far, seems eerily similar. Both presidents introduced huge tax cuts and big increases in defence spending. Mr Bush has already cut taxes by as much as Mr Reagan ever did, though he has not, as yet, matched the 1980s defence build-up. Both men spilled huge quantities of federal red ink. During Mr Reagan's first three years the budget deficit rose by 3% of GDP. Mr Bush has doubled that figure, presiding over a deterioration of 6% of GDP in the federal finances since 2000. And under both presidents external imbalances spiralled. During Mr Reagan's first four-year term, America went from a balanced current account to a deficit of almost 3% of GDP. Mr Bush inherited a current-account deficit of 4% of GDP. It is now over 5% and rising fast. Critics of the current president make much of these Reagan-Bush parallels. They point out that it took a decade of painful budget discipline in the 1990s to work off the budget deficits built up in the profligate Reagan era. How comforting, then, that the Reagan-era story has a happy ending, at least as far as America's external accounts are concerned. Having soared in the early 1980s, the dollar started to fall from 1985. A couple of years later the current-account deficit began to reverse. By 1991 it had disappeared. Though there were nasty scares, notably the 1987 stockmarket crash, there was no global financial meltdown and no global recession. However, today's world is very different. A brief detour back to the 1980s will show why. Morning in America The Reagan era, like the current Bush presidency, began with an economy in recession. But unlike the mild downturn of 2001, the 1981 version was severe, with soaring unemployment and plummeting output. The recovery, however, was quicker and more dramatic. Helped by big tax cuts, America boomed. In 1982-84, American domestic demand grew almost 15%, against less than 3% in Europe and 5% in Japan. Unlike today, interest rates were high, so in 1980-84 the dollar rose by more than 80% against the currencies of its trading partners. The combination of a strong dollar and a strong economy