Krugman on Reagan

by Don Boudreaux on June 11, 2004

in The Economy

Few pundits are as skilled and as vigilant as is Paul Krugman at exposing misleading uses of statistics. Perhaps this is why he himself is so effective at using statistics to mislead.

Consider this statement of his in today’s New York Times: “Despite the rapid growth of 1983 and 1984, over the whole of the Reagan administration the unemployment rate averaged a very uncomfortable 7.5 percent.”

The impression this statement gives is that, despite “rapid growth” in 1983 and 1984, unemployment rates were little affected – that these rates remained uncomfortably high throughout Reagan’s presidency.

Krugman gets away with this claim by lumping the high average annual unemployment rates of the early, pre-growth years of Reagan’s presidency (1981-82) with the rates of those years after the growth began (1983-89) – generating an average annual unemployment rate indeed of 7.5%.

But look at the unemployment rates for each year from 1981 through 1988:

1981: 7.6%
1982: 9.7%
1983: 9.6%
1984: 7.5%
1985: 7.2%
1986: 7.0%
1987: 6.2%
1988: 5.5%

Several facts are worth noting. Here are some:

1) when Reagan left the White House, the unemployment rate was a full two percentage points lower than 7.5%; (To be even more precise, the unemployment rate had fallen even further, to 5.4%, in January 1989, the month Reagan really left the White House.)

2) for every year from 1983 through 1988, the annual unemployment rate fell;

3) a good case can be made (contra Krugman) for including 1983 (along with 1981 and 1982) in the pre-growth years; if you examine monthly unemployment rates, you find that unemployment didn’t really start to fall until July 1983, when for the first time in ten months it fell below 10%;

4) the significant flattening of federal income-tax rates enacted in 1986 immediately preceded significant reductions in unemployment rates.

Addendum: you can find monthly unemployment data for the U.S. here.


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