Carter ruined the economy; Reagan saved it

[angryfirelord]

Myth: Carter ruined the economy; Reagan saved it.

Fact: The Federal Reserve Board was responsible for the events of the late 70s and 80s.

Summary

Carter cannot be blamed for the double-digit inflation that peaked on his watch, because inflation started growing in 1965 and snowballed for the next 15 years. To battle inflation, Carter appointed Paul Volcker as Chairman of the Federal Reserve Board, who defeated it by putting the nation through an intentional recession. Once the threat of inflation abated in late 1982, Volcker cut interest rates and flooded the economy with money, fueling an expansion that lasted seven years. Neither Carter nor Reagan had much to do with the economic events that occurred during their terms.

......................................................................................................

According to conservatives, increasing taxation and regulation under Carter stifled the economy. Reagan's 1981 budget (the only one not to be declared "Dead on Arrival" by House Democrats) contained across-the-board, supply-side tax cuts that allowed entrepreneurs to invest and increase productivity. Reagan also slashed regulations, unshackling the entrepreneurial spirit of American business.

There are several problems with this historical spin. First, total federal taxation under Carter rose by an insignificant 1.7 percent of the Gross Domestic Product:

Federal tax receipts and spending (percent of GDP) (2)

Year Receipts Spending
-------------------------
Carter
1978 18.5% 21.3%
1979 19.1 20.7
1980 19.6 22.3
1981 20.2 22.9

Reagan
1982 19.8 23.9
1983 18.1 24.4
1984 18.0 23.1
1985 18.5 23.9
1986 18.2 23.5
1987 19.2 22.5
1988 18.9 22.1
1989 19.2 22.1

To claim that such a minor increase could produce crippling stagflation is to ascribe to the economy an extraordinary sensitivity to taxation. Although many conservative laymen would gladly accept such a notion, it is not one entertained by serious economists. West Germany in the 1980s, for example, had a total taxation rate of 39 percent of its GDP (compared to 29 percent of combined government taxes for the U.S.), and during that decade Germany was an economic powerhouse. If even a few percentage points are the difference between Carter's stagflation and Reagan's boom years, then by all rights West Germany should have been dead.

With the tea parties and the coffee parties and the drink-of-the-day parties, one of the main sources of confusion during this era of grassroots movements is our understanding of economic history. This article is pretty good because it finally puts to rest the myth that a highly curved progressive tax is what caused our pain in the 70s.

http://www.huppi.com/kangaroo/L-carterreagan.htm

[DesertRat]

1. I think you should edit the title of the post, adding the word MYTH

[Cirque du So-What]

2. Dismantling the Potemkin Village that is Ronnie Raygun's image

one flimsy clapboard sheet at a time. My goal: to debunk the lies and to tear down the cult of personality surrounding Ronnie Raygun to the point that people will reflexively spit at the ground whenever his despised name is mentioned in polite company.

[hlthe2b]

3. Self delete (OP needs to correct the title in subject line)

[Laura902]

4. good article. I would add "myth" to the title though n/t

[Warpy]

5. The problem with the progressive tax in the 70s was "bracket creep,"

meaning that during the OPEC fueled inflation (that Nixon and Ford refused to deal with), people saw their tax brackets climbing year after year while their wages failed to keep up with inflation. They were being hit two ways, their disposable income reduced by inflation and depressed wages and subjected to a higher tax rate. That's why people were so outraged about the progressive tax. Tying it to the median wage would have made more sense, but Reagan preferred to give a tax bonanza to his rich cronies.

The tax bonanza to the rich has not done a single thing the Republicans promised, but people are not yet willing to tax the bastards into cardboard condos under bridges. It's going to take a lot more $14,000 shower curtain outrages for that to happen.

We need to do it right the next time, if we get the chance, and tie the progressive tax to the median wage, to be determined yearly during periods of stability and quarterly during periods of instability.

[rurallib]

6. Please change the title and add myth: Total article is good

and also shows that Nixon and Johnson helped fire the inflation.
Let me add that Carter tried to address one of the causes of inflation - the fact that we depend on foreign oil. Carter laid out a plan to attack this problem and Reagan immediately dismantled it.

[Kalun D]

7. Please Credit the Source

This is from Steve Kangas's "Liberalism Resurgent" who was killed, some think by Richard Mellon Skaife.

[patrice]

8. K & R - THIS is why I hang around DU.

:hi: Thanks!

[SPedigrees]

9. Here's a graph of how dems vs repubs handled the economy over time.

I drew this up before Bushco drove the deficit below the sub-basement, but it amply shows disparity in the state of the economy under Carter vs Reagan.

[SlingBlade]

10. K & R

[Turbineguy]

11. Progressives ruin everything

conservatives save it. That's the mantra. Mantra trumps facts.

[Birthmark]

12. Good post.

Another thing Carter gets tagged with is "high unemployment." This too is largely myth. The U-3 unemployment rate was 7.5% when Carter took office and when he left. In this case, that's quite an achievement considering the huge numbers of baby boomers that entered the workforce in those years. The civilian labor force grew by about 10.8 million (which represented about an 11% increase) during Carter's Administration; the employment level grew by 10.0 million. That is phenomenal growth for just four years!

So, yeah, Carter gets demonized with very little substantiation on any front.

[Bitwit1234]

13. We still have recovered from Reagans, economic plans.