In June 1980, under Pres. Jimmy Carter, the combined unemployment and inflation rates–the “misery index”–reached 22 percent. The Federal Reserve belatedly raised the federal-funds rate from 9 percent in July of 1980 to 19.1 percent shortly before Ronald Reagan took office. The 30-year mortgage rate hit 18.45 percent that fall.
Despite that unprecedented headwind, the misery index dropped to 7.7 percent by the end of 1986. And the U.S. economy grew by 3.4 percent a year from 1981 to 1988–an average that includes the worst postwar recession by far (this one is not even close). After the recession, from 1983 to 1989, the economy grew by 4.3 percent a year.
Two new books make a feeble, partisan effort to minimize that astonishing economic turnaround. Amazingly, they even try to blame our present discontent on Ronald Reagan.
One is Tear Down This Myth: How the Reagan Legacy Has Distorted Our Politics and Haunts Our Future by Will Bunch of the Philadelphia Daily News. One myth, according to Mr. Bunch, is “that the economic boom that Americans were enjoying in 1997 was the result of the Reagan tax cut (and not the march toward balanced budgets, lower interest rates and targeted investment).” Personally, I’d give the Internet some credit for 1997. But the capital-gains tax was also cut from 28 percent to 20 percent in 1997, and the top income-tax rate that year was lower than in all but the last two years of the Reagan presidency. If a “march toward balanced budgets” stimulated the economy after 1997, then Bunch should warn President Obama that he is marching in the wrong direction. Then there is The Man Who Sold the World: Ronald Reagan and the Betrayal of Main Street America by William Kleinknecht, crime correspondent for the Newark Star Ledger. He complains of “the bitter legacy of Reaganism–the subprime mortgage scandal . . . the end of locally owned media, market crashes, blackouts, drug company scandals, rampant greed and materialism,” etc. To prove “Reaganomics . . . brought a reversal in the slow gains that the working class and the poor had made” (during the 1970s?) Kleinknecht offers no data about incomes or poverty, just errors about wealth. He says wealth gains among the top 1 percent “far surpassed” those in the middle. Federal Reserve figures show the opposite–median wealth rose by 18.3 percent from 1983 to 1989 and the top 1 percent’s share fell by 1.4 percentage points.
Bunch and Kleinknecht are not economists, obviously. But Paul Krugman won a Nobel Prize in the subject, and he, too, has long been trying to rewrite the economic history of the 1980s.
A column published a year ago, “Debunking the Reagan Myth,” attacked Barack Obama’s statement that the Reagan years offered a “sense of dynamism and entrepreneurship that had been missing.” Krugman thought “progressives ought to be driving home the idea . . . that Reaganism is fundamentally wrong.” “Where in [Obama’s] remarks was the clear declaration that Reaganomics failed?”
Krugman has been trying to prove Reagan’s policies failed since 1992, when he persuaded a reporter from the New York Times to write that most growth in incomes from 1977 to 1989 went to the top 1 percent. Defining the “Reagan era” as starting in 1977 or 1979 soon became his favorite trick. Krugman and his followers then began to stretch Reagan’s term of office to 1991. Kleinknecht goes further, blaming a “post-Reagan era” for mortgage-related errors of the Clinton administration and of Robert Rubin.
“A Vision of Change for America,” from the Clinton White House in February 1993, said, “Throughout the 1980s, slow growth in living standards was accompanied by growing inequality. . . . People at the bottom of the scale actually lost ground: measured in inflation-adjusted dollars, their income fell between 1977 and 1991.” The Clinton team understood Krugman’s main lesson about how progressives should “talk about the Reagan era”–namely, that they must always define Reagan’s term of office as starting in the 1970s and ending with the recession of 1991.
Krugman’s column insisted that Reaganomics “did fail. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before–and the poverty rate had actually risen.”
This suggests the entire period from early 1983 to mid-1990 was nothing more than a routine recovery from recession. That is wrong. Real GDP peaked in the first quarter of 1980 at $5,221.3 billion, measured in 2000 dollars. By the first quarter of 1983, real GDP reached $5253.8 billion; the economy had already passed from recovery to expansion. Industrial production hit 59.5 by 1984–well above the peak of 56.6 in 1979.