09/30/2005: I tend to get a lot of vitriol from my liberal friends: “Reagan didn’t care for the poor or the blacks! He only cared about the rich people!”
When Ronald Reagan took office, inflation was 14%, interest rates were 19%, and unemployment was 7%. The misery index was 40%.
When Ronald Reagan left office, inflation was 4%, interest rates were 8%, unemployment was 5%, and the misery index was 17% (a drop of 23%). Certainly, more than the rich did better during the Reagan administration.
In 1980, Carter’s last year in office, the top 5% of the income bracket paid 38% of the taxes. In 1988, Reagan’s last year in office, the top 5% of the income bracket bore 46% of the tax burden, an increase in 8% over the Carter days.
While the rich got richer under Reagan, they also paid a greater share of the tax burden with Reagan at the helm.
How could this be? Reagan’s tax policies rewarded capital gains and encouraged risk taking. As a result, the rich invested in stocks, bonds, mutual funds, and private businesses. This created more jobs (18 million more jobs), more opportunity for upward mobility for little guys like me, and, yes, the people who risked that capital got richer. They also paid a greater share of the taxes.
That is not to say that Carter cared less about the poor than did Reagan; no rational person would suggest that Carter–an upstanding Christian gentleman–didn’t care about the poor. However, the charge that Reagan soaked the poor is–like reports of my demise–greatly exaggerated.
In spite of claims by race-baiters, blacks–as a group–also fared well during the 1980s.
(1) Black income in 1980 was $191 billion. In 1988, it was $259 billion: an increase of 35.6%.
(2) As a group, black males saw their income rise from $9,678 to $14,537: an increase of 50.2%.
(3) The number of black families earning more than $50,000 per year increased from 392,000 to 936,000, an almost threefold improvement.
That’s not to say that overall poverty went down under Reagan: it actually increased by a tenth of a percentage point over his eight years. It spiked during his first four years, largely due to the tail end of the recession that he inherited. Strong fed policy on inflation–that was painful in the short term–caused a short, ugly recession.
However, once interest rates and inflation started coming down, overall poverty declined by more than two percentage points during The Gipper’s second term.
In fact, poverty rose far more during the Carter administration–two percent–than under Reagan (a tenth of a percent). That, however, is hardly a dismissal of Carter.
In fairness to Carter, he was a victim of economic forces that were beyond his control. The banking system was suffering due to the shortcomings of Regulation Q; the bond market nearly collapsed; fuel prices were–on an adjusted basis–higher than today’s post-Katrina shock. The Japanese simply produced better, more fuel efficient cars than the Big Four (which became the Big Three).
Carter didn’t cause the recession, which was the result of a cyclical economy combined with terrible fed policy and the lousy political choices of his predecessors. However, Carter’s attempt at a Keynesian solution was doomed to fail: we needed a free market solution.
Fast forward 25 years: today, the left will sing the praises of the Clinton economy, and with some good reason.
To his credit, Clinton had some very good economic policies. Other than the hard-left swing he initially took in 1993 and 1994 (with a mammoth tax hikes and a failed attempt to nationalize health care), he turned into a quasi-conservative for his remaining six years.
While Clinton did not negotiate NAFTA–Reagan and Bush (41) did that–Clinton did convince the Senate to ratify it (to the objections of many in his own party). He also deserves the credit for the Global Agreement on Tariffs and Trade (GATT). These helped negate the effect of his tax hikes, and allowed us to take advantage of a global economy.
In 1996, he signed welfare reform. While many critics–myself included–contend that he merely did this because his re-election required it, nonetheless, Clinton deserves credit for signing onto a key portion of the Reagan vision for America, in opposition to many in his own party.
As a result, many people who were once on welfare–who normally would be dependent on government for generations–are adding economic value to society today.
Even without the bubble economy of the late 1990s, Clinton’s record was decent: his promotion of free trade, and signing of welfare reform, offset his misguided tax hikes.
It would not be fair to credit Clinton with the dot-com economy (unless one also wishes to blame him for the subsequent crash, and the corporate frauds that contributed to the bubble, neither of which were his fault.) That was a market phenomenon that has ample historical precedent.
Like Clinton, Bush (43) has economic policies that offset one another. Like Clinton, Bush made one really dumb economic move: steel tariffs. His tax cuts, however, were exactly what the economy–reeling from the dot-com crash, September 11, and the corporate scandals–needed. His Administration also deserves credit for aggressively pursuing corporate crooks whose misdeeds came to light when stock prices fell.
The only serious blot on the Bush economic record is spending: he has failed to veto any spending bills provided by Congress. As a result, the national debt–which neither Reagan, Clinton, nor Presidents Bush 41 and 43 seriously addressed–is spiraling out of control.
On poverty, the Bush record has been good. He inherited a recession that could have become Great Depression II. The stock market crash was the largest destruction of wealth in American history. You don’t lose $8 trillion in equity without serious consequences. And yet–even with the aftermath of September 11, and corporate frauds from Enron to Worldcom to Global Crossing to Tyco–the economy managed a soft landing, and resumed healthy growth.
While Bush did not cause all of that, he deserves some credit: with the exception of the steel tariffs, he did almost everything right. So far, Bush has managed to keep a bad situation from becoming a complete disaster.
The upshot of all this is that there are way too many variables in our economy to conclude that one President didn’t care about poor or black people, but that another President “really cared”.
Johnson declared war on poverty, and created many programs to combat poverty. However, no reputable research can conclude that those programs have achieved the desired results: in fact, many societal problems can be directly linked to those programs. Does that mean Johnson didn’t care about poor people?
Nixon–in spite of his republican leanings–gave us wage and price controls. Those were his attempt to help the poor people. But those wage and price controls helped pave the way for gas shortages, recession, and inflation that Ford and Carter would inherit. Does that mean Nixon didn’t care about poor people?
Ford tried his darndest to whip inflation. He even produced WIN (Whip Inflation Now) buttons to promote his efforts. After all, inflation was impacting the purchasing power of the poor people. The campaign didn’t work. Does that mean Ford didn;t care about poor people?
Carter, for all his care for the poor, presided over one of the nastiest recessions since the Great Depression. Poverty spiked on his watch, although through no fault of his own. Under Carter, we gained a new economic measure: the misery index. We also saw a new economic phenomenon: stagflation. Does that mean Carter didn’t care about poor people?
Reagan provided a free market solution to an economy mired in stagflation. This helped create 18 million new jobs, provide low inflation, cut interest rates in half, and reduce the misery index by 23%. Black income was up by a third. Still, the underclass expanded under Reagan, just as it did under Johnson, Nixon, Ford, and Carter. Does that mean Reagan didn’t care about poor people?
Bush (41) inherited an S&L debacle caused in part by the effects of bank regulations and international competition, as well as investments in junk bonds. When a cyclical economy provided a brief recession, Bush was suddenly run out of office. However, he did the best thing you can do for an economy in a recession: nothing. While he vetoed many spending bills–including extending unemployment benefits–that made for a shorter recession: the recovery was in full swing when Clinton took office in 1993. Does that mean Bush didn’t care about poor people?
Clinton inherited a recovering economy and a stable international situation–the Cold War was won by his predecessors. He pushed for free trade, signed welfare reform, and helped globalize the economy. The dot-com mania provided the sharpest economic growth in world history. Still, Clinton–just like Johnson, Nixon, Ford, Carter, Reagan, and Bush before him–could not stem the growth of the underclass. The ensuing stock market crash was promulgated by corporate scandals that began during his administration (although through no fault of his). Does this mean that Clinton didn’t care about poor people?
Dubya inherited an economy on the brink of disaster. The stock market crash was in full swing, and the stock market would lose $8 trillion in equity; corporate scandals were brewing and would come to light within his first 2 years; September 11 would provide the worst attack against Americans since Pearl Harbor. His tax cuts kept a bad situation from getting worse, and–in spite of September 11, corporate scandals, a nasty stock market crash, wars in Aghanistan and Iraq, four hurricane strikes in 2004, and the devastation of the gulf coast (and oil refineries) by the Hurricanes Katrina and Rita. Does this mean that Bush doesn’t care about poor people?
Each President inherited different sets of circumstances. Some provided more federally-controlled solutions; others called for more free market solutions. None of them caused the recessions that they inherited, but each provided a unique approach to them.
Johnson created big federal programs, Nixon tried wage and price controls, Ford made buttons, Carter tried to rescue the bond market, Reagan cut taxes and promoted the free market, Bush did nothing, Clinton raised taxes but signed welfare reform and promoted free trade and globalization. Bush cut taxes and prosecuted corporate lawbreakers.
It would be unfair to say that any of them didn’t care about the poor. It’s not like Presidents have secret switches they can pull to suddenly make poor people rich, or make uneducated people better educated. Even if they could make health care free, that would hardly make it available. Governments can create money, but they cannot add value to the economy.
If the Soviets taught us anything, it is that governments cannot create wealth, and that redistributionist economic policies–however well-intentioned–are no substitute for a market economy.
Some Presidents (Reagan, Clinton) achieved better results than others (Carter, Bush 41). But to say that this President was “more compassionate” than that President, or that this President didn’t care about the poor, whereas that President “really cared”, is ludicrous.
After all, economics never provides perfect solutions; only tradeoffs.