1973 5.2 1974 -0.5 1975 -1.3 1976 4.9 1977 4.7 1978 5.3 1979 2.5 1980 -0.5 1981 1.8 1982 -2.2 1983 3.9 1984 6.2 1985 3.2 1986 2.9 1987 3.1 1988 3.9 1989 2.5 1990 1.2 1991 -0.6 1992 2.3 1993 3.1 1994 4.1
As you can see, economic growth varies considerably
from year to year. This allows political spin doctors to prove anything
they want to prove, by choosing the most convenient comparison dates and
indulging in clever rhetoric. Economists have a way of getting around this.
They arrive at an accurate assessment by measuring potential growth
instead of actual growth. (More) The result
of such a measurement shows that Reagan did no better or worse than Ford,
Carter or Bush. Potential growth under all four presidents remained pretty
much the same: about 2.5 percent.3
Supply-siders had boasted that their policies would increase
potential growth, not just actual growth. The fact that they failed stands
as yet another indictment of their theory.
As mentioned earlier, the cycle of recessions and recoveries is normal.
But they generally follow a long-term trend of growth; therefore, a deep
recession is going to be followed by an even steeper recovery. This is
why the unusually severe 80-82 recession was followed by such a long recovery.
Reagan's fortune with the economy was predetermined by events that occurred
even before his first tax cuts.
The following chart shows the 70s' growing problem with inflation.
Coupled with growing unemployment, it formed the "misery index"
or "stagflation" that had been predicted by economists in the
60s. The misery index reached 20 percent by 1980, and was a major factor
in costing Jimmy Carter the presidency.
Inflation Rate4
1960 1.7% 1965 1.6 1970 5.7 1975 9.1 1976 5.8 1977 6.5 1978 7.6 1979 11.3 1980 13.5 1981 10.3 1982 6.2 1983 3.2 1984 4.3 1985 3.6 1986 1.9 1987 3.6 1988 4.1 1989 4.8 1990 5.4 1991 4.2 1992 3.0
In the following chart, notice that the 1979 unemployment rate was
not recovered until 1988.
Unemployment Rate5
1960 5.5% 1965 4.5 1970 5.0 1975 8.5 1976 7.7 1977 7.1 1978 6.1 1979 5.9 1980 7.2 1981 7.6 1982 9.7 1983 9.6 1984 7.5 1985 7.2 1986 7.0 1987 6.2 1988 5.5 1989 5.3 1990 5.5 1991 6.7 1992 7.4
Many misconceptions exist about job growth and loss during the 80s.
The charge that we suffered a net loss of jobs because corporations were
shipping them overseas to low-wage nations is a myth. Although some industries
may be doing this, the U.S. has actually been the world's success story
in creating jobs.
Job Growth, 1973-19906
United States 38% Japan 19 Europe 8
Another myth concerns our loss of manufacturing
jobs. First, manufacturing jobs do not pay significantly more than service
jobs: only 10 percent more. Second, all industrialized nations have
been losing their manufacturing jobs, as technology and computerization
continue to make production more efficient. (More)
Employment in Manufacturing as a Percentage of Non-Agricultural Employment7
1970 1991 United States 27% 17 Japan 33 27 Germany 40 33
Another myth is that Reagan was one of the best Presidents for job
creation. In reality, he's among the worst:
Job Growth Per Year Under Most Recent Presidents8
Johnson 3.8% Carter 3.1 Clinton 2.4 Kennedy 2.3 Nixon 2.3 Reagan 2.1 Bush 0.6
The following statistics shed light on this surprising finding:
Civilian Labor Force and Participation Rates9
Year (millions) Percent of Population 1970 82.8 60.4% 1980 106.9 63.8 1990 124.8 66.4 1993 128.0 66.2
Supply-siders boast about the 18 million jobs created in the 80s,
but they grow unusually mum over the 24 million jobs created during the
70s. The 80s put 2.6 percent more of the population to work, but the 70s
outdid them at 3.4 percent. The increasing percentage of the population
joining the workforce during these two decades can be attributed to two
factors: baby-boomers coming of age, and women joining the workforce in
record numbers.
Percent of Men and Women in Labor Force10
Year Men Women 1960 83.3% 37.7 1970 79.7 43.3 1980 76.3 51.5 1985 76.3 54.5 1990 76.1 57.5
Why were women joining the workforce in greater numbers? Because
their husbands' earnings have been generally declining since 1973, and
families have had to form two-paycheck households to maintain their parents'
standard of living. Unfortunately, in accordance with the laws of supply
and demand, an influx of workers into the workforce puts downward pressure
on wages. So the solution partially contributed to the problem.
Labor Force Participation Rate of Married Women with Children Under
6-Years Old11
1960 18.6% 1970 30.3 1980 45.1 1993 59.6
The 1980s featured a record flurry of deregulation, bankruptcies,
stock speculation, junk bonds and corporate mergers and takeovers. To make
sense of all this activity, it is helpful to know that it was essentially
an age of corporate Darwinism -- an era of kill or be killed -- fueled
by massive deregulation. In truth, Reagan did very little to deregulate
business; the basic deregulatory machinery had already been put in place
by Jimmy Carter before he left office. Reagan simply accelerated the process.
The Federal Register is where all of America's proposed and adopted
regulations are found, and in 1980 it ran 87,012 pages. By 1986, this
was cut almost in half: to 47,418 pages.12
The unrestrained competition that followed temporarily resulted in
lower consumer prices and better service. But before long, the competition
turned keen, then destructive. A backlash grew against deregulation
as businesses cut safety and environmental corners, laid off thousands
of workers and began cutting services to unprofitable rural areas. In a
few years, business failures shot up to five to six times their usual number:
Business Failures13 Year Number Per 10,000 business concerns 1970 10,748 44 1975 11,432 43 1980 11,742 42 1981 16,794 61 1982 24,908 88 1983 31,334 110 1984 52,078 107 1985 57,078 115 1986 61,616 120 1987 61,111 102 1988 57,098 98 1989 50,361 65 1990 60,747 74 1991 88,140 107 1992 97,069 110
Meanwhile, the survivors began taking over the stragglers:
Takeovers, Mergers, Acquisitions and Leveraged Buyouts (of $5 million
or more)14
Year Unions 1984 1,442 1985 939 1986 1,407 1987 1,475 1988 1,696 1989 2,137 1990 2,332
In 1988, Federal Trade Commissioner Andrew
Strenio remarked: "Since Fiscal Year 1980, there has been a drop
of more than 40 percent in the work years allocated to antitrust enforcement.
In the same period, merger filings skyrocketed to more than 320 percent
of their Fiscal Year 1980 level."15
In almost all fields, productive and economic power began concentrating
in the hands of a few. The emerging monopolies and oligopolies then began
raising prices, cutting back services and generally abusing their power
-- the deregulated Savings & Loan industry being the prime example.
(More)
One of the supply-siders' central promises was that tax cuts would
allow greater savings and investment, which would spur the economy. In
fact, savings and investment worsened in the 80s:
Disposable personal savings16
1980 7.9% 1984 8.0 1985 6.4 1986 6.0 1987 4.3 1988 4.4 1989 4.0 1990 4.2 National Savings, public plus private17
1970 - 1979 7.7% 1988 - 1990 3.0 Private investment18
1970 - 1979 18.6% 1980 - 1992 17.4
Public investment was about 3 percent during the 50s and 60s. By
the Reagan-Bush era, it was about 1 percent. Although Reagan and Bush did
not start this decline, their policies did steepen it.19
This is a major problem for supply-side theory. Supply-siders
boast that the 80s were a golden era of American entrepreneurialism, but
this was supposed to be the result of greater savings and investment, thanks
to liberated tax dollars. That is, we should have seen the percentage of
savings and investment rise as the percentage of taxes fell. But
if no such greater savings and investment even occurred, then the supply-side
defense of the 80s is debunked outright.
Some true believers might then argue that supply-side economics were
not tried at all, since the general rate of taxation in the 80s remained
just as high as the 70s (18.7 percent of the GDP). This is an expensive
concession, since it abandons the argument that cutting taxes for the rich
helps the economy. Even more expensively, it leaves Keynesians to claim
credit for the 80s. However, applying supply-side tax cuts to the general
rate is also an unpromising theory. As the section comparing the U.S. to
other rich nations will show, the U.S. has the lowest general tax rate
in the entire industrialized world -- and the worst savings and investment
rates as well!
Next Section: Poverty and Welfare
Return to The Reagan
Years Home Page
___________________
1 Expansion is measured from trough
to peak of business cycle. U.S. Bureau of Economic Analysis, Survey
of Current Business, October 1994.
2 U.S. Department of Commerce, Bureau
of Economic Analysis.
3 Analysis by Paul Krugman, Peddling
Prosperity, (New York: W.W. Norton & Company, 1994), p. 25. Krugman
writes: "The measurement of potential output is one of the more solid
and uncontroversial pieces of modern economic analysis."
4 U.S. Department of Commerce.
5 Bureau of Labor Statistics.
6 Krugman, p. 262.
7 Translated from graph from Krugman,
p. 263.
8 Based on data from the Bureau of
Labor Statistics, Current Employment Statistics Survey.
9 U.S. Bureau of Labor Statistics,
Bulletin 2307.
10 U.S. Bureau of Labor Statistics.
11 Ibid.
12 "Rolling Back Regulation," Time,
July 6, 1987, p. 51.
13 Dun & Bradstreet Corporation,
New York, NY, Monthly Failure Report.
14 Security Data Company, Newark,
New Jersey, Merger & Corporate Transactions Database, (copyright).
15 "Wave of Mergers, Takeovers
Is Part of Reagan Legacy," Washington Post, October 30,
1988.
16 Krugman, pp.126-127
17 Ibid.
18 Ibid.
19 Ibid.