Paul Krugman has practically devoted his life to economics. He was the recipient of the Nobel Prize in economics in 2008, and actively writes opinion pieces for the New York Times. Additionally, he is a self-professed Liberal and makes no effort to mask his strong support and approval of President Obama and the Democrats.
However, his background is not the topic today. Instead, a piece he wrote in January of 2008 and published to the NYT opinion section takes the limelight. You can view the original article
here [link]. There are a number of rather unusual pieces of information within the article that will be individually addressed here in the interest of the truth.
The target of the article is none other than former POTUS Ronald W. Reagan (1981-1989) in the criticism of Conservative revisionism.
"Maybe Mr. Obama was, as his supporters insist, simply praising Reagan’s political skills. (I think he was trying to curry favor with a conservative editorial board, which did in fact endorse him.) But where in his remarks was the clear declaration that Reaganomics failed?
For it 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."
The term one-hit wonder is probably not all that much of a stretch. The economy soared following the early 80s recession. Growth in real Gross Domestic Product (the primary measure of US economic growth) for 1983 and 1984 was the best showing in many years. The first quarter of 1983 gave us 5.1% growth, the rest of 1983 posted 9.3%, 8.1%, and 8.5% respectively. Economic boom continued into 1984, with another 8.0% and 7.1% spurt before returning to more average levels of around 3.5% until mid-1985.
All of these quarterly figures can be found at the Bureau of Economic Analysis website, specifically in table 1.1.1, located
here [link].
Krugman next states that middle class incomes had risen very little in the 80s. In fact, middle class income rose from $21,083 in 1980 to $34,206 by 1989. That is just shy of the gains in the 90s, and considering the 1981-1982 recession put a large dent in the economy across the board, the gains are quite impressive. Once again, our government provides excellent data for us to use, this time through the Census Bureau. You can find income information
here.
The final assertion by Krugman is that the poverty rate had risen by the late 80s to a point higher than at the start of that decade. It is common knowledge the recession has a greater effect on the poorest quintiles than anyone else, thus poverty rates naturally increase during recession and decrease during periods of expansion. One thing to note is that poverty rates are measured in two different ways; one considers all individuals regardless of their families (this includes individuals living alone or unrelated cohabitants; and also young adults and the elderly). The second measure includes only those in families. The family poverty rate changes very little over time, and seems to be immune to recession and economic expansion. The poverty rate in 1980 stood at 13%, and by 1989 it had changed very little, down to only 12.8%. However, the peak of the recession put the poverty rate at 15.2%, and it had been declining since 1983. The family poverty rate was the same in 1980 and it was in 1989, exactly 11.5%, down from a peak of 13.5% during the recession.
However, you need not take my word for it, once again the Census Bureau has done all the work for us, poverty rates can be found
here [link].
"For example, I’m not sure what “dynamism” means, but if it means productivity growth, there wasn’t any resurgence in the Reagan years."
Labor productivity is essentially output per labor hour. Unfortunately the United States suffered from persistent stagflation in the late 70s, and labor productivity remained fixed in the neighborhood of 41 units from 1977-1980. By 1989, productivity had surged to 56.1 units. [Source unknown, possibly BLS - will add at a later date].
"I understand why conservatives want to rewrite history and pretend that these good things happened while a Republican was in office — or claim, implausibly, that the 1981 Reagan tax cut somehow deserves credit for positive economic developments that didn’t happen until 14 or more years had passed."
It would be nice to know where exactly Krugman gets his data, as every indicator shows that the 1980s were a positive decade across the board (the 14 years referred to is the begining of the Dot Com bubble). However, Reagan's 1981 tax cut had a deeper importance, not such much the actual cutting of taxes, but rather other provisions in the bill that greatly simplified the tax code. Perhaps more important was the indexing of tax brackets, which reduced so called "bracket creep" incurred during the 70s. Inflation pushed families into ever higher tax brackets, which put considerable strain on the lower income classes. The highlights of the Economic Recovery Tax Act of 1981 (ERTA) are outlined at the Tax Policy Center, another excellent source for information on tax bills, located
here [link].
"Like Ronald Reagan, President Bush began his term in office with big tax cuts for the rich and promises that the benefits would trickle down to the middle class. Like Reagan, he also began his term with an economic slump, then claimed that the recovery from that slump proved the success of his policies."
This quote is an interesting statement, especially considering the article far predates Obama's election, his victory in the primaries, and the economic collapse following the financial crisis. One could wonder if Krugman will credit Obama with launching successful economic policy, despite alluding here to the fact that recovery is inevitable regardless of what a president does.
