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Reaganomics & Texas Model vs. Obamanomics
 
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My recent op-ed published in the Investor's Business Daily compared U.S. employment growth during the sluggish recovery under Obamanomics with the robust recovery under Reaganomics. 

President Obama's big-government fiscal policies promote uncertainty and crowding out of the private sector; whereas, President Reagan's limited-government policies promoted risk-taking and innovation-keys for economic growth and job creation.

These different policy prescriptions for a weak economy and labor market had substantially different results. To summarize these results, U.S. Senator Ted Cruz said it quite well, "Reaganomics means you start a business in your garage. Obamanomics means you move into your parent's garage."

To compare these lackluster employment data under President Obama's prescriptions of larger government intervention with President Reagan's prescriptions of limited government interference, I calculate the net jobs added during the current 54-month expansion (June 2009 to December 2013) with changes in the employment-population ratio during the 1980's 54-month expansion (November 1982 to May 1987).

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With approximately 10,000 baby boomers retiring daily and high employment volatility of those between the ages of 16 to 24-years-old, let's consider the 25 to 54-year-old group.

Historically, this age group faired quite well during past expansions. However, many of them have moved into their parent's garage during the current expansion, whereby there were 5.8 million fewer 24 to 54-year-olds employed in December 2013 than when the recession began in December 2007.

During the 54-month expansion, monthly net job decline for this employment group has been about (-11,000) per month for a total net jobs loss of about (-587,000).

This age group had a much different opportunity for employment during the 1982-87 expansion. The total employment increase was 12.5 million, or 231,000 net jobs added per month. Clearly, there were two different results based on the underlying economic fundamentals and the policies that interfered with market forces.

By using the calculation described above for this age group to consider the employment figures under the limited-government prescriptions by President Reagan, average monthly net job gains would be 128,000 for a total of 7 million new jobs.

Clearly, there is a stark contrast between the employment gains for 25 to 54-year-olds under the policy framework of President Obama (Obama Employment) and President Reagan (Adjusted Reagan Employment ('82-'87 Growth)) (see figure below).

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This age group would not only have 7.6 million more people employed under Reagan's prescriptions compared with the Obama's policies, but they would also have 1.8 million more people employed compared with before the recession. Employment growth at this rate would have closed the pre-recession employment gap by June 2012.

Another wildly different governing philosophy from the one by President Obama is right here in Texas. The Texas model of no income tax, smart regulations, and modest government spending has been a recipe for job creation success.

Let's imagine that U.S. total employment grew at the same rate as in Texas during the 54-month expansion. By calculating the monthly U.S. employment gains from the percentage changes in jobs added in Texas, we can compare the two (see figure below).

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These estimates show that the U.S. total employment would have reached its pre-recession peak in October 2011, something it had yet to do in December 2013. By December 2013, there would be 7 million more Americans employed.

Of course, it is not possible to have an exact counterfactual. There are economic, demographic, and labor market differences during different periods and regions that cannot be accounted for, so these calculations provide only an indication of what might happen during the most recent period.

However, there is a clear historical record of a prescription that brings people out of their parent's garage and back into creating businesses in their own garage: limited-government policies by President Reagan and the Texas model.

These wholly different outcomes not only improve the lives of millions, but it also benefits the neediest among us. Left on its own, the unhampered market is the best path to prosperity.

 

 

 

 

 

 

 

 

 

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