The Reagan revolution
There are a lot of graphs of historical data out there in the world, but I've noticed lately that a remarkable number of them take a sharp turn around 1981, the year Ronald Reagan became President.
Here's the first one I recall noticing:
(I presume this is all inflation-adjusted.) This appeared in Paul Krugman's blog of Jan. 14, 2012, cribbed in turn from Lane Kenworthy's of Sept. 3, 2008. Ronald Reagan used to say "A rising tide raises all boats", and until he took office, that was actually true. Since 1981, the tide has continued to rise, but it hasn't been doing much for the average rowboat. From 1981 to 2008, the economy grew by over 60%, while the median family saw only a 20% income gain.
Where did the rest of those economic gains go?
from Paul Krugman's blog of May 28, 2013, showing the correlation between the drop in top marginal personal income tax rates and the growth in the share of income going to the top 0.1%.
Note that Reagan signed two tax cuts: from 70% to 50% in 1981, coinciding with slowly growing inequality, and from 50% to 28% in 1986, coinciding with a sharp spike in income inequality.
One could even interpret this graph to suggest that top marginal tax rates of 90% are consistent with decreasing inequality, 70% with steady inequality, 50% with slowly growing inequality, and 30-40% with rapidly growing inequality. Interestingly, economic research suggests that the revenue-maximizing top marginal tax rate for the U.S. is in the 65-70% range (i.e. any higher than that, and its negative effect on economic growth would outweigh its direct positive effect on tax revenues).
from Paul Krugman's blog of Mar. 31, 2013. Federal debt, relative to GDP, was steadily paid down from the end of World War II to about 1975, bobbled around for a few years, and in 1981 started heading up.
Another way to look at the same trend, from my own Web page on Federal budget deficits:
The y axis, on a logarithmic scale, is the inflation-adjusted national debt. The message here is that the "real" national debt was remarkably stable for 35 years from the end of World War II to 1981, varying up and down by only about 20% in that whole period. In 1981, it started growing steadily (dipping briefly in 1999-2000), growing by a factor of 6 in 33 years.
Of course, this could be coincidence. But people on the Right and Left alike agree that Ronald Reagan and his "movement" were unusually influential, a turning point in American politics. So can we attribute to Ronald Reagan all of the following?
- the accumulation of large amounts of the country's wealth in fewer and fewer hands;
- the end of "a rising tide lifts all boats", and more generally of the middle-class expectation that life will get better; and
- the rapid growth of the national debt