Economics

Is it unfair to compare the Obama and Reagan economic recoveries? No

Ronald Reagan inherited a Long Recession. The economy declined 0.3 percent in 1980, grew at a subpar 2.5 percent in 1981, and then plunged 1.9 percent in 1982. The lengthy downturn was really the culmination of more than a decade of bad economic policy. But the Reagan Recovery was stunning. GDP rose 4.5 percent in 1983 and 7.2 percent in 1984. It was Morning in America, and Reagan won reelection by a landslide.

Barack Obama also inherited a Long Recession. According the National Bureau of Economic Research, the U.S. economy entered recession in 2007 and stayed there until June 2009. But the Obama Recovery has been terribly weak. The economy grew at a 2.8 percent pace in the second half of 2009, 3.0 percent in 2010, and—according to new Commerce Department data—1.7 percent in 2011. We’ll see what happens in the 2012 election, but Obama’s current approval rating is 43 percent, according to Gallup.

As economist Lawrence Kudlow of CNBC notes:

After 10 quarters of recovery, the Reagan growth rate was 6 percent. Compare that with Obama’s 2.4 percent. Or compare Obama’s 2.4 percent with the 4.6 percent post-World War II average recovery rate after 10 quarters.

But Obamacrats and other liberals say the Reagan-Obama comparison is unfair. After all, Reagan didn’t have to deal with a collapsed housing bubble. Obama, they contend, was dealt a near-impossible hand and played it about the best he could. Americans need to lower their expectations, and Reaganites need to quit making the comparison.

The reality: Housing is usually a key contributor to GDP growth during the early stages of a recovery. As a 2011 St. Louis Fed analysis points out, “Somewhat surprisingly, the housing component of GDP (more formally known as residential investment) tends to be a solid contributor to GDP growth during a recovery. Historically, residential investment has contributed only about 5 percent of GDP—a small share considering the consumption component is close to 70 percent. Nevertheless … it can contribute substantially to the GDP growth rate for short periods of time.”

According to Commerce Department data, residential investment added 1.33 percentage points to GDP in 1983 and 0.64 in 1984. By contrast, residential investment subtracted 0.11 percentage point in 2010 and 0.03 in 2011. (See chart below.)

But here’s the thing: Subtract the housing rebound from the Reagan Recovery and GDP still grows twice as fast as during the Obama Recovery. For example, the economy grew 7.2 percent in the second full year of the Reagan Recovery. Without residential investment, it would have grown 6.6 percent vs. 1.7 percent growth in 2011, Obama’ s second full year of recovery. Score one for the Gipper … and for supply-side/Schumpeterian economics over demand-side/Keynesian economics.

 

I also ran across an interesting bit of commentary from former Fed governor Kevin Warsh on this very issue (via International Economy magazine) of blaming housing for the weak recovery. It’s a bit long but worth reading:

Only by the standard of the deepest, darkest day of the crisis is this economic recovery even plausibly satisfactory. On a historical basis, the economic recovery is modest, and unacceptably so. Some describe this recovery as the “new normal” and suggest we should just get used to it. Others suggest that recoveries from global financial crises are inevitably weak, and so we should lower our standards. I call this the new malaise. Instead of lowering our standards, we should improve our policies and raise our expectations.

So why is the recovery weak? First, the symptoms have been confused with the disease. Some policymakers have tried to steer a housing recovery without an economic recovery. So there have been a dozen or so programs to “fix” the housing crisis on the theory that once that’s repaired, the broader economy will come roaring back. These housing programs, however well intended, have done little, in my view, to help the housing markets or the real economy. A housing recovery will begin when real household incomes improve, not before.

Second, intentions aside, the broad suite of macroeconomic policies has tended to favor the big over the small—big banks have been advantaged over small banks; big businesses have been favored versus small businesses; and those big multinationals with access to the global economy and global financial markets have benefited more than those on the front lines of job creation.

Third, macroeconomic policies, in my view, have been preoccupied with the here and now, not the long term. So going back several years, Washington has compensated for a faltering economy with temporary programs that plug quarterly GDP arithmetic, but do far less to support long run growth. Massive stimulus has proven not to be as efficacious as many academic models would suggest.

In short, better policies, a better economy. The current economic recovery could be a lot stronger.

42 thoughts on “Is it unfair to compare the Obama and Reagan economic recoveries? No

    • Obama had a 60% majority in the House of Representatives and a 60%, meaning filibuster-proof, majority in the Senate. Reagan had neither. In fact, no president since FDR had such a free hand.

      Also, please list the Obama policies that were killed by Congress that would have helped a recovery.

      Simple story: Obama got everything he asked for, and none of it worked.

      • wait, your history is WRONG, the Senate had only 99 Senators until June of 2009, Al Franken was sworn in. Later, Ted Kennedy passed away in August. So all in all, the senate, which needs 60 votes to essentially do anything, was in deadlock until June. A TOTAL of 4-5 months of a filibuster proof majority.

        • Ray… good grief.. I hope you are using sarcasm there. One senator missing doesn’t change what RH said above. I know of ANY GOP fillibuster of ANY of Obamas bills in 07-08. He and his democratic machine in Congress rammed everything they wanted through… and in Congress, they used unheard of tactics and gimmicks to do it. History, if not written by a liberal, should reflect upon the Congress of Nancy Pelosi and the Senate under Harry Reid as the most corrupt political hack machine of living memory.

        • The fact is Congress passed Obamacare without one Republican vote. They had enough power for long enough to do that and more; let them own it.

        • REALLY? The poor guy had only 4 or 5 months of unfettered legislature? When he had both houses of Congress, he chose to ram through a Keynesian spending bill of nearly a TRILLION dollars, the Health Care Reform Act appropriately known as ObamaCare, Frand-Dodd Finance reform ushering in the most stifling finacncial regulations ever seen. Not to mention a half-dozen other pea-brained laws all inhibiting the economy’s ability to recover. Not to mention President Obama’s big GREEN LIGHT to the normally left-leaning EPA, NLRB, DOE, et. al., to issue a tsunami of new regulations that kill business – last counrt was well over 5,000 new regulaitons.

          This president is killing this country economically. His supporters cry foul when the truth is told.

          But, the poor guy only had 4 or 5 months of unfettered assistance from Congress? REALLY?

        • Please. Who are to believe? You or our lying eyes? Obama said give me a trillion dollars and I will keep unemployment under 8%. How did that hope and change work out? A broken clock is right twice a day and this guy and his party can’t even rise to that level of accuracy.

        • OK, so Obama had 59 votes (to Reagan’s 53). What did Obama want that he did NOT get?

          Please bear in mind, also, that budget bills are not subject to filibuster – they pass on majority vote. Yet the only budget (e.g. actual spending plan) that Obama ever made was the one that (the Democrat) Congress withheld from Bush to deny him any input to it. Since then, Obama has had no fiscal plan whatsoever. Lots of words, but no deeds to date; just short term Continuing Resolutions.

          The House has passed 38 spending resolutions that are gathering dust on Harry Reid’s desk. He won’t even bring them to the Senate floor for a vote! Reid is a Democrat – same party as Obama, yet Dear Leader keeps railing against Republicans. With this kind of clueless, weak-to-nonexistent leadership, of course the recovery is weak.

          Yes, policy makes a difference and Obama has none; nothing beyond the next poll. Whiner-in-Chief is out of his depth, and the recovery shows it.

    • For two years Obama had a veto proof Congress to work with; Reagan had a House controlled by Democrats, big difference. President Obama got everything he wanted and what he wanted turned out to be all bad. It made a bad situation worse and the effects will be felt for another decade hence.

      One thing that should be mentioned is that there was still such thing back then as a conservative Democrat. That no longer exists.

      On January 20, 2009, the luck of the most stupendously lucky politician in the history of mankind ran out and this country’s fortunes sank with his. What did we ever do to deserve this guy?

    • Q: What replaces failed “hope”?
      A: Self-pitying delusion, like this post.

      Reagan also would never have dismissed Tip O’Neal with a dismissive “we won” as Obama did to Republican efforts to be heard.

      Reagan’s policies were als0 so obviously rational the the Blue Dog Dems knew they had to get on board or suffer the consequences at the polls and so they did. Self-preservation is all the forced Dems to compromise in 1981.

      Fast forward to 2009-12. Obama’s policies are so obviously irrational, that no Republican need fear any electoral consequence for opposing them. It is the members of the Obama’s own party who must suffer as a consequence for supporting his policies (sayanora, Chris, Ben, Bart, Barney et. al.,)

      No Republican running for office in 1982

      • It appears Obama has gone from Hope and Change to Fear, Envy and Resent. Fear the Republicans, Envy the Rich, and Resent everyone else.

  1. How can you compare the Reagan to the Obama recovery without mentioning interest rates dropping from 14% to 3%? Also, will Obama be allowed to triple the national deficit?

    • Obama already did explode the national deficit. He did it in less than 36 months and to no positive benefit. (unless you’re a Solyndra or UAW executive.)

    • You wrote: [W]ill Obama be allowed to triple the national deficit?”

      Are you serious?

      $4.6 Trillion: Amount That Has Been Added to the National Debt Since President Obama Took Office, “The Most Rapid Increase in the Debt Under Any U.S. President.” (U.S. Treasury Department, Accessed 1/16/12).

    • Really, Thats your argument? Rates are ZERO and should have no impact on growth but somehow they are.He already Doubled the DEBT,thanks to Nancy and Harry pitching in. You “O” supporters really are clueless but dont give up Hope, Its all you Have.

  2. You can certainly compare their policies because those are close. Their foreign policy is almost identical. Reagan was much more liberal than Obama when it came to raising taxes. Obama has given us tax breaks while Regan raised taxes 11 times. Reagan was much more liberal with immigration. Giving everyone amnesty while Obama has deported more than twice as many as Bush in half the time. Of course as far as diplomacy and atomic bombs, the environment they align identically. But Reagan was inline with republicans when it came to managing the economy miserably and building debt more than every president before him == ADDED TOGETHER. Republicans either don’t understand how the economy works or they are purposely sabotaging the country. Hard to tell which is the case.

    • Libbby, you really don’t believe the garbage you just posted do you????

      Reagan raised taxes on the promise by the Democrats that they would cut spending by $3 for ever $1 he signed off in tax increases. The Democrats lied. Every budget Reagan sent to a Democratically controlled House would balance in five years. They never passed any of those budgets. Remember Tip O’Neill telling us they were DOA?

      And as for Obama, he created the biggest government program since Social Security with his Obamacare. Almost everything he told us it would do, has proven not to be true.

      Reagan built up the military while Obama is cutting it down.

      Reagan had deficits of $200 billion while Obama’s deficits are in the $1.4 trillion. Adjusting $200 billion for inflation the deficits to be comparable would need to be $546 billion. Obama is only off by a factor of 2.56.

      Either you can’t do simple mathematics or you are a stooge for a party that refuses to understand simple mathematics.

      • I just double checked my math on what $200 billion would be today. I used 1980 which was Jimmy Carter’s last year in office with high inflation. If you use 1981 when Reagan got into office, $200 billion would be $496 billion today. This means Obama is off by a factor of 2.8.

  3. You can’t compare; it’s a different world. China is now an economic power. The largest company in the world in the Reagan era was GM, and they employed hundreds of thousands of Americans. The biggest company in the world now is Apple, and they employ far more foreigners than Americans. It’s a world economy now. The world economy dipped with our housing meltdown and it’s struggling now with the uncertainty of the Euro.

    • Hmmm, looking at your analysis makes me think the place I would go to look for the solutions is to the 1930s because it was much more like the world you described. Yes, Keynesian economics is just the ticket.

  4. A difference I see is that Reagan’s policies freed up earnings; paychecks and returns on investments along with lower interest rates. Obama polices have offered only debt instruments as incentives along with promises to selectively punish any private achievement. Since there’s such anemic growth, few are risking investment (borrowing) if the reward is a costly second look from the federal gov’ts regulatory agencies?

  5. “Massive stimulus has proven not to be as efficacious as many academic models would suggest.”
    You can’t have good models with faulty premises. “Stimulus” is economic nonsense. It is a short-term high for the junky and never leads to sustained growth. Even when provided from savings (like the Chinese did) it is only a palliative. We have plenty (way too much in my opinion) in the way of safety nets already. Take a lesson from Harding. Get out of the way Mr. Government and the economy will fix itself. Fat chance of that happening.

  6. It’s true that the recession Reagan inherited in 1980 was the culmination of more than a decade of bad economic policy. So was the recession that Obama inherited in 2008. The important difference is that the bad economic policies that led to the Reagan recession were not policies that Reagan had advocated, whereas the bad economic policies that led to the Obama recession were policies that Obama had personally championed for years — first as a community organizer, then as a lawyer (using the CRA to sue banks for not making loans to unqualified minority borrowers), then as a big-spending, ultra-liberal U.S. Senator.

    I point this out because it irks me to see the 2008 recession referred to as a disaster that Obama “inherited.” It would be more accurate to say that Obama helped create the disaster, rather than claim that he inherited it from others.

  7. Let’s not forget some were calling for Reagan’s impeachment during the second year of his tough economic medicine ( “if not now, when?”) and the non-stop media critiques.

  8. To be fair to Obama, this recession is a balance sheet recession. They are different and you don’t get out of them as easily.

    Obama went to the Keynesian playbook. And your opinion of how he dealt with it should be based on your opinion of Keynesian economics.

    For me, that’s not much.

  9. Of course Reagan was able to spur growth with hope and change brough about through tax reform and replacing the 70% top bracket. Obama’s hate-based tax proposals only inhibit growth.

  10. What I find ironic is how the left is looking at the numbers and smiling. The first year of the recovery goosed up by almost a trillion dollars in spending achieved a 3% growth rate. That isn’t bad if it had been followed by a second year that was stronger (it happened in the Reagan recovery and even the Bush recovery. It didn’t happen in the Clinton recovery but he raised taxes (which the left gets all swoony about)). The drop in Obama’s recovery is over 40% in the second year. The left is hopeful because jobs increased to 200,000 in December. But earlier in the years Obama had three consequtive months with over 200,000 jobs created and then he dropped back. If I were a democrat I would be holding my breath and crossing my fingers that January’s numbers are better than December’s. If they aren’t I’m figuring Obama will make another pass my bill pilgrimage to the swing states

  11. James P,
    From the onset, your title -Is it unfair to compare the Obama and Reagan economic recoveries? No- seems to be somewhat misleading. There is simply NO Obama recovery, should one take into account this election year’s numbers manipulation by this utterly corrupt administration.
    The “eyes on the prize” for this administration is not the recovery but four more years on power to “get the job done”… permanently.
    Unfortunately, the Republican candidates so far are too busy focusing on tearing one another apart and on supplying their opposition with plenty of ammunition against their nominee in November. With their pathetic actions, the candidates are causing an irreversible damage to their long term GOP relationship and most certainly are assuring the demise of their country.

    The SOTU address was the writing on the wall with bold, red and underlined letters by the puppeteers of this WH occupant. Those who saw it, heard it and understood the severity of it should inform all; those who deliberately or not did not “see” it, will still refuse to understand it at their own peril but it was very clearly spelled out, repeatedly: it was ECONOMIC FAIRNESS!

    What was intentionally never mentioned? The national $16 trillion and growing debt.

    Should Americans decide to vote for four more years of this globalist utopian and totalitarian mentality, they will help the US reach, socioeconomically, the point-of-no-return where America will no longer have a representative/constitutional republic but will be on a steady and rapid path to having the outcome of the former USSR.

    Those who followed the Davos Conference in Europe will certainly and clearly see the similarities and the modus operandi of the global puppeteers. The Bolshevik Revolution agenda is still alive and well. It is now going on world-wide and here in the US without one shot being fired. Welcome to WW III, the perpetual financial world war, where the ultimate casualties are liberty and the human spirit.

    China, the greatest threat to the US, is getting ready. Europe and the US are now “gravely ill” financially and spiritually. The occupants most certainly possess the medicine necessary for their recovery but for a few generations now they have being indoctrinated (brainwashed) to think that they have the wrong medicine.
    What is that medicine? REASON, taken with a full glass of freedom, allegiance to the Constitution, patriotism, accountability, self-reliance, hard work… (add your own), AND the right to vote.

    Nough said

  12. I’m not an American so I’m not that well informed of the Obama administration. I just have one question that I’d like to ask.
    The bail out of failing companies, was that good or bad in your view?

  13. Two other things made Reagans job more difficult than Obamas. He had to contend with both double digit inflation, and double digit interest rates. For Obama, on the other hand, both inflation and interest rates have been very low. The low interest rates should have provided a big stimulus for the economy. That they did not, indicates that Obamas policies must be dragging the economy down even more than is apparent.

  14. LMAO@ the koolaide drinkers.

    Reagan’s recovery included hiring over 1 million government workers, while Obama’s recovery shed government jobs. Lets hire over a million people and put them on the government payrool, and NOT pay for them. Like Reagan did, he just added their pay to the ballooning debt.

    Reagan Grew government and the debt ballooned. GDP growth rate with a ballooning debt, is not a recovery, its just fancy paper shuffling.

    Is it fair to compare recoveries with a top tax rate of over 75%, to a top tax rate when Obama is in office of, MANY times ZERO tax liability for the wealthiest.

    LMAO@ the paper shufflers.

  15. Apples & oranges: The 83 & 08 recessions are completely different. 83′s was a run of the mill inflationary recession easily handled by monetary policy where 3/4 of the county’s population was not already up to their eyeballs in debt and they hadn’t just lost 1/4 to 1/2 of their retirement and real estate wealth over the course of a few weeks. Once inflation & interest rates came back down – thanks to Volker not Reagan – people & businesses began to borrow – banks were actually lending money because the entire banking system had not teetered on the brink of failure- and spend again. Applying Reagan’s strategies in ’09 would have sent the country into a deep depression..btw America’s debt crisis, both personal & government, started with good ‘old Ronnie…..

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