By ROBERT BARRO

Ronald Reagan and Barack Obama have at least one similarity. They both were confronted by great economic challenges when they became president.

Mr. Reagan’s immediate challenge was that inflation and interest rates were out of control. He met this great test by allying with the Federal Reserve chairman, Paul Volcker, in accomplishing a return to price stability, even through the 1982 recession when the unemployment rate hit 10.8%.

Reagan’s success is not in doubt. Inflation and interest rates were reduced dramatically, and the recovery from the end of 1982 to the end of 1988 was strong and long with an average growth rate of real GDP of 4.6% per year. Moreover, Reagan focused on implementing good economic policies, not on blaming his incompetent predecessor for the terrible economy he had inherited.

Mr. Obama was equally in position to get credit for turning around a perilous economic situation that had been left by a weak predecessor. But he has pursued an array of poor economic policies, featuring the grand Keynesian experiment of sharply raising federal spending and the public debt. The results have been terrible and now, two and a half years into his administration, Mr. Obama is still blaming George W. Bush for all the problems.

Friday’s downgrade of the U.S. credit rating by Standard & Poor’s should have been a wake-up call to the administration. S&P is saying, accurately, that there is no coherent long-term plan in place to deal with the U.S. government’s fiscal deficits.

The way for the U.S. government to earn back a AAA rating is to enact a meaningful medium- and long-term plan for addressing the nation’s fiscal problems. I have sketched a five-point plan that builds on ideas from the excellent 2010 report of the president’s deficit commission.

First, make structural reforms to the main entitlement programs, starting with increases in ages of eligibility and a shift to an economically appropriate indexing formula. Second, lower the structure of marginal tax rates in the individual income tax. Third, in the spirit of Reagan’s 1986 tax reform, pay for the rate cuts by gradually phasing out the main tax-expenditure items, including preferences for home-mortgage interest, state and local income taxes, and employee fringe benefits—not to mention eliminating ethanol subsidies. Fourth, permanently eliminate corporate and estate taxes, levies that are inefficient and raise little money.

Fifth, introduce a broad-based expenditure tax, such as a value-added tax (VAT), with a rate around 10%. The VAT’s appeal to liberals can be enhanced, with some loss of economic efficiency, by exempting items such as food and housing.

I recognize that a VAT is anathema to many conservatives because it gives the government an added claim on revenues. My defense is that a VAT makes sense as part of a larger package that includes the other four points.

The loss of the U.S. government’s AAA rating is a great symbolic blow, one that would cause great anguish to our first Treasury secretary, Alexander Hamilton. Frankly, the only respectable reaction by our current Treasury secretary is to fall on his sword. Then again, “the buck stops here” suggests that an even more appropriate resignation would come from our chief executive, who, by the way, is no Ronald Reagan.

Mr. Barro is a professor of economics at Harvard University and a senior fellow of Stanford’s Hoover Institution.

When teachers unions make it next to impossible to fire bad instructors or close the worst-performing schools, it’s obvious students aren’t their primary concern. Now a new study suggests unions are opposing education reforms that an increasing number of their members support.

A report last week by the National Center for Education Information reveals that four of 10 teachers hired since 2005 entered teaching through alternatives to traditional certification rules. That’s an increase from the 22% of teachers who took an alternative route between 2000 and 2004 and the 8% in the 1990s.

The trend is welcome. Emily Feistritzer, the study’s author, writes that there are “striking differences between this non-traditional population of new teachers and teachers who enter teaching through undergraduate and graduate college campus-based teacher education programs, especially in attitudes concerning current proposed school reform measures and ways to strengthen teaching as a profession.”

More than half of alternate route teachers (53%) believe that abolishing tenure would improve education, while just 31% of traditional route teachers share that view. Sixty percent of alternate route teachers and 43% of their traditional route colleagues think that students should pass standardized tests for grade promotion. And “nearly two thirds (62%) of alternate route teachers think that expanding the use of charter schools for children in low-performing public schools would improve American education.” Only 41% of traditional route instructors agree.

Teachers unions and colleges of education insist that traditional certification, which they control, is the only way to ensure quality instructors. But research has shown that students from states that offered genuine alternate certification programs performed better on math and reading tests than students in other states. The reality is that a decline in traditional certification bodes well for learning in the classroom and for efforts to make the public school system more accountable.

By JOSEPH RAGO

New York

Whatever the rhetoric that preceded this week’s deal, the debt-ceiling debate was never really about the debt at all. It was about the terms on which the debate would continue. The “two different worldviews” that divide Washington, explains Eric Cantor, are too far apart for anything more than an armistice. Still, listening to the House majority leader—who says the deal is “not perfect” but “there were some achievements”—it’s remarkable that the two parties were able to agree even to its modest terms.

The “philosophical starting point” of today’s Democrats, as Mr. Cantor sees it, is that they “believe in a welfare state before they believe in capitalism. They promote economic programs of redistribution to close the gap of the disparity between the classes. That’s what they’re about: redistributive politics.” The Virginian’s contempt is obvious in his Tidewater drawl. “The assumption . . . is that there is some kind of perpetual engine of economic prosperity in America that is going to just continue. And therefore they are able to take from those who create and give to those who don’t. We just have a fundamentally different view.”

Mr. Cantor’s aggressive style has earned him the enmity of liberals and most of the D.C. press corps, though his larger offense is against their orthodoxy that a fiscal compromise must by definition include tax increases. Mr. Cantor, who holds the second most powerful post in the House after Speaker John Boehner, did more than any other figure to prevent “revenue” (that is, tax increases) from entering the final package.

Like Mr. Cantor, President Obama is also a man of deep and strong convictions, and perhaps that’s why they seem to dislike each other so much. Call it, to adapt Freud, the narcissism of big differences. Mr. Cantor cautions that he isn’t a “psychoanalyst”—before politics, he was a real-estate lawyer and small businessman—but he says, “It’s almost as if someone cannot have another opinion that is different from his. He becomes visibly agitated. . . . He does not like to be challenged on policy grounds.”

In a meeting with the Journal’s editorial board Wednesday, Mr. Cantor, 48, gives his side of one of his more infamous altercations with the president. In a mid-July Cabinet Room meeting, Mr. Cantor made a suggestion that Mr. Obama and other Democrats took as impertinent. “How dare I,” Mr. Cantor recalls of the liberal sentiment in the room. He was sitting between Nancy Pelosi and Steny Hoyer, “and they were in absolute agreement that [the president] was such a saint for having endured all this.”

“No president has sat here like I have, in these kinds of meetings, with congressional leaders, in this detail,” Mr. Obama said in Mr. Cantor’s recollection, which Democrats dispute. Mr. Cantor says the president also invoked Ronald Reagan “to be a little patronizing of us, because he assumed that anything Reagan did we like.” Mr. Obama then told Mr. Cantor, “Eric, don’t call my bluff,” and walked out.

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The roots of the Obama-Cantor animosity date back at least to another memorable exchange in 2009, some three days after the inauguration. In a meeting with the president, Mr. Cantor—then the No. 2 Republican in the House—discussed the economic recovery plans that the post-2008 GOP remnant favored. “Elections have consequences,” the president responded, “and Eric, I won.” The White House promptly leaked the remark to the media.

Mr. Cantor went on to whip the GOP minority against the near-$1 trillion stimulus, and all 187 members ultimately voted against it, though at the time that was not a given. The unanimous opposition was a political coup for the canny, ambitious Mr. Cantor, who was elected to the House only in 2000. He holds the seat that James Madison once held, now Virginia’s seventh district that stretches from Richmond to the Blue Ridge Mountains.

After the GOP won in 2010, many of its 87 new members—one-third of the caucus—planned to block any increase in the debt ceiling, full stop. It was only after concerted lobbying by Mr. Cantor, Majority Whip Kevin McCarthy and Budget Chairman Paul Ryan that they flipped to a debt-ceiling hike with conditions. “Most people who were elected this time feel they were elected to change the system,” Mr. Cantor says, with some understatement.

The debt talks began in earnest in May. Mr. Cantor principally spoke for the Republicans in talks with Vice President Joe Biden, which met two to three times a week for a month and a half, with daily “free and open communication” among staffers.

The talks “did make some progress” because the opposing sides agreed not to agree, says Mr. Cantor. The vice president and majority leader even established a rapport because they tried “not to get flared up over philosophical differences,” as Mr. Cantor puts it. “Throughout the weeks there was always the possibility that we would veer off into our own worldviews, but we really did try and say, all of us know we’ve got to cut some spending.”

“Nothing was agreed upon until everything was agreed upon,” but the group identified between $2 trillion and $2.3 trillion in savings. Major proposals included means-testing Medicare so that higher-income seniors paid more for benefits, revising the wraparound “medigap” policies that insulate patients from out-of-pocket costs, and changing the federal-state Medicaid payment formula. “It was those types of nibbling-around-the-edges entitlement reforms,” Mr. Cantor says.

Mr. Cantor’s insight was that no modus vivendi could be reached this year that would solve the fiscal crisis, so it was better to focus on “incremental wins with this president.” Even the $4 trillion “big deal” that Messrs. Obama and Boehner nearly closed in separate talks was too small to be worth the cost (though it may have raised the Medicare eligibility age and made technical changes to inflation measures to reduce the annual growth of Social Security checks). “None of those, none of those, really address the underlying problem,” Mr. Cantor says. “We need transformation in those programs in order to sustain them.”

Mr. Cantor quit the talks in late June amid Democratic tax demands, which he considered non-negotiable. Their position, he says, was that “we can’t do this unless you Republicans are going to relent on revenues.” His truculence did not endear him to Washington—though of course no one likened Mr. Obama to a terrorist for similarly refusing to give on any part of his new health-care entitlement, which was not even in the vicinity of “the table.”

Somewhat surprisingly, Mr. Cantor was in fact prepared to bargain on about $20 billion in higher taxes on “the shiny balls of the millionaires, billionaires, jet owners and oil companies” that Mr. Obama so often mentioned in public. “If they wanted to be able to claim the win on that,” Mr. Cantor says, he wanted net revenue neutrality in return, by lowering the corporate income tax rate or perhaps enacting an even larger tax reform. In effect, he was calling Mr. Obama’s bluff on “cheap politics.”

In private, however, the debate always returned to the status of the top marginal rate for individuals earning over $200,000 and $250,000 for couples—aka the Bush tax cuts for people who do not own private aircraft. Mr. Cantor argued that some large portion of the income that flows through the top bracket comes from “pass-through entities”—that is, businesses—and “to me, that strikes at the core of what I believe should be the policy, and that is to provide incentives for entrepreneurs to grow.”

By contrast, he says, “Never was there ever an underlying economic argument” from Democrats. “It was all about social justice. Honestly, one of them said to me, ‘Some people just make too much money.’”

***

Mr. Cantor is “cautiously optimistic” about the deal, which creates a 12-member “super committee” to reduce the deficit by another $1.5 trillion in return for another debt-limit increase later this year. Apart from taxes, its parameters institute the principle that new borrowing must be offset by dollar-for-dollar spending cuts. And while “we may go through the fit and start again of some kind of big deal,” he thinks it will merely result in more incremental progress. “I just think that’s what’s doable given this almost intractable divide we’ve got with this president and where we are.”

Throughout the debt debate, many GOP freshmen and the tea party in general have found it difficult to accept the limited powers that come from controlling only one-half of one branch of government. Mr. Cantor acknowledges their “consternation, angst, anger and the rest leading to a deal like this” and says the party will continue to try to make “the jump” between “reality” and “rational, solid theory,” like a balanced budget amendment. But he welcomes the fervor and entertains no strategic or other regrets, except that “we were not able to get what we would consider a really good deal. . . . We didn’t get to where we wanted.”

Now that the debt debate is in abeyance, the House is “going to continue the focus on the impediments that continue to be erected by this administration to jobs and job growth.” Mr. Obama’s policies “are what are choking this economy,” Mr. Cantor argues, mentioning the stimulus, health care, the auto bailout, “unpredictable and onerous” regulators like the Environmental Protection Agency and the National Labor Relations Board, “the God-forsaken Dodd-Frank regime” and “a taxation system that is noncompetitive, to say the least.” He continues: “It doesn’t work for Washington to be granted this almighty power that somehow is going to cure all ills and right all the wrongs that they think exist.”

But since the GOP is “pit against a White House, a president and a party that just doesn’t share the same worldview,” Mr. Cantor says “the real fight is going to be making sure that President Obama doesn’t have a second term.” He describes the 2012 election as “a very existential question” that will determine “what it is that we’re about in this country and what kind of country we are and want to be.”

As for the 2012 Republican field, Mr. Cantor seems cautiously optimistic, but he hasn’t endorsed and doesn’t divulge a rooting interest. There’s “no question” that the campaign will turn on jobs, the economy and growth, or lack thereof, Mr. Cantor says. He suggests candidates argue that “Washington has become an impediment to the American way of life. That American way of life has to do with entrepreneurship, it has to do with everyone having a fair shot at equal opportunity. . . .

“They need to change Obama’s Washington, but it’s really a return to what we know is America. Obama ran as an agent of change, and I don’t know what that hope and change really was at this point. It’s turned out to be something a lot different than what most people thought. But yes, we need to change and take the country away from President Obama.”

A debate in that key was never going to be resolved in a matter of months over the debt ceiling.

Mr. Rago is a member of the Journal’s editorial board.