Is Obama’s Economy Really Better Than Reagan’s? A Closer Look

In an article published by Forbes this past Friday, business news contributer Adam Hartung made a pretty bold claim.

Hartung said that President Obama has outperformed former President Ronald Reagan (who is widely considered by conservatives as the best economic president ever), “on jobs, growth and investing”.

To support his jobs claim, he used this graph, which compares the unemployment rate in the first 67 months of Obama’s and Reagan’s respective presidencies:

Click to enlarge

Click to enlarge

Both Reagan and Obama inherited difficult economic situations. Reagan had to deal with the oil-induced recession of the 1980s, while Obama had to deal with the The Great Recession that started with the crash of the U.S. housing market in 2008.

Hartung used the graph above to argue that Obama has had, the best private sector jobs creation performance in American history”.

But, as many conservatives often point out, the unemployment rate we use most often (the U3) doesn’t count “discouraged workers” (people who have stopped looking for work altogether) as part of the workforce. The U6 rate includes everyone of working age, even those people who have stopped looking for employment.

In his research for the piece, Hurting reached out to Bob Deitrick, CEO of Polaris Financial Partners, quoting him heavily in the article.

When addressing the issue of the real (U6) unemployment, Hartung quoted Deitrick:

“…the difference between reported unemployment and all unemployment – including those on the fringe of the workforce – has remained pretty constant since 1994.”

Click to enlarge

Deitrick basically blamed the workforce issue on the changing demographics in America:

“Now that ‘Boomers’ are retiring we are seeing the percentage of those seeking employment decline. This has nothing to do with job availability, and everything to do with a highly predictable aging demographic.”

The “baby-boomer” generation is anyone born between 1946 and 1964. Most of the baby-boomers began hitting adulthood in the 70s, adding a significant number of workers to the available labor force during Reagan’s presidency from 1981-1989.

Deitrick cited the graph of labor participation below as evidence for his claim. The labor participation rate is the percentage of people of working age (16-64) that are employed or are looking for employment.

Click to enlarge. Source: Bureau of Labor Statistics

Labor participation rate in the United States. Click to enlarge. Source: Bureau of Labor Statistics

However, the graph that Hartung and Deitrick chose not to mention is the graph of the employment to population ratio, which compares total employment to the total number of people of working age (16-64).

Since anyone over 64 wouldn’t be included in this statistic, this graph accounts somewhat for the aging baby-boomer population that Dietrick blamed for the workforce issue:

The first thing to point out is that the scale on the y-axis is truncated- ie. it only shows percentages between 57% and 65%.

So even though the peaks and valleys on the graph look drastic, the difference between Reagan’s high point and Obama’s average is less than 5%.

That being said, the graph does show that Reagan did a better job of bringing discouraged workers back into the labor force than Obama has.

Reagan discussing taxes in a televised public address in July 1981 (Courtesy of the Ronald Reagan Presidential Library, National Archives and Records Administration)

When it comes to the stock market, Hartung’s claims were a little more accurate.

If you had invested a dollar at the beginning of Reagan’s presidency, it would have been worth $1.90 after his first 67 months (190% yield on investment).

A dollar invested on the first day of Obama’s presidency would have been worth $2.20 after his first 67 months (220% yield on investment):

However, when it comes to his claim about overall growth, the numbers contradict Hartung’s article once again.

Based on statistics from the World Bank, Reagan did considerably better in his first 67 months than Obama when it comes to annual GDP growth.

In his first five years as President, Obama has had an average GDP growth of 1.24% annually. Reagan’s first five years saw an average growth rate of 3.36%.

But many people argue that the economy Obama inherited was worse than the one Reagan inherited. Indeed, the 2008 recession was a bit more drastic than the recession that Reagan had to deal with.

This is due in large part to the fact that the 2008 recession was a global recession, with many of the U.S.’s biggest trading partners also suffering the consequences of the sub-prime mortgage crisis that destroyed the American housing market.

So, to account for these factors, I decided to give both presidents a mulligan for their first year by omitting that year’s growth rate from their averages and only comparing years 2-5.

Still, Reagan is the clear winner, with an average annual GDP growth of 3.575% compared to 2.25% for Obama.

But now that we’ve crunched those numbers, I think it’s necessary to point out how ridiculous it is to compare Reagan and Obama’s presidencies in the first place.

The first and most important factor that makes this comparison ridiculous is the drastically changing jobs environment- specifically, the disappearance of a vast majority of the U.S. manufacturing sector.

To put it more simply, about half of the manufacturing jobs that were available to unskilled workers (ie. those without a college degree) when Reagan became president had disappeared by the time Obama took office, most of them outsourced or replaced by machines and computers.

This decline in manufacturing has led to an increase in the number of people attending college to try and get better jobs.

The percentage of Americans with a college degree in 1975 was only 21.9%. In 2012 that number was 33.5%, more than a 50% increase in less than four decades.

But unfortunately, the small increase we’ve seen in the number of white collar jobs available has not been able to make up for the vast number of blue collar jobs we’ve been losing.

On top of that, the price of those college degrees has been rising exponentially, with tuition and fees costing more than 10 times what it did in 1978:

So now, we have a generation of young adults saddled with huge amounts of debt, carrying degrees that are significantly less valuable than they were in the 70s and 80s (if only because there are a lot more people with degrees today than there were back then).

And finally, comparing Reagan and Obama without examining what was happening to the economy during the time in between their presidencies leaves out the nearly 30 million manufacturing jobs that were outsourced during Clinton and Bush Jr.’s presidencies.

With the United States manufacturing sector now having to compete on a global scale, it’s no wonder that blue collar jobs are quickly migrating to China and India, where unskilled labor is significantly cheaper than here in the U.S. Those are jobs that aren’t coming back any time soon.

The American economy is an extremely complex system. While we can definitely look at a number of different indicators to try and understand certain parts of the economy, any analysis that attempts to explain the entire economy with only a few metrics is usually misleading.

Directly comparing our economy under Obama to the Reagan economy of the 1980s implies that the socioeconomic environment today is the same as it was 30 years ago, which is obviously a ridiculous supposition to make.

So instead of making comparisons to the past, we should all be trying to get a better understanding of our current economy. Maybe then we’ll be a bit more willing to compromise with one another about where to go from here.

If you want to read the original article from Forbes, you can check it out here.


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