When Ronald Reagan took office four decades ago, the American economy was a dumpster dive. Inflation was 11 percent. Interest rates for home mortgages exceeded 16 percent, effectively shutting down construction. Unemployment was climbing, and would reach 10 percent in just a year and a half. It began to look as if the Reagan presidency would follow Carter as a single term.
The root cause of this economic disaster could be traced back to the Johnson Administration in 1965 when LBJ adopted a “guns and butter” policy. We would fight a war on the other side of the world (Southeast Asia) while funding The Great Society simultaneously. These expensive pursuits countervailed and began what economist Robert Samuelson called “The Great Inflation.” The two oil shocks, initially in 1973 and again in 1979, certainly contributed to inflationary pressure. None of the three administrations during the 1970s addressed this, and Jimmy Carter was left holding the bag.