The economy has been fucked ever since we left the gold standard. Even a modest inflation rate means an ever increasing tax on the economy to the point where people need pay raises just to be able to maintain their previous standard of living. The middle class cannot help but diminish over time if anything less than 100% of everyone gets (at least) the required raises to keep up with inflation.
Big govt. compounds this by needing more tax revenue to cover the cost of inflation priced entitlement programs.
Three consecutive presidents - Nixon, Ford, and Carter - all struggled to deal with three key elements of the economy: inflation, interest rates, and unemployment. No matter what the first two (Nixon, Ford) did via govt. policy, they could not control all three. Carter's policies could not control any of the three, and in his own words described his economy as "days of malaise."
By the time Reagan became president, we had double digit inflation (13.5%), double digit interest rates (20%), and unemployment approaching double digits (7.5%, up from 5.6% in 1979). These are the types of numbers you see in a 3rd world nation, not a 1st rate nation like the USA.
To boot, the high interest rates led to numerous bank and S&L failures - to the tune of near $1B in FDIC bailout expenses.
When I was a much younger man, making a $16,000 a year salary and starting a family, we saved up $2500 to use as down payment buy a $50,000 house. This was in 1982 or 1983. When we applied for our mortgage, the interest rate was 18.75%.
In order to keep up with inflation, I'd have to get my employer to give me a 13.5% raise - something that was tough for my employer to do because they were faced with the severity of the bad economy as well (increasing energy prices, debt financing costs, etc.). And even if I did get that 13.5% raise, there were so many tax brackets back then that the 13.5% raise would have bumped me up a tax bracket or two and the increased taxes would make that 13.5% into something much less.
There may not have been any raging "hot" wars, but there was a raging Cold War. The Russians had invaded Afghanistan and were occupying it (Carter boycotted the olympics in 1980 over it). The Iranians held americans hostage in the US Embassy in Tehran.
So what did Reagan inherit?
Recession - check. In fact, a worse recession than the one Obama inherited.
Banking crisis - check.
Rapidly rising unemployment rate - check.
Rapidly rising inflation - check.
Rapidly rising interest rates - check.
