Ronald Reagan Likely Helped Cause the Great Recession


The golden age inaugurated by Ronald Reagan is now being advocated as the answer to our current problems, yet there is some confusion as to what his legacy actually is. Ramesh Ponnuru, the senior editor at National Review, has summed it up in a recent New York Times editorial when he points out that Reagan idolatry tends to forget about his actual “successes.”

Indeed, his policies were so fruitful that all subsequent administrations basically adopted them in varying degrees. Ponnuru calls this period, the years 1985-2007, the “Reagan boom” or the “Great Moderation.”

Interestingly, the Age of Reagan conveniently ceases just prior to the Lesser Depression. Presumably the two have no relation and our current woes appeared out of a void. It would be useful then to dig a little deeper into the facts about the Age of Reagan and see if the Gipper really made America a better place.

The most contentious issue today, perhaps, is our growing national debt and the deficit. The deficit-hawk culture of Washington has been decrying the government’s addiction to debt as a destructive liberal pathology. But the growth in the United States debt begins with Reagan. Here is a graph that illustrates the history of U.S. debt as a percent of GDP over the past 50 years:


It is instructive to note that the recent rise in debt is expected since government expenditures have been necessary to buoy the American economy. No excuses for the Gipper. Although he, like his successors, felt inclined to spend a lot of money on nice things like military build-ups and a war of aggression in Nicaragua. Dick Cheney summarized Reaganomics nicely when he noted that “Reagan taught us, deficits don’t matter.” Why then are deficit hawks tearfully harking back to the era when our debt addiction began?

Let us consider another dimension of the “Reagan boom,” the wealth created by Reaganonomics through policies of de-regulation, anti-unionization and privatization. The result has been a growing class inequality in America that has been the defining feature of the “Great Moderation.” As the following graph illustrates, inequality, as measured by the Gini coefficient (the higher the number the higher the level of inequality), began its steady rise with Reagan:

And as U.S. census data shows, Reagan oversaw a radical redistribution of wealth from the bottom to the top. The share of total income for 80% of the population steadily declined, while the share for the top 20% increased and was spearheaded by the elite 5%. The result has been that the U.S. now ranks as the worst developed country for health and social problems:

What is more, one-third of U.S. deaths can now be related to this staggeringly high level of inequality. Indeed, if anything, the Golden Age of Reagan has only been golden for a fortunate minority at the expense of the many.

Since the evidence suggests that Reagan set in motion policies that have been extremely destructive to the U.S., why then are intellectuals and politicians calling for a return to the "Reagan boom?" The only reasonable answer can be that they are selling a bankrupt ideology that has no claim to reality. This ideology is disingenuous at best, since the facts, rather than supporting Ponnuru’s claim that Reagan overcame the “challenges” of his day, instead suggest that he created them.