All articles snipped and quoted from Liberalism Resurgent
Remember, these are not the whole articles, so follow the links to get the whole billybob
Economic Performance
Code: Select all
A common supply-side interpretation of the 80s goes something like this: "Carter's tax-and-spend policies ruined the economy, and sent America into the worst recession since World War II. Reagan inherited many of those economic problems, but once he cut taxes, America's entrepreneurial spirit was unshackled. We experienced the greatest peacetime expansion in postwar history - the so-called 'Seven Fat Years' from 1983 to 1989. Then George Bush broke his 'Read my lips: no new taxes' pledge, and sent the economy back into recession."
There are several problems with this story. First, Carter actually began many of the policies that Reagan would later become known for; Carter gave the rich a capital gains tax cut, massively deregulated key industries like trucking and airlines, and even increased defense spending. This was also the period that corporate PACs began compelling Congress to pass pro-business legislation. According to supply-side theory, these actions should have nudged the economy in the right direction, not plunged it into the worst recession in 40 years. Other problems involve timing: Reagan's first tax cuts went into effect in 1982, but this was also the summer that the Federal Reserve Board slashed interest rates and expanded the money supply. Most economists believe the Fed, not Reagan, was responsible for the following recovery. Finally, the recession of 1990 began four months before Bush broke his "no new taxes" pledge. The recession began in July 1990; Bush signed his tax increases into law in November 1990.
And supply-siders are careful to note that Reagan's was the longest peacetime expansion since World War II. In truth, the Kennedy-Johnson expansion was longer: 106 months compared to Reagan's 92.1 Of course, there was a war in Vietnam, which gives supply-siders an excuse to dismiss it because wars are beneficial to the economy. But they are beneficial because governments engage in Keynesian borrowing and spending during them (which could be directed to social services as well as war). Unfortunately for supply-siders, it was really Keynesianism that produced the longest economic boom since World War II.
And this observation is even more of a victory for Keynesianism than it sounds. For all his public promotion of supply-side economics, Reagan actually practiced a massive form of Keynesian borrowing and spending. Almost $2 trillion worth, to be exact. (Although most liberals would point out this was excessive even by Keynesian standards.)
The following chart shows the business cycle (recessions and recoveries) since 1973:
Real Growth of Gross Domestic Product2
1973 5.2
1974 -0.5
1975 -1.3
1976 4.9
1977 4.7
1978 5.3
1979 2.5
1980 -0.5
1981 1.8
1982 -2.2
1983 3.9
1984 6.2
1985 3.2
1986 2.9
1987 3.1
1988 3.9
1989 2.5
1990 1.2
1991 -0.6
1992 2.3
1993 3.1
1994 4.1
As you can see, economic growth varies considerably from year to year. This allows political spin doctors to prove anything they want to prove, by choosing the most convenient comparison dates and indulging in clever rhetoric. Economists have a way of getting around this. They arrive at an accurate assessment by measuring potential growth instead of actual growth. (More) The result of such a measurement shows that Reagan did no better or worse than Ford, Carter or Bush. Potential growth under all four presidents remained pretty much the same: about 2.5 percent.3
Supply-siders had boasted that their policies would increase potential growth, not just actual growth. The fact that they failed stands as yet another indictment of their theory.
As mentioned earlier, the cycle of recessions and recoveries is normal. But they generally follow a long-term trend of growth; therefore, a deep recession is going to be followed by an even steeper recovery. This is why the unusually severe 80-82 recession was followed by such a long recovery. Reagan's fortune with the economy was predetermined by events that occurred even before his first tax cuts.
The following chart shows the 70s' growing problem with inflation. Coupled with growing unemployment, it formed the "misery index" or "stagflation" that had been predicted by economists in the 60s. The misery index reached 20 percent by 1980, and was a major factor in costing Jimmy Carter the presidency.
Inflation Rate4
1960 1.7%
1965 1.6
1970 5.7
1975 9.1
1976 5.8
1977 6.5
1978 7.6
1979 11.3
1980 13.5
1981 10.3
1982 6.2
1983 3.2
1984 4.3
1985 3.6
1986 1.9
1987 3.6
1988 4.1
1989 4.8
1990 5.4
1991 4.2
1992 3.0
In the following chart, notice that the 1979 unemployment rate was not recovered until 1988.
Unemployment Rate5
1960 5.5%
1965 4.5
1970 5.0
1975 8.5
1976 7.7
1977 7.1
1978 6.1
1979 5.9
1980 7.2
1981 7.6
1982 9.7
1983 9.6
1984 7.5
1985 7.2
1986 7.0
1987 6.2
1988 5.5
1989 5.3
1990 5.5
1991 6.7
1992 7.4
Many misconceptions exist about job growth and loss during the 80s. The charge that we suffered a net loss of jobs because corporations were shipping them overseas to low-wage nations is a myth. Although some industries may be doing this, the U.S. has actually been the world's success story in creating jobs.
Job Growth, 1973-19906
United States 38%
Japan 19
Europe 8
Another myth concerns our loss of manufacturing jobs. First, manufacturing jobs do not pay significantly more than service jobs: only 10 percent more. Second, all industrialized nations have been losing their manufacturing jobs, as technology and computerization continue to make production more efficient. (More)
Employment in Manufacturing as a Percentage of Non-Agricultural Employment7
1970 1991
United States 27% 17
Japan 33 27
Germany 40 33
Another myth is that Reagan was one of the best Presidents for job creation. In reality, he's among the worst:
Job Growth Per Year Under Most Recent Presidents8
Johnson 3.8%
Carter 3.1
Clinton 2.4
Kennedy 2.3
Nixon 2.3
Reagan 2.1
Bush 0.6
The following statistics shed light on this surprising finding:
Civilian Labor Force and Participation Rates9
Year (millions) Percent of Population
1970 82.8 60.4%
1980 106.9 63.8
1990 124.8 66.4
1993 128.0 66.2
Supply-siders boast about the 18 million jobs created in the 80s, but they grow unusually mum over the 24 million jobs created during the 70s. The 80s put 2.6 percent more of the population to work, but the 70s outdid them at 3.4 percent. The increasing percentage of the population joining the workforce during these two decades can be attributed to two factors: baby-boomers coming of age, and women joining the workforce in record numbers.
Code: Select all
Perhaps the only topic that entertains more myths than the federal deficit is welfare. Reagan once described a Chicago Welfare Queen driving a Welfare Cadillac. Allegedly, she had used 80 different names to collect $150,000 in benefits. When the press tried to track her down, they discovered she did not even exist. Nonetheless, this apocryphal anecdote has enjoyed lasting fame - among both conservatives and liberals, for different reasons.
One of the most popular myths is that welfare is a serious drag on the economy. Actually, it barely registers on the radar screen. The most vilified form of welfare is Aid to Families with Dependent Children (AFDC), which allegedly gives poor mothers a financial incentive to avoid work and have babies. Together, AFDC and Food Stamps are by far the largest items of the welfare budget. Yet in 1992, AFDC formed only 1 percent of the combined state and federal budgets. Food stamps also took up 1 percent.1 If you expand the definition of "welfare" to include all one-way transfers of benefits (such as student grants, school lunches and pensions for needy veterans), then welfare takes up only 12 percent of the combined budgets.2 (More)
Another myth is who gets welfare. Mention the word "welfare" and most people automatically think of the poor. But the fact is that corporations and the rich receive far more welfare than the poor. Welfare for the poor (AFDC and Food Stamps) totaled $50 billion in 1992, but welfare for corporations (pork-barrel projects, business subsidies and tax breaks) are estimated to run from $85 billion to $800 billion, depending on which think tank you listen to. (More) Brian Kelly, a Washington journalist who has written a book on corporate pork, discloses that pork alone costs taxpayers between $20 to $100 billion a year.3 By itself, the $500 billion dollar Savings & Loan bailout would have funded 10 years of AFDC and Food Stamps. There is simply no question who receives the most welfare from government.
During the 80s, government spending on individuals increased for everyone except the poor. The reason is because the poor cannot afford lobbyists to defend their interests in Washington; consequently, politicians find the poor easy targets for budget cuts. Between 1970 and 1991, the purchasing power of benefits for the typical AFDC family fell 42 percent, primarily as a result of state and federal cuts.4
Average Monthly Benefits (Constant Dollars, 82-84 CPI)5
Program 1980 1993
AFDC (per family) $350 261
Food Stamps (per person) 42 47
It is impossible to live well on welfare alone, and most recipients go hungry near the end of the month. In 1992, the poverty level for a mother with two children was $11,186.6 In that year, the average yearly AFDC family payment was $4,572; Food Stamps for a family of three averaged $2,469, for a total of $7,041. That was only 63 percent of the poverty line, and 74 percent of a minimum wage job.
The decline of welfare benefits helped poverty grow in the 80s:
Poverty Level, 1960-19927
1960 22.2% Recession year
1966 14.7 Johnson's "Great Society" in progress
1969 12.1
1970 12.6 Recession year
1975 12.3 Recession year
1976 11.8
1977 11.6
1978 11.4
1979 11.7
1980 13.0 Recession year
1981 14.0 Recession year
1982 15.0 Recession year
1983 15.2
1984 14.4
1985 14.0
1986 13.6
1987 13.4
1988 13.0
1989 12.8
1990 13.5 Recession year
1991 14.2 Recession year
1992 14.5
During the 50s, poverty hovered around 20 percent. Michael Harrington had to write a bestseller entitled The Other America to remind the middle class that not all Americans were living like Ward and June Cleaver. In 1964, Johnson declared war on poverty with his "Great Society" program. The increased welfare payments reduced poverty to 12 percent by the end of the 60s.
Generally, the poverty level mirrors the unemployment rate. Unemployment is greatest during recessions; as unemployment gradually falls over the years following a recession, poverty falls too. But if you look at the general trends between recessions, you can see that poverty rates were lower in the 70s than in the 80s. This is largely due to deepening cuts in individual welfare benefits.
Another myth is that the burgeoning incomes of the top 1 percent allowed them to give more to charity. In fact, the rich drastically reduced their charitable donations in the 80s, and the poorest raised them, despite their declining incomes. In 1990, the poorest income group -- under $10,000 -- actually gave the highest share to charity: 5.5 percent.8Code: Select all
The statistics reveal three major trends during the 80s:
First, the Reagan-Bush era greatly polarized the nation's wealth and income. The administration pursued multiple policies (tax cuts being only one) which helped redistribute wealth from the middle class to the top 1 percent. In response to their eroding standard of living, Americans formed two-paycheck households and went deeply into personal debt. Despite these efforts, this will be the first generation unable to live as well as its parents. Today, America has the greatest level of inequality in the entire industrialized world, not to mention its own postwar history. The fact that we have still not restored the tremendous growth we enjoyed from 1939 to 1973 is a damning indictment of the effectiveness of concentrating capital in the hands of a few.
Second, America went from being the world's greatest creditor nation to its greatest debtor nation. The public perceives this as a much greater problem than economists do, however. Often overlooked is the fact that we got something for our debt. Also overlooked is that we owe most of the money to ourselves. However, this should not diminish the true problems caused by the debt. The debt crowds out private investment; interest rates make debt an inefficient form of spending money; and the interest is collected by the banking community, which only adds to our inequality of wealth and income.
Third, the economy experienced growing turbulence in the 80s, as entire industries rose and fell. But several trends were visible. The economy moved from a moderated meritocracy towards a more unrestricted one. Congress favored the approach that regulation of business should not be improved or fine-tuned, but eliminated completely. The fierce competition that resulted produced a record number of business failures -- arguably, a healthy by-product of competition, since it weeds out the weak. But unrestricted competition also resulted in a record number of corporate mergers and takeovers. Today, productive and economic power is concentrating in the hands of a relatively small group of players. The problems of monopolies (price hikes, non-competitiveness, inefficiency, abuses of power, etc.) are well-known. One of the advantages of moderated meritocracies is that they allow sustainable competition.
Other than these three developments, very little changed in the 80s. Supply-siders were not successful in fulfilling their promise of restoring the economic growth of postwar America. The economic trends that are currently affecting America are deep and measured in decades, and the 80s were only a small part of them. At best, Reagonomics only slightly improved or worsened these long-term trends. In most cases, they became somewhat worse; perhaps the most troubling development was the decline of American leadership in the global economy.
Policy recommendations to undo the damage are difficult to make, because true political scientists and economists admit that these problems are deep and poorly understood. (Interestingly, those who know the least are usually the ones who claim to know the most.) But although specific policies remain elusive, there are a few clearly desirable outcomes that Americans should seek, one way or another. Debt of all kinds should be reduced; savings and investment should be increased. The middle class should be strengthened by making it larger and wealthier. And we should move to a sustainable economy, not one judged successful only if it grows. Sooner or later economic and population growth are going to reach their limits, and we will certainly be kinder to ourselves than nature would be in determining how those limits are reached.
Your comments concerning this webpage are welcome. I am committed to improving or correcting all arguments and statistics brought to my attention. My e-mail address is kangaroo@resurgent.com. 
