More Reagan Cherry-Picking by Peter Ferrara
“”Peter Ferrara has been revising Reagan’s economic history for a long time; perhaps he started when he worked in Reagan’s Office of Policy Development. That administration did very well selling its prescriptions back then. But I don’t trust sales people.
Ferrara’s May 5 piece titled “Reaganomics Vs. Obamanomics: Facts And Figures” is another example of partial and misleading data patched together to create an apparently convincing argument that Reagan’s policies were the best thing since aspirin. Let’s look closer.
“When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009.” Really? Much worse?
“Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%.”
Unemployment didn’t peak until Reagan had been in office 22 months. If Ferrara does not assign to Reagan responsibility for rising unemployment nearly two years into his presidency, shouldn’t he give Obama the same treatment? Does Ferrara give Obama a pass on everything that happened during his first two years in office?
“At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). ”
Here Ferrara has a point. The damage to an economy of persistent and unpredictable inflation cannot be understated, and this fact alone made the 1981 economy awful. Unpredictable inflation is pernicious, infecting every economic decision that has a time element.
EXCEPT: inflation was not broken “at the same time” as the recovery. Breaking inflation was necessary before the recovery could take hold. This is why there’s a gap between the 1980 and the 1981 recessions; the Fed eased off on the contractionary monetary policy too early.
Ferrara’s using inflation data from before Reagan was president and unemployment data from two years later. When unemployment peaked, inflation was already down to 4.5%. Just wait – I bet Ferrara tries to give Reagan credit for falling inflation during 1981 while blaming rising unemployment on Reagan’s predecessors.
“The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. “
That peak was in 1983, Reagan’s 3rd year in office. But this discussion is about how bad the economy was when Reagan entered office, compared to Obama. The poverty rate was 13% in 1980. In 2008, it was 13.2%.
“A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. “
Not sure where Ferrara’s getting this data, but here’s what I found in Census Bureau data: real median family income peaked in 1979, then in Reagan’s election year declined 3.4%, then continued to decline through Reagan’s first two years in office, for a total decline was 7.3%. Compare with Obama: it peaked in 2007, then declined 3.4% in Obama’s election year. It will be interesting to see what happened in the first two years of Obama’s presidency.
“…total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.
Ferrera doesn’t mention that 1983 marked the highest spending as a percentage of GDP since World War II, nearly 10% higher than any year prior to Reagan. He also doesn’t point out that this figure is always high during recessions. Kind of like how it was 25% in 2009 because of the financial crisis and recession. This isn’t a bad thing! This shows that our government has sufficient financial flexibility to step into the economy when needed.
“These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it.”
Here Ferrara’s claim is that the prospect of a tax increase caused a recession to begin. The law wasn’t enacted until November 1990, four months after the recession began. Interestingly, the recession ended four months after the law was signed; why doesn’t Ferrara connect the end of the recession to the tax increase?
“The shocking rise in inflation during the Nixon and Carter years was reversed.”
Yes – by Carter’s Fed Chairman.
“It was cut in half again for 1983, to 3.2%, never to be heard from again until recently.”
Until recently? Let’s see, the latest inflation data is… ah yes, April – 3.13% year-over-year. Ferrara here implies that 3.2% was low, but 3.13% is high.
“The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.”
Nonsense. All presidents’ approval ratings ride the economy. Reagan’s dipped below 40% during that recession, but rose with the growing economy to the high 50s by the 1984 election.
“…in 2013 the top two income tax rates will rise by nearly 20%.”
It’s worth noting another way of describing the same thing: the top rate would increase by 5.6%. Ferrara’s method of describing tax increases emphasizes their size in relation to the prior tax level, but says nothing about the actual tax rates involved. A tax from 1% to 2% is a 100% increase, but is not nearly as onerous as an increase from 10% to 15%.
This is partly because the Republicans keep pushing the balanced budget as a critical priority during a time of economic hardship. Economists of all stripes agree that this is not a prescription for growing thPresident Obama proposes still more tax increases.
Instead of coming into office with spending cuts, President Obama’s first act was a nearly $1 trillion stimulus bill.
Which is not altogether unlike Reagan’s expansion of the federal budget while cutting tax revenue.
“…his 2012 budget proposes to increase federal spending by another 57% by 2021.”
Let’s see, and between Reagan’s first budget for 1982 and last for 1989, spending increased by 53%. And that was without the projected increases in the elderly population and health care costs that continue to drive spending necessarily higher.
“His monetary policy is just the opposite as well. Instead of restraining the money supply to match money demand for a stable dollar, slaying an historic inflation, we have QE1 and QE2 and a steadily collapsing dollar, arguably creating a historic reflation.”
What “historic inflation”? Where exactly is this inflation that Ferrara says should have been “slain”? Inflation for Obama’s first two years was just over 2% annually. Regarding Ferrara’s prescription of “restraining the money supply to match money demand,” perhaps he’s never read Friedman’s discussion of the causes of the Great Depression.
I’d wager Bernanke knows a touch more about it than does Ferrara, and his actions have been proven right by two-and-a-half years of fairly stable prices — could the unprecedented expansion of the Fed balance sheet have happened without significant inflation if Ferrara was right and Bernanke wrong?
And instead of deregulation we have across-the-board re-regulation, from health care to finance to energy, and elsewhere. While Reagan used to say that his energy policy was to “unleash the private sector,” Obama’s energy policy can be described as precisely to leash the private sector in service to Obama’s central planning “green energy” dictates.
Now Ferrara’s veered off into delusional ramblings. Health care – Ferrara would like readers to forget what’s happened to health care costs over the last decade, and to think that the free market has worked great in that unique industry. Finance – does Ferrara think that appropriate regulations couldn’t have had an impact in preventing the 2008 financial meltdown? Energy – weeks before the Macondo well accident, Obama was talking about opening new areas of the outer continental shelf to drilling. Once the disaster in the gulf started, that became a political impossibility. A year later, with the images of oil streaming out of the blowout preventer fading, Obama is once again talking about increasing domestic production.
“Based on the historic precedents America should be enjoying the second year of a roaring economic recovery by now, especially since, historically, the worse the downturn, the stronger the recovery. ”
So, which of the other post-WWII recessions was caused by a near-complete collapse credit markets? None? Oh.
“Yet while in the Reagan recovery the economy soared past the previous GDP peak after six months, in the Obama recovery that didn’t happen for three years. ”
Often, the recessions of 1980 and 1981-2 are counted together, since the space between them was so short and the root cause (Volcker’s Fed wringing inflation out of the economy) was the same. The economy was essentially stagnant between the beginning of 1980 and the end of 1982. The recent peak was in Q3 of 2007, and as in the early 1980s, the economy regained that peak level of real GDP three years later, in Q3 of 2010.
But this is all jibber-jabber. The two recessions are so fundamentally different that comparing them is a waste of time. Unless one’s trying to score political points and rewrite history.
“Last year the Census Bureau reported that the total number of Americans in poverty was the highest in the 51 years that Census has been recording the data.”
In his zeal to make an argument, here Ferrara serious errs. Why do you suppose he uses the TOTAL number in poverty, rather than the PERCENT in poverty? Because the population is more than 30% higher in 2009 (year of the latest poverty data) than in 1983. Compare the poverty rates: 2009 – 11.1%, 1983 – 12.3%. It took three years of the “Reagan recovery” for poverty to fall to the peak level of 2009.
“Moreover, the Reagan recovery was achieved while taming a historic inflation…”
No. The “Reagan recovery” was achieved following the taming of a historic inflation. The recession didn’t end until the Fed was convinced inflation was finished and ended its contractionary action.
“…the less-than-half-hearted Obama recovery seems to be recreating inflation, with the latest Producer Price Index data showing double-digit inflation again, and the latest CPI growing already half as much.”
Similar price increases occurred in mid-2008, when commodities and commodities rose dramatically, with oil topping off at $147/bbl. Consumer inflation did not follow. As Ferrara knows, this is why core CPI is used by forecasters for to predict future inflation. Is Ferrara scaremongering or ignorant?
Ferrara’s truly adept at being selective with data that support his worldview while excluding data that would refute it. I doubt I’ll be able to keep up this debunking for long, since Ferrara’s so prolific. But it’ll be fun while it lasts.