As part of their campaign to deny that large hikes in the minimum wage or federal income tax rates will have any appreciable downsides, a popular move among progressive pundits lately has been to argue that the economic recovery under Obama has been better than under Ronald Reagan. In this post I will point out that no, that is completely bogus; by any sensible criterion, the U.S. economy in the 1980s was better than it is now.

Before I dive into the specifics, let me issue two major caveats: I am NOT a fan of Ronald Reagan, even if we just restrict ourselves to economic policy. I thought he gave some great speeches, but because everybody associated him with “supply-side tax cuts,” the fact that he allowed spending to explode during his tenure meant that progressives could forever laugh at “voodoo economics,” even though the huge deficits of the Reagan years had nothing to do with the Laffer Curve. As a second caveat, we should avoid falling into the trap of viewing the fate of the U.S. economy being up to whether a Republican or Democrat is in the White House. For one thing, the Fed has a lot to do with things, and for another, it is a myth that the Democrats are peaceful socialists while the Republicans are hawkish minarchists.

With those caveats in mind, let us analyze a recent Forbes article (by Adam Hartung) arguing that Obama has outperformed Reagan economically. The author’s first point is to say that using the stock market as the gauge, then Obama is the clear winner. Well even here, I note that from January 1981 (when he was inaugurated) through October 1986, the nominal S&P500 under Reagan rose about 80%, compared to Obama’s admittedly superior 110% or so from his inauguration in January 2009 through October 2014. However, most people would not say the the stock market index is a good barometer of the nation’s total economic health, and in any event, both the stock booms were fueled by easy money. Reagan would soon see the worst one-day crash in stock market history, and it would not surprise me if Obama breaks the record before he leaves office.

The Forbes author acknowledges that most people prefer jobs as a metric of economic health. The Forbes author (Hartung) outsources his analysis to Bob Deitrick, who presents a chart of official unemployment rates under the two presidents and then comments:

As this unemployment chart shows, President Obama’s job creation kept unemployment from peaking at as high a level as President Reagan, and promoted people into the workforce faster than President Reagan.

President Obama has achieved a 6.1% unemployment rate in his sixth year, fully one year faster than President Reagan did.  At this point in his presidency, President Reagan was still struggling with 7.1% unemployment, and he did not reach into the mid-low 6% range for another full year.

Now this is dubious for two reasons. First, even on its own terms, it is misleading to look at the unemployment rate “in his sixth year” because the bad recession under Reagan hit after he had taken office. In contrast, the so-called Great Recession was already in full swing when Obama was inaugurated. If you go look at the Forbes chart, you’ll see that if you start the clock from the height of the recession, then the recovery (i.e. the drop in the official unemployment rate) was much, much faster under Reagan than Obama.

Yet that’s not the main problem. No, the main problem with using the official unemployment rate as the metric is that people have been dropping out of the labor force under Obama. That reduces the official unemployment rate. To their credit, Hartung/Deitrick acknowledge this objection. But their attempt to answer it relies on a complete falsehood–whether intentional or accidental, I don’t know. But in any event, just look at this whopper they pull:

Deitrick: “The labor participation rate adds in jobless part time workers and those in marginal work situations with those seeking full time work.  This is not a “hidden” unemployment.  It is a measure tracked since 1900 and called ‘U6.’ today by the BLS.



As this chart shows,the difference between reported unemployment and all unemployment – including those on the fringe of the workforce – has remained pretty constant since 1994.

Now if you re-read that analysis a few times, you’ll realize it’s quite fishy. First of all, if U3 and U6 have been tracked since 1900, and if we’re trying to compare the records of Reagan vs. Obama, then why don’t they just show us the U6 numbers for Reagan vs. Obama? After all, that’s what they did with the U3 numbers, which (kinda sorta) showed a win for Obama. Yet instead of doing that, they show us U3 vs. U6 since 1994. (The actual reason is that the BLS doesn’t provide U6 numbers before 1994.)

The second problem: Even on its own terms, the above argument is wrong. He says the gap between U3 and U6 “has remained pretty constant since 1994.” But no, it hasn’t. His own chart shows that the gap between the two roughly doubled from 2007 to 2010. (The gap was a bit more than one-and-a-half horizontal lines in 2007, and it was more than three in 2009.)

Looking at 1994 vs. 2014, the gap between U3 and U6 increased a full percentage point (just eyeballing the chart). Recall that earlier, the authors had given victory to Obama because the official unemployment rate right now is 6.1% versus Reagan’s comparable 7.1%. So, if we just used the increase in U6 that occurred from 1994 through 2014, then that makes Reagan and Obama tied on unemployment rates. Summing up: Contrary to the Forbes writer and his source, the chart above contrasting U3 and U6 does not at all shield Obama from complaints that people are dropping out of the labor force.

Job Creation: Reagan vs. Obama

Rather than arguing about unemployment rates, let’s look at straight-up job creation. To make sure we’re doing apples to apples, I’ll draw from the same data set of “Total Nonfarm Employment” maintained at the St. Louis Fed. The charts below show Reagan’s performance during the first 5 years and 8 months, versus Obama’s.




Eyeballing the charts, from Reagan’s inauguration in January 1981 through October 1986, total nonfarm employment rose about 10%. In contrast, under Obama from January 2009 through October 2014, it rose about 4.1%. So, Administration-to-Date, the percentage increase in jobs was more than double under Reagan than Obama. That’s kind of a big outperformance.

Real GDP Growth

We can also look at real GDP growth under the two presidents:



Note that I made the above chart year-over-year percentage increases in real GDP. We see that right-wingers aren’t nuts for fondly remembering the “Reagan recovery.” After the awful 1982 recession bottomed out, the economy roared back (as measured by the conventional metric of real GDP, of course). For the rest of Reagan’s time in the White House, yr/yr GDP growth never fell below 2.5%. And in the first quarter of 1984, it peaked at a whopping 8.5%.

In contrast, the recovery has been quite tepid under Obama, being lucky if it broke 2.5%. The highest yr/yr real GDP growth has been a measly 3.1% thus far, and that occurred on the heels of a much larger drop in real GDP (so you might have expected the bounce-back to be greater).

In conclusion, looking at actual job creation and real economic output, the recovery under Ronald Reagan blows that of Barack Obama out of the water. This doesn’t mean we should put too much faith in these official numbers, and it doesn’t mean the guy in the White House is solely responsible for the U.S. economy. But when people at Forbes are putting out absurd articles, we need to correct the historical record.


This article was originally published on October 16, 2014 at Mises Canada.
The original image used to make the cover is in public domain.