The Lesson of Reykjavik

Bill Weckesser
President Reagan's experience at Reykjavik contains a good lesson for today's conservatives -- patience.  Those 1986 talks began with Mikhail Gorbachev offering amazing cuts in nuclear weapons.  Reagan and his team were stunned and excited.  But the talks collapsed when Gorbachev demanded that in return the U.S. would discontinue Reagan's Strategic Defense Initiative.  Reagan refused and the talks ended.  But a year later, progress on nuclear weapons treaties was made and eventually, well, you know the story.  In retrospect, President Reagan refused to make a fundamentally bad deal and so he walked out.  A couple of Wall Street Journal commentaries seem to be opening up the doors to the debt negotiations at the White House, and they reveal a much larger issue than the debt, and the reason why Senator McConnell's proposal might look like Reagan at Reykjavik in retrospect.

Daniel Henninger introduces us to 1995 Nobel Prize winning economist Robert Lucas who's arguing that our current slow recovery from recession is to be blamed on President Obama's dream of European socialism for the U.S.  Prof. Lucas says that the government response to the banking crisis of the Great Depression was a host of growth stalling social programs and "the most important but hardest to measure FDR's demonization of business."  This is the liberal strategy of using an economic downturn to turn America into Europe.  But at what cost

Forgotten in most discussions of the U.S.-Europe comparison is that for the first 70 years of the 20th century, continental Europe's growth rose alongside that of the world-leading U.S. and U.K., especially after World War II. Through the 1960s, he says, there was every reason to expect a common, high living standard for all of us. Then, "in the 1970s, their catch-up stalled."

A 20% to 40% gap in income levels emerged between the U.S. and Europe, reflecting a lowered European work effort. In Prof. Lucas's view, that gap represents the cost (largely taxes) of financing a larger welfare state from 1970 onward. Other economists, he says, have cited a 30% loss in GDP per person in Western Europe since the 1970s.

 The U.S.'s projected long-term welfare costs, including the new health-care law, are the justification the Obama economists give for pushing spending to 25% or more of GDP. The tax increase the president is fairly shrieking for this week isn't for the August debt limit. It's for the next 25 years. "If we're going to move to a European welfare state," says Prof. Lucas, "we're going to have to pay a European price." And that price could be a permanently lower level of GDP per person.

Now, let's follow Karl Rove as he opens the door to the negotiating room in another Wall Street Journal commentary.

The president has made a bipartisan agreement even more difficult by declaring certain spending off-limits to cuts. Mr. Obama's "untouchable" list includes his $1 trillion health-care reform, $128 billion in unspent stimulus funds, education and training outlays, his $53 billion high-speed rail proposal, spending on "green" jobs and student loans, and virtually any structural changes to entitlements except further squeezing payments to doctors, hospitals and health-care professionals.

Mr. Obama has offered no evidence since becoming president that he wants to restrain the upward trajectory of government spending. He does want higher taxes to pay for significantly higher federal spending. But he wants Republicans to deliver the tax increases, since Democrats couldn't pass them last year despite controlling both chambers of Congress.

Republicans have wisely declined. Demanding the GOP vote for immediate tax increases that would be offset by vague, future tax cuts conjures up images of Charlie Brown, Lucy and the football. The tax increases would be real-the future tax rate cuts would be imaginary. And Mr. Obama has opposed any serious spending enforcement mechanisms, such as a balanced budget amendment or hard caps on spending.

Mr. Obama has taken a page from the Gorbachev at Reykjavik playbook -- blue smoke, mirrors and gimmickry.  Republicans, unfortunately -- unlike Mr. Reagan, cannot simply walk away.  Or can they?  Senator McConnell's plan is essentially just that.  He meant it when said that meaningful deficit reduction is impossible with Mr. Obama.  If Mr. Rove's comments are accurate then we know why.  Rather than be a party to a bad deal, Senator McConnell is giving Republicans a mechanism to walk away from the talks and to fight another day, rather than shut down the government and look like unreasonably obstructionists.  Like Reagan before him, the McConnell walk-away would send a powerful message:   Republicans are serious about the long term direction of the nation, we do not want to become Europe.  We reject the social agenda.  We reject the tax the rich rhetoric -- which inevitably morphs into "tax the middle class".  And -- perhaps most importantly -- if Mr. Obama would like the mantle of "Dr. Debt" he may have it.

Here's a hunch.  While Senator Reid and Representative Pelosi are all in on debt as usual, a lot of other Democrats are not -- namely those, such as Mr. Obama who are up for re-election and face difficult races. Wouldn't it be interesting if shortly down the read they wilted to Republicans as Gorbachev did to Reagan?

President Reagan's experience at Reykjavik contains a good lesson for today's conservatives -- patience.  Those 1986 talks began with Mikhail Gorbachev offering amazing cuts in nuclear weapons.  Reagan and his team were stunned and excited.  But the talks collapsed when Gorbachev demanded that in return the U.S. would discontinue Reagan's Strategic Defense Initiative.  Reagan refused and the talks ended.  But a year later, progress on nuclear weapons treaties was made and eventually, well, you know the story.  In retrospect, President Reagan refused to make a fundamentally bad deal and so he walked out.  A couple of Wall Street Journal commentaries seem to be opening up the doors to the debt negotiations at the White House, and they reveal a much larger issue than the debt, and the reason why Senator McConnell's proposal might look like Reagan at Reykjavik in retrospect.

Daniel Henninger introduces us to 1995 Nobel Prize winning economist Robert Lucas who's arguing that our current slow recovery from recession is to be blamed on President Obama's dream of European socialism for the U.S.  Prof. Lucas says that the government response to the banking crisis of the Great Depression was a host of growth stalling social programs and "the most important but hardest to measure FDR's demonization of business."  This is the liberal strategy of using an economic downturn to turn America into Europe.  But at what cost

Forgotten in most discussions of the U.S.-Europe comparison is that for the first 70 years of the 20th century, continental Europe's growth rose alongside that of the world-leading U.S. and U.K., especially after World War II. Through the 1960s, he says, there was every reason to expect a common, high living standard for all of us. Then, "in the 1970s, their catch-up stalled."

A 20% to 40% gap in income levels emerged between the U.S. and Europe, reflecting a lowered European work effort. In Prof. Lucas's view, that gap represents the cost (largely taxes) of financing a larger welfare state from 1970 onward. Other economists, he says, have cited a 30% loss in GDP per person in Western Europe since the 1970s.

 The U.S.'s projected long-term welfare costs, including the new health-care law, are the justification the Obama economists give for pushing spending to 25% or more of GDP. The tax increase the president is fairly shrieking for this week isn't for the August debt limit. It's for the next 25 years. "If we're going to move to a European welfare state," says Prof. Lucas, "we're going to have to pay a European price." And that price could be a permanently lower level of GDP per person.

Now, let's follow Karl Rove as he opens the door to the negotiating room in another Wall Street Journal commentary.

The president has made a bipartisan agreement even more difficult by declaring certain spending off-limits to cuts. Mr. Obama's "untouchable" list includes his $1 trillion health-care reform, $128 billion in unspent stimulus funds, education and training outlays, his $53 billion high-speed rail proposal, spending on "green" jobs and student loans, and virtually any structural changes to entitlements except further squeezing payments to doctors, hospitals and health-care professionals.

Mr. Obama has offered no evidence since becoming president that he wants to restrain the upward trajectory of government spending. He does want higher taxes to pay for significantly higher federal spending. But he wants Republicans to deliver the tax increases, since Democrats couldn't pass them last year despite controlling both chambers of Congress.

Republicans have wisely declined. Demanding the GOP vote for immediate tax increases that would be offset by vague, future tax cuts conjures up images of Charlie Brown, Lucy and the football. The tax increases would be real-the future tax rate cuts would be imaginary. And Mr. Obama has opposed any serious spending enforcement mechanisms, such as a balanced budget amendment or hard caps on spending.

Mr. Obama has taken a page from the Gorbachev at Reykjavik playbook -- blue smoke, mirrors and gimmickry.  Republicans, unfortunately -- unlike Mr. Reagan, cannot simply walk away.  Or can they?  Senator McConnell's plan is essentially just that.  He meant it when said that meaningful deficit reduction is impossible with Mr. Obama.  If Mr. Rove's comments are accurate then we know why.  Rather than be a party to a bad deal, Senator McConnell is giving Republicans a mechanism to walk away from the talks and to fight another day, rather than shut down the government and look like unreasonably obstructionists.  Like Reagan before him, the McConnell walk-away would send a powerful message:   Republicans are serious about the long term direction of the nation, we do not want to become Europe.  We reject the social agenda.  We reject the tax the rich rhetoric -- which inevitably morphs into "tax the middle class".  And -- perhaps most importantly -- if Mr. Obama would like the mantle of "Dr. Debt" he may have it.

Here's a hunch.  While Senator Reid and Representative Pelosi are all in on debt as usual, a lot of other Democrats are not -- namely those, such as Mr. Obama who are up for re-election and face difficult races. Wouldn't it be interesting if shortly down the read they wilted to Republicans as Gorbachev did to Reagan?