Wampum

Ranking the Reagan Economy

Last weekend, while half listening to cable coverage of the death of Ronald Reagan, I half heard someone refer to the remarkable performance of the economy under Reagan.

How remarkable was the performance of the economy in the Reagan years? How would one go about seeing if it was truly remarkable?

After mulling the latter question over for a while, I decided that the performance of the economy under President Reagan should be compared to other successful presidents.

In my lifetime, five presidents have been reelected. Those presidents are Eisenhower, Johnson, Nixon, Reagan and Clinton. That gives us five eight-year periods to examine. How should they be examined?

One of the many ways in which Presidents impact economic performance is through the submission of a federal budget. When judging the economic performance under a president, it makes sense (at least to me) to consider those years in which the Federal government operates under the budget submitted by that president. For instance, FY 2001 was not a particularly good year for economic performance. Bill Clinton was president for three and half months of that year while George W. Bush was president for eight and half months. Nonetheless, it seems fair to assess credit or blame for that period to Bill Clinton as the government was (pretty much) operating under the budget he submitted while the Bushies were trying to learn how to use the White House phone system to make a three-way call.

Thus, for the purpose of ranking the economic performance under each of the five presidents, I have altered the presidential terms to coincide with the fiscal years in which their budgets were operational.

Thus, the five separate eight-year “presidential terms” I will be examining are as follows:

Eisenhower FY 1954-FY 1961

Kennedy/Johnson FY 1962-FY 1969

Nixon/Ford FY 1970-FY 1977

Reagan FY 1982-FY 1989

Clinton FY 1994-FY 2001

Next, I had to decide on the measures of economic performance to apply. There are any number of measures of economic performance that could have been included. In the interest of simplicity, I chose four. Those are economic growth (real GDP growth), inflation (the rise in the CPI), unemployment (the reported rate of unemployment) and fiscal responsibility (the federal budget deficit as a percentage of GDP).

You may feel that those are the wrong measures or that additional factors should be included. If so, you might be right. If you think that other measures should be included, leave a comment or drop me a line and I will consider adding them.

After deciding on the four measures, I compared the performance of each of the presidential terms on each of those measures and ranked each term under each measure. Here are the results:

Economic Growth

I used an easy method to rank the administrations on economic growth. I located GDP from the year before each president submitted his first budget and used that as the baseline. I then took GDP for the year of the last budget submitted by that president, subtracted the two and calculated the percentage increase from the baseline number. I got my data from the Bureau of Economic Analysis’s Table 1.1.6, Real Gross Domestic Product Chained Dollars, here. The use of chained 2000 dollars corrects for inflation without the need for me to do so.

For example, I found that in GDP in FY 1953, the year before Eisenhower’s first budget, was $2.08 trillion in chained 2000 dollars. GDP in FY 1961, Eisenhower’s last budget, was $2.56 trillion. That represents a 23% increase over the eight year period. Ike is therefore credited with economic growth of 23% over his term.

When performing similar calculations for each of the five “presidential terms” and ranking the results from fastest growth to slowest, I found the following:

1) Kennedy/Johnson 47%

2) Reagan 32%

3) Clinton 31%

4) Nixon/Ford 26%

5) Eisenhower 23%.

Inflation

For inflation, I used a CPI inflation calculator located here. I used the year before the first budget submitted in each presidential term as the baseline and used the year of the last budget submitted in each “term” as the end point. I then asked the calculator to tell me cumulative effects of inflation over that period. The ranked results are as follows:

1) Eisenhower 13.1%

2) Clinton 22.6%

3) Kennedy/ Johnson 22.7%

4) Reagan 36%

5) Nixon/Ford 65%.

Unemployment

I was unsure how to measure unemployment. If times are sufficiently hard to discourage people from looking for work, there may be many people who would prefer to work but who are no longer actively seeking employment. Those people do not show up in the official unemployment statistics. Not knowing how to account for that phenomenon, I decided to take the reported unemployment rate for each year of a “presidential term” and sum the percentages. I got my data from BLS here.

For example, the eight years of the Eisenhower term, 1954-1961, had unemployment rates of 5.5%, 4.4%, 4.1%, 4.3%, 6.8%, 5.5%, 5.5%, and 6.7%, respectively. Those rates sum to 42.8 and Ike was assigned a 42.8 unemployment rating. When I completed the same calculation for all “terms” I had the following ranked order:

1) Kennedy/Johnson 35.6

2) Clinton 39.4

3) Eisenhower 42.8

4) Nixon/Ford 51.6

5) Reagan 58.0

Budget Deficits

The proper method of assessing budget deficits is as a percentage of GDP. To do so over an entire term, I summed the GDP for each of the eight years. I then summed the budget deficits (or surpluses) and calculated the total deficit as a percentage of the total GDP. I got the GDP numbers from BEA Table 1.1.5 here. I got budget deficit number for 1962 forward from CBO here. The Eisenhower budget deficit numbers I got from OMB here (pdf).

The ranked order of “presidential terms” for budget deficits (or a surplus in the case of Clinton) are as follows:

1) Clinton + 0.01%

2) Eisenhower – 0.4%%

3) Kennedy/Johnson -0.8%

4) Nixon/Ford -2.1%

5) Reagan -4.7%

Eisenhower ranked first in fighting inflation, second in budget deficits, third in unemployment and fifth in economic growth.

Kennedy/Johnson ranked first in economic growth, first in unemployment, third in inflation, and third in budget deficits.

Nixon/Ford ranked fourth in economic growth, unemployment, and budget deficits. Nixon/Ford ranked last in inflation.

Reagan ranked second in economic growth, fourth in inflation, and fifth in both unemployment and budget deficits.

Clinton ranked first in budget deficits, second in unemployment, second in inflation, and third in economic growth.

The above rankings should be handled with care for a number of reasons. First of all, since I looked only at reelected Presidents, it is a pretty tough field. Second, small differences are probably meaningless. Third, the four categories are not the only ones that matter.

Fourth, the rankings should be viewed in context. For instance, the economy is likely to grow faster in the period immediately following a recession than in the middle to the end of the business cycle. Similarly, if a president inherits a large number of unemployed, it may take a while to whittle that number down. It is also the case that policies that can make the economy look good in the short run can have adverse effects in the long run. Finally, the American economy changes over time and the economy of the Eisenhower era is far different than the economy forty years later.

That said, assuming I got the numbers right, the rankings describe what happened. They do not purport to show why things happened. The beginning of understanding is to know what happened. We can discuss the whys some other time.

Posted by Dwight Meredith at June 8, 2004 01:11 PM | TrackBack