We Need More Reagan, Not Less

Had A "Reaganite" Plan

Executed the Plan

In a recent op-ed, David Brooks claims that what he calls the "post-Trump" Republican party will have to reject Reaganism in favor of a new organizing philosophy. While Brooks admits that the "Reagan orthodoxy" was "right for the 1980s," he also claims that this template is "increasingly obsolete."  In particular, Brooks claims that: "[t]he Reagan worldview was based on the idea that a rising economic tide would lift all boats.  But that's clearly no longer true." Analogizing to Thomas Kuhn's work on scientific revolutions, Brooks observes that today's Republicans "are still imprisoned in the Reaganite model . . . ask Reaganite questions [and] propose Reaganite policies." Because the Reaganite model no longer works, Brooks says, conservatism is in a crisis state and must develop a new model.   Among other things he suggests that conservatives turn away from economic theory and embrace Sociology because, in his words: "Homo economicus is a myth and conservatism needs a worldview that is accurate about human nature."

Brooks' assessment of modern Republican ideology rests upon a crucial assumption, namely, that a robustly rising economic tide does not lift all boats.  However, he offers no evidence to support this assumption.  To be sure, the current economic recovery has left out millions of Americans.  Some cannot find jobs and others must work two or more part-time jobs to make ends meet.  Total employment rose a mere 10 percent from 2009 through 2014. Median household income, is still below what it was in 2008, and poverty rates are still higher. In 2015, the United States experienced its 10th straight year of economic growth below 3 percent, apparently a record, though not the sort of record that any country brags about.  (GDP growth in 2015 was 2.4 percent.)

Still, these data shed no light whatsoever on the "Reagan worldview," or the usefulness of "Reaganite policies" derived from economic theories assuming that human beings are rational actors that respond to incentives.  In March, 1983 President Reagan, who had majored in Economics, predicted that his policies across-the-board tax cuts (inspired by John F. Kennedy), reduced regulation and free trade would produce an economic recovery that would be "powerful and sustained."  (The second photo above depicts President Reagan signing the Economic Recovery Tax Act of 1981.)  He was correct. Between 1983 and 1988 (inclusive), the economy grew at an annual average rate of 4.6 percent, more than twice the rate of growth during this most recent recovery. During the same period median real household income rose 10.9 percent and rose another 1.8 percent in 1989. The economy added 17,913,000 jobs, increasing total employment by 20.1 percent, twice the rate of the current recovery.  Exports skyrocketed as more productive U.S. industries won new markets abroad.  Tax relief allowed Americans in all economic classes to keep more of their income. Rules indexing the standard deduction and tax brackets for inflation preserved the value of the deduction and protected low and middle income taxpayers from the sort of "bracket creep" that had pushed Americans of modest means into higher tax brackets in the late 1970s.  A significant portion of the tax burden shifted from the middle class to those in the "top one percent" of the income distribution.

None of this is to say that the Reagan recovery improved the lives of each and every American.  Still, the difference between that recovery and the most recent one is stark indeed. It is little wonder that, less than two years into the Reagan recovery, the American people resoundingly reelected President Reagan in a landslide, i.e., 49 of 50 states and nearly 59 percent of the popular vote.  In so doing the voters rejected former Vice President Mondale's platform of higher taxes, Trump-like economic protectionism and more intrusive federal regulation.  The economy continued to grow into 1990, thus constituting the longest peacetime expansion in U.S. History.

This blogger believes that most Americans would be thrilled by an economic recovery similar to that which occurred between 1983-1990.  Any decision to reject the "worldview" that helped produce that recovery should be based on sound argument and hard evidence, not cavalier speculation.  We need more Reagan.  Not less.

Should Candidates (and Voters) Be More Optimistic?

Justified Optimism

Maybe Not

In a recent Washington Post opinion piece, Jonathan Capehart praises President Obama's optimism about America's future, optimism the President recently expressed in his final state of the union address. Capehart also analogizes President Obama's optimism to that expressed by President Ronald Reagan in the latter's 1989 farewell address.  In that address, President Reagan referred to America as a "shining city on a hill" that was, at the end of his administration, "more free, more prosperous, more secure and happier than it was eight years ago." Capehart also chastises the current field of Republican presidential candidates for rejecting such optimism. According to Capehart, these candidates repeatedly invoke Reagan, but "bombard us with gloom, doom and defeatism."

Capehart is certainly correct that both President Obama and President Reagan struck optimistic tones as their administrations came to a close.  He is also correct that many Republican candidates for President seem anything but optimistic about the nation's current trajectory.  At the same time, Capehart does not mention the fact that most Americas do not seem to share President Obama's optimism. For instance, two thirds of Americans believe the nation is "on the wrong track," compared to 55 percent early in President Obama's first term.  (Go here for these data.)  Only one third of Americans believe that today's children will be better off than their parents.  (See here.)  The rate of new business formation is near a 30 year low. Capehart does not consider the possibility that glum Republican presidential candidates are simply reflecting the mood of the people --- Republicans, Democrats and Independents --- they hope will elect them.

Of course it may be that the American people are simply unduly pessimistic about what the future holds for this country. However, a little reflection, informed by recent economic history, suggests that there is significantly less reason for optimism about the nation's economic future than there was when Reagan delivered his farewell address in 1989.  While President Reagan left his successor a booming economy resulting in robust job creation, President Obama's successor will inherit a tepid economic recovery which has left millions of Americans behind and with little or no prospect of improvement.

Like President Obama, President Reagan inherited a deteriorating economy.  When Reagan took office in January, 1981, the prime interest rate had just hit 21.5 percent, inflation was running over 13 percent, and unemployment was 7.5 percent, on its way to 10.8 percent in December, 1982.

Like President Obama, who proposed an economic stimulus package that Congress would later pass, President Reagan proposed a package of tax cuts also designed to stimulate the economy, and Congressman Jack Kemp led the Congressional efforts to enact Reagan's proposals.  (To his credit, President Obama would later award Kemp the Medal of Freedom.)   The plan, which cut tax rates for all Americans, was similar in design and rationale to that offered by President John F. Kennedy in 1962.  As previously explained on this blog, President Kennedy sold his plan as an effort to stimulate economic growth, reduce unemployment, and, ultimately, eliminate the short run budget deficit that such cuts would produce.   As President Kennedy explained in a December, 1982 speech to the Economic Club of New York:

"The purpose of cutting taxes is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring about a budget surplus."

Congress enacted President Reagan's proposed tax cuts in the summer of 1981.  While a portion of the cuts took effect immediately, most were phased in over the next three years.  His administration also accelerated the pace of deregulation. What followed was a veritable economic boom.  While the economy contracted in 1982, a recovery started in November of that year.  Over the six year period 1983 through 1988, the American economy grew at an annual rate of 4.6 percent on average.  (See here)  During the same period, total employment increased from 88,993,000 in January, 1983 to 106,906,000 on December 1, 1988, a 20.1 percent net increase. (See here).

The economy has not experienced a similar boom under President Obama, despite passage of his stimulus package.  The economy contracted during 2009 and began a recovery in the summer of 2009. Over the six year period of 2010 through 2014, GDP grew an average of 2.2 percent, less than half the rate during the Reagan boom, with annual growth never exceeding 2.4 percent.   During the same period, total employment grew from 129,717,000 in January, 2010 to 143,242,000 in December, 2014, a 10.3 percent net increase.  (See the sources cited in the prior paragraph for these data.)

In short, the rate of economic growth during the Reagan recovery was more than double the rate for Obama recovery.  Moreover, the rate of employment growth during the six years of the Reagan recovery was more than 60 percent higher than the rate during the first six years of the Obama recovery.  Nor is there any indication that the Obama recovery is picking up steam, with 2015 growth predicted to be a disappointing 2.5 percent.  (By contrast the economy grew 3.7 percent in 1989.)  It is little wonder that many Americans are pessimistic about the nation's economic future.  Even former President Bill Clinton recently expressed his view that, if elected, former Secretary of State Hillary Rodham Clinton would "do what needs to be done now to restore prosperity."  Like former President Clinton, many Americans are old enough to recognize robust economic growth when they see it, and they know this is not it.

Of course, GDP and employment growth are not the only indicators of national well-being.  A nation might choose policies that alleviate poverty or result in a more equitable distribution of income, even if such polices cause somewhat smaller economic growth.  However, there is no indication that slower growth has bought us greater equality or lower poverty.  Poverty rates are higher than when President Obama took office and lower than 1989, when President Reagan left office.  (See page 12 of this report.)  Income inequality is by many accounts on the rise.  The Reagan boom brought greater wealth and less poverty; the Obama recovery has been disappointing by comparison.

None of this is to condone the sort of pessimism that Capehart claims to see in today's crop of Republican candidates.  In 1980 then-citizen Reagan believed the country was moving in the wrong direction but was nonetheless optimistic about America's future.  In particular, he had faith in the power of free markets and individual initiative and a plan for unleashing both to serve the common good.  With the help of Congress, his administration implemented that plan, and the rest is (economic) history.  Hopefully one of the current presidential candidates will follow Reagan's example and articulate an optimistic vision for the nation's future coupled with a workable plan for making that vision a reality.

Obama "Recovery" Still Fizzling

This morning the Labor Department reported that the economy added a mere 114,000 jobs in September.  (See here for the story)  That's less than half the number of jobs the economy added in September, 1984, during the Reagan Recovery, when employment increased by 240,000.  (Go to this website and insert the appropriate dates to obtain the September, 1984 figures.)    This poor showing is no surprise, given that real GDP is growing at a snail's pace: annual rates of 2.0 percent and 1.3 percent in the first and second quarters of 2012, respectively (see this Department of Labor Press Release for the GDP figures), compared to real economic growth of 6.8 percent in 1984.

Moreover, as previously explained on this blog with respect to prior months (see also here and here), the actual jobs gap between the Reagan and Obama recoveries for this most recent month is even larger than these data suggest.  After all, the 1984 labor force was significantly smaller than it is today, with the result that the addition of 240,000 new jobs reflected a larger rate of employment growth than would a similar increase today.  Thus, to replicate the September, 1984 rate of job grow, the economy should have created over 300,000 jobs in September, 2012.  (See here for an example of such a calculation in a prior month.)  Thus, the jobs gap between the Obama and Reagan recoveries, which stood at 1.7 million for the months of April through August, is still growing.

Reagan-Obama Jobs Gap Still Growing

Today's jobs report reconfirms that the current economic recovery is far weaker than the recovery from the deep recession of 1981-82, the closest parallel to the recent "Great Recession" of 2008-2009. According to the Bureau of Labor Statistics, the economy added just 163,000 jobs in July. By contrast, in July, 1984, well into the Reagan recovery, the economy added nearly twice as many jobs --- 312,000 to be exact. (Go to this website and insert the appropriate month to confirm this figure.) Moreover, as previously explained on this blog, these figures actually understate the relative strength of the Reagan and Obama recoveries. After all, the current civilian workforce of 155,013,000 (the July, 2012 figure) is much larger than it was in 1984, when the figure stood at 113,500,000. (The exact figure for July, 1984, is currently not available on the BLS website.)   Thus, in order to replicate the rate of employment growth that occurred in July, 1984, the economy would have to create 426,000 jobs, instead of the 163,000 actually created in July.  As a result, the real gap between July, 1984 and July, 2012 employment growth is 263,000  jobs, bringing the actual gap between the last four months of the Reagan recovery and the last four months of the Obama recovery to nearly 1.5 million jobs.  (As explained in this post, the real gap between the second quarter of the 1984 Reagan recovery and the second quarter of the 2012 Obama recovery was 1,205, 415 jobs.)

The American people deserve a stronger recovery.

Obama's Actual Biography No Match for Coolidge or Reagan

The Actual Calvin Coolidge

 

The Actual Ronald Reagan

 

Coolidge/Reagan Wannabe?

Recent reports indicate that the Obama Administration has been re-writing the biographies of former Presidents on the White House website.  In particular, the Administration has been inserting references in such biographies to President Obama's purported accomplishments.  Indeed, the Administration has inserted such references in the biography of each President since Calvin Coolidge, with the exception of the biography of President Gerald Ford. 

Not surprisingly, some have criticized this form of self-promotion at the expense of prior Presidents, most of whom are not able to speak for themselves.   However, it is no surprise that President Obama would seek to associate himself with leaders like Calvin Coolidge and Ronald Reagan.  Simply put, both Presidents had economic records that put the current President to shame.  As explained previously on this blog, the Reagan Recovery produced the equivalent of 455,000 jobs per month between April and November 1984.  By contrast, the Obama "recovery" is producing jobs at less than a third of that rate.  (See here and here.)   Moreover, when Calvin Coolidge left office in 1929, the nation's unemployment rate was near 3 percent.  Even if the unemployment rate was twice the Coolidge rate, the American People would likely re-elect President Obama in a landslide.