Oh, For The Reagan Years When Growth Was Growth

According to anti-Reagan pundits, the "Excessive Eighties" were an awful time. But compared with today, life was wonderful. Judging by the mounting pressure on President George Bush, people are demanding the return of Reagan's progrowth policies.

The reasons are not difficult to fathom. Low unemployment and rising incomes are not what the electorate considers excesses. Under Bush, the economy has not grown in three years, and not even optimistic forecasters expect much improvement in 1992. When the economy doesn't grow, neither do jobs or incomes, and debts become a burden. Bush has taken the unemployment rate from 5.2%, where Reagan left it, to 6.8% and rising. Real median family income rose throughout the long Reagan expansion but has fallen under Bush.

To illustrate the excesses of the 1980s, critics focus on the growth of debt. But debt is what finances growth in the economy, jobs, and incomes. (This is especially true in the U.S., where an anticapital tax system subjects savings to multiple taxation.) Real economic growth averaged 4% during the Reagan expansion, far outdistancing that under Presidents Carter, Ford, Nixon, and Eisenhower and putting the Reagan expansion in the same league with the strong growth of the 1960s.

However, unlike the expansion during the 1960s, economic growth in the 1980s did not have to be paid for with a rising rate of inflation. When Ronald Reagan entered office, the consumer price index stood at 12.5%; when he left, it was 4.4%. Inflation actually fell during the first four years of the Reagan expansion and averaged 3.9% over the 1983-89 period -- half the rate of the 1970s.

NEW JOBS. The growth in debt during the 1980s financed the creation of 20 million new jobs, putting to shame the performance of Europe and Japan. Real median family income, which had stagnated in the 1970s, rose $4,000 during the Reagan expansion.

The growth in debt had no adverse effects on corporate profits or interest rates. Corporate profits before tax almost doubled from 1982 to 1988, and interest rates collapsed. The prime rate, which averaged 18.9% in 1981, fell to 9.3% in 1988. The interest rate on three-month Treasury bills fell from 14% in 1981 to 6.7% in 1988, and the rate on 10-year Treasury bonds fell from 13.9% to 8.9%.

Thus, we had an historically long economic expansion accompanied by 20 million new jobs, a tripling of manufacturing productivity growth, rising real family incomes, falling or stable inflation, and collapsing interest rates. This performance is "excessive" only because every "blue-chip" economic forecaster and two-bit pundit in the country said it could not be done.

Bush's economic-growth record is so bad -- averaging 0.1% annually -- that the President with the second-worst record in the postwar era, Eisenhower, did 19 times better. Carter did 27 times better, Ford 22 times better, and Nixon 25 times better. Even when the Reagan expansion is weighted down with the 1981-82 Volcker recession, Reagan did 29 times better.

DISMAL FAILURE. Little wonder that Bush's economic team is hiding its own dismal failure by blaming an "excessive" growth in employment and income in the 1980s. This demagoguery pleases liberals who hate Reagan, but it doesn't fool the electorate, which is demanding that Bush stop his systematic destruction of the Reagan economy.

Bush has no economic achievements and innumerable failures. He has taken no steps to stop the dangerous slide in real estate values -- thus maximizing the cost of the taxpayer bailout of savings and loan association and bank depositors. Real estate values could have been stabilized, and many thrifts and banks saved, for a small fraction of the cost of the bailout. The tax cost of returning the tax and depreciation advantages, which were foolishly yanked away by the Tax Reform Act of 1986 in the midst of a real estate correction, is infinitesimal compared with the ongoing destruction of wealth and financial institutions. However, James A. Baker III and Richard G. Darman, the bigwigs of the Bush Administration, oppose any undoing of their handiwork from the days when together they were running the Treasury Dept.

Bush raised taxes, and the budget deficit has jumped from $150 billion, where Reagan left it, to more than $350 billion. The 1990 budget agreement -- centerpiece of the Administration's economic policy -- has been followed by an increase in projected red ink that dwarfs in magnitude the deficit effect of the 1981 Reagan tax cut. Moreover, the Congressional Budget Office now forecasts $300 billion deficits as far as the eye can see. Unlike the economic boom that Reagan gave us, we have nothing to show or to expect from Bush's unprecedented increase in the public debt -- except higher taxes.

During the three years that Bush has occupied the White House, the only growth has been in the deficit, taxes, regulation, and unemployment. It is a scary indication of our future that the government and the pundits see this dismal failure as moderation and regard the successes of the 1980s as excesses.

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