Clintonomics, the Legend and the Reality

(June 9, 2004) My friend Robert Pollin throws a tubful of cold water on Clintonomics, about which more later, in his book Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity. Another reading recommendation. In keeping with this week's preoccupation, however, I'd like to offer the table below from Bob's book with some supplementary information.

The gist is that "Reaganomics" cannot be associated with superior economic performance. The wonders of Reagan's tax cuts are mythic, not real. In no indicator below does the business cycle associated with Reagan and Bush (1980-90) compare favorably to others since 1960.

The periods reflect GDP peak-to-peak measures. Otherwise you get illusory effects from starting or ending somewhere in mid-cycle, along the lines of "The Seven Fat Years" dumbass analysis from people like Robert Bartley (WSJ editorial page). If I chopped off the first two Bush years, the Reagan averages would look worse. Bob's book has numbers for presidential terms as well and the basic story is not different.

Growth in GDP and productivity were clearly worse in the 80s than before or after. Unemployment was no better than the 70s, worse otherwise. The only favorable comparison is inflation, which had more to do with Allan Greenspan and the Fed. (A commenter pointed out correctly that Greenspan’s tenure barely overlapped with that of Reagan. AG took office in 1987.—MBS) Reagan Administration officials were fond of griping about the Fed in an effort to solidarize with victims of the painful effects of monetary tightening and higher interest rates.

I've added private investment numbers (NIPA Table 1.1.6, line 6 for initiates) because capital formation is supposed to be the raison d'etre of supply-side economics. In the 1980s, it stinks on ice. As I've noted before, investment sagged after "supply-side" tax cuts in the 1980s, and picked up after Clinton's tax increases in 1993.

Then there's the unknown Reaganomics: there were six or eight tax increases in the 80s, after the big tax cut of 1981. (See The Tax Decade, by C. Eugene Steuerle.) These were not sufficient to solve the deficit problems created in 1981, but the 1986 reform improved the tax system. Reagan signed it, so he gets points for that. Unfortunately, since 1986, the basic strategy of the '86 reform -- to lower rates and broaden the base -- has been trampled by both parties. Republicans concoct breaks for business and the wealthy, and Democrats invent social programs dressed up as tax cuts.