US GDP went from 10% of world output to 31% in 20 years?

I haven't checked it but it doesn't sound right.

Here's a question: how well has the Republican Party built of Reagan's legacy?

Whenever it has had the choice, the GOP has entrusted leadership of the Party to members of the Bush family: in 1988, when it could have chosen Bob Dole who had steered Reagan's legislative program through Congress, in 1992 when could have picked representatives of Reagan's religious (Robertson) and far far right (Buchanan) constituency, and in 2000 when it could have gone with John McCain, whose connection with Reagan was much stronger than George W. Bush's was.

Granted that in one of those years (1992) a Bush was the incumbent President. But these are all pretty significant forks in the road, it seems to me, and if we are thinking about Reagan's legacy we must surely wonder whether entrusting it to this modestly talented, ferociously entitled family over and over again was really the best choice Republicans could have made.

This may be debatable, and I may be displaying google/excel brilliance and economic assinity, but,using an excel spreadsheet found at this site:

http://www.eia.doe.gov/emeu/international/other.html#IntlGDP

I get a GDP that hovers around 25% of global GDP from 1980 to 2002. (25.71% in 1980. 26.15% in 2002)

More evidence of that "fork in the road": Reagan apparently played the tax revenue game better, too.
(from NYT via TPM)

GT, Zathras, Appalled Moderate: Ferguson lists his data source (fn. 87 of p. 312 of Colossus) as the World Bank's World Development Indicators.

It seems he used nominal and not PPP adjusted data. But I only found 2002 and not 1980 data. I have a WDI disc here somewhere so I'll try to check.

Still it seems strange. This was not a period of very high growth for the US and major economies, like China's, were growing at multiples of the US. So what explains it? The Soviet economic collapse?

Something seems wrong with Ferguson's data.

Check this:

http://www.worldbank.org/wdr/2000/pdfs/engtable12.pdf

In this table the US GDP % of World GDP went up a few points but not from 10% to 31%.

Dan refers to "two decades of failure" before Reagan came to power. That is very debateable -- the economy remained in good shape till 1968 at least. There was the Cuban Missiles crisis in 1960. There was the great triumph of civil rights legislation. There were the moon landings, certainly a major triumph. Also, I'm not sure why Watergate would be counted as a failure for America. It seems like a resounding success for American democracy .

I agree that the 10 % to 31% number seems way too high. Russian collapse could not explain this since Russia was always a small part of the World economy in any case.

.

I meant 'Cuban missiles crisis in the 1960s', not in 1960

As to the "two decades of failure" phrase, this is a simplification of two different perspectives on failures in America before 1980 that Reagan enabled his supporters to transcend.

There is the Republican perspective, first of all. Reagan was the national Republican figure least affected by the Watergate scandal: a supporter of Nixon's policies, he never served in Nixon's administration, supported Nixon in Congress, nor incurred the wrath of Nixon's considerable constituency by pursuing Congressional investigations into the scandal. In nominating Reagan Republicans put the most politically damaging scandal in modern American history behind them, an absolutely critical step toward restoring the party's morale.

The more general national perspective did have something to do with Vietnam, and Watergate, and the decline of the manufacturing side of the economy that began in the 1970s, and the Iran hostage fiasco. But as Robert Samuelson pointed out in the Washington Post yesterday it had most of all to do with inflation. This affected everyone's lives in unpredictable, therefore unsettling ways, and there wasn't anything government could do about it, or so it seemed in 1979-80. While it is true that Jimmy Carter appointed Paul Volcker to head the Federal Reserve Board in the first place and most major national politicians admired him, only Reagan would have had the nerve to stick by Volcker as he took the country through a punishing recession to squeeze inflation out of the economy.

Once again -- and I apologize for sounding like a one-note Charlie on this point -- the contrast with his successors is stark. The immediate consequences of that recession included massive Republican losses in the 1982 elections. Reagan knew these were possible, even likely, and backed Volcker to the hilt anyway. It is possible to imagine any of his successors blundering away large chunks of his approval ratings and large numbers of his Congressional supporters -- we saw this in 1992 and 1994, and we may be seeing it again this year -- but it's impossible to imagine them doing this deliberately.

Reagan did, and the difference it made to the country's mood to have low-single-digit inflation in the mid-'80s after having experienced double digit inflation just a few years before was dramatic. A sense of possibility, of hope, of "morning in America" is a lot easier to sustain when you know your money is going to be worth in five years something close to what it is worth now. Inflation is a boring, difficult subject, which might explain why it has been comparatively little written about this week, but of all the things Reagan did to dispel America's impression of recent failures breaking the back of inflation was the most significant.

"...if we are thinking about Reagan's legacy we must surely wonder whether entrusting it to this modestly talented, ferociously entitled family over and over again was really the best choice Republicans could have made. "

Well, if you're asking if Bush41 actualy lived up to the conservative roadmaplet's remember, that Bush41 was not a conservative and was placed into the VP slot for precisely that reason. This is normal 'balance the ticket' politics, and there likkely wasn't a great deal of choice there. He certainly held his end up fairly well in terms of competence during his term, but the ideolgy was a bit off Reagans... and thus the dissolutionment with Bush41 in '92.

Bush 43, however, is far closer to Reagan's ideology than Bush 41 ever was... a point which has not been lost on the left, if we take their vitriol as any indication.... the level of which has not been seen since Reagan; they know him to be more of a threat to their power than his father was.

Zathras,

Samuelson's piece was a terrible one.

The idea that only Reagan could have supportd Volcker makes no sense at all. Carter did that BEFORE Reagan became president. And in any case what else could have Reagan done? He had no power to get rid of Volcker.

It certainly was useful that Carter's support for Volcker's policies (announced in October 1979) were continued under the next president. But it was Carter, not Reagan, who initiated the process.

Indeed, I think Reagan's tax cuts made Volcker's job a lot harder (I know Volcker's vice chair, Fred Schultz, has said as much). Increasing aggregate demand exactly when Volcker was trying to crush it? Probably resulted in much higher interest rates than would have been necessary. Or does anyone still believe that tax cuts would boost productivity more than it would boost demand? Dubya sure didn't think so, given that he said his tax cuts would fight a recession caused by excess inventory.

Would've helped a lot more for Reagan to delay his tax cut until after Volcker defeated inflation. Dunno if that was politically feasible, though.

Financially impossible, more likely.

Consider the inflation and unemployment rates; clearly the economy was out of control. Under those conditions, it's like a car on ice. The only way to get a car sliding out of control back under control is to get traction... and the only way to do that is to get the wheels rolling... in ANY direction. Applying power to the wheels to do that is not exactly intuition in motion... but it is the proper thing to do.

But applying the gas (fiscal policy) AND the brakes (monetary policy) at the same time?

No, BH, I was not asking whether the elder Bush lived up to the "conservative road map." I was asking whether choosing to fill Reagan's shoes with a small man unworthy of the Presidency was wise. I would ask the same thing about the small man's small son.

GT, my point was that Reagan backed Volcker up through a deep recession. I doubt Carter had the self-assurance to have done anything of the kind. And I really doubt you will find many past or present members of the Fed who will speak up for a 70% top marginal income tax rate, which is what Reagan determined to cut in 1981, though you could probably find many to object to other tax changes in the '81 bill, many of which originated in Congress and K Street rather than the White House.

So what?

What has that got to do with Samuelson's claim that Reagan cut inflation?

The Fed anti-inflationary policy was put in place during Carter's presidency and by Carter's appointee. Reagan only continued what Carter started. I'm happy he supported Volcker but it would have made no difference in any case. Reagan had no power to change monetary policy.

Do you forget that Carter had to run with a shrinking economy due to Volcker's policies, yet he continued supporting him?

GT, a President who really wanted to could easily make it impossible for a Fed Chairman to carry out an unpopular policy on interest rates. Only be running interference between the Fed and Congress can a President preserve the Fed's independence. The lag between implementation of Fed policy and its immediate effect on the economy meant that the real pain of Volcker's high-interest rate program -- the '81-82 recession -- didn't show up until Reagan's watch. The economic problems that damaged Carter most, especially high inflation, were the problem Volcker and Reagan sought to fix.

In any event you will forgive me if I am not especially charitable to Carter, who has always claimed credit for achievements commonly attributed to Reagan while also claiming full credit for achievements -- like the Israel-Egypt peace treaty and the Panama Canal Treaty -- most of the groundwork for which was laid during the Nixon-Ford period. He could put the finishing touches on other men's work but could do more than claim to begin projects that were mainly products of the next administration.

How could Reagan have stopped Volcker? Bush I was bothered by Greenspan and there was squat he could do. The bottom line is that the Fed is independeent and Volcker, in particular, was an independnt guy. There was nothing Reagan could have done and if he had tried it would have backfired on him.

As for Carter you have no need to feel charitable. This is not about charity. It is about facts. It was Carter, not Reagan that appointed Volcker. It was under Carter, not Reagan , that Volcker began his anti-inflationary policies. It was Carter, not Reagan, that first supported those policies (October 1979).

Samuelson's article is a piece of crap completely at odds with history. Reagan simply continued what Carter started.

No, BH, I was not asking whether the elder Bush lived up to the "conservative road map." I was asking whether choosing to fill Reagan's shoes with a small man unworthy of the Presidency was wise. I would ask the same thing about the small man's small son.

Ah, but you see, following the conservative road map was in my view the mark of a lesser man, and was in fact why he lost the 92 election. As to his son, I've noticed a pattern that I noted since the start of his political career; the liberals under-estimate him at every turn,a dn he keeps winning. Perhaps the assesment of Mr Bush needs some degree of revision, upward.

It was under Carter, not Reagan , that Volcker began his anti-inflationary policies. It was Carter, not Reagan, that first supported those policies (October 1979).

Which wuld explain why the economy was in the shambles it was in in 1980.

Not just 1980.

The anti-inflationary policies led to the worst recession in US history since the Great Depression and it did not start to recover until 1983.

And one of the reasons it was so bad was because the tax cut increased aggregate demand, forcing Volcker to raise rates even more than he would have needed to, worsening the resulting recession.

And one of the reasons it was so bad was because the tax cut increased aggregate demand, forcing Volcker to raise rates even more than he would have needed to, worsening the resulting recession.

So, the tax cuts didn't help? Is that what you're saying?

In terms of fighting inflation, the tax cuts hurt tremendously. You want to reduce demand, not stimulate it.

In terms of growing the economy, it's less clear. But monetary policy has historically always been a lot more effective a tool than fiscal policy, and this was no exception -- the fact that Volcker could cut interest rates to the levels they were before inflation had a much bigger effect on the economy than any tax package could have.

I trackback pinged this post with a more lengthy discussion if you're interested.

In terms of fighting inflation, the tax cuts hurt tremendously. You want to reduce demand, not stimulate it.

Sounds rather Keynesian.

In terms of growing the economy, it's less clear. But monetary policy has historically always been a lot more effective a tool than fiscal policy, and this was no exception -- the fact that Volcker could cut interest rates to the levels they were before inflation had a much bigger effect on the economy than any tax package could have.

But without returning Americans to jobs. we'd ahve heard about the 'jobless recovery' 20 years earlier, had we taken that path.

fling93: In terms of fighting inflation, the tax cuts hurt tremendously. You want to reduce demand, not stimulate it.

Bithead: Sounds rather Keynesian.

I'm no economics expert, but it doesn't sound like you're one either. The statement still works from a monetarist perspective -- a tax cut that is not accompanied by a cut in government spending increases the supply of money and is thus inflationary.

But without returning Americans to jobs. we'd ahve heard about the 'jobless recovery' 20 years earlier, had we taken that path.

This recession and our current "jobless" recovery happened because productivity was too high (excess inventory). You can't have inflation if productivity is too high, because inflation is too many dollars chasing too few goods.