CoRev sends a link to this commentary by Richard W. Rahn in the Washington Times. The whole thing is a mess – what would you expect, it came out in the Washington Times?
Early on, Rahn states:
The U.S. economy performed very well during both the Clinton and Reagan years. In fact, total economic growth was almost identical, averaging about 4 percent per year, with Reagan edging out Mr. Clinton by less than 1 percentage point for the total eight-year period. (Note: all the data in the accompanying table and in this commentary are derived from official U.S. government sources.) Actually, Mr. Clinton partially adopted Reagan’s policies — remember his State of the Union address in which he said: “The era of big government is over” and where he partially reversed his 1993 tax increase by cutting the capital-gains tax in 1996.
Now, the accompanying table doesn’t appear on-line, so I went looking for the data. I’m not sure what data he used, but I figure “economic growth” could mean the annualized change in GDP, real GDP, GDP per capita, or real GDP per capita. The graph below shows the annualized change in these four series.
I can’t for the life of me figure out what I can do to arrive at the conclusion that “total economic growth was almost identical, averaging about 4 percent per year, with Reagan edging out Mr. Clinton by less than 1 percentage point for the total eight-year period.” What I can say is that Reagan produced faster nominal growth, Clinton did better if you take into account inflation. But I’ve included the data, and links to the Bureau of Economic Analysis websites from where I pulled the data, here, made available through Google Docs. Feel free to try it yourself.
Rahn goes on…
Employment growth was very strong during both the Reagan and Clinton years, but in terms of percentage change in the total number of jobs, Reagan beat out Mr. Clinton by 3 points. (Total jobs increased slightly more under Mr. Clinton, but the size of the work force and population was sufficiently larger to make his performance a bit less impressive than Reagan’s).
I would note… if you look at the employment to population ratio, which I guess is the way to account for “size of the work force and population,” you find that yes, Reagan did marginally better than Clinton. Carter did better than both of them by this measure, and it wasn’t even close.
More from Rahn…
It is important to note that despite the very big swings in marginal tax rates during the last quarter-century, federal tax revenues as a percentage of GDP have varied relatively little. This shows that people substantially change their behavior in response to changes in tax rates — which is bad news for those who hope to get more revenue from tax rate increases, and good news for those who favor tax rate cuts.
Actually, what it shows is what anyone who looks at IRS data knows – the percentage of your income you pay in taxes is not your marginal tax rate. Nowhere close, in fact. As the table shows, in 2000, total income tax as a percentage of personal income reached its highest point ever in the year 2000… at 11.6%.
The irony for Mr. Clinton is that the data show that he almost certainly would have achieved an economy that outperformed Reagan if only he had not raised income tax rates in his first term. He was too much a prisoner of left-wing orthodoxy to follow the empirical evidence of Reagan’s success.
One thing Rahn does not look is the change in the national debt. Mr. Rahn apparently is unaware that government spending is a component of GDP. This means that a president can boost GDP a lot… by borrowing huge sums and spending them. But since incurring debt means taking on obligations to make interest and principal payments in the future, boosting growth this way is a way of increasing growth now at the expense of lower growth in the future.
So… Reagan’s growth rates came at the expense of growth under GHW Bush, Clinton, GW Bush, and GW’s successor… Think 30 year bonds, and think rolling them over. (Of course, GHW and GW Bush also increased the debt so don’t cry for them.) But that means that Rahn is right… Clinton could have increased growth rates in the short run by pulling a Reagan… and imagine what growth rates would look like now.