The Economics of Growth

Member Group : Reflections

It took some time in the second presidential debate to get to economics, given the focus on Donald Trump’s self-described "locker room talk," Hillary Clinton’s alleged enabling of Bill Clinton’s monkeyshines, Vladimir Putin’s purported hacking and Trump’s threat to put Hillary behind bars.

Trump did manage to squeeze in a brief comment about the U.S. economy’s anemic growth. "We have the slowest growth since 1929," he said. This fleeting remark was met by an attempted fast switch in topics, with moderator Martha Raddatz asserting that "We’re moving to an audience question."

With regard to U.S. economic growth, a report last October in U.S. News & World Report by economics reporter Andrew Soergel ("Which Presidents Have Been Best for the Economy") ranked the average GDP growth per quarter from 1953 through 2015 during the presidencies of the 11 post-World War II presidents — Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II and Obama.

The lowest growth rate, 1.78 percent, measured by the average GDP growth per quarter in office, occurred during Obama’s presidency, January 2009 through October 2015, a period of multiple tax hikes and pervasive regulatory expansion.

In contrast, a meaningfully higher average quarterly growth rate, 3.64 percent, that occurred during Reagan’s presidency was propelled by pro-growth tax cuts and deregulation.

The dissimilarity in economic policies and growth outcomes between the Reagan and Obama administrations is demonstrated by the disparities in GDP expansion during the first 25 quarters of their presidencies — 34 percent during Reagan versus 14 percent during Obama.

Similar to Reagan’s approach for economic revitalization, Kennedy’s pro-growth initiatives consisted of tax cuts for businesses and lower marginal tax rates across the board on personal income — tax reductions aimed at increasing incentives for work, saving and investment.

Kennedy’s business tax cuts became law in 1962 and the tax decreases on personal income were enacted in 1964, a few months after his assassination.

The changes in economic behavior that anticipated and accompanied these tax cuts were among the most rejuvenating and long-lasting in the post-World War II period.

"The eight-year expansion from 1961 to 1969 saw growth of 48 percent, a third more in an eight-year period than in the 16 years ending in 1960," reports Forbes writer Brian Domitrovic. "Unemployment was stuck around 6 percent in the 1950s and then settled below 4 percent in the 1960s. Thirteen million jobs were created in the 1960s, 7 million in the 1950s."

Federal revenues also increased, under lower tax rates, rising 55 percent in inflation-adjusted terms in the seven years after 1961.

Bottom line: The enactment of Kennedy’s pro-growth policies resulted in Kennedy and subsequently Johnson running away with the two highest average GDP growth rates per quarter among the 11 post-World War II presidents – 5.5 percent during Kennedy’s term and 5.07 percent during Johnson’s administration.

Ralph R. Reiland is Associate Professor of Economics Emeritus at Robert Morris University in Pittsburgh. His email: [email protected].

Ralph R. Reiland
Phone: 412-527-2199; 412-884-4541
Email: [email protected]