Reagan did it!

By Tom Quiner

The economy was in shambles when Ronald Reagan took office, much worse off even than when Barack Obama took office.

The misery index, which adds the inflation rate to the unemployment rate, stood at one of its all time highs at 19.33 when Mr. Reagan took office. By contrast, it stood  at 7.73 when Mr. Obama took office.

The poverty rate was in the midst of an explosive increase, increasing by a third from 1978 thru the recession he inherited.

Real median family incomes decreased by ten percent from 1978 to 1982.

The stock market was in a state of collapse, losing 70% of its real value from 1968 to 1982.

America’s economy was a mess, even worse than that which Mr. Obama faced upon taking office. By no means do I diminish the severity of the economic situation brought on by the subprime mortgage crisis. Things were bad in 2008. Things still are bad. But they were worse in the early 80s by most economic yardsticks.

What is interesting is the different paths these two presidents took to fix the economy’s structural flaws.

Mr. Obama has pursued a course pretty much the exact opposite of that taken by Mr. Reagan.

Mr. Reagan cut taxes. He reduced the top marginal income rate from 70% to 50%, in other words, a big tax cut “for the rich.” He went further and cut taxes across the board by 25% for everyone else. And he got Congress to lower them even more a few years later.

Mr. Obama is agitating to increase taxes on the most productive Americans, aka “the rich.” Rates will increase in 2013 for top earners by 20%, and the capital gains tax rate will increase by 60%.

When it came to government spending, Mr. Reagan cut spending. In all, government spending shrunk from 23.5% of GDP in 1983 to 22.3% of GDP by 1988.

On the other hand, Mr. Obama increased government spending by 23% his first two years. His 2012 budget plans on increasing spending another 57% by 2021.

The Reagan approach was accompanied by a tight money policy from the Federal Reserve.

The Obama approach is accompanied by a loose money policy from the Federal Reserve.

Mr. Reagan cut government regulation beginning with an end to price controls on oil and natural gas.

Mr. Obama has signed massive new legislation into law which will increase government regulation of health care, finance, and energy.

Where Mr. Reagan unleashed the market place, Mr. Obama has embraced central planning as the cornerstone of Obamanomics.

In summary, Reagan cut taxes, Obama is increasing them.

Reagan cut spending, Obama increased it.

Reagan used a tight money policy, Obama, loose money.

Reagan cut regulations, Obama increased them.

So which approach worked best? Reagan’s. Bill Clinton suggests that President Obama faced a situation too tough to fix fast. Ronald Reagan’s economy was worse, and yet he turned things around his first term, unlike Obama.

The economy began to boom in Mr. Reagan’s third year in office as the impact of Reaganomics was felt. The GDP increased between 5 to 8 percent per quarter in his third year and continued a torrid pace right into the election cycle in his fourth year in office.

Unemployment was still high, but dropping steadily, reaching 7.2 percent by election day.

Mr. Obama’s numbers don’t look so good. The Federal reserve projects a growth in GDP of about 1.7 this year. And latest unemployment numbers remain above 8 percent.

The impact of Reaganomics was felt for years.

The economy grew by a third over the next seven years.

Twenty million new jobs were created. Civilian employment increased by 20 percent.

The unemployment rate came down to 5.3 % by the time he left office.

Let us compare results as accurately as we can:

• The Reagan recovery averaged 7.1% economic growth over the first seven quarters compared to 2.8% for Mr. Obama. And it is dropping during the current President’s watch.

• Unemployment fell 3.3 percentage points during Reagan’s first seven quarters compared to 1.8 for Obama.

It’s important to note that Mr. Reagan accomplished all of this while having to tame inflation at the same time. Mr. Obama, on the other hand, entered office with inflation relatively low.

At this stage in the game, the Reagan model is outperforming the Obama model. Bill Clinton isn’t shooting straight when he says the Obama economy was irreparable in just four years. Reagan had it worse.