A Few Graphs Describing the Reagan Presidency
by Mike Kimel
A Few Graphs Describing the Reagan Presidency
Cross posted at the Presimetrics blog.
On February 6, 2011, Ronald Reagan would have been turned 100 years had he been alive. In this post I’d like to share a few graphs from Presimetrics (the book I wrote with Michael Kanell, with graphs and illustrations by Nigel Holmes) which hopefully will give you an idea of how Reagan did as President.
Figure 1 below shows growth rates in real GDP per capita for every administration beginning in 1929, the first year for which the BEA provides data:
(Note – FDR I was through 1940, FDR II was most of the War years. We broke up the sample that way because there are a lot of people who either out of ignorance or some odd desire to spread BS insist that under FDR, the Great Depression got worse or that growth only picked up with the start of WW2. Either way, I’ve found it is safe to use a person’s pronouncements about FDR as a signal about the accuracy of other things they choose to share. Also note – the remaining graphs in this post focus on the period from 1952 – 2008, as that was the main focus of the book from whence they come.)
As the graph shows, when it comes to real economic growth, Reagan did better than other Republicans. But growth under Reagan was also slower than it was under most of the Democrats since 1929. While the growth rate under Reagan is far less impressive when that last detail is mentioned, it is less impressive still if you remember the definition of GDP:
GDP = Private Consumption + Private Investment + Gov’t Consumption & Investment + Net Exports.
Put another way – if the government borrows a lot and spends what it borrows, it will boost GDP, and that in turn causes real GDP per capita growth to increase. And that is precisely what happened under Reagan:
As we note on page 50 of Presimetrics, early in his term Reagan noted:
Our national debt is approaching $1 trillion. A few weeks ago I called such a figure, a trillion dollars, incomprehensible, and I’ve been trying ever since to think of a way to illustrate how big a trillion really is. And the best I could come up with is that if you had a stack of thousand-dollar bills in your hand only four inches high, you’d be a millionaire. A trillion dollars would be a stack of thousand-dollar bills sixty-seven miles high. The interest on the public debt this year we know will be over $90 billion, and unless we change the proposed spending for the fiscal year beginning October 1st, we’ll add another almost $80 billion to the debt.
We also noted this:
By the time he left office, the national debt, which had been “approaching $1 trillion” had more than doubled to $2.7 trillion, and the stack of thousand-dollar bills that had been 67 miles high was now 193 miles high and rising fast. Interest payments on the debt—“over $90 billion” in 1981—were just shy of $200 billion in Reagan’s last year in office.
Using more relevant measures, real debt per capita (in 2008 dollars) grew from about $10,620 in 1980 to $19,860 in 1988, and from 32 percent of GDP to 51 percent of GDP over the same period. However you slice it, Reagan’s profligacy bore no resemblance to his promises.
All that increased debt creates an obligation to taxpayers, who will, after all, have to repay that debt eventually. One measure we used in the book looks at the impact of that debt obligation – that is, the real net disposable income (i.e., income after current taxes less the increase in the debt per capita):
When you take into account future obligations to pay back debt, Reagan no even longer looks as good as Jimmy Carter. A rising tide, fueled by debt, wasn’t so great at lifting at most people’s boats… unless compared to the tide generated during other Republican presidencies.
But concluding that Reagan was someone to emulate means more than just ignoring the fact that he underperformed most Democrats on economic issues. It also requires means ignoring the fact that Reagan also didn’t particularly care about Republican ideals either, not even the ones he parroted frequently and loudly. For instance, a big source of state and local funding is the federal government. Presidents who truly want to move power away from Washington generally try to increase the transfers from the Federal government to state and local governments. But that is most definitely not what Reagan did:
So what did Reagan excel at, other than outperforming other Republicans on economic issues? Well, it turns out that he was very, very good for the public mood:
Put another way, some Presidents are better with reality, some are better with perception. Reagan was better at the latter.
And if I may, a quote from the book (page 178) about another way Reagan’s administration stood out:
And it’s not just the quantity of crime in Washington that is noteworthy. Some of the plots these folks engage in are—let’s call it like it is—cartoonish. Consider, for instance, the Iran-Contra affair, a convoluted scheme by which American weapons were sold to Iran in exchange for Iran’s exerting influence on Hezbollah, Iran’s terrorist buddies in Lebanon, to release American hostages. (Hezbollah, not incidentally, is thought to be the group responsible for the 1983 U.S. barracks bombings in Lebanon, in which 220 U.S. Marines and 79 international peacekeepers were killed.) To bring the complication of the scheme to the level worthy of a comic-strip villain, much of the loot resulting from the sale of American weaponry to an extremely hostile country would go toward funding the Contras, a rebel group in Nicaragua, thus providing the Contras with a much-needed source of funding that did not involve drug trafficking. A number of administration officials were convicted for their role in the affair. This included the secretary of defense (that would be our friend Weinberger, previously featured in Nixon’s White House), as well as two successive national security advisors (Robert McFarlane and John Poindexter).
The folks who believe, who truly believe, won’t let facts stand in the way of their faith. And the cult of Reagan will continue to live on. Anyone who says Sarah Palin is no Ronald Reagan don’t have the facts on Ronald Reagan.
At this point, I’d normally give you my sources. Since everything here comes from Presimetrics, you’ll find the source for all the data and all the quotes there.
So what did Reagan excel at, other than outperforming other Republicans on economic issues? Well, it turns out that he was very, very good for the public mood
Actually, from an Elliott Wave/Socionomics perspective, this is exactly backward.
S/B: It turns out that the public mood was very, very good for him!
Reagan was, in fact, very close to good for nothing at all.
Lo siento,
JzB
The libs who despise Reagan rarely mention the inflation rate and the prime interest rate on the day he took office in 1981.
Anybody care to guess what a 11%+ inflation rate and a 19%+ prime rate does to an economy?
Oh yes, give me more Jimmy Carter.
JzB,
I disagree. I was not living in the US at the time (doing the American growing up abroad thing), but it seems to me that the public mood after Carter was awful. Carter produced fairly good economic growth, but his stupid policies when it came to wages (i.e., wage freezes in the federal gov’t and encouraging the private sector to do the same) in an era of inflation meant that most people got hosed pretty bad when a recession showed up. Throw in his ineptitude explaining, well, anything, and the mess with Iran, and the fact that malaise had been going on for a very long time (Nixon admin) and changing the public mood was a good thing in itself. Reagan provided the fiction to do that, at least.
StR,
Reagan didn’t kill inflation, Volker did. Carter didn’t create inflation, Arthur Burns did. Carter was pretty inept, and you can blame him for his reaction to inflation (in Presimetrics we discuss that stupidity – the wage control thing – see downthread) but you can’t blame him for creating it.
However you slice it, Reagan’s profligacy bore no resemblance to his promises.
Profligacy?
Well, he did take the U. S. from being the world’s largest creditor nation to being the world’s largest debtor nation in 6 years. Probably not a great globalization strategy, eh?
Also, he gave us Too Big To Fail in 1984. He also deregulated S&L’s while retaining FDIC. Can you spell MORAL HAZARD, boys and girls?
“All that increased debt creates an obligation to taxpayers, who will, after all, have to repay that debt eventually.”
Eventually? We haven’t done so for 175 years. Why start now?
Mike –
Reagan’s ratings and popularity were quite poor early in his first term. Public perception started to rise along with the stock market, in the second half of ’82. This is no accident. Per Elliott wave, the stock market is a baromoter for what is called social mood. And the market went up slightly in advance of the public surveys indicating people thought the country was on the right track.
It would be interesting to plot Pres approval vs Stock Market performance. (Prechter probably has done this.)
I do have this, which shows Market up, followed closely by public perception up.
http://jazzbumpa.blogspot.com/2010/01/are-we-on-right-track-taking-stock.html
Reagan was lucky. Anyone elected in 1980 would have been idolized.
By substantive measures, St Ronnie was not much different from the awful Carter, as you’ve shown many times and ways.
Robert Perchter, the chief Elliott Wave guru predicted W’s low populatiry by the end of his 2nd term when his popularity was at it’s highest.
It’s pretty powerful stuff.
Cheers!
JzB
Thanks to Reagan, the veteran war propaganda actor, the US military does ceremony and ritual things that my father would have said ‘only the SS would perform’.
The waning years of the Carter administration are an indictment against the Austrians and austerity. Jerry Ford had whip inflation now (WIN) buttons almost as arcane as win the future (WTF, errrh?). Carter and Volker kept it up.
The prime rate is tight money in the face of inflation, and supply shocks such as the Arab oil embargo.
I am where I am today because of the 1982 recession. Nothing about planning but the military gave me skills which are useful.
Would that some one avoided the monetarist bubbles of 1986 or 2006, even though austerity is not good, a brake on the economy is at times needed.
And, deficit’s not mattering is just shfting wealth toward the top few.
A republican trait and one that does result in less for most of the people.
Less than potential that is.
The republicans at last are great internationaists, the most for the few does not have boundaries.
And empire to keep the masses occupied with fear and patriotism hiding militarism.
1981 and 1982 were good years for pay raises if you were in the military.
Mike, what a fascinating defense of Dem presidents. It was … (fill in the blank here)’s fault, not really …. However, when we get to a Republican presdent, every negative thing that occurred during their administration is directly placed upon their shoulders.
Then when challenged we get the inevitable, but the data shows… Must believe the data, right?
Mike,
The slowest/negative growth periods of Reagan’s presidency were in his first 2 years, when we were still operating under the “Carter Economy”, and before the Reagan policies went into effect. After 1982, the economy grew at an average annual rate of 4.3%.
http://www.presidentreagan.info/reagan/gdp.cfm
CoRev,
I called Carter’s reaction to inflation inept and stupidity. If you want to believe that my way of saying Carter bore no fault for his inept reaction to inflation, feel free, but I suspect most people would disagree with you. (For future reference, calling someone inept and referring to their actions as stupidity is generally the way to excuse someone for something.)
Now, what I excused Carter on is saying you can’t blame him for the effects of printing too much money because printing money is the Fed’s job. Notice that I also didn’t blame Nixon for inflation (it started during his administration) for precisely the same reason. If you feel the President is in charge of the printing press, the onus is on you to prove that.
Sammy,
I understand your need to brush away the negative growth rate in 1982, but why would you say this was Carter’s economy? Carter stopped making decisions in January of 1981. If Reagan was following Carter’s policies in 1982 (and for the most part, he wasn’t), that was Reagan’s doing.
(And out of curiosity, was last year part of Bush’s economy? I sure as heck wouldn’t.)
Presumeably you are trying to measure the effect of policy. And policies need time to enact and then to affect GDP.
Sammy, that’s my gripe with Mike’s analysis. He almost never measures policy, he is measuring data and assigning his favorite policy/theory. Y’ano, we see it all the time with the GW data. High levels of snow,cold , the Bush 2001 recession (no Clinton fault) Bush tax cuts (caused everything negative economic) its’ all the same in the data noisy world.
Sammy, that’s my gripe with Mike’s analysis. He almost never measures policy, he is measuring data and assigning/confirming his favorite policy/theory. Y’ano, we see it all the time with the GW data. High levels of snow, cold, the Bush 2001 recession (no Clinton fault) Bush tax cuts (caused everything negative economic) its’ all the same in the noisy data world.
Assessing the real cost of Reagan would probably require acknowledging the worst actors of W’s administration who received their first roles of national prominence during his presidency. Rumsfeld, Cheney, Wolfowitz, Libby all learned the corridors of power under St. Ronnie and their little project in American Empire has now exhausted $3T and counting.
Sammy & CoRev,
1. Reagan was elected in a landslide. Which means any self-aware adult in the US knew tax rates were going to fall a lot, regulation was going to be reduced a lot, and welfare was going to drop in October of 1980. Exactly how long does policy take to have an effect?
2. If you play the game of moving things back, bear in mind that by your standards (i.e., move things back by 2 years), growth under JFK was 5.5% a year. And JFK did not cut taxes. Effectively, he raised them (his focus was to ensure what he called fairness, which included making sure that people paid what they owed by tracking all their income through a single taxpayer ID, etc.)
3. If you want a better explanation for what happened with the pre and post 1982 scenario, see table 1-10 in the book.
Sammy & CoRev,
1. Reagan was elected in a landslide. Which means any self-aware adult in the US knew tax rates were going to fall a lot, regulation was going to be reduced a lot, and welfare was going to drop in October of 1980. Exactly how long does policy take to have an effect?
2. If you play the game of moving things back, bear in mind that by your standards (i.e., move things back by 2 years), growth under JFK was 5.5% a year. And JFK did not cut taxes. Effectively, he raised them (his focus was to ensure what he called fairness, which included making sure that people paid what they owed by tracking all their income through a single taxpayer ID, etc.) (And I’m leaving FDR out – but you all know what happens there.) Preventing tax cheating and launching huge gov’t programs leads to much faster growth rates than cutting tax rates, no matter how you measure things.
3. If you want a better explanation for what happened with the pre and post 1982 scenario, see table 1-10 in the book.
Doesn’t Congress print the money when it raises the debt ceiling? The Fed does affect money supply in various ways, but not through printing it, right?
Two years??? Hmmm….OK to apply that to now??
Mike,
Reagan’s economic policy (ERTA) wasn’t passed until August 1981. The first 5% tax custs didn’t kick in until October ’81, with additional 10% tax cuts in October 82 & 83. These are the times which correlate to economic growth. http://en.wikipedia.org/wiki/Economic_Recovery_Tax_Act_of_1981
Amateur. Your nom de plume is very apropo. You ignore a dude named Gerald along with his chief of staff and Secretary of defense, as well as Scoop Jackson and his aids, and Marc Rich’s lawyers,
cactus
You are a credit to Angry Bear. Not only have done cutting edge research, but you stick arround and defend your positions.
I very much like the myth that ensrouds Reagan, but unfortuantely he does not bear close scrutiny well. While he made us feel good about ourselves, he did nothing to conserve the values and traditions that conservatives are purported to cherish.
OK, I’m a little foggy on the history of the period. I thought Carter and Reagan were both US Presidents, but in reading Rusty’s comment, I can tell I was mistaken. Carter and Reagan must have been Fed chairmen. I stand corrected.
kharris:
How easy to forget!
drip,
Borrowing money doesn’t mean printing dollars. It does mean having to find someone to lend ’em to you. If the Fed decides to buy that debt, then yes, it creates money. But that is the Fed’s decision.
High_White&Handsome,
In truth, there is no mythology about anyone that meets reality. But… some myths are more overblown than others.
How do they correlate with the 5 (five) tax increases of 1982 (2) 1983 (2) and 1984 (1) or the six other tax increases of his presidene that never seem to get talked about?
Bruce Bartlett (emphasis added):
“Reagan signed into law the Tax Equity and Fiscal Responsibility Act in 1982* before the recession was even over and went on to sign 10 more major tax increases during his administration. By 1988 he had taken back half the 1981 tax cut. These tax increases were most enacted as part of budget deals that cut domestic discretionary spending. Compared to today’s Republicans, Reagan was a model of fiscal responsibility.”
* The first of Reagan’s 11 tax increases.
http://www.ritholtz.com/blog/2010/07/reagans-tax-increases/
Note the time of economic growth corresponds to the time of coming out of a recession.
If you don’t get economic growth coming out of a recession you have — oh . . . now, I suppose.
Cheers!
JzB
Sammy –
BTW – since you’re a long time reader here, you surely know that Mike has repeatedly shown that tax cute do little or nothing to promote the economy.
Or maybe you don’t . . .
JzB
jazz,
you surely know that Mike has repeatedly shown that tax cute do little or nothing to promote the economy.
This may well be true, in the short run.
If you look at Aggregate Demand in the ol C + I + G construct (Consumption + Investment + Government), if you decrease taxes you just increase C &I at the expense of G, and if you increase taxes to increase G at the expense of C & I. Aggregate Demand remains the same in year 1.
The effects of shifting from G to C&I, or vice versa, show up in subsequent years. In the case of a tax cut increased spending on goods and services people want, and increased investment in plant and equipment vs. government spending on transfer payments or “Stimulus” type projects. It’s a judgement question: where to you think our capital is more productively spent, -> public or private sector?
Yeah, the 1930’s were so much better economically than the 1980’s…