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Anybody Remember the Reagan Recession of 1981??

Updated on April 9, 2018
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My Esoteric spent 20+ years as a DoD Cost and Economic Analyst as well as a program manager of the Air Force Total Cost of Ownership MIS.

The Reagan Unemployment Shorter But Was Worse!!

AN ARTICLE IN USA TODAY ABOUT THE UNEMPLOYMENT RATE hitting a record caught my attention today; rather the accompanying chart did. The article was pointing out the unemployment caused by the Great Recession of 2007 - 2009 is entering its 19th month of being over 9%. This is breaks the 18-month record of the Reagan recession of 1981 - 1982.

Surprisingly, the article did not to mention that the Reagan unemployment period was made even worse by the fact that for 10 of those 18 months, unemployment remained over 10%!! In the Bush recession, unemployment exceeded 10% for only one month. This makes the implication of the article very misleading to me.

It also tells me that once again the Democrats are babes-in-the-woods (with my friends, I am a little more crude) when it comes to the propaganda war with the Republicans (and nothing has changed in the intervening four years). Here is a ready made sound bite to hit the Republicans with that is being wasted. :-(.

The chart also had some other interesting information. Following the 1991 Bush 41 and 1993 Clinton tax hikes, unemployment decreased from a high of 8% at the beginning of 1992, shortly before the 1991 taxes started coming into the Treasury, to a low of 3.9% or 4% in 2001. They were below 5% from 1997 to the beginning of 2001.

Enter Bush 43 and his tax cut in 2001. By 2003, unemployment was up to 6.5% when it finally began to decrease again hitting a low of 4.7% in the middle of 2007 after crossing the 5% line in late 2005. By the end of 2007, the rate was above 5% again and didn't stop until it hit 10.1% shortly after Obama took office in 2009.

Once Obama's policies took hold, jobs started being created again and the rate dropped to the current 9.6%. Because growth has been and anemic 2% or so, even though jobs are definitely being created, they are only being created at about the same rate as people are entering or re-entering the job market.

Let History Repeat Itself!

 In another hub on tax cuts, I show that when:

  1. The deficit is burgeoning, as it is today, and
  2. The stock market has stalled it's upward momentum, as it has today, and
  3. The economy has lackluster growth, as it has today, then
  4. A tax increase on the wealthiest Americans DOES NOT curtail growth.  Instead,
  5. It promoted growth, as it did in 1992 and 1994 and
  6. It, in conjunction with controlled spending, reduced the deficit, as it did by 2001

Son-of-a-gun, despite all of the Right-wing Conservative diatribes to the contrary, the facts, the history, is against them and says the Democratic approach has a better chance of success!

Two Great Comments

BELOW are two wonderful comments filled with reason and facts that rebut what I offered above to which I do have some responses. I need some time to pull some numbers together but wanted to get their comments into this hub. (To American Romance - thanks for your comment as well. I am responding with a hub (it is a rather long response) to another by Kevin to my hub on Tax Cuts, I think you will find it interesting as it addresses your point. I will come back and include the link when I am done.)


Here is what I remember during that time. The inflation rate in 1980 was near 15%, the prime interest rate was over 20%. Owning a home was not in my vocabulary, due to the high interest rates. Reagan was able to generate enthusiasm, along with his cutting the tax rates; he was able to spur confidence, which stimulated growth. In 1982, it took off generating the largest peacetime economic boom in the history of this country that created nearly 35 million jobs.

I went to work in the construction business, and it went crazy. Inflation rates began to drop rapidly, by 1986, I was able to buy a home at near 7%, which was great at that time. Inflation rate was down below 2%.

What bothers me is, Obama is doing exactly the opposite what Reagan did. Sure it took about two years for Reagan’s policies to take effect, in November of 82, the economy took off. Two years later with Obama, he still wants to raise taxes, and today, the unemployment rose again to 9.8%. Reagan cut spending, Obama has increase spending nearly 2 trillion dollars since he took over.

So the way I see it, the Reagan recession of 81, didn’t last too long due to his policies, Obama’s recession is not going away, and if he continues with his policies, who knows how long we are in for this?

RESPONSE - I think I will go point by point for you provided much to talk about.

"Obama still wants to raise taxes" - As a sound bite, this is clearly an incorrect statement for Obama and all of the Democrats have stated just the opposite. They want to make permanent the tax cut on all Americans, period. (well, they have never said it quite that way, but they should play the same game the Republicans do. In doing so, they would be more honest in their dishonesty.) Why you are obviously asking. Because I am playing the same semantic game you just did, by not revealing everything.

  • In this case, the truthful part of my statement is that the first $249,999 of ALL American's incomes will be taxes as it currently is under the Bush tax cut. That simply is not changing regardless of how much money you make.

  • The unstated, and therefore false part (lie if you will), is that each dollar of income over $249,999 (for a family) will be taxed at a 3.5% higher rate. I am being overly simplistic here but the concept is correct and numbers will be proportionately larger but if you earn $1 more or a total of $250,000 then your new tax bill is going to be whatever it was last year for $250,000 plus 3.5 cents! THAT IS IT. That is the marginal tax increase on $1 of income at the higher rate. I hope I made a point there but let's look at something a little more realistic and pick on a family that earns $300,000. Their extra tax bill might be around $1,750, one house payment on their $750,000 house. Please tell me how that is going to cause them to fire three of their employees.

"Unemployment rose to 9.8%"- Actually, I am going to stick my neck out and say this is good news; I will tell you why in a minute, one way or another ... now I am going to go look up my facts. ... ... ... (First of all, let me say, and you may already know this, but the way that the Bureau of Labor Statistics measures unemployment (where the 9.8% came from) is rather funky. I explain more in my hub on it, but let me say it has several moving parts that are not the same from month to month, sort of like 3-card Monte.)

OK, what did I find? A mixed bag and disappointment. My intuition as to why the rate popped up to 9.8% didn't pan out. I figured that because the job market had been improving nicely in September and October, more of the uncounted "not looking for work" jumped back into the "looking for work" column which temporarily inflates the unemployment rate; didn't happen. But here is what really did happen and it does make you, or at least me, scratch my head about the 9.8%

  • The 9.8% unemployment rate that came out on Friday and the job report that came out on Thursday come from two different surveys (these are surveys and estimates, not actual numbers, by the way)

  • The .2% up-tick resulted in an estimated increase in "new" workers coming of age and entering the workforce in November of 185,000 people combined with a decrease of 173,000 people in the estimated number of employed and an increase of 84,000 people who stopped looking for work. That results in an increase of 267,000 people unemployed over October. The net of all of that is there was an increase of 103,000 people working or looking for work in November.

  • Before everybody goes screaming to the hills that we have gone back to the Bush days of huge job losses (I count the first 5 months of Obama's term as part of Bush's legacy), let me say it isn't what it seems, although I am also a bit confused when you look at the next set of numbers. But, I can say this. Most of the scary numbers are a result of new people entering the job market and not being able to find jobs but are still looking. That drives the number unemployed up beyond those who simply lost their job. What I don't quite understand is why the number employed came down so much in the face of Thursdays results which showed a gain in employment.

  • The jobs report, paints a much rosier picture than the unemployment report but is nevertheless disappointing itself because it wasn't as big as economists were expecting. The three bottom line figures though are these: 1) the October private sector job growth of 50,000 jobs was increased by another 38,000 for a total of 88,000 new jobs, 2) there was 39,000 private sector job growth in November, far short of expectations, and 3) 11,000 job loss in the government sector.

  • In two months then, a total of 148,000 private sector jobs have been added to the job market. Since January 2010, 1,100,000 private sector jobs have been created.

  • (This gives me the opportunity to put an example to my view on the media - Fox "News" would give 90% (and 100% of their opinion) of their coverage to the juicy 9.8% unemployment number and an "honorable 10% mention" to the less sexy jobs improvement numbers. Reverse that if you are talking about MSNBC "News". CNN, ABC, NBC, CBS news would split the coverage, oh, I don't know, 60/40 toward the more sexy 9.8% number; sex sells unfortunately.)

  • As I pointed out in another hub, Bush and company set the stage and then executed a program that wound up costing over 6 million Americans their jobs in a 24 month period from January 2008 until December 2009. In that hub, I asked the question, and ask it again ... " ... How is it possible that intelligent people can believe that the four million people who are still without jobs, because of the policies of the CWoCs who want your vote to put them back into power, could be put back to work in less time than it took them to lose their jobs in the first place? I submit that that is impossible!!"

"Obama has increase spending nearly 2 trillion dollars since he took over": You betcha'. What else could he have done to save the country from revisiting 1929 all over again? You think 9.8% unemployment was bad. Those that didn't want him to spend a dime, were risking 30% unemployment. As it is, the psychological impact of that was enough to stop the hemorrhaging of jobs at a 700,000 per month clip, shoring up the free-falling stock market, and preventing a slew of states from filing bankruptcy (or worse, raising taxes) before it started showing real results around November 2009. (In my state, Florida, our public school system was in a state of collapse before the stimulus money came in. Our Republican Congress was just going to let it continue to happen and were unhappy when Gov. Crist supported the stimulus)


  • To borrow a phrase from Obama, It was Carter's fault. Look at what happened before Reagan. The US was in big hurt.

You need to open up your examination a little and get the total picture. CMerritt is spot here.

Increase the tax on the wealthy and your business leave because they can find lower taxes else where.

There are two things why business are leaving the US.

1. China has a bigger bang for the buck, with a large growth potential. Everyone is sticking their capital money into China...not the US.

2. As taxes increases, the money left to invest in the US drops, and business leave.

You want to totally destroy the US, raise the taxes, and business will be closing down and mass unemployment will result.

You reduce deficit by lowering spending.

The Clinton years were good because Reagan and Bush had set it up good. The US had not had growth for a couple of decades and was ripe for development. It took off after the Reagan tax cuts. But now we are on the other side of the curve, like Europe had been for several years, China is on the curve we were on in the 80's, and they have a lot more potential. And they are using capitalism to do their work.

Keep on hubbing!

© 2010 Scott Belford


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