Stone's Blarney

Randall Hoven
If you had a fact-checking computer and you put Geoffrey R. Stone's Huffington Post column, Obama on Republican Economic Policy: "It Doesn't Work" in it, your computer would smoke, sputter and blow up. He makes Paul Krugman and Ezra Klein, the Don Quixote-Sancho Panza duo of post-modern economics, look reality-based. His errors-per-word ratio is off the charts.

Speaking of charts, Stone had four of them. I have four major problems with them: (1) the numbers were seemingly made up, or have been "homogenized" and "adjusted" in ways that Phil Jones and Michael Mann would covet; (2) he shows no data for Obama; (3) the charts are misleading; and (4) he draws the wrong conclusions from them. Other than that ...

My attempts at reproducing these charts are given below. My data sources and methods are described in detail at the end of this article. Also, I include results for President Obama. Feel free to compare these charts to Stone's and to the sources I provide later. I simply do not know where he got his numbers. And he didn't say.


The first thing you might notice, from any and all these charts, is that Obama's record is the worst of them all. Quibble all you like about comparing the other presidents to each other; Obama is in a class of his own - a bad class.

These charts are misleading because they only show specific changes over very discrete periods of time, with no sense of trends. In contrast, look at this spending chart of continuous historical data (which I discussed in an earlier article on historical federal spending).


President Reagan reversed the spending trend. And that reversal coincided almost exactly with his tax cuts taking effect in 1983.

So while his spending numbers might look high as an average taken over very carefully chosen start and end dates, his effect on the overall trend of spending growth should be obvious even to liberal eyeballs. He cut spending. He reversed a bad trend. Liberals are pulling a subtle trick when making static comparisons as Stone did.

Take that as Point 1: The Reagan tax cuts ushered in an 18-year period of declining growth in government spending.

(Speaking of trends, look at the trend in spending when Bill Clinton took over the White House. Clinton simply kept the trend he inherited. Reagan had to bend the upward trend left by Carter to a downward one.)

Now let's look at debt, again as a continuous time history and as a percentage of GDP. Yes, it went up under Reagan and down under Clinton. But do you know another way to look at that? It went up when Democrats controlled the House of Representatives and down when Republicans did. (The blue lines are when Democrats controlled the House and the red line is when Republicans did.)

I'll restate that: Democrats left Newt Gingrich a debt of 49% of GDP, and the GOP left Nancy Pelosi a debt of 36% of GDP. Republicans paid down the debt!

Also, at no time prior to 2009 did the debt exceed 50% of GDP, much less the 60% of GDP the European Maastricht Treaty uses as a threshold (to no effect, apparently).

Only when Nancy Pelosi ran the House, Harry Reid ran the Senate and Barack Obama was President, did we bust through the 60% barrier for the first time since 1952, when we were still paying off World War II debts.

Point 2: Post-1952 federal debt was well within "tolerable" limits (Maastricht Treaty threshold) until Democrats controlled everything in 2009. And ever since Gerald Ford was President, debt grew when Democrats ran congress and shrank when Republicans did.

But let's get to the real issue of Reagan's tax cuts - what Stone calls "trickle down" and what Republicans call letting people keep what they earned. Did they help economic growth? (We already know they ushered in a period of decreasing spending.)

Consider this question: over what 8-year period, starting after 1965, did real GDP grow the most? The answer is the 8-year period ending in the third quarter of 1990. What a coincidence, that 8-year period started in 1982, just when Reagan cut taxes. The average growth in real GDP over those 8 years was 4.1%. (There would be ticker tape parades if we could keep it above 3% for a single year right now.)

I will repeat that: the eight years of greatest economic growth in the last 45 years coincided almost exactly with the eight years following Reagan's tax cuts.

But look at that spending chart above again. The Reagan tax cuts ushered in a two-decade period of declining spending. Federal spending went from 23.5% of GDP in 1983 (first year of full tax cuts) to 18.2% of GDP in 2000 and 2001. That is like a 235 pound man losing 53 pounds.

From the end of 1982 to the end of 2001, real GDP grew 94%, almost doubling. GDP is the measure of all economic output in the country, and real GDP means it accounts for inflation. That was an average growth rate of 3.5% each year for 19 years.

And what about jobs? In that same period, 42 million jobs were created - an average of 2.2 million net new jobs each year for 19 years. (By contrast, 2.7 million jobs have been lost since Obama has been President.)

How liberal do you have to be to think "trickle down" doesn't work? Reagan's tax cuts ushered in almost two decades of healthy growth in economic output and jobs.

Point 3: We enjoyed a nearly two-decade period of healthy, above-average economic growth following the Reagan tax cuts. The best growth in the last 45 years immediately followed those cuts.


There is one more statement that Stone made that needs to be addressed. He said this:

"This chart enables a comparison of average annual increases in the deficit during the administrations of those presidents who embraced conservative economic theory (Reagan, Bush I and Bush II) and those who did not (Carter and Clinton)."

He is saying the Bushes embraced conservative economic theory and Clinton did not. If he means by "embraced" what they said in speeches, he is correct. But what they embraced with actions is an entirely different story.

Here is what Clinton "embraced" with his actions.

  • The conservative policy of free trade. He actively pushed NAFTA and other free trade agreements.
  • The conservative policy of cutting capital gains taxes. He cut the rate from 28% to 20% in 1997.
  • The conservative policy of eliminating welfare.
  • The conservative policy of cutting spending, from over 21% of GDP to 18.2% of GDP, the lowest level since 1966.
  • The conservative policy of balancing the budget and even running a surplus.

I'm sure it was just coincidence, but Clinton was the first President since Coolidge to enjoy six years with both houses of Congress run by Republicans.

Go ahead and give Clinton credit for all this conservative policy. But you have to admit, it was, on balance, conservative economic policy. Please, imitate those policies: cut spending to 1966 levels!


Point 4: The policies enacted during Clinton's presidency were conservative: spending cuts, tax cuts (on balance), ending welfare and free trade.


Put all these four points together, and you have a lesson: the conservative policies of cutting taxes and spending worked - big time. Reagan did it. Clinton did it. Republican Congresses did it. It could be done again.

Obama is not doing it. And that's what we need to fix.

Randall Hoven can be followed on Twitter. His bio and previous writings can be found at randallhoven.com.

 

{Notes on data sources and methods. In the top four charts, each period compares the last year of each president's term to the last year of his predecessor's. For example, the increase under Carter was the increase from 1976 to 1980, under Reagan it was from 1980 to 1988, etc. For Obama it was from 2008 to the most recent data available.


The data source for the first three charts was the White House Office of Management and Budget, specifically Tables 1.3 and 7.1. All "debt" data is "debt held by the public".


In the second chart, change in debt as a percent of GDP was annualized by simply dividing by the number of years that president served, since the value was already a percent. All other annualizations were based on compound growth.


The source for the fourth chart, real GDP, was the St. Louis Fed/FRED, specifically the GDPC96 series. The percentage increase was calculated from 4th quarter to 4th quarter. That is, from the 4th quarter of 1976 to the 4th quarter of 1980, for Carter, etc. The exception was for President Obama: in that case the comparison was from the 4th quarter of 2008 to the 3rd quarter of 2011 - the most recent data available.


The source for the last two charts was, again, OMB, Tables 1.3 and 7.1.


General tip: be very skeptical of comparisons such as percentage increases over specific dates. The dates could be cherry picked, or the results extremely sensitive to the choice of dates. Also, such comparisons give no sense of trends in the data. I recommend looking at continuous time histories, which show all data, as well as trending information, over the period covered.}


 

If you had a fact-checking computer and you put Geoffrey R. Stone's Huffington Post column, Obama on Republican Economic Policy: "It Doesn't Work" in it, your computer would smoke, sputter and blow up. He makes Paul Krugman and Ezra Klein, the Don Quixote-Sancho Panza duo of post-modern economics, look reality-based. His errors-per-word ratio is off the charts.

Speaking of charts, Stone had four of them. I have four major problems with them: (1) the numbers were seemingly made up, or have been "homogenized" and "adjusted" in ways that Phil Jones and Michael Mann would covet; (2) he shows no data for Obama; (3) the charts are misleading; and (4) he draws the wrong conclusions from them. Other than that ...

My attempts at reproducing these charts are given below. My data sources and methods are described in detail at the end of this article. Also, I include results for President Obama. Feel free to compare these charts to Stone's and to the sources I provide later. I simply do not know where he got his numbers. And he didn't say.


The first thing you might notice, from any and all these charts, is that Obama's record is the worst of them all. Quibble all you like about comparing the other presidents to each other; Obama is in a class of his own - a bad class.

These charts are misleading because they only show specific changes over very discrete periods of time, with no sense of trends. In contrast, look at this spending chart of continuous historical data (which I discussed in an earlier article on historical federal spending).


President Reagan reversed the spending trend. And that reversal coincided almost exactly with his tax cuts taking effect in 1983.

So while his spending numbers might look high as an average taken over very carefully chosen start and end dates, his effect on the overall trend of spending growth should be obvious even to liberal eyeballs. He cut spending. He reversed a bad trend. Liberals are pulling a subtle trick when making static comparisons as Stone did.

Take that as Point 1: The Reagan tax cuts ushered in an 18-year period of declining growth in government spending.

(Speaking of trends, look at the trend in spending when Bill Clinton took over the White House. Clinton simply kept the trend he inherited. Reagan had to bend the upward trend left by Carter to a downward one.)

Now let's look at debt, again as a continuous time history and as a percentage of GDP. Yes, it went up under Reagan and down under Clinton. But do you know another way to look at that? It went up when Democrats controlled the House of Representatives and down when Republicans did. (The blue lines are when Democrats controlled the House and the red line is when Republicans did.)

I'll restate that: Democrats left Newt Gingrich a debt of 49% of GDP, and the GOP left Nancy Pelosi a debt of 36% of GDP. Republicans paid down the debt!

Also, at no time prior to 2009 did the debt exceed 50% of GDP, much less the 60% of GDP the European Maastricht Treaty uses as a threshold (to no effect, apparently).

Only when Nancy Pelosi ran the House, Harry Reid ran the Senate and Barack Obama was President, did we bust through the 60% barrier for the first time since 1952, when we were still paying off World War II debts.

Point 2: Post-1952 federal debt was well within "tolerable" limits (Maastricht Treaty threshold) until Democrats controlled everything in 2009. And ever since Gerald Ford was President, debt grew when Democrats ran congress and shrank when Republicans did.

But let's get to the real issue of Reagan's tax cuts - what Stone calls "trickle down" and what Republicans call letting people keep what they earned. Did they help economic growth? (We already know they ushered in a period of decreasing spending.)

Consider this question: over what 8-year period, starting after 1965, did real GDP grow the most? The answer is the 8-year period ending in the third quarter of 1990. What a coincidence, that 8-year period started in 1982, just when Reagan cut taxes. The average growth in real GDP over those 8 years was 4.1%. (There would be ticker tape parades if we could keep it above 3% for a single year right now.)

I will repeat that: the eight years of greatest economic growth in the last 45 years coincided almost exactly with the eight years following Reagan's tax cuts.

But look at that spending chart above again. The Reagan tax cuts ushered in a two-decade period of declining spending. Federal spending went from 23.5% of GDP in 1983 (first year of full tax cuts) to 18.2% of GDP in 2000 and 2001. That is like a 235 pound man losing 53 pounds.

From the end of 1982 to the end of 2001, real GDP grew 94%, almost doubling. GDP is the measure of all economic output in the country, and real GDP means it accounts for inflation. That was an average growth rate of 3.5% each year for 19 years.

And what about jobs? In that same period, 42 million jobs were created - an average of 2.2 million net new jobs each year for 19 years. (By contrast, 2.7 million jobs have been lost since Obama has been President.)

How liberal do you have to be to think "trickle down" doesn't work? Reagan's tax cuts ushered in almost two decades of healthy growth in economic output and jobs.

Point 3: We enjoyed a nearly two-decade period of healthy, above-average economic growth following the Reagan tax cuts. The best growth in the last 45 years immediately followed those cuts.


There is one more statement that Stone made that needs to be addressed. He said this:

"This chart enables a comparison of average annual increases in the deficit during the administrations of those presidents who embraced conservative economic theory (Reagan, Bush I and Bush II) and those who did not (Carter and Clinton)."

He is saying the Bushes embraced conservative economic theory and Clinton did not. If he means by "embraced" what they said in speeches, he is correct. But what they embraced with actions is an entirely different story.

Here is what Clinton "embraced" with his actions.

  • The conservative policy of free trade. He actively pushed NAFTA and other free trade agreements.
  • The conservative policy of cutting capital gains taxes. He cut the rate from 28% to 20% in 1997.
  • The conservative policy of eliminating welfare.
  • The conservative policy of cutting spending, from over 21% of GDP to 18.2% of GDP, the lowest level since 1966.
  • The conservative policy of balancing the budget and even running a surplus.

I'm sure it was just coincidence, but Clinton was the first President since Coolidge to enjoy six years with both houses of Congress run by Republicans.

Go ahead and give Clinton credit for all this conservative policy. But you have to admit, it was, on balance, conservative economic policy. Please, imitate those policies: cut spending to 1966 levels!


Point 4: The policies enacted during Clinton's presidency were conservative: spending cuts, tax cuts (on balance), ending welfare and free trade.


Put all these four points together, and you have a lesson: the conservative policies of cutting taxes and spending worked - big time. Reagan did it. Clinton did it. Republican Congresses did it. It could be done again.

Obama is not doing it. And that's what we need to fix.

Randall Hoven can be followed on Twitter. His bio and previous writings can be found at randallhoven.com.

 

{Notes on data sources and methods. In the top four charts, each period compares the last year of each president's term to the last year of his predecessor's. For example, the increase under Carter was the increase from 1976 to 1980, under Reagan it was from 1980 to 1988, etc. For Obama it was from 2008 to the most recent data available.


The data source for the first three charts was the White House Office of Management and Budget, specifically Tables 1.3 and 7.1. All "debt" data is "debt held by the public".


In the second chart, change in debt as a percent of GDP was annualized by simply dividing by the number of years that president served, since the value was already a percent. All other annualizations were based on compound growth.


The source for the fourth chart, real GDP, was the St. Louis Fed/FRED, specifically the GDPC96 series. The percentage increase was calculated from 4th quarter to 4th quarter. That is, from the 4th quarter of 1976 to the 4th quarter of 1980, for Carter, etc. The exception was for President Obama: in that case the comparison was from the 4th quarter of 2008 to the 3rd quarter of 2011 - the most recent data available.


The source for the last two charts was, again, OMB, Tables 1.3 and 7.1.


General tip: be very skeptical of comparisons such as percentage increases over specific dates. The dates could be cherry picked, or the results extremely sensitive to the choice of dates. Also, such comparisons give no sense of trends in the data. I recommend looking at continuous time histories, which show all data, as well as trending information, over the period covered.}