Do not exaggerate Reagan’s feats
Tuesday’s column, “Pay respect to President Reagan,” attempts to portray Ronald Reagan as the champion of a decade of economic growth. The author does this simply by quoting statistics in 1980 and 1988 and attributing all of the nation’s economic growth and its ability to cut inflation to Reagan. But the author clearly has not done his homework — for if he had, he would have seen that Reagan might have done more harm than good.
I want to first look at the nation’s economic growth. The author says Reagan presided over “a spike in gross domestic product from $2.76 trillion in 1980 to $5.04 trillion in 1988.” As all economics students learn in basic “Introduction to Macroeconomics,” nominal GDP is not a good measure across time. If the author had bothered to read even a few chapters of economics, he would have known to look at real GDP, which attempts to normalize changes in the price level over time. We all know a dollar 100 years ago is worth a lot more than a dollar today due to inflation, which makes it difficult to compare GDP in terms of dollars. So what causes increases in real GDP? By definition, increases in real GDP come from real increases in production. Thus, nominal GDP overstates growth in the economy, sometimes by a significant amount.
According the Federal Reserve Economic Database, real GDP in chained 2005 dollars was 5.8 trillion in 1980 and 7.6 trillion in 1988. This amounts to a year on year percentage growth of around 3.5 percent — hardly an economic boom by any means. For perspective, the economy is currently growing around 2 percent, and we’re in the middle of a deep recession.
I would like to add one piece to this analysis in that the choice of 1980 and 1988 by the author is very suspect. Because 1980 was smack dab in the middle of a recession, the author is overstating the growth in the level GDP.
But anyway, what about inflation? Did Reagan actually cut inflation? No, not even close. Remember, correlation does not imply causation. Inflation was actually fought by the Federal Reserve. In particular, Paul Volcker, chairman of the Federal Reserve at the time, led this battle. Volcker’s raising rates slashed inflation by targeting the money supply and slowing its growth. Even better —Jimmy Carter, a Democrat, appointed Volcker.
Finally, let’s talk about the federal debt. Reagan increased the federal deficit by more than 10 percent each year. For perspective, the last quarter, Q2 2011, saw a year on year increase of 8.6 percent.
I honestly feel like the column is purposefully wrong. I sincerely hope that the author takes both an economics course and a history course at some point in his writing tenure. We could all benefit from it.
Todd Messer is a School of Arts and Sciences senior majoring in economics and mathematics.
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