March 31, 2011

Reich Touts FDR’s Mid-1930s Depression-Era Growth, Ignores Reagan’s Record

Former Clinton Labor Secretary Robert Reich, in a column appearing at Business Insider, says that we’re heading in the direction of a “double-dip” — and though he doesn’t follow it with the word “recession,” it’s obvious he’s not talking about an ice-cream cone. It’s also obvious that he’s less than pleased with the media spin that things are really okay.

Along the way, Reich had to go back to the mid-1930s, the era of Frankline Delano Roosevelt’s ongoing economic depression (at least as far as employment was concerned), to exemplify what a supposedly good recovery from an economic trauma looks. He was clearly desperate to avoid saying anything nice about the more historically relevant and objectively more impressive recovery and subsequent prosperity that occurred under Ronald Reagan. This is also true of the establishment press.

The failure to compare the current recovery to the recovery from the last serious recession the U.S. encountered has become a nasty establishment press habit, for a drop-dead obvious reason: Despite the fact that his challenges were arguably greater — 13% inflation, 20%-plus prime interest rates, and high unemployment — Reagan’s tax-cut and regulatory relief-driven economy boomed. By contrast, Barack Obama’s stimulus-laden, gimmick-dominated, fossil fule-hostile, uncertainty-driven economy isn’t impressing anyone.

Here are several paragraphs from Reich’s Thursday morning column (“The Truth About The Economy: We’re Heading Back Toward A Double Dip”):

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

… The Reuters/University of Michigan survey shows a 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

… But isn’t the economy growing again – by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point we’d expect growth of 4 to 6 percent. In 1934, emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add to these data two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Houses are the biggest asset most Americans own, so as home prices drop most Americans feel even poorer.

Reich inexplicably fails to cite accurate mid-1930s growth figures, but the actual numbers seen here for 1934-1936 (10.9%, 8.9%, and 13.0%, respectively) still look pretty good. But c’mon: If we’re to believe the government’s data from the 1930s, the economy at the end of 1940 was 63% bigger than the economy at the end of 1933. I question how could that be if unemployment never got below 12%. But even if it’s accurate, it’s obvious that whatever growth occurred failed to reach an awful lot of people who wanted to work.

By contrast, once his policy prescriptions were finally in place, the post-1980s recession Reagan economy recovered exceptionally well and quickly, both in terms of GDP growth and employment. Here’s how the Reagan post-recession record compares to Obama’s in both metrics (through six quarters for GDP growth and 20 months for employment; click on the second graphic to enlarge and open in a separate window):

ReaganomicsVsObamanomicsThru6Qtrs032511 ReaganVsObamaAllJobsThru20mos

The post-recession economy under Reagan grew 9.9% (with compounding) in its first six quarters. Obama’s post-recession economy has grown 4.5%. Reagan’s economy created over 4.9 million jobs during its first 20 post-recession months. Believe it or not Obama’s economy went positive at a whopping 22,000 jobs just last month.

No wonder Reich didn’t want to make a comparison. It would imply the need for policy prescriptions he doesn’t like, virtually regardless of whether they will work. The same generally goes for the establishment press in their supposedly “objective” news reports.

Cross-posted at


1 Comment

  1. You have to remember that a) FDR was not above cooking the books b) GDP can be a very misleading statistic because it can be propped up artificially and the GDP figure can thus be phony and c) not all growth in GDP is the same, the GDP increase under Reagan was built on much healthier foundations than FDR’s and Obama’s “growth”.

    Comment by zf — March 31, 2011 @ 8:09 pm

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