CAR: I agree with you about the importance of demographics in shaping economic outcomes. But I doubt the impact of the baby-boomers was as big as you suggest in boosting the economy during the Reagan years.
Reagan’s supply-side policies aimed to increase output by freeing up businesses and workers to produce more in a free market environment. In contrast, the Keynesian demand-side policies of the past ten years pump out monetary stimulus and government spending in hopes that the economy recovers. We now have great empirical evidence contrasting the two approaches. Reagan inherited a recession and inflation in some ways worse than Obama, with inflation peaking at about 13% in 1980, and unemployment peaking at 10.8% in November of 1982. Yes, that was two years after Reagan got elected, but supply-side policies were not fully in place yet, and Volcker’s harsh (and necessary) tight monetary policy was still wringing inflation out of the economy. But real GNP growth resumed as the economy bounced back like a coiled spring and unemployment steadily fell to 5.5% in 1988.
The demand-side policies of recent years have served to drive us deeper into debt and sapped our appetite to hire and expand production via the exact opposite of supply-side incentives. Businesses and entrepreneurs are afraid of the EPA, looming Obamacare costs, and Dodd-Frank compliance costs, among other job-killing laws. Of course they are moving jobs overseas! Worse yet, the new programs, handouts, and government agencies are entrenched now in our economy, and will be impossible to pare back, as demonstrated by the recent budget debate that achieved so little. The new recipients of the largesse, whether banks, car manufacturers, “green” companies, or those getting 99 weeks of unemployment will fight to keep the money coming.
The Reagan-Obama comparison above is imperfect in many ways, as nit-pickers will point out. But there are plenty of lessons we could learn from that era, and I suspect the coming months will give us a fuller debate about the contrast between supply-siders and Keynesian demand-siders. I
welcome it.
