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Special Report
Perpetuating Falsehoods
If only we could go back to “failed policies” of Ronald Wilson Reagan — while the real failed policies are still with us today.
All the Republicans are offering, President Obama tells us over and over, are the same old, failed policies that got us into this mess in the first place. At the Democrat convention, Obama told us about the Republican economic plan, “all they have to offer is the same prescription they’ve had for the last thirty years.”
And who was President 30 years ago? That would be Ronald Wilson Reagan. So you see, Obama is attacking not just the Bush but the Reagan tax rate cuts as well, the 25% across the board rate cuts for everyone known at the time as Kemp-Roth.
The American people lived through this most successful economic experiment in world history. But Obama is betting the American people don’t know what they lived through in this recent history. Most of us, in fact, were not adults 30 years ago, so maybe Obama is right, the American people of today have no idea what happened 30 years ago. Obama is telling them today that it has been one long period of decline. And no one, not even the conservatives or the supply-siders, is taking him on directly. As a result, this has been a cutting, effective argument for Obama in this campaign.
Ancient History: Jimmy Carter and the
1970s
By 1981, when Reagan entered office, America
was suffering its third year of double digit inflation, after a
decade of accelerating inflation. Double digit interest rates too,
with double digit unemployment on its way the very next year, in
the fourth recession since 1969.
How did that happen? Following the exact same policies as Obamanomics, the true failed policies of the past. That involved high marginal tax rates tearing the economy down into recession, the Fed printing up money to get America out of those recessions, and then the Fed having to tighten to stop the resulting booming inflation (wait till next year if Obama wins to see that again).
Reagan explicitly countered that with the exact opposite of Obamanomics — tight money at the Fed, slashed marginal tax rates, deregulation to reduce the cost burden on production, in particular unleashing the private sector to maximize energy production, and budget cuts. (Spare me the disembodied fairy tales about how the tight money was all doing of the Carter appointed Fed chairman Paul Volcker. Volcker would have been run out of town by the Democrats without Reagan’s support and political cover when his policies produced double digit unemployment to go with his double digit interest rates.)
The liberal, Keynesian, economics establishment ridiculed Reaganomics. One Ivy League Nobel prize winner compared it to a train with locomotives at either end pointing in opposite directions, and an engineer expecting the train to arrive at one designated location at the expected time.
But the results were spectacular and historic. The Reagan recovery started in November, 1982, lasting 92 months without a recession until July, 1990. (The tax increases of the 1990 budget deal killed it.) This set a new record for the longest peacetime expansion ever, the previous high being 58 months.
During this 7-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy. In 1984 alone, real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989. The double digit inflation was cut in half by 1982, and in half again by 1983, with inflation not heard from again for a generation.
Real per capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just 7 years. The Carter decline in income for the bottom 20% of income earners was reversed, with average real household income for this group rising by 12.2% from 1983 to 1989. The poverty rate, which had started increasing during the Carter years, declined every year from 1984 to 1989, dropping by one-sixth from its peak.
With the tax rate cuts led by Gingrich in the 1990s, and by George Bush in 2003, this boom continued for 25 years, as recognized even by the establishment National Bureau of Economic Research. Art Laffer and Steve Moore, in their 2009 book, The End of Prosperity, rightly called it “the greatest period of wealth creation in the history of the planet.” Henry R. Nau recounted in the Wall Street Journal on January 26, “the U.S. grew by more than 3% per year [in real terms] from 1980 to 2007, and created more than 50 million new jobs, massively expanding a middle class of working women, African-Americans and legal as well as illegal immigrants. Per capita income increased by 65%, and household income went up substantially in all income categories.”
As Steve Forbes summarized in Forbes magazine in 2008:
Between the early 1980s and 2007 we lived in an economic Golden Age. Never before have so many people advanced so far economically in so short a period of time as they have during the last 25 years. Until the credit crisis, 70 million people a year [worldwide] were joining the middle class. The U.S. kicked off this long boom with the economic reforms of Ronald Reagan, particularly his enormous income tax cuts. We burst from the economic stagnation of the 1970s into a dynamic, innovative, high tech-oriented economy. Even in recent years the much maligned U.S. did well. Between year-end 2002 and year-end 2007 U.S. growth exceeded the entire size of China’s economy.
In other words, the growth in the U.S. economy from 2002 to 2007 was the equivalent of adding the entire economy of China to the U.S. economy.
The brave supply-siders that engineered this historic American turnaround have never been sufficiently beatified for their historic courage in taking on and then whipping the hell out of the economic establishment of the time. Maybe President Romney will hand out some appropriate awards. The liberal, Keynesians at the time never got the good whipping their costly foolishness so richly deserved either. Hence, Paul Krugman today, and so much yet to do.
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
Letter to the Editor View all comments (19) | Leave a comment
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Appleby| 9.26.12 @ 7:27AM
The majority of us were in fact adults 30 years ago. The problem is the generation that knew nothing but the Reagan Expansion and who thought that what goes up will always go up regardless of what they did...and their children who believe, because Generation Whine is their parents, that all you have to do to get Goodies is Demand Them...and whose hopes are pinned on ObamaCare because it will see that their grandparents die before we have spent all their inheritance.
Alan Obama Fan Brooks | 9.26.12 @ 4:35PM
"and whose hopes are pinned on ObamaCare because it will see that their grandparents die before we have spent all their inheritance."
Now you're cooking with gas- you ought to be writing articles at AS.
Alan Obama Fan Brooks | 9.26.12 @ 5:04PM
"their grandparents die before we have spent all their inheritance."
...better Granny and Gramps die than us.
Pecos Pete| 9.26.12 @ 7:29AM
Why would anyone vote for Obama? Obama voters like being wards of the government. They like living in government housing and being provided with free food, telephones and TV. Public sector unions will vote for Obama because they will retire at 55 with a very nice pension and health benefits. Private sector unions will vote for Obama because they believe they can return to power ala the UAW and GM/Chrysler.
Class warfare and greed are the foundations of Obama Voters.
Crassus| 9.26.12 @ 10:27PM
"Class warfare and greed are the foundations of Obama Voters."
Stupidity too.
Von Mises Jr| 9.26.12 @ 8:21AM
Peter Ferrara offers a fine overview here of the real versus MSM manufactured economic history of the last thirty years. He is correct that government interference and Fed toying with monetary policy causes booms and busts.
But we must realize that the alternative to the cyclical recoveries is the Great Depression. Continued government interference in farming, steel, railroads, work projects (stimulus) and gold prices by FDR turned a recession into a depression.
This is happening currently with de facto nationalization of banks, student loans, auto manufacturing, health care, energy and Fed money printing. It really boils down to this:
- Romney equals Recovery
- Obama equals a Second Great Depression
PhilTheCapitalistPig| 9.26.12 @ 9:16AM
I always look forward to Peter's writing. Surely one of the most articulate and knowledgable conservatives on our side. This piece is masterful.
sickofit5| 9.26.12 @ 10:34AM
This is what I don't understand about the Romney campaign. They allow Obama to rewrite history and accuse him of being more of the same and then demonize Bush. Romney either has to say that he is not more of the same or that the last 30 years are a lot better than the last three. He should also point out many of the similarities between the Bush and Obama spending showing how similar they are. Romney is allowing Obama to define the past and who he is, wife killer, tax cheat and job exporter without using the multitude of examples that show that Obama does not know who we are, Americans, and we still don't know who he is.
Stkman| 9.26.12 @ 2:24PM
Romney is not allowing Obama to rewrite anything. The MSM is allowing it.
JD| 9.26.12 @ 10:42AM
Ferrara captures the cause of the housing bust well. It wasn't particularly legislation that did it, though. Regulators were able to push their "help the poor get houses" agenda even in the absence of legislation.
This is the Great Depression all over again. First, bad monetary policy combined with bad regulations cause a crash. Next, a weak president (Hoover/Bush) who's not nominally liberal nevertheless tries to buy our way out with government intervention. Then he's replaced by a new guy (FDR/Obama) who promises to be the anti-first guy is elected, and simply doubles down on what his predecessor did wrong, using the crisis to transform America into a more liberal state. This deeply widens and prolongs the recession into depression.
We can only hope that the final step doesn't come to pass - economic pain leading to the election of radical leaders who start a global war.
Unfortunately, the Left has been so successful in distorting history to make FDR seem like a hero that they see today's parallels and think that that makes Obama a good thing.
JD| 9.26.12 @ 10:47AM
Obama keeps whining that the Republicans have nothing but the same idea over and over again for the last 30 years, but the fact is that that idea works whenever it's tried, and we suffer because it's been tried less often than not. Why should we come up with a new idea when the existing one works?
Al Adab| 9.26.12 @ 11:51AM
JD:
Good point. The economic expansion which began in 1983 continued unabated ( Clinton bought in after 1994) for 25 years untill the Congessional change in 2006. Since then old tired policies of envy and redistribution (call it whatever) continue to demonstrate their failures. JFK knew, "A rising tide lifts all ships" and used that to promote his tax cuts. Economic expansion and individual well being comes not from redistribution but from economic growth. Why that fact escapes so many is beyond my ken.
Anthony| 9.26.12 @ 11:48AM
Obozo lied.... the ambassador died.
It wan't the video Obama,
it was you boasting bout Osama.
Butch| 9.26.12 @ 4:47PM
Pretty darn accurate, Mr. Ferrara. Some of us do remember the 70s, with Carter's "20-20" economy, and also remember the 80s through 97. Econ departments in all but the liberal bastions dropped Keynesianism and began teaching supply side and Friedman. Life was good for a long time. Ferrara also nails the source of the original crash: democratic politics in mortgage lending post-06.
But you will never get this through the MSM, and most "independents" will never read this. It would take an advertising genius to compact this message into a 30-second TV spot, even a one-minute spot. The message cries to get out.
Butch| 9.26.12 @ 4:53PM
Started myself thinking: Key statistics (GDP growth, Household wealth growth, Household income growth, unemployment) 1982-2007, then the same statistics for 2008-2012. Then, "It's not the past 30 years that has been the failure, Mr. Obama . . . it's the past four years."
Howard| 9.26.12 @ 11:21PM
I think Keynes is still taught as the mainstay in most liberal arts colleges. I'm not sure he is god like accepted as when I majored in Economics in the early 1970's. But, Keynes still is a standard of most curriculum.
Howard| 9.26.12 @ 11:18PM
Excellent overview of current and prior economic situation. Even today liberal economists pooh pooh Reagan/Volker accomplishments by saying the 1980's were a Keynesian led recovery. This would be owing to deficits during the Reagan years. They are wrong of course, but their minions in the New York Times etc, still pimp for high taxes and heavy handed regulation as the "cure" for economic ailments.
D. Welch| 9.27.12 @ 1:47PM
The case has been made that what fueled the Reagan Thatcher prosperity was cheap energy prices made possible by the Alaskan and North Sea oil fields that smashed OPEC's high prices. Inexpensive energy also fueled the economic prosperity of the 1990's as well.
D. Welch| 9.27.12 @ 1:42PM
This article has a historical quality to it, and really doesn't address our current predicament. The underlying cause of our current difficulties is high energy prices. As economist James Hamilton has pointed out nine out of ten past recessions have been caused by a spike in oil prices. Coupled with the financial crisis in 2008 this has been devastating. High fossil fuel prices choke off economic growth. While finding new sources of oil is somewhat encouraging , there is also a problem. These new sources require that a $90 a barrel price to be profitable--a level that stalls the economy. We are in uncharted territory where neither Keynesian or supply side strategies will work. A sustained period of economic growth may not be possible for a good long time.
Both of our political parties are failing us miserably on telling us the truth about this. To me the real tragedy of this campaign is that the central issue of our time is not being addressed. According the the Hirsch Report and the more recent military report we are on borrowed time. It is time to stop fighting the tired old economic battles of the twentieth century, and seriously consider how to move ahead. People who are interested in learning more may want to read Jeff Rubin's new book, THE END OF GROWTH.