In my humble opinion, Ronald Reagan was the only president in my lifetime who deserves praise for both believing in liberty and delivering good results.
His sound policies help to explain why the economy boomed after his policies were implemented, which is in stark contrast to the economy’s anemic performance during the Obama years.
There’s really no comparison between the two.
But not everyone appreciates Reagan’s accomplishments.
In his recent newsletter, Paul Krugman of the New York Times asserts that the Gipper’s economic record doesn’t merit praise.
…the legend of the Reagan economy…plays an outsized role in conservative economic doctrine to this day. …the core of modern conservative economic doctrine is the assertion that cutting taxes, especially on the wealthy, does wonderful things for the economy. And they hold up Reagan’s economic record as proof of that doctrine’s truth. …The truth is that Reagan doesn’t deserve blame for the 1981-2 recession — but he doesn’t deserve credit for the subsequent recovery, either. Instead, it was all about the Federal Reserve. …tax-cutting conservatives have been falsely claiming credit for that growth ever since.
I give Krugman credit for realizing that it would be preposterous to blame Reagan for the 1981-82 recession (I don’t know if Krugman understands that the downturn was baked into the cake by the Carter-era inflation, but he probably knows that it began before Reagan’s tax cut was even enacted, much less implemented).
But he then makes two mistakes, neither of which is trivial.
First, Krugman overlooks all of Reagan’s other accomplishments. Not only the impact of the tax cuts and tax reform, but also the spending restraint and deregulation.
Second, he wants to give all the credit to the Federal Reserve, yet central banks, while ostensibly independent, don’t operate in a vacuum. One of Reagan’s great accomplishments – as recognized by unbiased establishment types – was to support the temporarily painful shift to a non-inflationary monetary policy.
Krugman raises several additional points in his newsletter.
Since 1990 claims that tax cuts will generate huge booms — and that tax hikes will lead to disaster — have belly-flopped again and again. President Bill Clinton’s tax increases in 1993 didn’t cause the recession just about everyone on the right predicted; President George W. Bush’s tax cuts didn’t produce a “Bush boom.” The Trump tax cut didn’t deliver anything like the promised results. In 2011 Gov. Sam Brownback of Kansas cut taxes sharply, promising that this would lead to a surge in growth. It didn’t. At the same time, California raised taxes; conservatives declared that this would be “economic suicide.” It wasn’t.
I’ll begin by (sort of) agreeing with Krugman that folks on the right can be guilty of acting as if all that matters is tax policy (in other words, the notion that all tax cuts are a guaranteed elixir for growth and that all tax increases lead to economic collapse).
That’s obviously not true. Indeed, fiscal policy only accounts for about 20 percent of a nation’s score in Economic Freedom of the World. And since fiscal policy also includes the burden of government spending, that means tax policy may only explain about 10 percent of economic performance.
And when you understand that, it’s easy to see that Krugman is attacking a straw man.
For instance, nobody should be surprised that the economy didn’t do well under Bush because his one good policy (the 2003 tax cut) was more than offset by all of his bad policies (more spending, more regulation, entitlement expansion, education centralization, TARP, etc).
Likewise, nobody should be surprised that the economy prospered under Clinton because his one bad policy (the 1993 tax hike) was more than offset by all the good policies adopted in the 1990s (spending restraint, welfare reform, deregulation, etc).
The bottom line is that good tax policy is important, but you also have to pay attention to all the other policies that also impact economic performance.
And when you do, Reagan’s performance looks even more impressive.
P.S. Reagan did engage in some protectionism, unfortunately, which is why America’s score on trade declined during the 1980s. In his defense, I’ll point out that Reagan believed in free trade and he was the one who started the negotiations that led to both NAFTA and the WTO. So I would argue that, in the long run, his tenure was a net plus for trade.
P.P.S. When I write about Reagan’s policies, I can’t resist pointing out that his policies resulted in big increases in tax revenue from upper-income taxpayers (in other words, powerful evidence of the Laffer Curve).
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Now to Obama
Before the great depression, ALL recessions, no matter how mild, were called “panics”. After the great depression, they started calling them recessions. I have NEVER heard anyone call the Obama recession a panic before you. Maybe you were hoping that I wouldn’t have known that the term was changed from panic to recession and you were trying to use semantics to win the argument.
As far the number of jobs per 100 people, I only used one source and I did some simple math. I chose the last full month of each president to get the fairest statistics. In December of 2008 the workforce participation rate was 65.8% and the unemployment rate was 7.3% In December of 2016 the workforce participation rate was 62.7% and the unemployment rate was 4.7% I created a simple equation to find out the workers per 100. (1-unemploment rate)(workforce participation rate)100 Plugging in the numbers you get 61 jobs per 100 Americans in 2008 compared to 59.8 jobs per 100 Americans in 2016.
BTW, Reagan did not use Keynesian economics, he used what is called supply side economics. Two TOTALLY different theories!
Whereas it is true that Carter appointed Volker, there’s far more to the story than that. I actually outline the Carter economic myth here: https://sdu754.wordpress.com/2020/10/27/the-economic-myth-of-jimmy-carter/ but I’ll give a quick recap.
Carter favored a loose monetary policy.
This is the exact opposite of what Volker delivered. When Arthur Burns was the Fed chairman, Carter constantly butted heads with him over what Carter thought was too tight of a monetary policy. When Burns’ term was up Carter appointed William Miller, who pursued a loose monetary policy, which Carter favored.
Carter didn’t want Volker.
After his malaise speech in July of 1979, Carter shook up his cabinet by dismissing five members, including the Secretary of Treasury Michael Blumenthal. When Carter couldn’t find anyone in the private sector to take the position at treasury, Carter promoted William Miller from the Federal Reserve. With the markets in a fragile position, Carter needed to replace the Fed chairman quickly, but once again, he couldn’t find anyone in the private sector willing to take the job, so he had to promote from within, and he picked Volcker, who was the natural choice.
Carter worked against Volker
With the election looming, Carter asked Volker not to raise interest rates. Volker obliged, and tried things Carter’s way, which plunged the economy into a recession.
Carter thought appointing Volker was a mistake
When speaking of Volker’s appointment in his memoirs Carter stated: “Our trepidation about Volcker’s appointment was later justified.” Carter didn’t support Volcker, he lamented appointing him.
Volker didn’t single handedly end inflation
Volcker was certainly vital to curing inflation, but he really only deserves about half of the credit for fixing inflation. Volcker fought inflation from August of 1979 through the end of 1981 with little affect. In October of 1981 the Reagan Tax cuts started to be phased into the economy. As these tax cuts were phased in every six moths over a two year period, inflation started to go down. Reagan’s tax cuts raised economic demand which created more demand for money. In 1983 Volcker had to reverse course and add money back into the economy to keep up with the booming economy. Volcker’s monetary policies should get half the credit for lowering inflation, Reagan’s economic policies should get the other half.
Lower inflation doesn’t guarantee a good economy
Low inflation does not equate to good economic times. During the 1930s inflation was extremely low, yet the economy was the worst in American history. Eradicating inflation was only part of the economic story. The economic recovery from 1983 on is the bigger story, and the catalyst of that was mainly the Reagan tax cuts.
Reagan worked with Volker
Reagan provided political cover for Volcker and stayed the course even when it was costing him politically. Reagan could have easily blamed Volcker for the bad economy, especially since Carter appointed Volcker in the first place. It was Reagan that took the political risks for Volcker’s policies. Volcker even stated that the Fed “has got to operate…within the range of understanding of the public and political system.”
Hahaha!!!
Carter appointee Paul Volcker, not Reagan, slayed the inflation and interest rate dragons. His work, combined with the Keynesian fiscal stimulus under Reagan, ended the 1981-1982 recession in 1983.
The Great Recession was not a typical recession. It was the first financial panic recession since the Great Depression.
When President Obama took office in January 2009 the US had 134,055,000 jobs and a population of 306,800,000 or 43.7 jobs per 100 people. When President Obama left office in January 2017 the US had 145,627,000 jobs and a population of 325,100,000 or 44.8 jobs per 100 people. So there were MORE jobs per 100 people when President Obama left office in January 2017.
GiuppBoccOni
You are correct that the economic crisis that Reagan faced and the one that Obama faced are not comparable. Obama only had to fight a run of the mill recession. He had the benefit of low inflation and low interest rates. Reagan had to fight not only a recession, but also high inflation and high interest rates. Reagan had to slay a three headed dragon. Not only that, but unemployment peaked at a higher rate under Reagan, so the recession he faced, even not accounting for inflation and interest rates was worse. Furthermore Obama had the lowest average GDP growth rate of any president since World War II. There were also less jobs per 100 Americans when Obama left office than when he entered it.
As someone engaging in economic research daily, I frankly wonder whether the author lies about his credentials. Either that or they purposefully ignore basic econometric (and logical) principles for the privilege of making a point.
On a very basic level, an economist would know better than to simply compare GDP growth rates from the Reagan years, prior to which a short-term Fed rate hike to combat inflation started a recessionary period that was, by all means, temporary, with the disastrous and wide-reaching effects of the global financial crisis of 2007-08 and its recovery. –– It’s the economic equivalent of comparing two surgeons when one treats a broken finger and the other a metastasized brain tumor.
On an equally basic premise, the author seems to imply regarding the Bush Jr years that government spending contributes negatively to economic output in the years involved. Naturally, this is exactly the other way around (military action and spending, for instance, is a frequently used measure to inflate aggregate economic output).
The remainder of the article’s arguments is unfortunately subject to much the same mistakes as the ones I shortly highlighted above.
Not to sound discourteous, but it seems complicated to reconcile such simple mistakes with an apparent Ph.D. in Economics.
In the current form of argumentation, this post is, unfortunately, free of value, in any case beyond the caressing of the author’s probable quasi-scientific ego.
Reblogged this on boudica.us.
For a critique of Reagan from a conservative perspective, I recommend https://mises.org/library/sad-legacy-ronald-reagan-0
“In 1980, Jimmy Carter’s last year as president, the federal government spent a whopping 27.9% of “national income” (an obnoxious term for the private wealth produced by the American people). Reagan assaulted the free-spending Carter administration throughout his campaign in 1980. So how did the Reagan administration do? At the end of the first quarter of 1988, federal spending accounted for 28.7% of “national income.”
Not in that article: Yes, real GDP growth of 3.4% under Reagan was slightly higher than the 3.4% under Carter. On the other hand, average monthly job growth was higher under Carter.
Paul Krugman is not a real economist, he’s a political activist and liberal columnist. I would put him in a category with guys like Rush Limbaugh, not with guys like Milton Friedman.
Krugman is about as much economist as I am an Apollo Flight Commmander
Believing in liberty and using the force of law to compel women into involuntary labor in contempt of the 9th, 13th and 14th Amendments is a rather Teutonic form of belief, no?
Reblogged this on Boudica BPI Weblog.
You can’t successfully attack truth/fact.
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Love your stuff, just too busy.