Political Hay

Reaganomics Helped the Poor

Another liberal myth goes down the drain of history.

By 6.15.04

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Ask a good liberal about Reaganomics and he'll say three things: Reagan tried to make ketchup a vegetable, he flooded the country in red ink, and he was mean-spirited about the poor, like when he'd tell the story about the Cadillac-ensconced "Chicago welfare queen" who had 80 names, 30 addresses and 12 Social Security cards.

In fact, the real income (adjusted for inflation) of the poorest fifth of U.S. households increased by 12 percent in the 1980s, reversing a 17 percent slide between 1979 and 1983 before the economic growth of the Reagan era kicked in. The poverty population, after growing by 7 million during the late 1970s, dropped by 4 million in the 1980s.

One only has to recall the kind of economy Reagan inherited to see that things for the poor weren't exactly all hunky-dory during the time that the allegedly less mean-spirited Jimmy Carter was in charge. Inflation in 1980 was 13.5 percent, a jump in the cost of living that's the least affordable for those at the bottom, for those least likely to be able to get wage increases that match runway price increases. By 1986, Reaganomics had knocked the inflation rate down to 1.9 percent -- especially good news for those at the bottom who don't have the luxury of dealing with big price hikes by simply cutting back a bit on the yachts and diamonds.

For the years 1977 to 1981, taken as a whole, the U.S. Bureau of Labor Statistics reports that wages, on average, increased by 35 percent while prices jumped by 49.4 percent, producing an overall drop in excess of 14 percent in the real value of American paychecks.

With jobs, Reagan inherited a collapsing economy with unemployment rates rising from 7 percent in 1980 to 8 and 10 percent, respectively, in 1981 and 1982. By 1989, Reaganomics had cut the U.S. jobless rate in half, to 5 percent -- especially good news, again, for those at the bottom who found themselves standing in ever-lengthening unemployment lines prior to the era of Reaganomics. Altogether, 19 million U.S. jobs were created from 1982 to 1989, more than the total number of jobs created in Europe and Japan combined, two-thirds of them high- or middle-paying, producing real income increases in every income group, from the poorest fifth of households to the richest fifth. By 1988, over three-quarters of the tax filers in the poorest fifth of families in 1980 had moved out of that bottom quintile, with some 16 percent moving all the way to the top fifth of income earners.

Among African-American households in the 1980s, the number of families earning more than $50,000 in real dollars doubled from 7 to 14 percent, the unemployment rate for black teenagers fell by 21 percent, black employment in professional and managerial occupations expanded by one-third, and the number of black-owned businesses increased by 38 percent, triple the rate of overall business growth during that period. Overall, the real median income of African-American households increased by 17 percent between 1982 and 1989, reversing the 10 percent decline from 1978 to 1982.

It doesn't much matter, in short, whether ketchup is a vegetable or if Reagan embellished a bit about how many names the Cadillac lady had in Chicago (the welfare recipient to whom Reagan was referring was actually convicted for using two different aliases). What worked was a program of tax cuts, incentives and deregulation that unleashed one of the strongest and longest economic expansions in U.S. history, an expansion that cut unemployment, increased business investment, raised productivity, reduced poverty and reversed the overall decline in the purchasing power of American paychecks.

And the red ink? Think of how deep it might have been if Reaganomics hadn't reversed the nation's economic decline, if the unemployment rate had continued on its way up, from 8 and 10 percent to 15 or 20 percent, pulling down the level of incoming taxes while simultaneously expanding government outflows on the newly unemployed and poor. Consider, too, how the Soviets were on the march in Angola, Afghanistan, Nicaragua, and Somalia when Reagan came in and how they were well on their way to what Reagan called the "ash heap of history" by the time he'd left. Think of how much red ink might now be flowing if the Soviets controlled half the globe.

Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise at Robert Morris University and a columnist at the Pittsburgh Tribune-Review. E-mail him at: rrreiland@aol.com

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About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.