Busting the Left’s myths about Reaganomics

Busting the Left’s myths about Reaganomics, by Marian Tupy.

As George Will of the Washington Post noted, “one of the projects of the American left has been to discredit Ronald Reagan”. President Barack Obama attacked Reagan’s economic legacy endlessly. The same is true of Senate Minority Leader Chuck Schumer and the House Minority Leader Nancy Pelosi. And where would we be without Hillary Clinton piling on. …

In the interests of historical accuracy …, here is what actually happened in the 1980s.

Reaganomics aimed to end inflation, cut taxes, balance the budget and deregulate the economy. During Reagan’s tenure in office, real economic growth averaged 3.2 per cent per year as opposed to 2.8 per cent during the presidencies of Gerald Ford and Jimmy Carter. It grew 2.1 per cent per year during the presidency of George H.W. Bush and the first term of Bill Clinton’s presidency.

Additionally, real mean household income increased by $4,000 in 1994 dollars. Some 17 million new jobs were created and unemployment fell from 9.7 per cent to 5.5 per cent. Inflation fell from 13.5 per cent to 6.2 per cent.

In spite of these successes, a number of falsehoods about Reagan’s economic legacy have emerged. …

Second, Reagan’s tax cuts are supposed to have caused the budget deficit to explode. True, during the 1980s, real debt doubled and federal tax revenue decreased from 20.2 per cent of the GDP in 1981 to 18 per cent in 1984. (The federal tax revenue rose to 19.2 per cent of the GDP in 1989.) But the real blame for the ballooning budget deficit rests with the massive increase in military spending [which ended up winning the cold war because he Soviets tried to match it but went bust] and the decline in inflation. …

Sixth, under Reagan, workers worked harder, bur earned less. This claim is based on the fall in wage per hour, but does not account for the monetary value of non-wage benefits. Between 1960 and 1990, the amount of compensation given to a worker in non-wage benefits rose from 9 per cent to 20 per cent of hourly wages. As such, real compensation rose from $15.00 per hour to $16.50 per hour between 1981 and 1988.

Seventh, under Reagan, the poor and minorities lost ground. In fact, Americans in the poorest quintile saw their real incomes rise by 6 per cent during the 1980s and decline by 3 per cent in the early 1990s. White Americans saw their real incomes increase by 9.8 per cent, while black Americans saw their real incomes increase by 11 per cent.

Eighth, under Reagan, the rich paid less in taxes, while others paid more. In fact, the rich not only paid more in dollars, but their share of total income tax paid increased as well. The richest 10 per cent, for example, paid $60 billion dollars more in 1988 than they did in 1980, while the remaining 90 per cent paid $5 billion less (adjusted for inflation).

Ninth, under Reagan, the rich got richer and the poor got poorer. Yes, the wealthy grew richer, but not at the expense of the poor. Between 1981 and 1989, the number of Americans earning more than $50,000 dollars a year rose by 5.9 million. The number of Americans earning less than $10,000 a year decreased by 3.4 million (adjusted for inflation). In other words, Reaganomics benefited Americans at all income levels.

According to my former colleagues William A. Niskanen and Stephen Moore, “The reason the wealthiest Americans saw their share of total income rise is that they gained income at a faster pace than did the middle class and the poor. But Reaganomics did create a rising tide that lifted nearly all boats.

Nonetheless the massive monetary bubble started in 1982, under Reagan. However this bubble, which grew until 2008 and has not yet been pricked, is mainly due to central banks and bureaucratic policy. While Reagan’s America benefited from the early stages of the bubble, Reagan himself doesn’t appear to be responsible for it.

hat-tip Matthew