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A Project of The Annenberg Public Policy Center

Ted’s Twisted History

In Sen. Ted Cruz’s twisted vision of economic history, Ronald Reagan cured double-digit unemployment by cutting spending and reducing the federal debt, and Jimmy Carter was guilty of “out-of-control regulation.”

In the real world:

  • Total federal spending soared during Reagan’s deficit-plagued first term, and the national debt nearly doubled. His budget director later resigned and wrote a book criticizing Reagan’s failure to cut spending.
  • And Carter signed landmark bills freeing airline, railroad and trucking rates from federal regulation, easing regulation of natural gas prices and eliminating federal regulation of interest rates paid by banks to small savers.

These are only a few of the disconnects between economic reality and Cruz’s oversimplified, often inaccurate attempt to paint President Obama’s record as the “exact opposite” of Reagan’s. The freshman Texas Republican said during his March 16 keynote address at the Conservative Political Action Conference (starting about 22 minutes and 20 seconds into the recording):

Cruz: [Obama is] one of only two presidents, post-World War II, to face double-digit unemployment. And for the last four years economic growth under President Barack Obama has averaged 0.8 percent, less than 1 percent. There is only one other period post-1950 where we have had four years of less than 1 percent economic growth. That’s from 1979 to 1983. Coming out of Jimmy Carter following the same policies of out of control spending, out of control debt, out of control taxes, out of control regulation. That’s the only other period. President Reagan came in facing that stagnation and he implemented policies the exact opposite of Barack Obama’s.

In fact, it’s interesting: 79 to 83, economic growth was 0.8 percent. Today, it’s 0.8 percent for the exact same period because Obama didn’t learn the lesson from Reagan that if you want to turn the economy around you cut taxes, you reduce spending, you reduce the debt, and you don’t send regulators like locusts to destroy small businesses and jobs.

It’s true that the unemployment rate peaked higher and dropped faster during Reagan’s first term than it did during Obama’s. Under Reagan, it hit a high of 10.8 percent and had come down to 7.3 percent by the time he started his second term. Under Obama, the rate hit 10 percent and only drifted down to 7.9 percent as of his second inauguration.

It’s also true that economic growth was better during Reagan’s first term than it has been under Obama. In the last year of Reagan’s first term (calendar year 1984) the nation’s gross domestic product (adjusted for inflation) was 13 percent higher than it was four years earlier. In 2012, GDP was only 3 percent above where it had been the year before Obama first took office.

But Cruz is simply wrong to claim that the “lesson from Reagan” was that “you reduce spending, you reduce the debt” to turn the economy around. Reagan increased both. Historical budget figures from the Congressional Budget Office show that clearly.

  • Federal outlays (total spending) rose by 40 percent under Reagan’s first four budgets (fiscal year 1985 vs. Carter’s last budget for fiscal 1981). That was two-and-a-half times faster than the rate of inflation, which rose 16 percent during the same period, as measured by the Consumer Price Index.
  • And far from cutting debt, Reagan borrowed more heavily than previous presidents. In Reagan’s first term, debt owed to the public increased by nearly 91 percent by the end of fiscal year 1985, compared with what it had been at the end of Carter’s fiscal 1981.

Furthermore, as mentioned, Cruz errs badly when he attempts to blame Carter for “out-of-control regulation.” As mentioned, Carter signed numerous deregulation measures. One free-market-oriented commentator chose the occasion of Reagan’s 100th birthday to praise Carter, not Reagan, as “deregulation’s hero.” Thomas A. Firey, senior fellow as the Maryland Public Policy Institute, wrote: “It was the peanut farmer from Georgia who pushed the United States toward a market economy, not the one-time actor from California.”

On spending, ironically, Obama’s record has indeed been the “exact opposite” of Reagan’s in one little-noticed respect. Under Obama, federal spending is actually falling, something that never happened under Reagan. Total federal outlays went down 1.7 percent last fiscal year. And in the current fiscal year, which ends Sept. 30, the CBO projects a scant rise of 0.4 percent — much less than the projected rate of inflation (see Summary Table 2).

To be sure, despite the recent decline in spending, Obama’s deficits are large compared with Reagan’s, in relation to the size of the economy. Reagan’s biggest deficit was 6 percent of GDP. All of Obama’s have been larger than that, and the smallest was 7 percent in fiscal 2012. The CBO projects a deficit of 5.3 percent of GDP for the current fiscal year, but that would still be higher than in all but one of Reagan’s fiscal years.

(One reason for the larger deficits: Reagan — for all his tax-cutting — still enjoyed larger revenues than Obama, relative to the size of the economy. Under Reagan, revenues were 18.4 percent of GDP during his final fiscal year. Obama inherited revenues of only 15.1 percent in fiscal year 2009. They hit 15.8 percent last fiscal year. After his “fiscal cliff” tax deal, raising rates on upper-income households, the CBO projects they will rise to 16.9 percent in the current fiscal year — still lower than in any of Reagan’s eight years.)

Meanwhile, the total debt owed to the public continues to pile up, causing alarm. Measured as a percentage of GDP, it hit 72.5 percent in the last fiscal year and the CBO projects it will rise to over 76 percent this year. During Reagan’s time, it never exceeded 41 percent (in fiscal 1988). So it’s no wonder that leading economists are urging all sides to do more to cut the deficit through “a combination of spending reductions and tax and entitlement reforms.”

If Cruz and his fans want to argue that the current budget mess is entirely Obama’s fault, they are entitled to that opinion. But claiming that Reagan cut spending and debt or that Carter was an “out-of-control” regulator is simply the exact opposite of historical fact.

— Brooks Jackson