Stephen Moore is a passionate human being who speaks from
sincere conviction, but he refuses at times to take all the available facts
into consideration before reaching a conclusion. He has done it again in the
article he wrote under the title: “Obama's $2 Trillion Deficit” and the
subtitle: “That's how much bigger the economy would be if we'd had a Reagan
recovery.” It was published on May 1, 2014 in National Review Online.
He explains the $2 trillion mentioned in the title this way:
“if the economy had grown as fast under Obama as it did under Reagan … [it]
would be more than $2 trillion larger today.” Later in the article, he backs
off a little from that position and clarifies what he meant to say as follows:
“I'm not saying that the economy would be … $2 trillion bigger if Obama had
gotten it right. But even if we had had an average recovery, the economy would
be $1.4 trillion larger today. These kinds of counterfactuals are impossible to
prove.”
But it would be a pretty fair bet; he goes on to say, if
over the first five years of Obama's presidency “we had done Reaganomics, not
Obamanomics.” He explains his view as to how the two theories of economics
work, highlighting the differences between them. He attributes good success to
Reagan and a lesser one to Obama, emphasizing that Reagan applied supply-side
economics while Obama relied on Keynesian approaches.
What Stephen Moore has ignored in all of this is the fact
that the full force of globalization made itself felt during the Obama
presidency, when it had only just started during the Reagan presidency. Moore only alludes to
what happened in this regard, not to factor this reality into the discussion
but to strengthen his argument for Reagan and against Obama. This is how he put
it: “I would say the wreckage that Reagan inherited from Nixon-Ford-Carter
might well have been worse: Obama didn't have to deal with 14 percent inflation
20 percent mortgage interest rates, an America that was rapidly deindustrializing...”
Had he taken these realities into consideration, he would
have avoided falling into the trap of reducing his contribution to the debate
down to the tiresome chicanery which flows from the supply-side versus
demand-side arguments. He would have asked the question: What happened during
that era which caused the American economy to perform so badly? Moore would have answered
the question, and then bumped into the next: Yes, the Reagan response brought a
strong recovery, but did it have such a long term negative effect that it
resulted in the crash of 2008; the one that Obama had to grapple with?
To answer the question as to what happened; he would have
said that America
was deindustrializing because globalization was starting. At the same time, the
price of commodities was rising because of two reasons. First, the Vietnam War
was making America
gobble up natural resources at unprecedented rates. Second the unhappiness of
the Arabs with America 's
foreign policy gave them the incentive to hike the price of energy.
Bumping into the question as to the merit of Reagan's
response, Moore would not have escaped the conclusion that to make up for the
loss of industrial production in the private sector, Reagan stimulated
America's industrial base by borrowing from local and foreign sources, and
spending the money on government purchases of military hardware. Horror of
horror, this would have sounded more Keynesian than supply-side to Stephen
Moore.
But was this Reagan Keynesian approach that led to the crash
of 2008, and the developments that followed? Most likely not because the
underlying causes that led to the difficulties of the Seventies have remained
the same throughout. They were then, and they continue to remain the fact that
the underdeveloped nations are industrializing and crowding the industries of
the advanced nations ... America
included.
Let's now look at some numbers. Moore mentions a study done by the
Congressional Joint Committee which I don't have, so I'll take as the basis of
my calculations the value $1.4 trillion dollars he has cited, and the value of
the current GDP which I estimate to be $16.6 trillion. Doing the math, it says
that over the past 5 years, the economy lost an average of 1.63 percent growth.
This comes to about $282 billion loss of production per year. It is a loss in
goods and services of which 11 percent is in manufacturing. That would be $31
billion a year.