Pop Quiz: Under Reagan, What Was Peak Unemployment, How Long Before It Began Declining?

Buddy, can you spare a credit default option?

Class, come to order. Yesterday, we discussed the dismal unemployment numbers, and what those numbers translated into when put in terms of real human lives. For politicians to wish these figures to get worse so as to bring down the party in power--well, that is not serving the people is it?

But, there is another part to this story, and that is whether, if we had followed a radically different prescription, everything would be so much better.

OK, class, to get at this, we are going to have a pop quiz today, but this should be an easy one, so stop that whining or Phil Gramm will teach this course, you should all get 100%. Why? Because every week or so, the peculiarly tanned John Boehner--loved by his colleagues for providing them Tobacco Industry lobbying checks on the House Floor, so you know, if you like lung cancer, you can love him too, besides he looks so totally hip with that, that, whatever that tan is--pronounces the Obama stimulus plan a failure, pointing to the unemployment numbers. He usually proceeds to contrast this dismal picture with the nirvana brought about by the Reagan tax cuts.

Certainly, as good students of history, you recognize that Reagan did not inherit the worst financial crisis since the Great Depression. Nor did he inherit two wars, nor the collapse of the automobile industry, nor 8 years of budget profligacy, nor the radical right wing championing (and avoiding service in) another war or two or three. The retirement of the baby-boomers was 25 years in the future, not already ongoing and accelerating.

And, of course, you don't need little Johnny Boehner to tell you that tax rates, even for the wealthiest Americans, are now already 14% lower than Reagan's 1981 tax cut, nor that 95% of Americans received a tax cut in the Obama stimulus, nor that tax rates will still be 10.5% lower for the wealthiest when Obama allows the George W tax cuts to expire, nor that those cuts were intended to expire for the simple reason that they were projected then to cause to big a hole in the deficit.

But this, of course, begs the question as to what the Reagan tax cuts, such as they were, actually did achieve. At the same point in Reagan's Presidency as we are now at in Obama's, what was unemployment, and how long before it began to decline?

Class, I am shocked, shocked, that no one is raising his right hand. So, I'll tell you. Reagan inherited an unemployment rate of 7.6%, no wars, no major financial crisis, a still robust auto industry, a right wing clamoring for increased defense spending (that helps domestic employment), no retiring baby boomers actually taking down social security funds.

To answer the pop quiz: the unemployment rate under Reagan went from 7.6% to 9.7-9.8% in the summer after his inaugural, and remained at that level for two years, before it began to decline in the summer of 1983. In "Obama-time", that would be the equivalent of the summer of 2011. Moreover, the economy did not begin improving until the Spring, 1983, in "Obama-time" that is Spring, 2011.

There are those (your teacher included) who have difficulty separating the effects of the Reagan tax cuts from pure old Keynesian pump-priming deficit spending that accompanied these Reagan tax cuts. And, lest Republicans whine that Reagan had a Democratic Congress, remind them that Reagan himself never even submitted a balanced budget!

Surprise question for extra credit: what was Reagan's approval rating in January, 1983, two years into his Presidency? Again, no one raising their right hand except Dickie Cheney and OJ? OK, the correct answer: 35%--an approval rating only Dick Cheney and OJ Simpson would cheer.

Last question for extra credit: what was the unemployment rate when Reagan left office? C'mon boys and girls, you can get this one. Ah, now the right hands go up, but wait, wait, keep them up, it's not SO bad... Here's a hint: the "Reagan revolution" dropped unemployment by 2.1% from start to finish--that's right, you've got it, it was 5.5% when Reagan left office. (Ok, Ok, I know, the first George Bush reversed that too, but, hey, he was only Reagan's heir at the time, we did not yet have the pleasure of knowing him as George W's father, and George W showed us what a real Reagan revolution could mean).

The human brain has a wonderful (and necessary) ability to compress the past. Today, we are suffering daily the nearly 1-in-10 people unemployed (and, yes, these are comparable numbers, and the real numbers (perhaps 1-in-7 unemployed) were also elevated in Reagan's day. That period, nearly 30 years ago, is ancient history.

So, as a public service, so we can understand better what it was like then, your assignment, class, is to spell out the months of rising and non-declining unemployment under the Reagan nirvana the Republicans want us all to remember and revere:

1981: February-March-April-May-June-July-August-September-October-November*-December (yep, Xmas itself)-1982: January-February-March-April-May-June-July-August-September-October-November (Congressional elections!)-December-1983: January-February-March-April-May-June-July.
(*The equivalent to where we are in the Obama Presidency).

That's it. Class dismissed. You may now go to your homes, communities, campuses, radio stations, TV-strategists, and then next time someone critiques the Obama stimulus plan by contrasting it to Reagan's--tell them you ain't buyin' their nonsense, you just aced a pop quiz on the subject.

[Oh, one more thing as you are leaving. The banks under Reagan were still governed by Glass-Steagall that prevented overly risky activities that could bring down the entire economy. Today, there is no Glass-Steagall, and the banks have too much economic and political power. So, go to www.breakupthebigbanks.com, and sign the petition if you really want to regain your economic security..and you can tell Mommy and Daddy that teacher suggested you do it, and they do it too!].

Comments

[beachmande]

I'm confused by the 9.7% - 9.8% figures as the highs in unemployment under Reagan. According to the Bureau of Labor Statistics web site (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LNS14000000, change the dates from 1999 to 2009 to 1976 to 2009), unemployment under Reagan started at 7.5% in January 1981 and reached 10.8% in November 1982 before starting to decline in 1983 to an eventual rate of 5.3%. It dropped to 5.0% under the first Bush in March 1989. That remained the lowest rate until unemployment dropped under Clinton to 3.8% in April 2000.

[bannorhill]

Reagan inherited a 20% prime interest rate. Almost the highest rate ever. That rate smothered investment and killed the economy.

Obama inherited a prime interest rate of 3.25%. The lowest in over 50 years.

Both Presidents inherited almost exactly the same unemployment rates. Both Presidents inherited car companies on the rocks (how soon we forget Lee Iacocca).

In short both Presidents faced challenges to get the economy moving, except Reagan had to work with a Congress controlled by the opposition.

[BocaMom]

Please don't compare to Obama to Reagan. Or we will lose the 2010 and 2012 election!

[cupcake65]

And what was it from 1933 through 1939 under FDR - who tried to bring this country to Fascism eve more than Wilson?

[Paul Abrams - Huffpost Blogger]

is your comment an attempt at a joke? FDR bring the nation to fascism?!--FDR struggled to get the country to fight and defeat fascism.
Or, perhaps you have a different defintion of fascism...

[cupcake65]

No - my definition is pretty much the standard I learned in college. Fascism, a.k.a. "corporatism", is a system of state control of production and wealth where profits are shared by the corporate ownership and the ruling class while losses are passed on to the people. It's an offshoot of the Left (Mussolini was a Communist before he created "national socialism") and operates on the principal that the State knows best. That about the same as yours? As for FDR - the man was a Wilsonian Progressive who envied Joe Stalin, Mussolini and Hitler for their complete control of everything and thus their ability to shape their countries any way they wanted. FDR repeatedly tried to do the same thing here, but that pesky Constitution kept getting in his way. His programs extended the Depression for 6 years beyond what it would have lasted if he'd done nothing. Between him and Hoover (another Wilsonian Progressive it's a wonder that it didn't last longer. Thank god for WWII, eh? You need to update your data base.

[Kate Baker]

Good fodder for future arguments I am anticipating. But check facts on "robust auto industry". The industry was at a low point in 1981, factories closed, lots full of unsold cars, lights off in Detroit.

[Paul Abrams - Huffpost Blogger]

you are correct. compared to today it was robust, but it was economically on the ropes.

[cupcake65]

We won't have to worry about that happening again, will we? I mean, Chrysler and GM are owned by the the federal government and the UAW. What could possibly go wrong?

[EbonBear]

I'm afraid that, in attempting to correct the record on Reagan's mediocre at best presidency, you are struggling against twenty years of organised and very well funded legend building. The right are now roughly a single step from outright idolotry with regard to Reagan and they neither listen to nor care about facts.

[missouriwatcher]

I know that my landscaping job lost in Reagan's recession NEVER came back, and it was many years of looking for gainful employment and a lot more education before I got anything worth bragging about. What I remember the loudest, though, was Mr. Reagan saying that NO American jobs would be lost under his policy--a downright lie, since the USAID was busy giving American jobs to 3rd world countries at the same time.

[BKFactor]

While I was in Cleveland, I worked for a non profit. Six or seven months after Reagan came into power, I lost my job. Thereafter, there was a job freeze for about 4 years. I couldn't stand the man.

[countfloyd]

The first Reagan tax increase came in 1982. By then it was clear that the budget projections used to justify the 1981 tax cut were wildly optimistic. In response, Mr. Reagan agreed to a sharp rollback of corporate tax cuts, and a smaller rollback of individual income tax cuts. Over all, the 1982 tax increase undid about a third of the 1981 cut; as a share of G.D.P., the increase was substantially larger than Mr. Clinton's 1993 tax increase.

In 1983, Reagan signed legislation raising the Social Security tax rate. This is a tax increase that lives with us still, since it initiated automatic increases in the taxable wage base. As a consequence, those with moderately high earnings see their payroll taxes rise every single year.

In 1984, Reagan signed another big tax increase in the Deficit Reduction Act. This raised taxes by $18 billion per year or 0.4 percent of GDP.

The Consolidated Omnibus Budget Reconciliation Act of 1985 raised taxes yet again. Even the Tax Reform Act of 1986, which was designed to be revenue-neutral, contained a net tax increase in its first 2 years. And the Omnibus Budget Reconciliation Act of 1987 raised taxes still more.

[FarOutFish]

During the Reagan administration Income Tax revenue went from 550-Billion Dollars per year to just under a Trillion. The Leafier curve worked.

The Deficient Reduction Act came about because of a deal between the President and Tip O’Neil. O’Neil promised to cut spending by two dollars for every dollar brought in by the tax increase. Unfortunately the Speaker reneged on the deal, instead of cutting spending the Democrat controlled Congress kept on spending like a drunken sailor.

[pharm]

The Democrat controlled Congress passed budgets that were smaller than Reagan asked for EVERY year. Wake up!

[FarOutFish]

What is missing in this article is a historical perceptive. Mr. Reagan became President at the end of the 1970-1982 recession. Remember “Stagflation”, the Prime Rate at 21 percent, Inflation and Unemployment at 14 percent?

No one seemed to have an answer to the worst economy since the Great Depression. President Nixon tried wage and price controls, Mr. Ford the ludicrous WIN (Whip Inflation Now) buttons and President Carter’s “Malaise” speech that seemed to have no solution at all.

Reagan assumed the Presidency with a cheerful optimism that bolstered a nation that was down in the dumps. His tax cuts and the Feds Paul Volker’s raising interest rates to curb inflation were the start of an unprecedented period of economic growth.

[LawTalkingGuy]

It wasn't unprecedented. The stability and growth America enjoyed from 1950-1070 was better from almost every perspective. The 'unprecedented economic growth' you brag about was enjoyed mostly by wall street bankers (remember the movie?) and that bubble burst less than three years after Reagan's term... i don't think there is any basis to call 7 years of economic health 'unprecedented prosperity'.

Reagan also implemented tremendous spending on public works, and there is every reason to believe it was this spending that helped America regain prosperity, not the tax cuts at all. His initial 1981 tax cuts did not turn the economy around (you yourself indicate the recession continued another two years). Those cuts were substantially rolled back over his two terms, and yet the prosperity continued. This must be totally shocking... except to anyone who realizes that tax cuts are not the solution to every economic problem.

You're wrong both about the degree of success he enjoyed and the reasons for it. Whether in history or economics, I think you need to go back to class.

[Romeover]

If you think Reagan was so good for the economy, then why was he so bad for working people? Check out:

http://www.bsos.umd.edu/socy/vanneman/socy441/trends/earnings.html

[RTIII]

What our teacher missed is that it was Reagan, as chief executive, directed that the way we count the unemployed be changed. The new way to measure, of course, lowered the number of unemployed, though of course, the real number remained unchanged. All measurements since are incomparable to preceding numbers - or, to be more precise, incomparable without some mathematical tricks that are vital to getting it right and which result in approximations instead of direct comparison.

NOTE ALSO that other administrations since have changed the counting of unemployed further still. To really do it right would take someone parsing the exact changes very carefully. ...I wouldn't dare the attempt, but I'd bet Robert Reisch (sp?) could do it in his sleep.....
.

[Paul Abrams - Huffpost Blogger]

No, I didn't miss it.
Note the paragraph that indicates the real unemployment rates then and now. That addresses what you refer to.

[cb750]

>>95% of Americans received a tax cut in the Obama stimulus

[cupcake65]

I can't wait for mine to kick in!

[drkazmd65]

My Dad was among the 7-9% Unemployed / Underemployed from 1981-1983. Just about the time I was finishing High School.

I distinctly remember Mom & Dad cashing out a buttload of old Savings Binds they inherited from Mom's Dad (some WWII war bonds included), borrowing against Dad's life insurance policy, and borrowing more cash from Mom's Mom durin that period. We qualified for the Government rubber cheese, and I and my brothers had subsidized school lunches for at leat part of the time I was in High School.

I and my older brother had paper routes & part-time jobs to help cover expenses. Second-hand clothes were not uncommon. My parents never owned a 'new' car until they bought their Saturn in 1992.

I don't remember the Reagan era as being particularly a good time. Too bad so many of 'us' have such short memories. Give the President some time folks - he inherited a sh*tstorm.

[Philip N. Cohen - Huffpost Blogger]

How about a moratorium on welfare term limits as part of the recovery plan? I'm worried about those on TANF trying to compete from the tail end of the job queue as employment lags. (see http://www.familyinequality.com).

[FearlessFreep]

Welfare reform stinks.

[RTIII]

Philip,

I really had to think about this hard before I understood you. ...Some of us don't know so much about welfare - I gather "term limits" are a way that the Rs kept people from collecting more than a certain amount of time? If so, I agree with you.

I'm not sure what TANF means - care to elaborate?

Tnx.
.

[RTIII]

Thanks for responding.
.

[Philip N. Cohen - Huffpost Blogger]

Sorry - didn't mean to hijack the thread. TANF is Temporary Assistance to Needy Families, which is "welfare," since it replaced Aid to Families with Dependent Children (AFDC) in 1996. It was a Clinton-signed welfare reform, which eliminated welfare as an entitlement based on income and other criteria and instead gave block grants to states to administer, with limits, the worst of which were term limits - two consecutive years, or five lifetime years on the program. In the late 1990s lots of people got off welfare, which was good, mostly because of the good labor market. With the recession, for the first time the numbers on welfare are going back up, and they are going to start hitting the two-year limit before the unemployment rate falls again, so they'll be up against a lot of more experienced job seekers. I wrote about this all here: http://www.huffingtonpost.com/philip-n-cohen/welfare-rolls-in-first-up_b_162745.html.

[lgillooly]

It's a shame the "Liberal Media" doesn't know this. Maybe you could let a few "journalists" in on some facts.

[Nick Stallard]

Great piece, winter is here maybe I need some of that facial bronze r too, but its not the drugstore brand for an aw shucks GOP'er. Probably from a boutique just like his farmer friends, NOT!