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ROBB AUSTIN'S TURN

"It's Morning in America," Again

August 10, 2009

In the darkest political days of 1982 - with the country in the midst of the deepest recession since the depression of 1929-30 - optimism began to stir inside the Office of Political Affairs at the White House.

President Ronald Reagan’s operatives could see - though the country remained unaware - that the stock market was beginning to awaken. These men knew that the financial markets moved upward based on what Wall Street investors believed would be new conditions in six months - not what was happening with the economy at that moment.

This was a time when stocks still traded in fractions - and only the most astute market watchers understood the balance between geopolitics and the Dow Jones Industrial Average.

The bottom line: the1982 White House knew an economic recovery was just around the corner - albeit too late to help in the mid-term congressional elections that were just a few months away.

Something similar could be happening today. Republicans are giddy over President Barrack Obama’s handling of the economy and believe his economic recovery plan to be a failure. Yet investors see something different - and the GOP might well remember the ominous sign 27 years ago that foreshadowed the start of an 86-month unparalleled economic expansion: Investor confidence on Wall Street.

Well off its dreadful March lows - the stock market is moving higher each week - and some economists are not mincing words - we are in the beginning stages of a new bull market - and that could have an enormous impact for people who live on Main Street - and for President Obama.

It’s a long road to the 2010 congressional mid-term elections and only time will tell if the rebounding stock market is a precursor of better times ahead - as it was in 1982 - but for now, it’s an important economic sign that things might be getting better.

There’s another lesson that can be learned from the 1981-82 recession. While their economic approaches are vastly different - President Reagan and President Obama each inherited horrible economic conditions.

President Reagan advocated reductions in the size of government and brought sweeping changes to the food stamp program, the school lunch program, and a host of other social welfare initiatives. Democrats were livid when he proclaimed in his inaugural address, "Government isn’t the solution to our problems - government is the problem."

He reduced the personal income tax rates by 10 percent a year over three years and he accelerated depreciation for business investments in plants and equipment to reduce unemployment and create jobs. He also reduced government regulation on business and individuals and brought stabilized currency into the financial markets.

President Reagan’s plan worked - but not right away. Throughout 1981-82 Democrats hammered him relentlessly for a failed economic policy. Factories closed, the steel industry unraveled, and unemployment hit 10 percent nationally - all the while President Reagan asked the country to "stay the course," insisting things would get better.

The same is true today - unemployment continues to rise and Republicans insist the President’s plan can’t work - arguing we cannot spend out way out of a recession. The country is growing impatient, too - as it did in 1982 when voters took things out on Republicans and the GOP lost 26 House seats in the mid-term elections.

Yet President Reagan was not deterred - and the mid-term congressional elections turned out to be the high-water mark for Democrats - as things began to improve shortly thereafter and the economy took off on a six-year expansion.

President Reagan was re-elected two years later. His theme: "It’s morning in America" depicting a country on the economic mend. As it turned out - a rebounding stock market - in August of 1982 – was the precursor to the best economic times ever recorded over a six-year period (1983-89).

The country is now concerned whether President Obama’s economic plan - massive federal spending - will work in these economic times. We do have another undeniable upward trend on Wall Street - a new bull market, some say - and it, too, could be a precursor of better economic times ahead.

Politics aside, many want to hear "It’s morning in America," again.