Was it Really Reagan?
In a recent op-ed, columnist Paul Krugman declares Ronald Reagan the architect of the financial meltdown. Singling out Reagan’s support of the Garn-St. Germain Depository Institutions Act, Krugman writes:
The more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.
Krugman extends his argument:
We weren’t always a nation of big debts and low savings: in the 1970s Americans saved almost 10 percent of their income, slightly more than in the 1960s. It was only after the Reagan deregulation that thrift gradually disappeared from the American way of life, culminating in the near-zero savings rate that prevailed on the eve of the great crisis. Household debt was only 60 percent of income when Reagan took office, about the same as it was during the Kennedy administration. By 2007 it was up to 119 percent.
All this, we were assured, was a good thing: sure, Americans were piling up debt, and they weren’t putting aside any of their income, but their finances looked fine once you took into account the rising values of their houses and their stock portfolios. Oops.
…
But it was the explosion of debt over the previous quarter-century that made the U.S. economy so vulnerable. Overstretched borrowers were bound to start defaulting in large numbers once the housing bubble burst and unemployment began to rise.
I don’t claim to know anything about Garn-St. Germain Depository Institutions Act, and I’m certainly not one to criticize Krugman for narrowing the first sign of regulatory trouble to a single piece of legislation, but Krugman seems to be implying that Reagan’s deregulation forced American’s into investment decisions that they couldn’t afford.
What do you think? If we grant that Reagan’s deregulatory record opened the doors for American’s to spend beyond their means, do Reagan and his advisers bear responsibility for Americans who willingly spent and borrowed irresponsibly? Was it Reagan, or irresponsible Americans?
so ridiculous how far americans will go to not claim any sort of responsibility. always jump to blame any legislator they can. my conclusion reagan can only be blamed so much. econmic crisis’ would not be so bad if the average american had money in savings. there would be hope then but we still must accept some responsibility for this. and it kinda sounds like some liberal jumping at the opportunity to discredit one of the few truly conservative presidents of our time. he truly did cut a lot of the pork, so i guess i’m a little torn.
I am in the same boat as you. I don’t really understand the details of the legislation either. However, I question that Reagan opened the doors to beyond means living when it was so alive, well and pervasive in the twenties.