Friday, Aug 29, 2008
The Reagan economy was mediocre, and his economists' ideas were a muddle.
Jun 8, 2004 | One cannot begrudge Ronald Reagan's personal admirers their moment of eulogy. And particularly not in view of the man's wise embrace of Mikhail Gorbachev late in his term, his gallant departure into Alzheimer's 10 years ago, and Nancy Reagan's noble advocacy since then of government support for stem-cell research. There were moments beyond politics when those of us who opposed Reagan the most could, and did, tip our hats to him.
But let's talk economics. It is not too early to contradict those who would elevate Reagan above Franklin Roosevelt, John F. Kennedy and Lyndon Johnson, or even Bill Clinton, on this score. Yes, Reagan did change the course of history. But his economic legacy was mainly destructive, and especially so for the world's poor and our own working class.
Among postwar administrations, who had the best record on economic growth? The answer is Kennedy-Johnson (49 percent over eight years), followed by Clinton (34 percent), followed by Reagan (32 percent). Among postwar two-term presidencies, Reagan beats out only Eisenhower (21 percent) and Nixon-Ford (24 percent). Call him the best of the Republicans, if you want.
The unemployment rate stood at 6.6 percent when Kennedy took office and at 3.4 percent when Johnson left it. The average over their eight years was 4.8 percent. When Clinton came in, unemployment was at 7.4 percent; it averaged 5.2 percent during his two terms and fell to 3.9 percent by the end. And for Reagan? Unemployment stood at 7.5 percent at his inauguration, and it averaged that same 7.5 percent during his entire eight years. The jobless rate was 5.4 percent when Reagan left office.
Inflation did come down -- from just over 10 percent in the oil crisis year of 1980 to just over 3 percent in 1983. But at whose expense? Here the correct contrast is with FDR, who controlled inflation while doubling output over four years in World War II. In the process, Roosevelt leveled the pay distribution and created the modern American middle class.
Reagan's disinflation came from unemployment over 10 percent, from his attack on unions, and from high interest rates, which drove up the dollar and cheapened imports. Those measures bankrupted much of the manufacturing belt. They damaged the middle class. And they created a vast trade imbalance and a rising external debt whose consequences haunt us still. Precisely what Roosevelt built, in other words, Reagan did much to destroy.
Mythmaking especially surrounds Reagan's economic ideas, where memory blurs reality into romance. In truth Reagan's economic team was a shotgun marriage between ideologues, monetarists and supply-siders who couldn't stand one another. There was even a good-humored (though conservative) Keynesian mixed in -- Murray Weidenbaum, the first chairman of Reagan's Council of Economic Advisors.
I remember Murray sidling over to me at a meeting of a deplorable group called the Gold Commission -- an official assembly of nut cases, to be blunt about it -- in the Cash Room of Donald Regan's Treasury Department, on the day in 1982 when the CEA's first "Economic Report of the President" for Reagan's presidency was published.
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