Monday, 14 October 2013 14:57

Reagan and Obama: Performance vs. Excuses

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Running for re-election last year, President Obama repeatedly proclaimed that he had inherited “the worst economic crisis since the Great Depression.” Perhaps the never-ending repetition of that phrase was supposed to justify the slowest economic recovery since World War II during his first four years.

Candidate Obama was saying the blame for lousy job growth under his leadership belonged on what he inherited rather than his own anti-growth agenda of higher taxes and expanded regulation.

In any case, if we use the misery index as an economic indicator to measure “the worst” economy, the economy Obama inherited in 2009 wasn't even half as bad as the economy Ronald Reagan inherited in 1981.

The misery index, designed to show how much the population is being negatively affected by price hikes and joblessness, is calculated by simply adding the inflation rate to the unemployment rate.

When Reagan was first inaugurated on Jan. 20, 1981, the misery index was 19.3, consisting of an unemployment rate of 7.5 percent and an inflation rate of 11.8 percent.

When Obama was first inaugurated on Jan. 20, 2009, the misery index that month was 7.6, with an unemployment rate of 7.6 percent and a zero inflation rate. Reagan, additionally, entered office at a time of falling household incomes, rising poverty rates, a collapsing stock market and double-digit interest rates, with the prime rate hitting 21.5 percent in 1980.

Reagan's prescription for recovery focused on an anti-inflationary monetary policy and tax-cut incentives to boost output by both individuals and companies. The strategy was simple — and successful. Across-the-board tax-rate cuts would enable a higher proportion of production to stay with those who produced it, encouraging more production and more supply, a result that would have the effect of simultaneously lowering inflation and expanding employment.

The result of Reaganomics? “Inflation was quickly whipped, cut in half by 1982, and in half again by 1983,” reported Peter Ferrara, a Forbes magazine contributor covering economics and public policy.

And the impact on jobs and growth? The economy “took off on a 25-year economic boom from 1982 to 2007,” reported Ferrara, citing National Bureau of Economic Research reports. “During the first seven years of that boom alone, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy.”

Arthur B. Laffer, a member of Reagan's Economic Policy Advisory Board, and Steven Moore, chief financial writer and senior economics contributor at The Wall Street Journal, summarized Reagan's economic record in their 2008 book, The End of Prosperity: “We call this period, 1982-2007, the 25-year boom — the greatest period of wealth creation in the history of the planet. In 1980, the net worth — assets minus liabilities — of all U.S. households and businesses ... was $25 trillion in today's dollars. By 2007 ... net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the 25-year boom than in the previous 200 years.”

All told, revived and sustained economic growth created 17 million new jobs from 1980 to 1989 and another 26 million in the 1990s. President Obama's response? He says we tried Reaganomics and it didn't work.

 

Ralph R. Reiland is an associate professor of economics and the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh.

2 comments

  • Comment Link rprew Monday, 14 October 2013 19:25 posted by rprew

    It should also be pointed out that during the Reagan years, the national debt nearly tripled and the debt to GDP ratio went from 31% to 50%. Still doesn't look bad compared to the 5 years of Obama in which that ratio has gone from 83% to over 100%.

    It is really sad to realize that the Reagan years weren't really all that good, yet they were GREAT when compared to anything else since the creation of the Federal Reserve.

  • Comment Link rprew Monday, 14 October 2013 19:15 posted by rprew

    Ah, yes. Those great Reagan years. Unless you want to count October 1987...

    Overall though, I went from struggling week to week in 1980/1981 to having the most discretionary spending without worry by the end of his second term. I even was fortunate enough to get the "this can't last feeling" in early October of 1987 and dumped MOST of my holdings just a day or two before the fall. Bought it all back at bargain prices.

    It just all goes to show that even under the best of conditions, a managed economy is a really bad idea. I was lucky, many others were not.

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