Does the Reagan-era economic recovery demonstrate the superiority
of Keynesian economics?
There's no question that America's recovery from the financial
crisis has been disappointing. In fact, I've been arguing that the
era since 2007 is best viewed as a "depression," an extended period
of economic weakness and high unemployment that, like the Great
Depression of the 1930s, persists despite episodes during which the
economy grows. And Republicans are, of course, trying -- with
considerable success -- to turn this dismal state of affairs to
their political advantage.
They love, in particular, to contrast President Obama's record
with that of Ronald Reagan, who, by this point in his presidency,
was indeed presiding over a strong economic recovery. You might
think that the more relevant comparison is with George W. Bush, who,
at this stage of his administration, was -- unlike Mr. Obama --
still presiding over a large loss in private-sector jobs. And, as
I'll explain shortly, the economic slump Reagan faced was very
different from our current depression, and much easier to deal with.
Still, the Reagan-Obama comparison is revealing in some ways. So
let's look at that comparison, shall we?
For the truth is that on at least one dimension, government
spending, there was a large difference between the two presidencies,
with total government spending adjusted for inflation and population
growth rising much faster under one than under the other. I find it
especially instructive to look at spending levels three years into
each man's administration -- that is, in the first quarter of 1984
in Reagan's case, and in the first quarter of 2012 in Mr. Obama's --
compared with four years earlier, which in each case more or less
corresponds to the start of an economic crisis. Under one president,
real per capita government spending at that point was 14.4 percent
higher than four years previously; under the other, less than half
as much, just 6.4 percent.
O.K., by now many readers have probably figured out the trick
here: Reagan, not Obama, was the big spender. While there was a
brief burst of government spending early in the Obama administration
-- mainly for emergency aid programs like unemployment insurance and
food stamps -- that burst is long past. Indeed, at this point,
government spending is falling fast, with real per capita spending
falling over the past year at a rate not seen since the
demobilization that followed the Korean War. …