|
|
|
|
|
|
|
Last Updated: Apr 8th, 2008 - 05:36:19
|
|
Reaganomics: He Was Right!
By John McGinnis - Altoona, PA
Mar 3, 2008, 07:28
Ronald Reagan always argued that “government is the problem” and his economic policy was one of advancing freedom, which is short for freedom from government. What is the record on his administration and its effect on the American economy?
Although there is no perfect way to measure economic performance, one of the best metrics is real per capita GDP, which proxies the average person’s income adjusted for inflation. The more it goes up, obviously, the better, and it is a painful thing for it to decline.
During the Reagan years (1981-1988), GDP per capita grew by 21.4%. As a matter of comparison, the Carter years (1977-1980) showed an 8.9% growth; Bush I (1989-1992) showed growth of just under 3.8%; Bill Clinton (1993-2000) showed the most growth of any of these administrations at 21.7%, barely beating out Reagan; and Bush II (2001-2007) has shown growth of 11.3%.
Two things are inadequate about these comparisons, however. First, these administrations lasted for different lengths of time. Carter and Bush I were in office for four years. Reagan and Clinton were in office for 8 years. And Bush II has been in office for 7 years. One way to adjust for these different lengths of time is to compute annual growth rates for per capita GDP. The rankings by this measure are: Clinton (2.49%), Reagan (2.45%), Carter (2.14%), Bush II (1.54%), and Bush I (0.93%).
But the second thing inadequate about this comparison, even after adjusting for time, is the lag factor. It’s hardly fair to give credit or blame to a president for economic measures such as GDP at the beginning of his administration. Given the time needed to legislate new policies and implement them, and given the time needed by businesses and individuals to incorporate the new regime into their decision-making, and then given the time to see these actions reflected in economic data, it seems a much better approach to used lagged data to assess the economic performance of administrations. At a minimum, a one year lag should be used, but a two year lag seems even more reasonable.
Using data with a one year lag, the last five administrations rank in economic performance as follows: Reagan (2.59%), Clinton (2.28%), Bush II (1.77%), Carter (1.63%), and Bush I (0.63%). For those not well versed in economics and the effects of compounding, these are significant differences. Higher growth rates not only affect the present, but have an everlasting effect on the future as well. A change in real growth rates of just 1% could add more than a half million dollars (net of inflation!) for the average American over the course of a lifetime.
Using data with a two year lag, which is typical in the economics literature and seems reasonable given the speed at which the federal bureaucracy operates, the differences in these presidents is even more apparent. Reaganomics achieved a 3.05% growth rate, while the others ranked as follows: Bush II (2.09%), Clinton (2.01%), Bush I (1.13%), and Carter (-0.2%). Having lived through all these presidents, this measure seems to capture best how the economy performed under their leadership. Jimmy Carter was awful and Bush I was not much better. Bush II is an improvement on Bush I, at least on economic matters, but falls well short of Reagan despite having the opportunity to stand on his shoulders. Clinton deserves credit too, but he had the benefit of a pro-liberty Congress thanks to Ronald Reagan and Clinton’s own attempt to expand socialism in America.
There is more to learn from this data, but already this much of the analysis makes one thing clear: On economic matters, Ronald Reagan knew what he was talking about. Reducing marginal tax rates on individuals from 70% to 28% and on businesses from 46% to 34%; decreasing the Federal Registry from 120,000 pages to under 40,000; and slowing the growth of government while at the same time of re-building our national defense in order to win the Cold War-well, Reagan said it best, “All in all, not bad, not bad at all.”
The opinions and ideas expressed in this essay are those of John D McGinnis and should not be considered representative of WRTA.com, any institution with which McGinnis is associated, or anyone else. He can be contacted at drjohn@theradiocampus.com.
Email this article
Printer friendly page
Top of Page
|
|
|
|
|
|
|
|
|
|