Voodoo Statistics Can't Erase The Triumph Of Reaganomics

A full-court press is on to convince the electorate that the phenomenal 20 million new jobs created by the Reagan expansion were all minimum-wage, hamburger-flipping ones that lead nowhere. Real family incomes are alleged to have stagnated while the rich got richer and the poor got poorer. Cutting tax rates, it is claimed, unleashed greed instead of incentives, and the rich simply stole more from the poor.

As the U. S. enters the new year with mounting casualties in employment and, perhaps, on the battlefield, it has become all too apparent that Ronald Reagan, dismissed as a bumbling outsider by government professionals, did a better job of running the country than the savvy insiders who are currently presiding over the twin disasters of recession and threatening war. I believe this realization, more than unemployment and foreign conflict, has Washington and its hand-fed pundits horrified, because voters might, heaven forbid, feel justified in sending another "confrontational" outsider to the White House.

To disabuse voters of any such inclination, pundits are working overtime to make sure Reagan's successes vanish in spurious statistics. As the economy worsens, these critics will help us to recall the 1980s in ways designed to reduce our impatience with the present. It is, therefore, worth our while to examine some of the ways tricksters help the gullible to misremember the past.

A MATTER OF TIMING. A favorite technique is to blur the distinction between the Reagan years and the unsuccessful 1970s. During 1973-81, there was a drop in median income. Reagan reversed the drop, but commentators hide his accomplishment by fallaciously comparing, for example, the 1947-73 postwar boom with the 1973-88 period. Thus, the income growth under Reagan is canceled by the poor performance of the 1970s, allowing Massachusetts Institute of Technology economist Paul R. Krugman to weight Reagan down with Jimmy Carter's record and to write, misleadingly, in his book, The Age of Diminished Expectations, of "the stagnation of real family incomes during the 1970s and 1980s."

If you want to show the poor getting poorer, choose, as Krugman does, the eight-year period from 1979-87. That means you include only four years of Reagan expansion and diminish that with the sharp drop in median income associated with the last two years of the Carter stagflation and the 1981-82 Volcker recession--which most economists believe was the inevitable result of the double-digit inflation rate that Reagan inherited.

Another way to reduce income growth during the 1980s is to overadjust for inflation by using the consumer price index, a measure that until 1983 assumed people bought a new house every month. When used in historical comparison, this measure exaggerates the amount of inflation people actually experienced, thus understating the growth in their real incomes. Moreover, it misleadingly converts an increase in wealth into lower incomes.

A trick favored by Kevin P. Phillips in his Reagan-bashing The Politics of Rich and Poor is to cite the jump in capital-gains income in 1986 as evidence that Reagan's tax policies favored the rich. In fact, investors sold assets at the end of 1986 to avoid the capital-gains tax hike scheduled for 1987.

'SKILLS GAP.' Pundits have attempted to buttress their charge that Reagan's 20 million jobs are low-skilled ones by pointing to flat average weekly wages. However, not only do Social Security payroll data contradict stagnant wages, but average weekly-wage data are misleading for two big reasons: The historical data are overcorrected for inflation, and they are based on nonsupervisory payrolls, thus ignoring the growing share of the work force in jobs requiring higher skills.

The Bureau of Labor Statistics' analysis of jobs by occupational skills shows that the percentage of new jobs in higher-skilled categories during the 1980s has been much greater than in the 1970s. In congressional testimony, Janet L. Norwood, commissioner of the bureau, contradicted Reagan's critics by citing a decline in growth of low-skilled jobs. She said in her Aug. 5, 1988, testimony that jobs that require little training are "not growing as fast as those that require a lot of training."

Indeed, experts are now acknowledging that the Reagan expansion helped to create skilled jobs at a more rapid pace than our bureaucratized educational system could produce people to fill them, the result being a "skills gap."

These examples do not exhaust the inventory of tricks used by pundits to paint an erroneous picture of the 1980s. Neither liberals nor the GOP Establishment will ever like Reagan, because he doesn't share their values. They will forever pursue him with spurious comparisons that water down his successes. In the final analysis, people who are unfamiliar with the tricks of the empirical trade will have to rely on common sense. If Reaganomics hurt everyone but the rich, how come the people voted overwhelmingly for it three times in a row? Obviously, people can tell when they are working, putting food on the table, and paying their bills--even if savvy pundits persist in tainting Reagan's record with that of Jimmy Carter.

Before it's here, it's on the Bloomberg Terminal.